Simon Jackman has the good oil on what Bob Brown and Steve Fielding are putting on the table as Senate deliberations on Kevin Rudd’s fiscal stimulus continue. Both are emphasising the unemployed and job creation (with Brown arguing for green measures as well). I suspect that this manoeuvring might factor more into what comes out of the Budget sausage machine. The government has clearly been shifting its rhetoric on the unemployed, and I would expect the minors to be told that people on benefits will benefit as a result of the Henry Review. So it may be that some commitments might be made for future measures in exchange for current support. That would still, however, give the minor party Senators a real chance to shape the response to the economic downturn.
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It may not so much be a case of what will the Senate do to the package as what would the package do to the Senate if Rudd decides to call their bluff with a double dissolution.
Cycle paths???? Concrete cycle paths!! (That’s what they are made of Bob) 1 tonne of CO2 per tonne of Concrete??? Is Bob Brown completely insane or what?
So much for the Greens; all Piss and Wind.
Huggy
So one is actually supposed to take Simon Jackman seriously?
Cycle paths make it easier to commute by bicycle, significantly reducing vehicular CO2 emissions. Would you like to try your feigned outrage again, Huggy?
I note that whoever Simon Jackman is, he seems to have missed the Greens also negotiating for all the new public & defence housing to be energy efficient, and for energy efficiency etc. measures to also be tagged to the new school building funds.
You can get the full context (as opposed to the cherry picking) here
@3 – Paul, why wouldn’t one take Jackman seriously? He’s a political scientist. He doesn’t have any egregious ideological bias as far as I can tell, and his blog’s worth following.
But how, Mark? The level of unemployment benefits, per se, does not fall within the Terms of Reference of the Review.
The best the unemployed could hope for is a flattening of the steep rate of withdrawal of benefit for those who earn some part-time income. This could fall within Term 7:
http://taxreview.treasury.gov.au/content/Content.aspx?doc=html/reference.htm
In addition to this, I expect the government to throw a fair bit of money at vocational training and at re-engineering the Job Network. All this is well worth doing.
But I don’t think the government intends to directly raise benefits at all. And if the unemployed don’t even get the $950 or $1400 that just about every other person in this country will get dropped from Rudd’s cash-laden helicopter — it would well and truly suck.
Paulus, in response to ACOSS Julia Gillard didn’t rule out an increase in benefits when she met with them early last week. But she made it clear that it would be considered in conjunction with the response to the Henry Review.
Jackman is right with regards to what should be on the Greens’ bargaining horizon: “the biggest investment in green tech and infrastructure”. With the recession, suddenly there’s a direct economic imperative for such investment. One that can re-skill the workforce in preparation for when our economy recovers, dovetail nicely into the CPRS, and position our nation as competitive in the longer term. It seems a no-brainer to me.
Great. How very Humphrey Appleby-ish of her.
Mark, you do realise that the Henry Review will only provide its report by December 2009?
And then given the likely complexity of the full set of recommendations, the government might easily need 3-6 months to digest them and prepare its response.
So we’re well into 2010 by then. And if the recession seems to be bottoming out and things are improving — why then there’s no need to stimulate the economy further by boosting unemployment benefits, is there?
I think the unemployed are about to get royally screwed — and I do hope many of them consider a protest vote at the next election.
Paulus, I might be wrong about this, but I thought the Henry review was going to provide a preliminary report on the welfare stuff this year. You might be right though! I would certainly support any increase to unemployment benefits as a matter of urgency.
I can’t find it on the very confusing Treasury website, Paulus, but there are a number of recent news stories I just googled up suggesting that there is an interim report on pensions from the Henry Review due this month. That’s what I think Gillard was suggesting might also trigger some action on unemployment benefits.
It’s <a href=”this report headed by Jeff Harmer, Dep Sec of Families etc. It’s part of the Henry Review And it is looking at the level of payments among other things. Due to be handed to the Minister on 28th February.
