Working for poverty

  1. Ideology over evidence hurts the unemployed
  2. Housing a right or a commodity?
  3. Is it gender or Gina defining inequity
  4. Infographic

Ideology over evidence hurts the unemployed

In another triumph of ideology over evidence, the government announced on Monday that it was expanding the work for the dole scheme. Fresh from its victory over the carbon price, they have plunged into the politics of punishing the unemployed.

Professor Jeff Borland from the University of Melbourne, who has undertaken extensive research on the outcomes of the Howard era work for the dole scheme, as well as similar policies overseas said;

“The international evidence is overwhelming… It’s hard to believe that the government couldn’t understand that this isn’t the best way to improve people’s employability.”

But Professor Borland has clearly underestimated Employment Minister Eric Abetz, who fired back that he had anecdotal evidence from his time in the Howard Government that job seekers found the ‘work for the dole’ scheme useful. Put away your carefully constructed methodologies and statistical analysis, Mr Abetz has anecdotal evidence.

The government also announced that, under their proposal, the unemployed will have to fill out up to 40 job applications a month. There was quick push back from business who are rightly concerned that they will be inundated with job applications from people who are not qualified for any positions offered.

Requirements placed on the unemployed to apply for such a large number of jobs, as well as having to spend hours on work for the dole projects, is likely to be counterproductive. These onerous demands reduce the time available to make strong applications for jobs people are qualified for. So not only are the government’s welfare changes punitive and unlikely to improve jobseeker outcomes, they are likely to actually make finding ongoing work harder.

This is not the first example of the government’s punitive approach to the unemployed. With the release of the budget this year, the government plans to make those under 30 wait up to six months before they can access unemployment benefits. Given young people face the highest rates of unemployment in Australia, there is no justification for such a policy, unless justification can be found in saving money at the expense of vulnerable young people.

The government could take the path of assisting the unemployed to find and keep work; it could reduce reliance on benefits in a way that the unemployed dignity and the option of a better life. It seems, however, that the current government is driven by an ideological obsession to punish the unemployed for being unemployed, which will only entrench poverty by making it harder for them to find secure, suitable work.

Housing a right or a commodity?

This week, The Australia Institute’s Molly Johnson and David Baker were witnesses at the Senate Inquiry into Affordable Housing. The Institute had previously made a submission to the inquiry which can be found here

The decline in housing affordability has a number of consequences for Australian society, and is contributing to increasing inequality. Rising house prices increase inequality between those who own houses and those who don’t; when prices rise, future buyers are confronted by higher prices, and renters face increases based on the increased market value of their home. At the same time existing mortgagees find themselves with lower repayments than new mortgagees would have for the same property. Existing owners also benefit from buying and selling in a market for a position of increased value, or in the future from increased property value and capital gains exemption if it is their home. 

This situation concentrates advantage, while the barrier to entering the market increases, requiring bigger deposits to buy, and driving up rental costs.

At the hearing, The Institute discussed the impact of declining housing affordability on equality in Australia. We explained that there is reduced home ownership amongst younger Australians and extended periods of more costly mortgages for middle age Australians. In particular, low and middle income families appear to be struggling the most to both enter and stay in the property market. 

The Institute stressed that the cost of buying a house is only one aspect of the housing affordability issue. The cost of housing for those who rent is equally part of the problem. At the hearing, we encouraged the Senate Committee to consider the issues faced by both home buyers and renters; we answered questions surrounding the difficulty young people have in entering the market, the rights of tenants, and potential policy options. 

The Senate Committee has an extension to table its report by 27 November 2014.

Is it gender or Gina defining inequity?

An interesting observation on inequality was published in The New York Times on Saturday. Stephanie Coontz contrasted the closing gap between women and men, and the widening gap between low, middle and high incomes. Coontz summarised this as ‘improved equality within families, but further inequality between families’. Improved education and employment opportunities for women appear to have provided greater benefit for people who are already socially, economically, and/or culturally advantaged. This has resulted in a further concentration of earning capacity, exacerbating existing divides. 

In the US women on higher incomes are now increasingly likely to marry, and tertiary educated people are both more likely to marry and less likely to divorce. A higher earning capacity together with the combined incomes of two spouses is cementing the inequality between high income earning families and those people on middle and low incomes. Coontz goes on to explore how changes in job prospects, breadwinner family models and domestic labour all play a role to explain equality is changing through the interaction between gender and income. 

Across the Atlantic Thomas Piketty, France’s ‘rockstar economist’ has identified the concentration of inherited wealth, which tends to grow with each generation, as the biggest contributor to inequality. This concentration is evident amongst the seven richest Australians (who incidentally hold more wealth in Australia than the bottom 20 per cent or 1.73 million households). Gina Reinhart, James Packer and Anthony Pratt are all building upon inherited family wealth. 

A piece in The Age on Tuesday by Michael Green comprehensively explored increasing inequality in Australia and internationally. After an introduction that referenced Thomas Piketty’s bestselling book Capital in the Twenty-First Century and Joseph Stiglitz, Green is quick to point out that the gap in Australia is not as “vast” as it is in the US. 

Andrew Leigh (Labor MP), writing in The Monthly argues the impact of concentrated inherited wealth on inequality is greater in Piketty’s native France and other European countries than Australia. Leigh has identified three factors behind increasing inequality in Australia, they are: technology and globalisation; falling rates of union membership; and less progressive income tax rates. Of these three factors, the ability of government policy to influence inequality immediately is in the area of taxation.  

The reduced progressivity of the income tax rates in Australia has impacted on the ability of government to address inequality through the provision of services such as health and education, and a more equal redistribution of wealth. 

During the Menzies Government, the top tax rate was never lower than 67 per cent. The Abbott Government’s proposed deficit levy will temporarily lift the top tax rate to 49 per cent.  The company tax rate used to be 46 cents in the dollar and is now down to 30 cents, with plans to reduce it further. The tax rate is only half the equation, the other half is the income at which the top tax rate is applied. 

In the decade up to 2010-11, the top tax threshold tripled from $60,000 to $180,000, and tax collected through the top tax rate as a percentage of income almost halved. At the other end of the income distribution scale, Newstart and related benefits have failed to keep up with community standards. Plans to reduce the indexation factor for the pension and reduce a number of cash payments to lower income groups will also impact heavily on those on low incomes.

The undermining of Australia’s progressive tax system has contributed to greater inequality. The balance needs to be addressed.

Infographic

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