Panicked welfare policy also viral

The infectious panic that was, until recently, limited to shopping aisles appears to have spread to Canberra decision-making — with sound welfare policy the latest victim of the virus crisis.

The government’s key economic weaponry is the bolstered JobSeeker (formerly Newstart) and the new JobKeeper payments. In announcing the latter, the PM argued government would “go as far as possible” with the scheme. That’s a far cry from light-touch government intervention into labour markets, but, as they say, desperate times call for desperate measures.

Changes to the JobSeeker payment — part of the ‘supercharged safety net’ — doubled the Newstart payment overnight (now around $1100). That means a windfall, particularly, for existing Newstart recipients — around three-quarters of whom have been on the payment long term.

Nobody wants to see mass unemployment translate into mass impoverishment. However, it’s somewhat hard to justify the $550+ increase to Newstart now, when government has previously and repeatedly rejected far more modest increases.

In any case, most recently displaced workers will be covered by the new Job Keeper payment. But this ‘hibernation’ employment strategy doesn’t come cheap and there are serious flaws in the scheme’s design.

For instance, workers most impacted by the crisis are likely to be better off than they would be if they were in work. That’s because the payment rate is based on economy-wide earnings — rather than benchmarked to the minimum wage, or the wages in the most shutdown-impacted industries (particularly, hospitality and retail). The new payment provides effectively an economy-wide wage floor of $1500 per fortnight (higher than the minimum wage — already among highest in the world), whether employees work or not.

The average weekly earnings in accommodation and food services industries is $575, and $813 in retail. So, the average displaced hospitality worker earns a wage rise of $175 per week without the burden of having to work! Still, that hasn’t prevented charges from unions that the payment is insufficient, instead arguing for a payment of $2750 per fortnight.

It will take political courage to withdraw generous payments when some workers — perhaps very many — don’t quickly transition back to work when the crisis eventually abates. It will also be difficult to resist the predictable calls for ongoing job guarantees, maintenance of the new de facto minimum wage, or, even a universal basic income.

But permanently generous unemployment benefits considerably weaken incentives to work into the future, and that will cripple our economic recovery efforts.

There’s no denying the call to action for government in this unprecedented crisis — nowhere more so than in welfare — but that’s all the more reason that policy can’t be a rush job, and can’t put at risk our eventual economic rebound.