If anyone stops the public housing part of the stimulus package happening, I’ll be spewing. Been arguing for that sort of investment for VERY long time now.
Why can I never remember how to do that linking thing? It’s actually this report
Mark @ 6,
I thought his coverage was very thin.
Apart from the moral imperative, I don’t think Rudd will be able to get away with giving nothing to the unemployed or those many, many people likely to be unemployed in the near future.
mark, nothing against jackman per se, but he does fall into the all too common trap of australian pseph culture of being arrogantly and ignorantly dismissive of the greens. That article was a cheap shot. Jackman clearly knows nothing about what the greens are asking for in the public domain, as myriad points out, and of course far less about what is being discussed behind closed doors. All i would and can note here and now is that bob brown has made it plain that the greens do not claim to be in government and therefore will not attempt to radically rewrite this package. Rather the attempt will be made to improve it as much as possible within its constraints.
Ok, fair enough, folks – I guess I was linking to the post as a convenient way to draw attention to some of the articles to which he linked. As always, I’m not necessarily endorsing all of a link – unless I specifically do so, of course!
Altering unemployment benefits is more complicated than the pension because it affects incentives to work. Given that the Henry Review has the remit to examine the incentives in the tax system that discourage work (high EMTRs), they will have to consider unemployment benefits and other transfers at the same time if the Review is going to say something sensible.
Note, that if the government were to raise the aged pension, raise unemployment benefits, and have the taper on part-time income kick in more slowly, it would mean that other taxes will have to rise. Note also that the Henry Review has already made it pretty clear that it thinks that Australian taxes on capital are too high. In the currrent environment, any tax reform will have to be revenue neutral, so there will be hard choices for the Review and then the government to make.
I’d be amazed if the unemployed got much out of it, but I might be wrong. If there is action anywhere, I think it will be on EMTRs. As has been mentioned elsewhere, a couple of good ideas would be weakening the liquid asset test, and having a higher rate of payment for the first three months of an unemployment spell. There is a literature that suggests that by giving the unemployed enough time to search for a good match (but not too long) overall welfare is enhanced. I really like EITCs as well.
Well, I fully and enthusiastically endorse Bob Browns suggestion of installing many more cycle ways in cities. Relatively low cost, high labour content, ideal timing. Along with his other Green emphasis initiatives.
Actually, I’ve had second thoughts on this. I think the Greens should push for the $950 to be extended to all people claiming Newstart allowance. The replacement rate has fallen continuously since the early 1990s as it is indexed to the CPI and not average wages, or even the minimum wage. As a one off payment, it should have little impact on longer-run incentives to work. And besides, in the current economic climate, there will be little job creation for at least a year. The unemployed also won’t directly benefit from the recent cuts in interest rates because so few of them hold any debt. The liquid assets test should be immediately relaxed as well.
The Henry Review is some time off finalising its recommendations and it will take even longer for the government to respond with new legislation. In the meantime, households earning up to $160k are getting a $950 payment, while those on a fraction of that get nothing. From an equity perspective, it is pretty bad, especially from a Labor government.
The unemployed will have a higher MPC as well.
If the government wants to spend no more than the $42b, then it could limit the $950 to households collectively earning less than $100k.
I agree 100% with your last post, LO. If the government makes it clear that the $950 is a one-off due to the recession, it should have no impact on long-run incentives to work — particularly since low(ish) income workers are also getting the $950. The Henry Review can simply ignore such a one-off payment: it’s not a structural element.
All the stuff to do with EMTRs and training can be viewed as complementary to a one-off payment — it doesn’t have to be one or the other!
BTW, can I ask something I’ve been wondering for a while: why do you call yourself ‘Labor Outsider’?
Actually, LO, I think there is a lot of tosh and overseas studies about incentives to work for the unemployed that would be best packed off into the bin with the rest of the economically irrational thought. Much of it is about justifying cruel treatment of people who, through no fault of their own, have become the playthings of the economic genius.
