Australia’s own little fiscal cliff

The Australian version of the “fiscal cliff” is about poor people living on income support waking up on New Year’s Day when everyone is full of bonhomie for their fellow Australian and finding out that recent legislative changes made by the supposed pro-disadvantaged government, which have now become active, will leave them, in some cases, $A120 worse of a week. That is, they are losing a considerable proportion of their income. The way I judge public policy is not by how rich it makes the highest earners and asset holders in our midst but how rich it makes the poorest members of society. A policy framework that deliberately targets the most disadvantaged and makes them poorer is a sign of a failed state. The recent legislative changes reinforce the Australian government’s refusal to provide sufficient income support for the unemployment despite it being widely accepted that they are being forced to live well below the poverty line. The Government’s justification is that they need to pursue a budget surplus and have deliberately undermined the capacity of the economy to generate enough work as a result. The relentless attacks on the poor in this country violate my pubic policy assessment rule and indicate we are indeed a failed state.

Okay, this is the first time I have published a picture of Karl Marx in my blog although it is not the first time, by a long margin, that his writing has influenced what I write here.

Being simplistic, there are two types of people that are positively attracted to the writings of Karl Marx. Those who read his works, understand their message and travel through life in a more or less consistent way reflecting the underlying analysis. The other group, become avowed Marxists for social reasons and when it gets in the road of their political ambitions they disclose their true colours – neo-liberal to the core. Leftist is just a tag they trade with to advance their ambitions to grasp power.

Back to New Year’s Day in Australia. New rules relating to parenting payments legislated last year became law yesterday. Under the new rules, around 100,000 single parents have will lose their parenting payments and be moved onto the much lower Newstart allowance (unemployment benefits) when their youngest child turns 8 years of age. Previously, they could look after their kids as full-time parents until the child reached the age of 16 years.

The full changes are described in this document – Job Services Australia and Parenting Payment for parents and carers – from the Department of Education, Employment and Workplace Relations (DEEWR).

These changes were announced in the 2012-13 Federal Budget last May as a cost-cutting measure as part of the obsessive pursuit of a surplus in the coming fiscal year.

The Government finally recognised last week that the automatic stabilisers would negate their surplus ambitions – that is, they have admitted that the slowing economy, in part, due to the government spending cutbacks, have undermined tax revenue so much that there is no hope of them achieving a surplus as planned.

As I have written in the past – there never was any hope when they announced their intention two years ago to embark on that neo-liberal direction.

Please read my blog – Australian government’s monumental fiscal failure – for more discussion on this point.

As part of that irresponsible campaign to achieve a surplus and run pro-cyclical fiscal policy against all sound economic principles, the Federal Government turned on those who it claims it defends and which it claims, in part, separates it from the conservative opposition.

They rejected demands from welfare agencies and even some conservatives to increase the unemployment benefit. The situation in Australia is clear – the unemployed are being forced to live below the poverty line.

Given the state of poverty among the unemployed, which I examine in these blogs – Why are we so mean to the unemployed? and The plight of the unemployed – under growth and decay and Our pathological meanness to the unemployed is just bad economics – many welfare groups and people like me have been arguing that if the government is not going to create work then it should at least increase the unemployment benefit above the poverty line.

The Newstart Allowance is adjusted every March and September. Poverty line data is available on a quarterly basis from the Melbourne Institute of Applied Economic and Social Research.

The following graph shows the evolution of the Single Unemployment Benefit and the Single Unemployed Poverty Line since 1973 until March-quarter 2012. The situation has worsened since then.

The single unemployment benefit stands at $34.90 a day which is well below any reasonable estimate of the poverty line in Australia. There is not very much you can buy with $34.90 a day after paying accommodation (even if you can afford accommodation).

After mounting pressure from the aforementioned lobby groups and individual academics, On June 26, 2012 the Australian Senate (our upper house in Federal Parliament – the “states house”) commenced an enquiry into – The adequacy of the allowance payment system (long-name is The adequacy of the allowance payment system for jobseekers and others, the appropriateness of the allowance payment system as a support into work and the impact of the changing nature of the labour market) on June 26, 2012.

The Senate referred this matter to the Senate Education, Employment and Workplace Relations Committee for inquiry and report and rejected the call for higher income support payments despite acknowledging that the current payment was dooming the unemployed to a life of increasing poverty.

The Australian Government made a submission to the Senate Inquiry – Submission to the Senate Inquiry on the adequacy of the allowance payment system for job seekers and others.

The Government’s Submission sets the scene for its argument by saying that:

… the fundamentals of the Australian economy continue to be strong and the outlook remains positive… Prospects continue to be underpinned by strong growth in our regional trading partners and an unprecedented pipeline of mining investment …

It is crucial to enhance the employment prospects of job seekers, including those on allowances. This is achieved by arrangements which ensure that the design of allowances, supplementary payments to recipients, employment and skills development programs and strategies to support productivity work in concert to increase employment opportunities and actively encourage and support recipients of allowances to transition to work.

