Raising Welfare will Raise the Economy
The Australian economy has been precarious for at least a year. As Greg Jericho has shown, the private sector has been in recession for the last four quarters. This was before the bushfires –– whose costs are set to exceed $4.4 billion –– and before the Corona outbreak, which is on track to cost the Australian economy over $2 billion.
Recession isn’t inevitable, but best protecting against one requires prompt structural reforms. Fortunately, the problem is not a lack of policy options. Unfortunately, the problem is getting politicians, the only true dole bludgers, to do their job.
A prime example is the urgent need to increase the Newstart allowance (soon to be Jobseekers Allowance). An increase to Newstart would do the most to attack poverty and inequality in Australia. The payment has not been raised in real terms since 1994, and while it is tied to CPI inflation, this has risen slower than the true cost of living. Even Australia’s dismal wage growth has far surpassed it, leaving the poorest materially worse off, and Australian society far more unequal. This is itself a huge problem for the economy, with high levels of inequality shown by the IMF to inhibit growth.
More immediately, increasing welfare is the economic stimulus the economy needs. As Deloitte Access Economics has shown, increasing Newstart by only 75 dollars would boost the economy by $4 billion, and create 12, 000 jobs. While this would increase the budget deficit, it would do so only temporarily. Eventually the boost to GDP would lead to a boost in tax revenue. Just as Liberal politicians patronisingly retort, it’s about growing the pie, not just dividing it.
Importantly, this is a conservative estimate. Why? Because the poverty of the unemployed makes them the most likely to spend. They are also more likely to spend locally. So as the Deloitte report highlights, we can expect a welfare raise to boost the economy by far more than the calculated $4 billion. The benefits are even greater if Newstart is raised by Deloitte’s recommenced $100 [p. 16].
Raising newstart would lead to moderate increases in interest rates. However, this would be useful in a recession, because currently the Reserve Bank has little up its sleeves to lower further. Indeed, Reserve Bank Governor Philip Lowe has already called for the Government to increase stimulus spending. For the economist Adam Triggs, Newstart is especially suited for this, because it ‘automatically increases government spending when the economy is weak (through payments to the rising number of unemployed people) and reduces demand when the economy is strong’.
Equally beneficial, however, would be the boost to Australia’s historically unprecedented low wage growth. While some like to pit the interests of the unemployed against the employed, nothing could be further from the truth. Wage growth has been stagnant because of widespread precariousness in the labour market. Raising Newstart addresses this, better positioning workers to bargain for a raise, or to risk seeking a more suitable job.
Lastly, the cost of the increase can be easily subsidised. Simply closing the 1.3 billion dollar employment service provider industry, which has been shown to be corrupt and grossly ineffective, would pay for more than one third of the Newstart increase. With 12, 000 jobs on the line, its closure would be the most the industry ever did for the unemployed.
Alas, while the Australian economy teeters political elites waste their time debating a proposed extension to the cashless welfare card. The cards constrict the spending of the unemployed, which is bad for the economy. And by removing key cost saving measures, like online second-hand trading, the card inflames the problems it’s designed to fix. Why? Because drug and alcohol abuse are worsened by precariousness and poverty, and trials of the card have already shown increases in crime rates. Faced by the prospect of the first recession in three decades, the government insists on digging the economy into a deeper and deeper hole. As it turns out, if you punish the unemployed for existing in an economy that requires unemployment, you punish everyone else too.