Judith Sloan’s intriguing argument about Newstart Allowance

Judith Sloan surprised participants at the government’s Tax Forum in October when she suggested Newstart Allowance wasn’t adequate. She made the same claim in a piece for the Drum writing: "If we are to expect the unemployed to search for employment with confidence, there is no point pushing them into grinding poverty."

At less that $245 a week, it’s easy to see how spending months or years on Newstart might make it difficult to look for work. Even with Rent Assistance it’s hard to afford accommodation close to where jobs are far from easy to maintain a car. But Sloan seems to have something else in mind. She writes:

… there are messages in the patently inadequate allowance for the unemployed – you are not as deserving as those on other allowances, you are at fault, you should simply find a job. It is not at all clear that these messages are the best way to motivate and encourage the unemployed to gain employment.

If you remained unemployed after months of calling employers, sending out CVs and knocking on doors, what conclusion would you draw? Perhaps you’d decide that there was something wrong with you, something you couldn’t fix. And maybe you’d decide to apply for the Disability Support Pension so that you can stop making a nuisance of yourself with employers — after all, they always seem to want someone younger, fitter, more experienced or better looking. So perhaps the only way to prove that you’re not a dole bludger is to be certified as unemployable.

The classical economist Adam Smith argued that poverty led to shame, encouraging people to withdraw from social contact. Sloan seems to be suggesting something similar. She might have added that if the government’s approach Newstart acts as a signal that the unemployed are unwilling to work, that’s hardly the message they want to be sending to potential employers.

Sloan’s preferred approach seems to be a combination of greater labour market flexibility to create jobs, tough job search obligations and more stringent eligibility conditions for the disability pension to discourage withdrawal from the labour market, and a more adequate rate of Newstart Allowance.

I may not have this exactly right, so it would be interesting to hear Sloan elaborate on her argument for increases in Newstart.

Note: I’ve written about Adam Smith’s views on poverty here: What if Adam Smith was right about poverty?

This entry was posted in Economics and public policy. Bookmark the permalink.
Subscribe
Notify of
guest
50 Comments
Oldest
Newest Most Voted
Inline Feedbacks
View all comments
Yobbo
Yobbo
9 years ago

Isn’t the argument pretty straightforward? Newstart isn’t enough to live on, and other beneficiaries (e.g. single mothers and the disabled) are paid a higher rate, so newstart recipients should be paid more.

It’s very difficult to look for a job when you can’t afford to pay rent, let alone buy a suit or put petrol in your car.

You can’t even rent a room in a share house in Perth for less than $175 per week now, that’s more than half of the newstart allowance (yes, including rental assistance which is a laughable $60pw) alone, without even buying a loaf of bread.

Dan
Dan
9 years ago

I was at a conference recently where one of the presenters put up a ledger for indicative basic living costs per week, and pointed out that once these are accounted for, Newstart recipients come out $25 in the red week-in, week-out. It’d be nice to have a political consensus for action on this.

conrad
conrad
9 years ago

Yobbo, it looks like you and Judith are going to go into the Catallaxy Hall of Shame for this one. Think of how little incentive these people would have to go and work if they wern’t in desperate poverty. And Don (who is no doubt already in the Catallaxy Hall of Shame) is obviously ignorant of how one can live cheaply, as he obviously assumes that these people have an entitlement to have a well serviced car when one can live quite happily without a car (and yes Yobbo, I know you live in the middle of nowhere, but people in these places should obviously have to move closer to where work and useless government training programs are).

Julie Thomas
Julie Thomas
9 years ago

It does seem unusual that Judith is talking about welfare without making the argument that welfare actually ’causes’ people to be lazy and stupid and destroyes all incentive to work.

I was thinking that maybe they have been reading that other book Adam Smith wrote; the one that provides a perspective on poverty that Don Arthur talks about on the earlier post he links to.

I was thinking that this was a real advancement in their ability to detect insanity but then I read the Liberty Quote that comes with Judith’s post. It goes like this

“Throughout history, poverty is the normal condition of man. Advances which permit this norm to be exceeded — here and there, now and then — are the work of an extremely small minority, frequently despised, often condemned, and almost always opposed by all right-thinking people. Whenever this tiny minority is kept from creating, or (as sometimes happens) is driven out of a society, the people then slip back into abject poverty.

