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Economy

Jan 24, 2014

Kevin Andrews, don't pick on the disabled and those on the dole

Hands off people on the dole and disability payments, but wind back the age pension. That's what experts told Crikey about welfare reform as the government prepares to slice and dice.

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The Abbott government plans to crack down on disability payments and the dole, but is it targeting the wrong welfare recipients? Experts have called for the age pension — which costs almost five times as much as the dole — to be wound back first.

Social Services Minister Kevin Andrews recently flagged big changes to the welfare system via his regular bulletins in The Australian. He described the system as “unsustainable … the two big areas are Newstart and the DSP [Disability Support Pension] in terms of ensuring the viability and sustainability of welfare in the future”.

Crikey asked four experts about this plan and found none thought it was a good idea. So we crowned them minister for the day and asked how they’d reform welfare (and perhaps save some cash). The most popular response was to wind back the age pension or target superannuation concessions. Some suggested making the disability support program and dole work better, rather than cutting them back.

By way of background, Andrews has hinted the May budget would tighten eligibility for new recipients for the DSP and the dole, with more changes later. The government has a couple of reviews reporting back soon. While Prime Minister Tony Abbott has talked about banning the dole for people under 30, and a Nationals MP recently said people on the dole were out to “screw the system”, the only concrete proposal is to stop allowing people on the dole to refuse a job if it’s more than 90 minutes away.

Andrews has ruled out changes to the age pension — and why not, given that older people tend to vote for the Coalition? At the September federal election the Coalition nabbed 51.8% of the primary vote from the over-50s (Labor got 31.1%). Among the 18-34 age group, the major parties polled about the same (36.6% Coalition, 36.1% Labor).

The dole (aka Newstart) is $501 per fortnight (plus up to $124 rent assistance if eligible, and other top-ups). The DSP is $751.70 per fortnight (plus a supplement of $61.70 if eligible), the same as the full rate for the aged pension.

Here’s what our experts would do about welfare …

“If government wants to slow the growth in welfare expenditure, the age pension is the main game.”

Cassie McGannon, fellow at the Grattan Institute: wind back the age pension

“If government wants to slow the growth in welfare expenditure, the age pension is the main game,” McGannon told Crikey. It costs $36.4 billion a year, 10% of the federal budget. The dole costs $7.6 billion. McGannon’s issue with the age pension is generous indexation and changes to rates and eligibility, making it “relatively untargeted”. Older households with million-dollar assets may still get part of the pension. “These people are relatively wealthy, they’re doing a lot better than a lot of the people on DSP and Newstart,” she said.

Grattan wants the government to include owner-occupied dwellings in the pension assets test, and the institute calculates this would save $7 billion a year. Households in this situation but with low cash incomes could get the pension but would accumulate a debt to the government against their property (like a reverse mortgage). Grattan has also suggested lifting the age pension and super age to 70.

McGannon says it “seems shortsighted” for Andrews to rule out changes to the age pension; “you’re really limiting your options”.

Chris Richardson, economist and partner at Deloitte Access Economics: cut middle-class welfare

Richardson says the welfare system needs reform, but “I’d focus more on middle-class welfare”. Industry welfare and top-end tax breaks should be reined in, too.

He says the DSP could be looked at, particularly eligibility requirements, and says it is concerning that people who stay on the dole for a few years often end up on the DSP. But the dole should not be restricted. “The unemployment benefit is too low,” Richardson said. He’d increase it, and would not make it a pressing task to reconsider eligibility for the dole.

Rather, Richardson thinks Andrews should look at the way people on higher incomes access the age pension. Older Australians who have travelled well financially in the last decade and self-funded retires — many of whom are comfortably off — are getting good help from the government. The system should be more targeted towards people in need, Richardson told Crikey: “You do want to look at assistance to older Australians.”

Nicholas Gruen, economist and CEO at Lateral Economics: rein in super

Gruen says the government should be vigilant about welfare payments, but the expansion of disability payments is a global trend “and has proven very intractable”. He suggests expanding work-for-the-dole but notes that would cost the budget money, in the short term at least.

The best way to reform the DSP and the dole is to engage much better with individuals and communities — a question of capability, not cutting back budgets. “Actually responding to people and communities on their merits is something that not just governments but large organisations everywhere find immensely difficult,” he said (he’s written on the subject here and here).

In terms of cutbacks, “we could save a vast amount of money by tightening up superannuation concessions and taxing them more progressively”, Gruen reckons.

Natasha Cortis, research fellow at the UNSW’s Social Policy Research Centre: make the dole work better

Cortis does not support restricting eligibility for the dole. “It’s already been tightened in recent years, and affords only very low payments for those who can access them,” she told Crikey.

But the system does need reform. The real problem is that many job seekers are transitioning to casual, temporary or seasonal work, or jobs without enough hours. “We should be looking at the poor quality of work at the lower end of the labour market,” Cortis said. The government should work up programs to improve the quality of these jobs, particularly for people in disadvantaged areas. Perhaps the government could help employment services to work with employers on this.

Cortis says employment services should be overhauled to provide better support to people once they do find work, to help them keep it. “Employment services tend to work to strict KPIs and caseworkers are often underqualified, which doesn’t help,” she said.

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