What to shoot for on welfare and unemployment?

I’m sometimes asked what social democratic or socialist policy should be regarding welfare and unemployment.

Here’s a very rough sketch of something I would personally regard as coming close to a democratic socialist ideal, within currently conceivable economic systems.

It’s a long list, and taken as a whole it may seem somewhat utopian relative to the existing Australian political context. It is certainly not intended to be a pragmatic electoral platform or immediate government policy agenda. It is intended rather to guide the direction of change, as I would have it. The proposed policies can be broken down into many smaller positive reforms. For me, a good policy is one that moves society closer to this vision. A bad policy is one that moves society away from it.

Achieving a thoroughly progressive and enlightened welfare state will be a long and hard struggle. Changing attitudes on welfare and the unemployed will be an ongoing fight. Well off interests which lose from redistribution, and those who have reactionary attitudes, will resist this agenda at every turn. But meaningful, life changing gains can be made along the way.

I’ve indicated prioritisation with colours. Black is the highest priority, followed by green, followed by red.

Be sceptical of any “one weird tricks” that suggest they can bypass fundamental political conflict. They tend to be snake oil.

I should also emphasise that this is only about welfare and unemployment, not other policy areas notably industrial relations. On that I favour a strongly pro-worker, pro-union agenda (see the Nordic countries).

Welfare

  • Increase time-unlimited basic unemployment benefits and eliminate punitive activation requirements.
    • Gradually increase the maximum payment up to a rate equivalent to 35 hours of work at minimum wage (currently $695 weekly) including rent assistance.
      • The maximum rate would be payable for the first 12 months of unemployment or for engagement in an intensive active labour market program thereafter.
      • The payment rate would be set at two-thirds of the minimum wage ($520) other recipients.
      • These increases to unemployment benefits would increase reservation wages and likely result in a one-off increase in the de facto minimum wage for any work that is considered undesirable by workers. This would give employers incentive to increase wages or to improve working conditions.
    • Abolish all workfare such as Work for the Dole and reject all work-based income support such as job guarantee.
      • Any public service work deemed by a level of government to be worth doing should be performed by workers with full industrial rights, including the right to collectively bargain. Otherwise it would undermine the conventional public sector workforce.
      • Pointless work on the other hand is punitive and wasteful.
      • In either case, it diverts time away from job search, resulting in a “lock in” that slows the worker’s exit into conventional employment. This scars them and harms the economy.
    • Soften activation requirements by:
      • Reducing required hours
      • Broadening activities that count and giving recipients real choice in what they do (see for example, the Quiggin et al Liveable Income Guarantee for a step in the right direction).
      • Moving to a more charitable and less invasive compliance and supervision framework (more like the Australian Taxation Office). See the Liveable Income Guarantee again.
      • Participation in the intensive active labour market program for the higher payment rate would require additional hours and attendance confirmation.
  • Introduce time-limited unemployment insurance
    • 80% of former wage for up to three months
    • 70% of former wage after three months, up to six months
    • 60% of former wage for after six months, up to 12 months.
    • Insurable component of wages would be capped at $200,000.
    • Participants would establish eligibility after a period of employment.
    • Any low income worker who receives a higher payment under the basic unemployment benefit above may opt for that instead.
  • Guarantee a universal child allowance.
    • Start with a modest payment of $1,000 or $2,000 per child, which is in addition to existing means-tested family tax benefit payments.
    • Over time means testing should be phased out and the payment set to roughly the Family Tax Pension A plus B, plus $2,000 annually. This is about $265 per week.
  • Increase payment rate to full time students.
    • It would eventually reach the current pension rate of $430 per week.
  • Increase the age pension (and clamp down on superannuation tax concessions).
  • All assets tests and partner income tests would be removed. Generally personal income tests would be removed, except for unemployment payments.
  • Provide a basic income for adults.
    • Build to $130 per week (roughly aligned to current Carer’s Allowance)
    • Not intended as a living allowance, but as a supplement to support various non-market activities (caring etc) or market activities that have intermittent and uncertain income streams (such as setting up a business, careers in arts).
    • Could be a means tested, but a universal basic income combined with high taxation is probably more elegant. It is cleaner to claw back a universal benefit via (higher) conventional taxes than ad hoc taper rates, which basically have the same effect.
    • Under a basic income system, all of the earlier benefits (except for the child allowance) would turn into supplementary payments made net of the basic income.
    • For most wage-earners, a universal basic income would be no different in impact on net income to a tax free threshold. However, it would extend to people outside the labour market.

Employment

  • I’m no expert on macroeconomics but my personal sense is that unemployment could be lowered significantly without problematic inflation. We should make a serious effort to pursue full employment policy, and see how low on unemployment we can go. This is an experimental matter.
    • A sectoral bargaining policy could help further lower the sustainable rate of unemployment.
  • Renationalise employment service and eliminate punitive profiteering.
  • Provide active labour market policy, drawing on European models, to match people with genuine employment. This includes a tailored mix of vocational training, on-the-job training, placement services and transitional employment subsidisation, which would taper down slowly as workers get up to speed over many months.
    • Anyone would be able to access these services, and an intensive program would attract a higher income support payment for certain recipients.
  • Significantly expand public services and do more lateral thinking about how to create public value. The public service workforce has not adapted to change as rapidly as the private sector. Interacting with the government should be as easy as with any business trying to sell you something.
  • There is considerable scope to expand human services work, for example in caring.
  • Reverse outsourcing, privatisation, and savings gained from reduced service quality (think long call wait times for Centrelink, for example).
  • Where appropriate, government employment and government contracts should require a minimum quota of unemployed, long-term unemployed, people with disabilities and Indigenous Australians.
    • Hiring for these quotas should be coordinated with the public employment service, similar to the old Commonwealth Employment Service (CES).
    • This could achieve much of the goals of a job guarantee but without the make-work or compromising industrial rights. The work must have first been deemed to be worth doing and people would be selected on their own merit and suitability within the context of the quotas.