You can see they make no mention of their responsibility to ensure there are enough jobs available despite them being signatories to various international treaties (UN and ILO declarations) that say it is the their responsibility to ensure there is full employment.

The Government’s narrative is very clear – they think the unemployed are waxing easy in poverty and need to be made even poorer to make them desperate enough to do anything. The typical supply-side claim.

But even if they make the unemployed desperate there is not enough legal work opportunities available anyway – remember the macroeconomic constraints.

On Page 11, the Government’s Submission discusses the “effectiveness of the payment system as an incentive into work” and notes that the Newstart Allowance (the unemployment benefit) is “meeting its fundamental and longstanding purpose as a transitional payment, designed to incentivise work engagement”.

The history of the unemployment benefit was fundamentally designed to provide income support for those who fell into unemployment in an environment where long-term unemployment was rare (and defined as 12 weeks or more rather than 52 weeks or more as it is now) and the nation enjoyed true full employment.

At that time, spells of unemployment were short and most people could quickly find a new job if they were unlucky enough to become unemployed. Unfilled vacancies were usually above the level of unemployment which meant that firms were always looking for workers and provided training slots with job offers to ensure they could fill vacancies.

To repeat – unemployment benefits were designed to be short-term income support.

The “incentivise” narrative entered much later as the neo-liberals were looking for victims to blame for the mess that their austerity and privatisation policies were creating – that is, the high unemployment that they created by abandoning active fiscal policy and relying monetary policy to use unemployment as a policy tool to keep inflation low.

It was introduced when unemployment to vacancy ratios rose – sometimes to around 10 to 1 – currently around 4 and that is not counting the mass underemployment that is a more recent manifestation of the failure of the economy to produce enough jobs. It was obvious the economy was not producing enough jobs yet to disguise that a full-blown attack began on the unemployed and the narrative shifted to claims their allowances were too high and were undermining incentives to work.

Quite simply, it was argued that our disadvantaged citizens preferred the pittance that the government provided them by way of unemployment benefits to working despite the fact that the former life opened the person to public humiliation, vilification from the media and civic leaders, and – poverty.

Somehow, successive governments were able to convince us that these characters were lazy and living high on the hog and should be working like us. The argument relied on a sort of collective denial or ignorance of the reality – the data – the UV ratio, the lack of jobs – whatever you want to call it.

When those arguments were raised, relevant Government Ministers would perjure themselves with creative stories such as “there are plenty of jobs it is just that the firms have stopped advertising them because they know the dole bludgers won’t take them anyway”. Outright lies. When it was pointed out (by yours truly many times and others) that such a scenario would imply the firms all had long order books and the evidence didn’t support that – the relevant person would resort to vilification and suggest university academic were socialists or worse.

While the Government refuses to encounter direct public sector job creation it is forcing the rising number of unemployed to live on below poverty line incomes.

The Government’s Submission rejects that argument. They say in relation to calls to increase the unemployment benefit to bring it back closer to the poverty line that:

Any increase of this nature would have a substantial fiscal cost which would need to be balanced against other government spending priorities and fiscal objectives. In addition, an increase would not assist in maintaining the fundamental character of Newstart Allowance as a payment that predominantly supports work re-engagement. As the OECD acknowledges, an increase in the base rate of Newstart Allowance has the distinct disadvantage of reducing employment incentives, especially for those who can only obtain low paying employment.

This is what the OECD actually said about unemployment benefits in Australia.

In the – OECD Economic Survey, Australia 2010 (see an overview of the Survey HERE) the OECD said that:

The transfer system could better tackle poverty, while strengthening incentives to work … additional attention given to disadvantaged groups should not lead to worsening of services provided to less disadvantaged unemployed. Over time, the adequacy of Newstart Allowance should be examined, taking into account both fiscal constraints and community expectations. An option would be to increase the Newstart Allowance for the initial period of unemployment to provide a more adequate safety net, but job search requirements should be maintained and the impact on the incentive to work should be assessed.

That is quite different from the spin the Government has put on it in its official Submission to the Senate Inquiry.

Clearly, the OECD was playing up to its usual tricks by and large in claiming that there are fiscal constraints on providing adequate income support to the unemployed. The reality is that there are no fiscal constraints on the Australian government increasing the unemployment benefit (Newstart Allowance).

The only issues relate to equity (and this group is living in poverty as a result of mean-spirited government policy) and the risk of inflation (will the rises blow out nominal aggregate demand growth?). There is no danger of the latter happening.

