Unemployed Australians on JobSeeker are set to break two pay rise records – but that’s a sign of a broken system that’s long overdue to fix

Australians on our humiliatingly low unemployment benefit are on the verge of a raise.

On September 20, JobSeeker’s Single plan increases by $25.70 per fortnight from $642.70 to $668.40. That’s the largest automatic increase since payments began at the turn of the 1990s, and twice the size of the next largest.

But it will still be a pitiful $17,378 a year — not even two-thirds of the way to the Melbourne Institute’s poverty line of around $28,600 a year.

If official forecasts prove correct, the next increase (on March 20) will be of a similar magnitude, meaning JobSeeker should be up 7.75 percent in one year, which shouldn’t come as a surprise given inflation probably will be reached 7.75 percent.

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Welfare recipients to get the biggest indexation hike in three decades

Previously, retirees had a better deal

JobSeeker is indexed to inflation, the low rate of price increases since the early 1990s. Wages and national income per person have risen faster.

Pensioners, including old-age pensioners, had a better deal. Since the 1990s, their earnings have been indexed to the average male total earnings, with a bonus clause that gives them inflation if male earnings do not increase sufficiently.

The difference between male earnings growth and inflation has not been large in any year – typically 0.6 percentage point, meaning that with inflation at 2.5 per cent, wages would likely rise by 3.1 per cent.

But because wages almost always grew faster than inflation, albeit not by much, compounding these differences became very important over time.

JobSeeker (when it was called Newstart) used to be close to retirement. In 1997, JobSeeker cost $321.50 per 14 days and the old-age pension $347.80.

But a cluster of larger percentage increases in the pension (and a one-time pension increase) meant the pension was 50 percent higher by 2019, on the eve of COVID.

Projections based on then-prevailing rates of inflation and wage increases suggested that the pension would double JobSeeker’s by 2070, barring changes.

JobSeeker had become so weak on overall living standards (well below the poverty line) that the coalition effectively doubled it at the onset of COVID in 2020 by adding a $550 per fortnight coronavirus surcharge.

Not enough to ‘cover the cost of groceries’

In an implied acknowledgment that JobSeeker is no longer sufficient to feed and shelter people, then-Treasurer Josh Frydenberg said the temporary bonus would allow unemployed people “to cover the cost of their groceries and other bills.”

When the temporary allowance ended, the Treasurer increased JobSeeker by just a little — $50 every two weeks, indicating the unemployment was meant to be temporary, while the old-age benefit lasted for the rest of a retiree’s life.

There are two other important differences.

One is that the old-age pension goes to an identifiable voting bloc – three in five Australians aged 65 and over. Dudding would cost votes. There aren’t that many unemployed, and many of them just go through unemployment.

People are seen in a long line outside a Centrelink office
According to forecasts, the pension would be double that of JobSeeker by 2070.(AAP: Dan Peled)

Adjusting JobSeeker for retirement would cost billions

The other difference is that JobSeeker is now so low compared to pension that an increase from the current $642.70 per fortnight to about $901 per fortnight would cost many times the $2.2 billion per year that the government budgeted for the $50 increase.

Unemployed Australians (and those on youth welfare and other payments, which have only risen in line with the CPI) seemed doomed to live on such low incomes that even 12 years ago they raised concerns about:

Questions about its effectiveness in providing adequate support to those affected by a job loss or in finding a suitable job

And no, these concerns about Australia’s comparatively low unemployment benefits were not raised by the Australian Council of Social Service in 2010 – but by the hardly radical Organization for Economic Co-operation and Development (OECD). (These days, the OECD is headed by former Liberal Finance Minister Mathias Cormann.)

Former Prime Minister John Howard has expressed regret that JobSeeker has fallen so low relative to pensions. In opposition, Anthony Albanese said that was the case not enough to live on.

Abbott tried to balance pensions with unemployment benefits

For now, the collapse in wage growth and the resurgence of inflation have thwarted what appears to be a conscious decision to let JobSeeker grow at a slower rate than pensions.

But it should be frustrated forever. Whatever the argument for pricing JobSeeker lower than pension (the Center for Independent Studies says pensions are for those who are unemployed for “legitimate reasons”), there’s no viable argument for a system that does allows one to fall further relative to the other.

Tony Abbott’s coalition government deserves credit for acknowledging this. In her first “horror budget” in 2014, she promised to put pension increases and increases in unemployment benefits on an equal footing.

“We promised at the last election that we would not change pensions during this term of government, and we will not do so,” his treasurer told parliament.

But after the next election, from September 2017, pensions would only increase in line with inflation, along with unemployment benefits.

Like much of the rest of the budget, the measure did not survive a change of treasurer and prime minister.

Cheaper than Stage 3 tax cuts

In the run-up to the 2019 election, Labor promised an independent review of JobSeeker. Albanese withdrew the promise ahead of the 2022 election, saying the budget couldn’t stand it.

His commitments were about priorities. The initial cost of the previous government’s Labour-backed Stage 3 statutory tax cuts is $17.7 billion a year, which is less than getting JobSeeker to meet the pension rate.

Australians earning $180,000 or more receive half the benefits of Tier 3.

Beyond the September 20 raise, another raise by JobSeeker going forward would change the lives of Australians with $17,378.

In a Radio National interview on Monday, Albanese sounded ready to take action soon.

When inflation falls, he cannot rely on unusually high price increases to do the work for him.

Peter Martin is a Visiting Fellow at the Australian National University’s Crawford School of Public Policy. This article originally appeared on The Conversation.

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