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Higher Welfare Payments Could Lift Australian Economy, RBA Says By Bloomberg

© Reuters.  Higher Welfare Payments Could Lift Australian Economy, RBA Says


Higher Welfare Payments Could Lift Australian Economy, RBA Says By Bloomberg

© Reuters. Higher Welfare Payments Could Lift Australian Economy, RBA Says

(Bloomberg) — When a popular Australian breakfast television show recently referred to unemployed people as “dole bludgers,” the social-media backlash from outraged viewers was telling.

A wave of tweets showed unexpected and widespread support for jobless people struggling on benefits that haven’t risen above inflation for 25 years. The hashtag #NotaDoleBludger added momentum to a campaign to increase welfare payments — known as Newstart — with RBA Governor Philip Lowe adding to voices saying it could help boost the slowing economy.

But there’s one crucial opponent. The coalition government argues jobs are available for those who really want them and the economy doesn’t need more stimulus given recent tax cuts. It also doesn’t want to jeopardize a forecast return to budget surplus that would be the first in over a decade.

“From an economic point of view, Newstart is one of the best ways of providing stimulus because those who are on the lowest incomes have the highest propensity to spend,” said Nicki Hutley, a partner at Deloitte Access Economics, a consultancy. “So pretty well everything extra these people get will be put back into the economy.”

The debate highlights Lowe’s frustration as he seeks to persuade Scott Morrison’s government to inject fiscal stimulus into the economy, which is growing at the slowest pace in a decade. So far, the central bank is doing much of the heavy lifting, following back-to-back cuts that slashed the cash rate to a record low 1%. With the prospect of unconventional monetary policy now gaining traction, Lowe’s calls for fiscal help are becoming more regular.

The well-worn stereotype of unemployed Australians is of young people smoking pot on the beach, one that’s long been perpetuated by politicians and tabloid newspapers. The Daily Telegraph in 2016 cheered government plans to “turn back the dole bludgers,” saying there were “plenty of candidates lying in the sun” at Sydney’s famous Bondi Beach.

But Newstart recipients are just as often older people not far from retirement who have been retrenched and have very little chance of finding a new job.

“If people who are getting Newstart got more money they would spend it, and so aggregate demand would rise,” Lowe said Friday in response to a question from a parliamentary panel in Canberra. “In the short run I think you get more stimulus from giving money to people who have a high propensity to spend that money, and that’s obviously lower-income people.”

Still, as he sought to tread carefully in government territory, Lowe conceded that lifting benefit rates would of course cost the budget money and so required a delicate balancing act.

Unlikely Support

Lowe has some unexpected company. John Howard, prime minister from 1996-2007 who led a crackdown on people on unemployment benefits and introduced tougher application processes, has voiced his support for raising Newstart. As has John Hewson, a predecessor of Howard’s as Liberal party leader who lost an election on a program to strip Australia’s welfare state to the bone.

The public also appear to be coming around. Channel Seven’s ‘Sunrise’ breakfast show last month ran a story that almost 80% of people on unemployment benefits had their payments suspended, implying they broke the rules. The presenter said “figures have been released showing just how many dole bludgers are trying to take advantage of the welfare system.”

The program was condemned from all sides, including some conservative politicians, and was forced to issue an apology. The reality, it turned out, was that payments were often suspended in error and some people were pushed onto the streets over the failures.

Hewson now says there is “an overwhelming case” for a catch up in Newstart payments, noting that at about A$275 ($187) per week, it’s almost A$200 per week less than the aged pension and well below most accepted estimates of the poverty line.

Deloitte Access’s Hutley estimates that a A$75-a-week increase in welfare payments would have a range of “prosperity effects” including lifting GDP over a couple of years by 0.2 percentage point and add an estimated 12,000 jobs. Still, the government remains unconvinced for now.

“They’ve got their priorities mixed up,” said Hutley. “There’s just this stubborn ideology among a few senior politicians — the prime minister included — that puts ideology over a serious need.”

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