The Australian Government could increase the unemployment benefit with the stroke of a computer keyboard. It issues the currency after all. Even if the computer keyboard operator fumbled and put an extra zero on the end of the new benefit there would be no financial constraints on the payment being honoured.

But the point here is that even the OECD can see that the unemployment benefit has become a joke in Australia as successive governments (conservative and so-called progressive) have allowed the levels to lag behind income movements elsewhere in the economy (including the aged pension).

I first wrote about this problem in this blog – Why are we so mean to the unemployed?. That was in 2009 and the situation has deteriorated since then.

More recently, I wrote this update – Fat cat bankster wants to make the unemployed even more desperate – which reported on the efforts of one of Australia’s fat cat banksters, fresh from enjoying the benefits of the federal government’s loan guarantees, who was advocating cuts in the unemployment benefits to make the unemployed more desperate for work.

In this blog – The unemployed cannot save – I provided an update on the unemployment benefit scandal in Australia.

In this blog – 5.4 into 1 does not equal 5.4 – I also talked about the way neo-liberals deny the existence of macroeconomic constraints (lack of aggregate demand leading to a lack of jobs) and seek to blame the victims of the demand constraints.

The obvious conclusion is that – The unemployed cannot find jobs that are not there!. There have not been enough job opportunities created in this country to match the preferences of the unemployed for the last 3 or more decades – all courtesy of the neo-liberal supply-side agenda and the denial that the demand-side of the economy mattered.

The latest policy change – forcing single-parents onto the unemployment benefit payment – just ensures that more disadvantaged Australians – at least 100,000 of them will become significantly poorer.

The sub-text of the policy change is similar to that which leads the Government to reject calls from welfare agencies and others to increase the unemployment benefit.

They think the unemployed are bludging on income support and need a kick in the pants to make them work. Similarly, the popular neo-liberal narrative about single teenage mothers is that they deliberately f8ck their brains out and get pregnant knowing they will get income support and thus not have to work. The more kids they have the better things get.

The reality is very different. Life on the parenting payment is far from flash and it is highly unlikely that the single teenage mums are as calculating as the government implies. They are mostly uneducated, low-skilled kids from disadvantaged backgrounds who are at the back of the unemployment queue at the best of times.

The changes that came into yesterday are also irrational because they penalise single parents who work part-time the most. This is because that cohort are allowed to earn more than those who receive the Newstart payment before their benefit tapers.

The changes mean that (Source)
:

… a single parent who gets no income from work will be $115 worse off a fortnight, while those who earn $400 a week from work will see their income drop by $223 a fortnight.

These are radical cuts given the level of the existing benefits.

The Government’s justification is that it will save them a pitiful $A680 million over four years or thereabouts. That is, pennies.

Given how pitiful the cuts are in the overall scheme of things, the Government has had to come out with spin to add weight to the justification. That is, claim that these changes are more than just penny-pinching in their now failed pursuit of a budget surplus.

So the responsible Families Minister, Jenny Macklin was out and about yesterday extolling the virtues of the policy change.

As background, in an earlier guise, Jenny Macklin was an avowed Marxist in Melbourne writing for such journals as the official Communist Party of Australia journal – the Australian Left Review and came into parliament as part of a faction deal to ensure the left had sufficient representation.

I have an article from 1983 written by the now Minister, which was drawn from a paper she gave at the Karl Marx Centenary Conference, Melbourne, April 1-4 1983. It is in some boxes in my archives – and as a result of my recent office change – and I haven’t unpacked them all yet. As a result, I cannot quote from the paper here.

But if my memory serves me correctly it was very much gung-ho Marxian narrative – hence the picture above to inspire us.

The full article is Jenny Macklin (1983) ‘Prospects for socialism: contributing to the process’, Australian Left Review. If anyone has an electronic copy I would appreciate them sending it.

Here is the “official” transcript – Dad and Partner Pay, family payments, parenting payment – Doorstop, Melbourne – of her interview yesterday on the issue.

She claimed that:

JOURNALIST: Tens of thousands of single parents are now on the dole, could you live on the dole?

JENNY MACKLIN: What we know is that we needed to fix a difference that was in the system for parenting payment. Back in 2006 the rules were changed and anybody who had their youngest child turn 8 coming on to Parenting Payment who was looking for work went on to unemployment benefits instead. What we’ve done is really just make sure that those people who’ve been on the payment for a longer period of time have the same rules applied to them.

So no answer was provided to the question.

Apparently another journalist (ABC reporter Ashlynne McGhee) asked her the same question – whether “she would be able to survive on the dole”. The Minister replied:

I could.

But you will not find that question or answer in the “official” transcript which omits any reference to it and substitutes “inaudible”.

The omission has created a storm as it should. The one-time Marxist is now overseeing a pernicious regime against some of the most disadvantaged Australian and then having the audacity to claim that she could live on $A32 a day.