Everybody knows that employers rely on a healthy buffer of willing serfs to pull in and out of the job as needed. Now on a daily basis as the swelling numbers of the casuals attest. See the glee of the stockmarket when some CEO hero plans a large cut through his human capital.
Further, any incentive to work by way of a unsustainable dole payment is small beer when compared to the systematic harassment by the Howard job search networks.
Nobody enjoys being on welfare but if people are treated well and not as guinea pigs / cash cows they will respond far better in the game of musical chairs that is our current employment system.
But yes, a few bucks thrown at the unemployed would be a great idea. Even if Steve Fielding supports it. We should be very wary, incidentally, about money he proposes to throw at charities if they are in fact a disguise for pouring funds into the christian bribery frontline.
Since we are in an era of lump sums to everyone without waiting to establish actual need – which is probably justifiable – why not give a hefty lump sum to workers laid off by their employers after more than 12 months’ service? 10K perhaps. One of the most frightening things about unemployment is the sudden inability to maintain existing commitments like credit card repayments. 10K might cushion the impact and help newly-unemployed adjust their budgets to life on Newstart.
I suspect a lot of workers are trying to save up a bit right now as a contingency fund for that very purpose. An assurance that they will get a decent severance payment from the government if they lose their jobs will make them more likely to maintain existing spending habits.
To limit the longevity of the payments, the legislation could provide that from 2011 it will be offset against any employer-provided severance payments in excess of 20K or something.
Years ago I was instrumental in setting up an employer-funded portable severance/redundancy fund for the construction industry. I’ve always thought it was a splendid initiative. Maybe when the economy turns around the government might consider its extension to other industries. There are unions involved however, so it would cause screams of outrage from employer associations and the conservatives … which might be no bad thing if it reveals yet again their profound anti-worker prejudices.
I agree with LO- it would be nice to see Fielding & the Greens get together, with weathervane Xenophon (does anyone have any idea what he wants?), to push for the $950 to be extended to the unemployed.
Everyone else’s benefits and taxes are also being reviewed by Henry, yet we all don’t have to wait – why should the unemployed?
I’m also an incentives to work skeptic, though some of the policy with regard to minimising the taper rate etc. that might arise from that paradigm has some justification for other good reasons. But I don’t think those that believe that $220 a week provides a disincentive to work have much acquaintance with being unemployed or with the unemployed.
Joe2 – are you really claiming that there is no relationship between welfare systems and incentives to work? If so, that would fly in the face of all the empirical evidence on the subject. Do you really think, that in normal economic times, if the level of unemployment benefits was raised to be equal to the minimum wage, with no limits on the time the benefits could be claimed, and no obligations on the unemployed to search for work or receive training that it wouldn’t affect the unemployment rate?
Of course it would.
The welfare system interacts with the labour market to influence labour supply decisions.
If you had read my post, you would have seen very clearly that I said that Australia’s low replacement rate, combined with all the obligations for the unemployed to undertake job search, means that Australia’s welfare system entails strong incentives TO WORK. Indeed, you could argue that things have gone too far – which is what I also argued.
But denying that there is any link between the welfare system and labour supply just makes you look silly.
My key point is that when the government makes its future decisions about whether to RAISE the level of benefits, or alter the taper rate, it will have to be integrated with the rest of the tax system so that EMTRs are not too high.
I am in furious agreement with those that have concerns that the system is too heavily tilted against the unemployed at the moment – but that does not mean that you can lift the level of benefits without regard for its effect on incentives.
“Everybody knows that employers rely on a healthy buffer of willing serfs to pull in and out of the job as needed”
Do you really believe the rubbish you write? Really? Do you know that a large proportion of employers in Australia actually work on pretty low margins? Do you think that labour demand curves aren’t downward sloping? Do you understand the regulatory burden on many small businesses in Australia?
