Opinion article

We need to stop punishing the unemployed

Raising the Newstart payment would ensure the scheme delivers on its purpose – providing an adequate safety net for people at a time of need, writes CEDA Chief Executive Melinda Cilento.

How can this be? Australia has just celebrated the milestone of 27 successive years of economic growth yet more than one in 10 of our fellow Australians are struggling to access the basics of life. 

One of the worst impacted groups in our society are recipients of the Newstart allowance, the major form of welfare payment made to the unemployed. 

This week ACOSS has launched its Raise the Rate campaign arguing for an increase in the rate of the Newstart allowance by $75 per week. CEDA supports this campaign. 

The current rate of Newstart is not only inadequate, it’s punitive.  

Raising the Newstart payment would ensure the scheme delivers on its purpose – providing an adequate safety net for people at a time of need, rather than being an entry point into ongoing disadvantage.

Pushing people further into poverty is not the solution for greater workforce participation. More than 70 per cent of those on Newstart are now out of work for more than 12 months and the low payment doesn’t ‘incentivise’ a greater work ethic, it just makes it harder and harder for people to get back on their feet. 

Earlier this year the Salvation Army reported an increase in the number of Newstart recipients seeking help from charities to cover their basic needs. Its Economic and Social Impact Survey for 2018 found the average Newstart recipient was left with $17 per day to live on once accommodation expenses were covered. 

That’s just $17 to buy food, clothing and transport. It makes it extremely difficult for a jobseeker to have access to a phone and the internet – essential tools for finding work – or even travel to a job interview. 

Punishing people when circumstances are against them is no way to boost a society. It forces people to live in indignity. And that has repercussions for the health and wellbeing of our society as a whole. 

CEDA is not new to calls to raise the Newstart allowance.  

Writing in CEDA’s 2015 report Addressing entrenched disadvantage in Australia, Professor Peter Saunders noted a long-running and bi-partisan failure to adequately index the Newstart allowance. 

He wrote, “As a consequence of this failure, the maximum single rate of Newstart (including rent assistance) has fallen below 40 per cent of median income –  well below the accepted international adequacy benchmark of 50 per cent implicit in the poverty line.”

Our April 2018 research report How unequal? insights on inequality called for an adjustment in the level of Newstart payments to a more appropriate benchmark and indexation arrangement to ensure adequacy over time. 

In that same report, Patricia Faulkner noted, “While a common argument for such a low rate is that it is designed to be a short-term payment for people transitioning from one job to the next, the reality is that over 70 per cent of people receive it for one year or more as they find themselves in long-term unemployment. For these people, the rate of Newstart is particularly harsh.”

In June this year, CEDA released findings from a nation-wide poll asking Australians their attitudes to economic growth. Community pulse 2018: the economic disconnect found that a clear majority of Australians – 79 per cent – believe the gaps in our society between the most well off and least well off are unacceptable. 

Raising the rate of Newstart would be a positive step in reducing those gaps. And Australia can afford to do it. 
Writing on CEDA’s blog Ben Guttman and Chris Richardson from Deloitte Access Economics have modelled the economic impact of a $75 per week increase in the Newstart allowance. They write the likely impact on Australia’s economy of raising the rate would be largely positive. Indeed, it would probably boost the economy. 

But this issue goes beyond what is affordable. It goes to what is fair. And it goes to what is right. 

As a society we need to wrap our arms around the people who are struggling, not kick them when they are down. To condemn people to poverty because they find themselves out of work is to deliver a vicious kick. 

Former Prime Minister John Howard is among the growing number of eminent Australians who believe the current rate of Newstart is no longer acceptable. When the former Prime Minister who for so long has supported a freeze on Newstart payments says the rate should be raised, that should give us pause to reflect. 

Our Community pulse research told us the social compact between government and society remains strong.

Australians look to government to provide the basic services and safety net for Australians. 

So today CEDA joins with organisations across the country calling on the Australian Government to Raise the Rate. 

Not only would the sky not fall in, but the end result would be a stronger and more prosperous Australia. And that is good for all of us. 
About the authors

Melinda Cilento

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Melinda Cilento is Chief Executive of CEDA, a company director, economist and experienced senior executive. She is a non-executive director of Australian Unity and Co-Chair of Reconciliation Australia. Melinda is also a member of the Parliamentary Budget Office panel of expert advisors.

Melinda was previously a Non-Executive Director with Woodside Petroleum, Commissioner with the Productivity Commission and Deputy CEO and Chief Economist with the Business Council of Australia. Melinda has also previously held senior roles with the Federal Department of Treasury, Invesco and the International Monetary Fund.

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