Despite the extraordinary circumstances, the government’s massive support package does give us some lessons for day-to-day policy. The pandemic reminds us of the power of government to protect us against risk and to smooth our incomes through tough times. Because of the government’s power to pool risks and reallocate spending across time periods, it is much more efficient and effective at providing such protection than individuals are themselves.
We are reminded of the importance of welfare right now because so many Australians suddenly need it. In terms of political economy, there is a critical mass of people who are pro-welfare, so the government acts accordingly. When the going gets tough, even the conservatives turn to socialism.
But the basic principles in favour of a stronger welfare system – insurance and income smoothing – hold at other times as well. All of us will face risks and financial challenges, even though usually we won’t have so many people facing them at the same time. All of us will draw down on the welfare state throughout our lives, and we will be grateful for it when we do. However, in normal times, the welfare state can be out of sight, out of mind for many of us – and therefore it is under-appreciated.
Alas well-intentioned people across the spectrum have contributed to this situation by waging a multi-decade war on so-called middle class welfare. The consequence is two-fold. Many middle class Australians have lost protection from risks like losing their job, and as a result welfare is more out of sight and under-appreciated than ever. People are more likely to support policies if they are tangibly helpful and salient in their daily lives, so there’s a viscous circle: welfare cuts foster social attitudes conducive to further cuts.
As a result, Australia is virtually unique among comparable rich countries in that we have no satisfactory system of unemployment insurance for the middle class, due to means testing such as the partner income test. Our already low job seeker payments start to get cut if you have a partner who earns $993.50 a fortnight, about $25,830 annually. You can’t get anything at all once your partner earns $1,845 a fortnight, or about $47,960 annually. This is only half the median pay for a full-time job.
Thanks to our national obsession with means testing, even families well below the middle can’t get unemployment support. You might lose your home – but the government won’t give you a cent. We are more miserly in this regard than even the notoriously ungenerous American welfare state.
What we’ve seen with coronavirus is the government rush to improve this dire situation as more Australians suddenly come in contact with the welfare system. For example the government has roughly doubled unemployment benefits, and upped the partner income test threshold. This is implicit recognition that when large numbers of Australians turn their minds to our existing welfare system, they will find it unsatisfactory.
Unfortunately even with the temporary changes plenty of people still fall between the gaps.
Despite the higher partner income test, you still won’t be eligible for any JobSeeker Benefit if your partner earns $3,086.80 a fortnight ($80,260 a year) – still 10% below the average full time wage.
There is no good reason for this. Governments, with their large budgets and ability to spread resources between different people and across time periods, are inherently better at insuring for risks like unemployment than individuals are.
Partner income testing rewards single income households over dual income families and is grounded in outdated notions of the male bread winner. It is unable to capture the reality and complexity of many modern relationships – such as those that do not necessarily function as a joint economic unit. We don’t assess tax like this, so why we persist with it for welfare?
The government should use the coronavirus crises to experiment with a more comprehensive, universalist approach to welfare. It has temporarily eliminated the assets test for Job Seeker Benefit, so why not eliminate the partner income test? Why should the dole be paid to a let-go finance executive in Point Piper sitting on $20 million in assets, but not a jobless labourer in Campbelltown because the latter has a partner with an ordinary full time job?
Fortunately such anomalies are easy to solve with universalism. People should be entitled to a payment by simple membership of an approved category that is a legitimate barrier to paid work. For example, if you are unemployed, disabled, elderly or a full-time student you should get a payment automatically. Primary carers would all receive payments on behalf of their children below working age. Such a system would be simpler, more elegant and more coherent than the one we have now. It would be financed through higher taxes – which would be the chief political economic hurdle.
But the alternative is a fragmentary, convoluted and incoherent patchwork of means testing that fails to deliver equity and fails to protect the middle class. It imposes extremely high effective tax rates on low to middle income groups as benefits are clawed back through means testing, sometimes double the 45% rate that rich people claim is a work deterrant. It does not address a market failure in social insurance even though the government can and should do so efficiently. And by losing the middle class, the Australian welfare state will never command the mass support needed for a compassionate approach. Work for the dole and robodebt are the consequences of this model.