When unemployment started rising in the 1970s, governments around the world started making benefit systems far more generous. In most cases they did so without introducing requirements that encouraged people to look for work. Combined with rapid taper off rates for other types of welfare assistance, many unemployed people understood that if they were to move into employment, financially they would be no better off. That reduced incentives to search for employment. Why do you think that unemployment rates in many European countries rose so much and remained that way for so long?
I do not blame the unemployed for finding themselves out of employment. I worked in a CES office for a number of years and I know the toll that being out of work can create. However, I also know, both from my own experience and the empirical evidence, that badly designed welfare and tax systems can actively work against encouraging people into work.
All I want is to see is those disincentives be reduced so that when unemployment inevitably rises during this downturn, it doesn’t stay unnecessarily high for too long. Many poor people in Australia still face EMTRs above 50% and even closer to 100%. That is shocking because it effectively means they have fewer incentives to better their position than those at the top of the income distribution.
You’re arguing with a straw person, here, I think, LO. I think that if you look at the survey evidence that exists, most people want to work for a range of reasons which are by no means restricted to additional income – personal satisfaction, etc. The costs of unemployment go far beyond a reduction in income. There are well established findings on increased incidence of mental and physical health problems, loss of meaningful activity and direction, social isolation, etc, etc. We live in a society heavily oriented towards work as a primary means of identity maintenance and there are very strong intrinsic and extrinsic social pressures to work which are relatively independent of remuneration or income.
The reality – as anyone knows who’s been on the dole in the past 10 years or so or who has worked with or knows people who’ve worked with those on the dole – is that there are very few “bludgers”. There are those who are really damaged for one reason or another – who often have almost zero chance of being “employable” but that’s another issue entirely.
The great problem with the way of thinking that you’re exemplifying is that it neither engages with research on employment and unemployment from disciplines other than economics nor really intersects with the lived experience of unemployment.
All the economic issues aside, a political choice has been made to give unemployed people minimal income support at maximum hurdles for continuing to receive it. In comparable societies where welfare systems are configured differently, there aren’t masses of “bludgers” lazing around on benefits. The unemployment rate in Sweden, for instance, is exactly the same as the unemployment rate in Australia:
http://www.indexmundi.com/sweden/unemployment_rate.html
And Joe2 – I apologise for being rude – but I just don’t understand it when people compare the plight of employees in Australia to serfs or in previous posts, slaves. It is fine if you think the system needs to be rebalanced toward the disadvantaged. I get that. But the rhetoric goes to far and becomes offenive to anyone that has ever employed people. There are some unreasonable and unjust employers in Australia, but they are the exception and not the rule. The profits of the private sector, and the taxes from the income of private employees make the largest contribution to tax revenue in Australia. It makes public investment in health and education, as well as redistribution possible. Governments have to strike a balance when regulating the economy between creating an environment that promotes investment, productivity growth and jobs, and one that protects the rights and living standards of the vulnerable. If you think the latter aren’t protected enough – then argue for change – but leave out the spurious comparisons okay?
Mark – read the literature – it is overwhelming. I never said that income was the only factor influencing labour supply decisions – but it is an important factor. Pointing to Sweden is irrelevent – you know as well as I do that unemployment is a multivariate phenomenon and there are a variety of reasons why the Swedish unemployment rate is also low. That does not alter the fact that in those countries where EMTRs are high for low-income workers, labour supply tends to be lower – all other things equal. Note also that the evidence suggests that badly designed welfare systems matter most after negative shocks – not positive shocks. I will wager a lot of money that unemployment increases more and stays high for longer in those countries where generous welfare systems are not balanced by tax system design that maximises incentives to work.
I wasn’t setting up a straw man – I was using it to illustrate the point that incentives matter, and that it is a matter of balance. There was a reason why Australia restructured its welfare system from the early 1980s ownwards, and the reforms since then have contributed to a declining unemployment rate.
IMHO, things went too far – but I also think that if we went back to the system that existed in late 1970s, it would be a social disaster.
Hi Paulus
I call myself Labor Outsider because I was once employed with the ALP, but left because I didn’t think there was a place for me within the movement anymore, and thought I could influence policy more effectively in other capacities.