This is known as “bad luck.”” — Robert Heinlein

Sancho
Sancho
9 years ago

“it looks like you and Judith are
going to go into the Catallaxy Hall of
Shame for this one.”

Doubtful. You’re talking about a site where “libertarian” means supporting massive public subsidies for private businesses, and people only stop screaming about the imperative of personal freedom to declare that gays and Muslims shouldn’t have personal freedom.

The Hall of Shame is reserved for loonies who somehow can’t quite believe that a global Marxist-scientific conspiracy is afoot to destroy capitalism.

Yobbo
Yobbo
9 years ago

The LDP (and by extension a large section of Catallaxy readers) supports a NIT. The big problem for libertarians is the high minimum wage and poor EMTRs associated with the current welfare system.

I actually fail to see how anyone can live on $300 per week in today’s Australia if they have to pay their own rent. If they are living in publically provided housing/with relatives then it’s doable, but $300 to cover all your expenses simply doesn’t add up, even just for the bare necessities.

Not to mention that to even get that $300 you would be required to work 15 hours/week on WFTD after a period of time, which is going to add more expenses in getting to/from work, additional clothes etc.

JC
JC
9 years ago

You’re talking about a site where “libertarian” means supporting massive public subsidies for private businesses, and people only stop screaming about the imperative of personal freedom to declare that gays and Muslims shouldn’t have personal freedom.

Sanchez, always the drama queen, aren’t you? Yobbo is giving a pretty decent account what most people at The Cat think about the NSA. You’re input is not very helpful nor relevant.

Nicholas Gruen
Admin
9 years ago

There is political consensus on lifting the rate – so long as someone else pays. It’s expensive and no government so far has been prepared to reach into its own pocket (ie ours) and pay up.

Interesting how much and how quickly relative income matters – after all, IIRC, this amount was normal until the two types of benefit started departing from one another, one indexed by CPI, the other by AWE.

Yobbo
Yobbo
9 years ago

They need about an extra billion dollars per year right?

Just close down the ABC, problem solved.

billie
billie
9 years ago

I still prefer Bill Mitchell’s policy of just create more jobs. That means that the government has to create work and encourage private industry to employ Australians. This is a complete reversal of the current trend to outsource and offshore everything.

Alternately shoot all the ‘dole bludgers’. I could suggest that Centrelink and the employment agencies just pay the unemployed more without micromanaging their subsisting on $235 per week, sorry 50% is quarantined for spending at Target and Coles on your Basics Card, rent isn’t paid out of Basics card. However if Centrelink stopped policing the unemployed the Centrelink workers would become unemployed

Yobbo
Yobbo
9 years ago

sorry 50% is quarantined for spending at Target and Coles on your Basics Card

That would work well for people who live 400km from the nearest Coles.

conrad
conrad
9 years ago

“They need about an extra billion dollars per year right”

How much do all of those silly WFTD programs and other such annoyances cost? There’s some more savings for you — I’ve no idea why conservatives like them even though most studies show they have no efficacy at all. Politics trumps reality. Surely the pitiful amount on offer is really a big enough stick without all the annoyance.

Peter Whiteford
Peter Whiteford
9 years ago

Nicholas and Don

The other thing is that between the mid-1990s and 2008 Australia had a dozen years of real income growth, and between 2003 and 2008 the real income growth was massive – the fastest rate since the 1960s. Real income growth was pretty widely spread – but not to the unemployed.

My calculation is that the single rate of Newstart fell from 47% of median household income (i.e. a little below the standard relative poverty line) in 1995 to 36% in 2010 (i.e. a long way below). In contrast, indexation to wages meant that for most of the period the single rate of disability pension was just over 50% of median income, and the government’s increase in 2009 raised this to 53% currently (not including the bonus payments pensioners get).

Western Australia has had the fastest rate of income growth in the period, so in a relative sense Newstart recipients have fallen even further behind in that state.

I think it is also likely that one of the main impacts of rising incomes across the community is the rise in house prices and therefore also in rents, and as Yobbo points out rent assistance is increasingly inadequate and reinforces the inadequacy of the basic Newstart level.