Social services

  • Fix Medicare and hospitals
    • Reduce out of pocket expenses.
    • Better protection for catastrophic expenses, such as cancer treatment costs.
    • Expand provision for allied health services, and fully incorporate basic dental and psychological services as a priority.
    • Abolish private health insurance subsidies.
  • Universal free childcare.
  • Radically expand social housing via a state-owned development corporation. It would compete with the private sector selling market rate dwellings, which would capture property market super-profits and cross-subsidise the social housing.

Fully implemented, this agenda would cost somewhere in the 12 figures, probably in the low to mid hundreds of billions annually, driven mostly by the universal payments which are listed as a lower priority. (For comparison, total Commonwealth spending in 2019-20 was around $550 billion. Total expenditure on health, welfare and housing was around $270 billion.)

But that’s to get to approach a social democratic welfare state ideal. It’s simply the direction to aim for. There are a lot of steps along the way.

You could make tremendous transformative improvements for a small fraction of this cost, particularly by focusing on unemployment benefits and social services.

It’s important to remember also that the very high financial cost of universal payments is somewhat misleading. You could drastically reduce it by means testing (for example a guaranteed minimum income), but this would require tapering down of payments which has the same economic effect as taxation.

In any case, any large increase in welfare would be paid for in taxes, or something similar.

(MMT people can use whatever inflation control language they prefer but the need for higher taxes will remain. One thing to remember is that introducing a job guarantee is no more sustainable than improving unemployment benefits, unless the workers are used to replace public servants.)

Below would be the direction to which I’d move revenue policy. This part is not colour coded.

Tax

  • I’d envisage an income tax schedule with substantially higher marginal rates.
    • Perhaps over the long run, and when approaching full implementation of the utopian welfare agenda, rates may approach 45% for lower incomes and up to around 70% for very high incomes. This is not that far removed from existing practice in a couple of Nordic countries, and or even historical practice in Australia. Indeed some people on low to middle incomes are currently subject to effective marginal rates over 60%.
  • For various reasons these would be much less punishing in practice than how they sound in the present context. They need to be understood in the context of a universalistic welfare system that reduces effective marginal tax rates for some of the population (due to less welfare tapering) and more than compensates much of the population for income lost due to taxes with higher welfare payments, leading to higher net incomes for a large share of voters.
    • Winners will include people on low to middle incomes, most families with children. The net beneficiaries would go well into the middle class.
    • It would be bad for most upper middle class singles, or wealthy families. But at least then you have much greater protection if things go wrong thanks to the income-adjusted unemployment insurance system. A near universal of the human condition is risk aversion, a willingness to sacrifice expected benefits for security and peace of mind (this is why people purchase insurance even when it is a very bad deal).
  • If there is a universal basic income, it would replace the function of the tax free threshold.
  • Aggressive carbon pricing.
  • Elimination of superannuation tax concessions.
  • Be sceptical of revenue neutral policy reform packages.
    • I contend that the “micro-economic reform” has diminishing returns, and the benefits of remaining conventional structural reforms are rather modest relative to the size of the economy.
    • Don’t sacrifice any revenue – if we are to implement this agenda, in the face of political economic obstacles, we need every dollar we can get. Due to risk aversion, loss aversion and status quo bias – as well as the power of entrenched interests – it is generally much easier to keep a tax than abolish one and introduce a new one.
    • Tax reformers often try to make taxes more transparent and salient to tax payers. This is very bad from the perspective of a high tax agenda due to the power of human psychology. Instead, do the opposite. Try to make the experience of paying tax as easy and as out-of-sight/out-of-mind as possible. (This is part of the brilliance of income tax withholding.) Government should be run like a business in this regard.
  • Progressivity isn’t as important for equality as you think. A regressive tax is generally better than no tax at all.

Other revenue

  • The government should create a massive managed investment fund to capture capital income in the economy.
  • This could build on the Future Fund.
  • Dividend payments could be allocated to citizens, potentially funding the basic income.
  • Renationalise various things (such as when they are in financial crisis or embroiled in major corruption) and look for opportunities to create state-owned corporations in new sectors.
  • These policies would help capture a long-run growth in the capital income share, predicted by Piketty and others.

1 thought on “What to shoot for on welfare and unemployment?

  1. Michael Immerman

    nice list, i have one in my head that’s pretty similar, but it does have some “pragmatic” aspects to it, though not very many.

    up the minimum wage to $25 an hour, which would be sufficient to make it a living wage
    up the pension to $500 a week, and use it for unemployment as well
    introduce sectoral bargaining and eliminate other roadblocks for the labour movement
    build public housing to the point that 20% of families are living in them and maintain that rate
    introduce a hefty new land tax and close down fully on ridiculous concessions
    decarbonise over 10-15 years
    provide free childcare and become a major player in the aged care market

    Like

    Reply

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