The Minister then got into spin mode:

… what’s important for people who are unemployed is that we do everything possible to do everything we can to help people get into work and that’s what we’ll be doing with these single parents as well.

Which is true – the Government should “do everything possible to do everything we can to help people get into work”. Is the Government doing that? Answer: Exactly the opposite. By imposing fiscal austerity they have been undermining the capacity of the economy to create jobs.

The fact is that the Government hasn’t the slightest intention of doing “do everything possible” to get people into work. They could simply introduce a large-scale public employment program – such as a Job Guarantee – if they were serious about ensuring people had work to go to.

That would solve the unemployment problem virtually overnight and get people off income support and allow the to make a productive contribution to society.

The Government and this ex-Marxist Minister have their lying blinkers on when they make these sorts of statements. They just deny this is a possibility because of their ideological preferences.

She was then asked “Some single parents say they stand to lose $110 – how do you justify” to which she replied:

What we found as a result of the changes that were made back in 2006 we have seen more single parents going back to work. And of course the more that people going back to work the better. It’s better for the family, it’s great to see mum and/or dad going or both going to work. Unfortunately we have far too many children growing up in Australia where nobody is working. (inaudible) possibly can to support families going back to work and hold down a job.

All of which is true. But it avoids the reality that there are not enough jobs – by a factor of more than 1 million in an 11 million job labour market.

The spin continued. When confronted with the claims by the Employment Minister recently that he would “find it hard to live on the dole” and the question “would you like to see that amount increased?”, the Families Minister said:

What we are doing is making sure we do everything possible to help people get into work.

Which is an outright and disgusting lie.

The journalists persisted “But would you like to see the dole increase for families who are struggling?”, to which the Minister stuck in wind-up mode said:

Our objective is to do everything possible to get people into work.

Which is an outright and disgusting lie.

Today, the Minister was asked why the official Government transcript had deleted her claim that she could live on the unemployment benefit. The reason was something to do with an iPhone and the outdoor nature of the interview. The journalists who attended the interview had no trouble recording the complete interview.

The journalist who asked the question tweeted:

I’m surprised my question to Jenny Macklin and her answer were ‘inaudible’ in the transcript – the press sec’s iPhone was right next to me.

The headlines of the ABC News site this afternoon were not kind to the Minister:

It has been pointed out that the average weekly rent in the suburb of Melbourne where she lives is more than the weekly unemployment benefit. So Jenny would be getting on her bike and having to move downmarket as the first step.

It was also pointed out in this ABC News story (January 2, 2012) – Macklin challenged to live on dole for a week – that the Minister “is currently paid more than a $6,000 per week, or around $850 per day”. So a drop to $A32 per day would be rather radical.

She has been challenged by the Greens to try it out for a week. My challenge is a bit more realistic.

Challenge to Jenny Macklin

The Minister should live on the unemployment benefit under the following conditions:

• She leaves her homeand seeks rental accommodation – in an anonymous guise without prior real estate references.
• That she surrenders access to any bank accounts and other savings.
• That she surrenders access to private health insurance benefits.
• She meets all activity tests and tells prospective employers that she abandoned education without finishing secondary school.
• And most importantly, she undertakes the challenge for 41.8 weeks, which is the average duration of unemployment for a female in Austraia as at November 2012 – (Source)

41.8 weeks not 1 week!

As an aside, Direct Action, a journal of the Revolutionary Social Party in Australia, wrote of some of Ms. Macklin’s other ministerial endeavours (December 2008) – Labor steps up racist NT land grab. That is another sordid chapter in the Government’s purge against the disadvantaged. But that is for another day.

Conclusion

As I noted in the introduction, I judge public policy not by how rich it makes the highest earners and asset holders in our midst but how rich it makes the poorest members of society.

A policy framework that deliberately targets the most disadvantaged and makes them poorer is a sign of a failed state. Governments that oversee failed states should be jettisoned. Australia gets that opportunity in the coming 12 months. The Opposition is as bad which reinforces my view that we have a failed state.

A moment’s reflection on the shenanigans in the US Congress over the last week and the Eurozone mess indicates the malaise has some breadth.

My only quick observation on the US fiscal cliff nonsense is that the Republicans are total wimps. Just like the debt ceiling debate – they caved in. The “solution” is ridiculous – but it makes me laugh to compare the tough talk with the vote!

As an UPDATE: The Minister’s office is now refusing to release the audio from yesterday’s interview – see – Macklin won’t release ‘inaudible’ recording – for the full story. The official transcript deleted the part about her being able to live on the dole. Her office denies that was done deliberately. Okay – so why not release the mp3 file of the audio and let us judge for ourselves?

That is enough for today!

(c) Copyright 2013 Bill Mitchell. All Rights Reserved.