The situation is going to become even worse next year because the compensation for the carbon tax is a fixed percentage of benefit rates. Since the single rate of benefit is about 60% of the single pension rate, the amount of money they will receive is 60% of what a pensioner will be paid.

Sancho
Sancho
9 years ago

You’re input is not very helpful nor relevant.

LOL.

Here are some recent hits from DJ JC. In a discussion of media diversity in Australia:

[The Greens} don’t quite the level of nazijew hating because Riahnnon’s faction hasn’t quite made it yet to holding more power inside the party than the fascist faction.

You are a sick paranoid person who has no business getting involved in these discussions.

you are in some sort of paranoid vortex. You’re really quite sick. Get help.

You are basically a fascist without a set of balls to admit

Calling you fascist, paranoid and other things are reality based as you are all those things and also incredibly dull. I mean, I think you really are a paranoid fascist

pathetic mentally impaired mummy’s boys like you

You stupid useless sack of shit

You pathetic Fascist clown

you punch drunk clown

Hypocritical twit

you stupid fucker.

Regarding the elected prime minister of Australia:

Well fuck her and the last breath she takes as PM.

You pathetic moron

you fucking clown

The desire not to lose power is what motivated the fucking imbecile.

And a couple of runners up:

Don’t slink away like a cowardly rat. Answer [the] questions.

Yup. That was JC, author of the above quotes, telling another poster to talk straight and stop avoiding serious debate.

Also, although unrelated to this thread, this little gem is worth noting:

[climate change] does cause a little concern to me, although I will unfortunately be dead by that time.

As my my kids and their kids? They can sort their problems out.

JC
JC
9 years ago

Sanchez

Is that supposed to embarrass in front of my master here, is it. Lol.
The horror.
It doesn’t.

You need to get back to calling right wingers creationists and winging it that way.

Sancho
Sancho
9 years ago

That depends on whether being an abusive hypocrite is embarrassing or not. I believe it is, but as someone who will gladly sacrifice the welfare of his children to give Rio Tinto shareholders a financial boost, you may have a different perspective.

Now, I’m very interested in highlighting the similarity – or, rather, the embarrassingly few differences – between religious creationists and science denialists, it probably isn’t a fair use of this thread.

If you have somewhere else to continue, please nominate it.

JC
JC
9 years ago

An abusive hypocrite? Lol.

You frequently post at The CAT accusing people of being creationists and nonsense like and then somehow expect to treated with a modicum of respect. Come on now, Sanchez that’s asking for the world.

Now, I’m very interested in highlighting the similarity – or, rather, the embarrassingly few differences – between religious creationists and science denialists, it probably isn’t a fair use of this thread.

Are yes, your scientific observations carried out in a laboratory that will soon be published in peer reviewed journal coming to a newsstand near you.

I right at this moment working on a lab experiment that will prove you are spambot and not human.

Perhaps we could combine both research pieces and ship them off to the journal.

And the sacrifice stuff was meant to be an attempt at humor, as some of us there were messing around, something you’ve devoid of. No surprise there though.

Dan
Dan
9 years ago

Well, this restores my faith in humankind.

Richard Tsukamasa Green

Don – I wonder if Sloan would be willing to draw any parallels between the negative messages she finds implicit in an inadequate Newstart allowance and the more explicit negative messages in the old poor house system of relief.

I remember in uni coming across exchanges between MMT advocates of job guarantees and libertarian advocates of unconditional minimum income. The exchanges were largely at cross purposes, the former arguing on the basis of their understanding of macro and the latter arguing on the basis of the stigma that a universal minimum income could avoid. Sloan certainly isn’t arguing for the latter, especially the unconditional part, but they fall roughly into the same tradition.

Unfortunately it’s a tradition that can easily be overlooked, given that the misanthropic tradition in classical liberalism/libertarianism is always louder even when a minority.

Julie Thomas
Julie Thomas
9 years ago

LOL very intersting interchange; so revealing.

But ‘the dole’ is a very important issue when the economic orthodoxy is that there has to be some unemployment. The article you link to Don is great but I have to disagree with the first sentence; the dole bludger myth has never been laid to rest; it’s just so useful to have someone to blame.

