Budget give and take for welfare's poorest

Well-crafted employment participation policies are a win for everyone. They lift some of the poorest people out of poverty, bolster the paid workforce, and in the long run save the Government money. With unemployment falling, this is a very good time to invest in policies to boost the job prospects of people on social security payments who have been sidelined in the jobs market up until now. This includes the long term unemployed people, Indigenous people, people with disabilities, sole parents, and people of mature age. The Australian Council of Social Services (ACOSS) put this to the Government late last year and were very pleased that Prime Minister Gillard made employment participation a priority for the budget in her Committee for Economic Development of Australia (CEDA) speech in February.

ACOSS was looking for three things in the federal budget: investment in the job capacity and skills of people excluded from the labour market; improved employment incentives; and to lift the incomes of those living in the deepest poverty.

The vast majority of people of working age on income support today are out of paid work because they have a disability, are caring for a young child or person with a disability, or are unemployed long-term. Around half of unemployed people have less than Year 12 qualifications. That’s why a strong up-front investment in skills training, employment services, and child-care and respite care is essential to support people ‘over the line’ into a secure job. Encouragement and support for employers to take on people they haven’t considered in the past – for example through wage subsidies - is also vital. Past policies, which have been strong on activity requirements but weak on capacity building, have failed for want of this kind of investment.

ACOSS welcomes the budget announcements of wage subsidies for people unemployed long term, training places for sole parents, and the local experiments that bring together Centrelink, employment services and health and community services to assist people with multiple hurdles to employment. The mentoring services for early school leavers to help them complete their education begins to address a serious gap in the Government’s ‘earn or learn’ policy.

But these intensive programs will reach only a small minority of those who need them. Most will still rely on ‘mainstream’ programs like Job Services Australia (JSA) whose funding has not been indexed for six years of inflation. The only substantial increase in JSA funding is $1,000 for providers to pay for 11 months of compulsory training and work preparation for their ‘very long term unemployed’ clients. At $100 a month, that looks to us like more of the ‘activity for activity’s sake’ that characterised employment assistance services in the past.

The budget eases the Newstart Allowance income test for sole parents and the Youth Allowance income test for unemployed young people. The easing of income test for sole parents was recommended by the Henry Tax Review. It will go a long way towards ensuring that part-time employment is financially worthwhile.

It is therefore regrettable that it is being paid for by cuts to income support payments. Starting in 2013, around 25,000 sole parents who received the Parenting Payment when the previous government introduced its Welfare to Work policy in 2006 will start to lose that payment and drop down to the lower Newstart Allowance when their youngest child reaches 12 years (instead of the 16 years that now applies). This is not about encouraging employment. These parents are already required to seek part-time jobs and many already have such jobs. It is a straight $56 a week cut in payments for families already in poverty, to $257 a week plus Family Tax Benefit. Similarly, young unemployed people aged 21 years will no longer be eligible for Newstart Allowance. They have to live on the $195 a week Youth Allowance, a payment cut of $42.

It’s time for governments to stop playing musical chairs with the benefits system and commit to structural reform of the system based on a single base rate of payment, as governments in the U.K. and New Zealand are now doing. That would completely remove the biggest disincentive for Disability Support Pensioners to engage in employment: the fear of dropping down to the Newstart Allowance and losing $128 a week in future income.

The Gillard Government has made a start in improving the job prospects of people on income support, but there is a long way to go. The budget’s best quality investments in the job capacity of people disadvantaged in the labour market should be greatly expanded, activity for its own sake should no longer be pursued, and the social security system should be based on the costs of the essentials of life rather than out-dated distinctions between those who ‘deserve’ or ‘don’t deserve’ a decent minimum income.

Above all, the 2011 budget had to be tough on waste, not welfare, in order to get back to surplus. ACOSS is pleased to see the measures on the health care rebate, the fringe benefit tax on company cars, the dependent spouse offset, and the removal of the low income tax offset for investment income of children.  These will go some way to help restore the budget to surplus without the need to scrimp on essential investment such as training for unemployed people. 

ACOSS continue to urge the government to be bolder in cutting wasteful and poorly targeted spending and tax breaks – such as golden handshakes and income sheltered in private trusts and companies.  ACOSS estimates that reform in these two areas alone (that mainly benefit people on higher incomes) would raise in the order of $2.5 billion per year. This money would not only help us achieve the ‘political imperative’ of getting back to surplus, but would provide the longer term revenue needed to fund vital programs and benefits for people on low incomes (like skills training and essential services).

The next opportunity is the tax forum planned for October. ACOSS look forward to a broad-ranging tax forum that will encompass getting tough on waste as proposed by the Henry Review. And unlike the secretive budget process, it will provide a chance of direct involvement by stakeholder groups, such as ACOSS, in the important process to help the community shape Australia's future with a fairer tax and social security system.