No one deserves to lose their job because of coronavirus, and there is no good argument against boosting Newstart now
Most people agree we should do all we can to help those who – through no fault of their own – contract Covid-19. The government is, rightly, about to spend billions of dollars on health services to help those who need it. No one expects people to get through coronavirus on their own.
But when it comes to the hundreds of thousands of people who are about to lose their jobs because of Covid-19, our public policy response is not nearly so generous.
The median full-time wage in Australia is $68,000 a year. A person who is laid off from their job will land in a Newstart safety net of almost $14,500 a year. How many weeks could you pay for food, rent, mortgage or car payments on $280 a week?
But when it comes to the hundreds of thousands of people who are about to lose their jobs because of Covid-19, our public policy response is not nearly so generous.
The median full-time wage in Australia is $68,000 a year. A person who is laid off from their job will land in a Newstart safety net of almost $14,500 a year. How many weeks could you pay for food, rent, mortgage or car payments on $280 a week?
For decades, governments have justified the rations we provide to the unemployed, with claims such as:
1. “Newstart isn’t like the age pension, because people don’t have to live on it for long.”
Leaving aside the fact that the average bout of unemployment in Australia lasts more than 10 months, there is no doubt that over the next six months a wave of newly unemployed people will be queuing up for Newstart. And the more people that enter the ranks of the unemployed, the longer the average bout of unemployment will last.
2. “If Newstart would be ‘too generous’, people would have no incentive to look for work.”
Again, leaving aside the fact there was never any strong evidence that a lack of effort or searching (as opposed to a shortage of jobs) was the cause of unemployment, surely, no one believes that an airline worker who gets stood down from their $80,000 per year job needs any more incentive to return to work than their employer allowing them to.
But just as there’s no reason to lay blame on people who need intensive care because they’ve contracted Covid-19, there is absolutely no reason to blame the retail workers, tourism workers or teachers who are likely to find themselves without an income in the coming weeks. And it’s hard to imagine why we wouldn’t help them.
Another argument for not helping the unemployed is that individuals should have prepared themselves for a “rainy day”. This argument was put most gratuitously by the federal attorney general, Christian Porter, who suggested casual workers – around 40% of whom are below 25 years old – should have “already made provisions” for an event like being told they can’t work for 14 days because of a global health pandemic. No wonder people think the government is out of touch.
But luckily for the unemployed, the once-fiscally conservative Coalition are desperately looking for new things to spend money on so they can prevent GDP, and their polling numbers, crashing too badly.
There are currently around 734,000 people on Newstart. And while far from generous, the age pension is a full 54% higher than Newstart, at $430.30 per week. If we boosted the income of those on Newstart by the $10,000 difference between their payment and the age pension, the cost over 12 months would only be around $7.3bn.
But of course we shouldn’t stop with the unemployed. For the course of this crisis we should boost the weekly incomes of all beneficiaries, all of whom are among the lower state income earners, and all of whom will struggle with less casual work and the higher costs for staples.
The government has already announced its first $17.6bn stimulus package and is reportedly working on its second. There might even be a third and fourth round of stimulus, as the length of this pandemic makes itself apparent. Given the obvious needs of those with the least work and on the lowest incomes, and given the government’s need to pump money into the economy, there is literally no argument against boosting Newstart payments other than “they don’t deserve it”.
But no one “deserves” to get Covid-19. And no one deserves to lose their job or stay stuck in unemployment because of Covid-19 either.
Australia is one of the richest countries in the world. While we have high levels of household debt we have very low levels of public debt. State and federal governments will likely borrow more than $100bn over the course of this health crisis. That’s a very good thing.
Decades of political sloganeering have convinced large sections of the media, and of the population, that government borrowing is wasteful, a burden on future generations, or both. But – as all of the media and all of the population are about to learn – almost no economists or politicians actually believe that.
Allegedly there are no atheists in a foxhole, and history tells us that everyone becomes a Keynesian when they are tasked with avoiding a recession.
Just as borrowing money to buy a house or get a uni degree makes sense because the future benefits are greater than the interest costs, borrowing money to avoid a recession and save tens of thousands of jobs can set Australia up for decades. It’s a pity it takes a pandemic to drive such honesty into our public debate, but we should take advantage of the honesty nonetheless.
Whether it’s pumping tens of billions of dollars into the economy via Kevin Rudd’s $950 cheques to nearly everyone or through Scott Morrison’s $750 cheques to the unemployed and age pensioners, boosting benefits is a highly effective way to keep money going through cash registers, and in turn, keep people in their jobs. Think of the “cash splash” element of economic stimulus as buying a lower rate of unemployment. Virtually all economists think it’s a bargain.
But the stimulus will need to be much bigger and last much longer than one-off cheques. That’s why the government should increase weekly payments for more Australians, and think about all of the projects we can start building today that will serve us well into the future.
Just as a lot of people being stuck at home will bring forward some household painting, gardening and minor repairs, so too should governments use “idle time” and record low interest rates to bring forward housing, energy and transport projects. We don’t need to choose between a cash splash or big long run projects. The economy needs both, now.
But more importantly, the economic victims of Covid-19 – just like the health victims in intensive care – need help, now. Offering to help later is the same as not offering to help at all.
• Richard Denniss is chief economist at the Australia Institute
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