Yobbo says that the LNP supports an increase to the newstart but only last year, “Mr Abbott told a group of West Australian mining bosses the welfare system gave people incentives to dodge work and he was considering banning the dole for people aged under 30.”

http://www.adelaidenow.com.au/news/national/dole-or-no-dole-who-benefits/story-e6frea8c-1225856625060

Yobbo
Yobbo
9 years ago

No, I said the LDP does.

Julie Thomas
Julie Thomas
9 years ago

Dyslexia is another of my disabilities, so I’ve been wondering if JC stands for Jeremy Clarkson?

Yobbo
Yobbo
9 years ago

Dyslexia turns D’s into N’s does it?

Your disability is assuming things about people that you’ve never talked to before.

JC
JC
9 years ago

How many disabilities do you have Julie? You always sound bright chirpy if a trifle mixed up with economics and stuff like that.

No, JC isn’t Clarkson. (I do like his general choice of cars at times).

Julie Thomas
Julie Thomas
9 years ago

JC I can’t find a psych who will diagnose me so I’m not sure how many disabilities I actually have; I may just be attention seeking or excusing my impusivity.

But surely you realise that it is economics itself that is mixed up, not me. If I could find any ‘consensus’ in economics or among economists, I might be convinced that it is an important thing to understand. Is there any hope of the science being settled soon?

I would like to know when you people of the right realised that the unemployed need a decent amount of money to live on while they look for work and do you know why Tony Abbott would think that people under 30 don’t need any income?

Julie Thomas
Julie Thomas
9 years ago

Yobbo there are so many varieties of right wing people, I am sorry to have stereotyped you.

Dan
Dan
9 years ago

‘…do you know why Tony Abbott would think that people under 30 don’t need any income?’

Isn’t that what ‘battler’ parents on six-figure incomes with McMansions in the suburbs are for? I guess you could think of it as private sector welfare provision.

spog
spog
9 years ago

A bit of trivia…
The partnered rate of Newstart and the partnered rate of pension were the same before the “great unlinking” that NG alluded to in post 8 above. So, the current partnered Newstart rate is, more or less, how much pension would be if it had not been benchmarked against wages growth (ignoring the last round of ad-hoc pension increases from the pension review in 2009). Benchmarking to wages, rather than just CPI, has made a huge difference.

It’s a similar story with the single Newstart rate, except more complicated. There are currently 3 single rates. The middle one was equal to the single pension, and like the partnered Newstart rate, shows you what pension rates would be without wages benchmarking and the single/partnered rate relativities change made in 2009.

Steve from brisbane
Steve from brisbane
9 years ago

So, we are still left with the mystery of why Judith’s suggestion has not, to my knowledge, ever been the subject of a post at Catallaxy. I can’t even recall it being the subject of a comment in a thread, but I could be wrong.

Yobbo
Yobbo
9 years ago

Perhaps because the authors there are too busy dealing with your constant trolling Steve.

KB Keynes
KB Keynes
9 years ago

no yobbo it keeps on rolling out propaganda Goebbels style which people like you are too stupid to know is wrong.

Examples:

an example of re-regulation was the prosecution of an employer for sacking a married woman for getting pregnant. no kidding one of Judy’s stunning ‘forensic analysis

Alleging a similar proposal to outlaw employees becoming ‘contractors’ was outlawed under pattern bargaining . only problem Judy hadn’t read Section 415

there is also her her wholly inaccurate slagging of Bernie Fraser where she either did not know what happened when he was in Treasury or at the RBA or lied through her teeth about it. Significantly no-one at Catallaxy picked this up.

We also have the ‘minor’ problem of Sinclair Davidson maintaining there are expansionary budgets and a large spending problem when we are in the largest fiscal contraction we have seen. The government is taking money OUT of the economy not adding to it.
this of course to his very long record of getting fiscal policy wrong.

One could go one but why bother.

Dan
Dan
9 years ago

Perhaps, although Occam’s Razor would suggest groupthink as a more likely cause. After all, they find time to post about silly, ideologically blinkered things.

conrad
conrad
9 years ago

“So, we are still left with the mystery of why Judith’s suggestion has not, to my knowledge, ever been the subject of a post at Catallaxy.”