Politics is a lonely place for those that are both economically and socially liberal, think that both markets and governments fail at different times, and think that too many government interventions line the pockets of producers rather than helping the disadvantaged.
Yes, but that seems to be a typical argumentative move of yours, LO. The only possible alternative set of arrangements is not “back to the 1970s”.
Indeed, and it’s a multivariate phenomenon in Australia as well and not just determined by the impact of incentives or disincentives on labour supply! In fact, I’d argue that if you want to look on the supply side, you need to look first at inequality in educational and skills outcomes, and I’d emphasise again that many people on unemployment benefits during the boom years are not and never were going to be “job ready”, if you want to employ the terminology the government were fond of.
Hopefully now they are ‘shovel ready’.
And Mark – I think I am more familiar with the literature inside and outside economics on labour markets than you realise. There is no robust empirical literature outside of economics on the linkages between welfare systems, tax systems and employment rates of different groups. I fully understand that unemployment is a complex social phenomenon and that the reasons for unemployment and the impact of unemployment on those that unfortunately experience it go well beyond the world of financial incentives. I have read all the survey evidence you refer to.
I emphasise incentives on this blog, because too often other commentators ignore them altogether, and behave as though anyone talking about incentives is some sort of heartless neoliberal.
I’m just trying to redress what I see as an imbalance.
Even you really want to understand the awful impact of welfare systems, labour market regulations, and tax systems that interact badly, look at the experiences of those European countries with unemployment rates above 7% still 16 years after the deep recession of the early 1990s. It is an outrage and the consequence of systems that favour insiders over outsiders. The current recession will have horrible social consequences in those countries.
And by the way, Sweden’s welfare system has plenty of carrots and sticks, and has earned income tax credits to boot. High benefits are timed, not able to be drawn on for life – and the system puts unemployed people into good labour market training programs. Sweden does not force employers to pay wages to the low-skilled above the market clearing level. They pay attention to incentives too.
And Mark, the evidence suggests that there were far more people that were job ready than many people ever believed. It wasn’t that long ago that certain people thought that the unemployment rate couldn’t fall below 6%! The HILDA data show that it was people with previously low employment rates that have most benefited from the economic expansion since the early 1990s. Employability is a fluid concept – if you try an and pay people too much, and keep their EMTRs too high – it makes a lot of people look unemployable who are actually anything but.
Also, unemployment is not a static phenomenon. Less than 2% of Australia’s LF is LTUE. And the LTUE rate has come down significantly since the early 1990s. Most of the unemployed have had some work experience during the past 12 months. Again, you concept of job-readiness is too static.
I don’t disagree at all that there are problems with the education and training systems – though I suspect we differ in our preferred ways of tackling those problems. But there will ALWAYS be poorly skilled, less experienced, or otherwise disadvantaged people that still need and want to work.
Besides, this wasn’t a discussion about the contribution that Australia’s education system makes to leaving too high a proportion of the population without adequate skills. I’m happy to discuss that any time.
Mark – I suspect that there are quite a lot of people commenting on this blog that think that the welfare system that prevailed prior to the 1980s reforms was superior.
I know that is not what you advocate, but I use it to illustrate that incentives and welfare design do matter.
One last thing. We could try and replicate Swedens welfare and tax arrangements. But it would be extremely expensive and would require raising taxation rates in Australia by over 10% of GDP. That would be at a time when we already need to lift taxation over the next 30 years to cope with the additional costs of aging. The European countries with the most generous welfare systems are facing enormous pressures on their public finances that will only get worse over the coming decades because they designed those systems not taking into account the demographic bulge and slowing of fertility. Most of those countries are looking for ways to reduce government spending to take the pressure off.
One reason Australia is in a better position to face the current global downturn is because our public finances are in such good shape. The highly targeted nature of our welfare sytem has helped us enormously.
Also – you know that Sweden has introduced educational vouchers don’t you?