Scratching back through my possibly false memories, I think there has been actually. At a guess, I would also think Yobbo is wrong in believing most of the regular commentators their think that there should be a negative income tax starting at 30K, presumably indexed for when John Humphreys thought of it a few years ago (I might also point out that the even John Humphreys has gone off his own idea, although that may be because he now has to tow any old silly Liberal Party Line — and does it appears.).

KB Keynes
KB Keynes
9 years ago

conrad that is because that idea is friedmanite and Milton didn’t think very highly of Hayek’s economics.

Actually i am stunned none over there know of Sraffa’s demolition of Hayek and why Hayek then turned to philosophy which he was quite good at.

JC
JC
9 years ago

Homer says:

We also have the ‘minor’ problem of Sinclair Davidson maintaining there are expansionary budgets and a large spending problem when we are in the largest fiscal contraction we have seen. The government is taking money OUT of the economy not adding to it.

The OECD says:

The budget deficit for the OECD area as a whole probably peaked at around 7.5% of GDP in 2010. That’s the equivalent of some US$3.3 trillion. A decrease to around 6.1% of GDP is expected in 2011……

Yep, it’s a contraction never seen since the birth of Jesus. We’d have to go to the time of the Pharaohs to see such a contraction.

KB Keynes
KB Keynes
9 years ago

wow, Australia and the OECD is the same thing.

by the way the budget can be in defcit but the government taking money out of the economy. you learn that in third year at Uni
what a genius

JC
JC
9 years ago

Homer

The only institution able to take money out of the system is the central bank through open market operations. A government borrowing less is not taking money out. I’m surprised you have to re-learn some quite basic stuff at times. But there you go.

Tel
Tel
9 years ago

by the way the budget can be in defcit but the government taking money out of the economy. you learn that in third year at Uni

Did the uni teach you where it all goes? I’m curious.

By what mechanism does the money leave the economy?

KB Keynes
KB Keynes
9 years ago

JC you are confusing concepts.

The government takes money out by tighter fiscal policy. this is what we have here.
This has a negative impact on GDP. It can ( and usually is in good times as Keynes said it would) be offset by capital expenditure, consumer spending, net exports.) We saw this happen yesterday.

On the other hand in Europe there are n o offsets so the economy contracts.

It leaves the economy because the government is spending less money.

If you ever study economics you will find out.

If spending is the problem then the economy would be rocketing, interest rates would be high getting higher as would wages..As you can see this just ain’t happening here or in Europe.

JC
JC
9 years ago

The government takes money out by tighter fiscal policy. this is what we have here.

You mean by taxing more? Spending isn’t being cut.

This has a negative impact on GDP. It can ( and usually is in good times as Keynes said it would) be offset by capital expenditure, consumer spending, net exports.) We saw this happen yesterday.

Nonsense. There is no long term correlation between bringing the budget into balance and employment./GDP growth. It’s a myth. If there is a long term correlation then prove it.

On the other hand in Europe there are n o offsets so the economy contracts.

Europe is being hit by a serious and potentially ruinous deflationary wave. The solution as always is monetary and the ECB knows what to do if it so chooses.

Having said that, it would be a good idea to explain what other choice a country like Greece has other than to retrench as I don’t quite see the expansionary potential borrowing at 150% has even if it could.

You don’t seem to understand that the capital markets is essentially reducing appetite for sovereign debt.

It leaves the economy because the government is spending less money.

It does not leave the economy. A government has two choices. It can either borrow or print. If it chooses to borrow that has no direct impact on the broad money supply. It takes the money out of the system by borrowing and then immediately puts it back in by spending. Net impact is about zero. It’s another story if it chooses to print.

If you ever study economics you will find out.

I did and and did. You should try it some time instead of expounding gunk.

If spending is the problem then the economy would be rocketing, interest rates would be high getting higher as would wages..As you can see this just ain’t happening here or in Europe.

Yes because high real rates and a central bank led by an incompetent caused a potential fatal deflationary impulse.

KB Keynes
KB Keynes
9 years ago

the deficit has been reduced by taxes.
nooo

Receipts as a % of GDP are only expected to be 23.9%of GDP when the budget make it into the black. compare that to Costello’s last when it was 25.2%

Outlays as a % of GDP falls from 26% of GDP when the Stimulus was at its peak to 23.6% of GDP when the budget makes it into the black.

That is below all but the last Costello budget.

wow wrong again.

Serious deflation brought on by moronic austerity measures which have made deficits and debt worse.

you then get confused by the fiscal impact on the economy and how a government finances itself.

That is learnt in first year!

wow so you are disagreeing with Davidson that government spending is the problem.

Well done you might just learn something yet.

rog
rog
9 years ago

Take out spending on mining and associated infrastructure and we have a pretty weak economy not helped by current obsession with self inflicted austerity.

JC
JC
9 years ago

the deficit has been reduced by taxes.
nooo

Lol So which spending is being cut? Itemize please.

Receipts as a % of GDP are only expected to be 23.9%of GDP when the budget make it into the black. compare that to Costello’s last when it was 25.2%

Interesting, last year’s projection was a deficit of around $23 Billion and came in at $37 billion which is almost 50% out. But go ahead keep pretending projections are real thing.

Frankly I’d like to see the proof they are below Costello’s last budget as I think you are confusing things in terms of receipts and outlays. Not surprising with you.

Outlays as a % of GDP falls from 26% of GDP when the Stimulus was at its peak to 23.6% of GDP when the budget makes it into the black.

That is below all but the last Costello budget.

wow wrong again.

Homer, you making shit up as you go along and/or confusing tax receipts with outlays.

Serious deflation brought on by moronic austerity measures which have made deficits and debt worse.

No, serious deflation brought on by an inept, politically influenced central bank (by the Germans). There is no way to avoid closing the deficit because the capital market will simply not lend to these governments. This is something that doesn’t sink in, does it?

People will not lend to them the sums they used to borrow and as a consequence they have to retrench. There would be nothing wrong with that if the central bank was accommodating, but so far it hasn’t, therefore making things worse.

you then get confused by the fiscal impact on the economy and how a government finances itself.

That is learnt in first year!

Homer, let me repeat. Governments have only two choices. Yhey either borrow or the print the cash. If they borrow it doesn’t create any money and reducing borrowing doesn’t remove any money. They can only achieve this if they print.

If you don’t understand that, you should have never called yourself an economist.

wow so you are disagreeing with Davidson that government spending is the problem.

Stop being an asshat. There is no evidence that retrenchment would cause a calamity you are predicting as government spending is reduced over the long term. If you have evidence then show it. The central bank also needs to be accommodating in such a situation.

You should stop talking about economics as you have no head for it , Homes. If you ever get something right and sounds barely coherent, it’s always a fluke.

rog
rog
9 years ago

What country are we in?

JC
JC
9 years ago

I you have to ask, Rog, you should quickly get someone close to you to call 000 for an ambulance, as you could be slowly stroking.

rog
rog
9 years ago

The only stroker around here is you.

KB Keynes
KB Keynes
9 years ago

JC go read the budget statements:
Table D1 in Appendix D of the Mid-Year Economic and Fiscal Outlook 2011-12 to be precise.

Then your ignorance is exposed.

Deflation is occurring because of austerity. It wasn’t sighted previously.

you are still mixing up how a Government finances its budget to its fiscal impact.
not surprising.

No if Davidson is correct and Europe have a spending problem then we would be seeing no output gaps, indeed capacity constraints to the fore and the ECB would be upping interest rates because of rising inflation.

spending cannot be a problem when deflation is the topic.

so you are disagreeing with Davidson whether you understand it or not.

Actually it is the same here. If spending was the problem we would be seeing inflation rising not falling, wages rising not falling and interest rates rising not falling.

As usual Davidson is economically incoherent

trackback

[…] Club Troppo » Judith Sloan’s intriguing argument about Newstart Allowance The classical economist Adam Smith argued that poverty led to shame, encouraging people to withdraw from social contact. Sloan seems to be suggesting something similar. She might have added that if the government’s approach Newstart acts as a signal that the unemployed are unwilling to work, that’s hardly the message they want to be sending to potential employers. Sloan’s preferred approach seems to be a combination of greater labour market flexibility to create jobs, tough job search obligations and more stringent eligibility conditions for the disability pension to discourage withdrawal from the labour market, and a more adequate rate of Newstart Allowance. If you remained unemployed after months of calling employers, sending out CVs and knocking on doors, what conclusion would you draw? Perhaps you’d decide that there was something wrong with you, something you couldn’t fix. […]