Cuts to JobSeeker, Jobkeeper: out of the frying pan and into the fire

by Michael Tanner | Sep 27, 2020 | Government

Hefty cuts to income support mean that Australia now faces a potentially more deadly epidemic than Covid-19. But it is largely avoidable, writes Michael Tanner.

While the wealthiest Australians can look forward to having thousands of dollars a year extra in their pockets, thanks to the Treasurer’s plan to bring forward tax cuts, the most vulnerable Australians, which now number in their millions, have just had their income slashed by nearly 30%.

The Coalition government’s proclaimed ideological shift from prioritising budget management towards job creation will provide little comfort for those Australians whose JobSeeker and JobKeeper payments have been cut. The coronavirus supplement for JobSeeker has been cut from $550 to $250 a fortnight, while JobKeeper has been cut to $1200 from $1500 a week.

Treasurer Josh Frydenberg claims his shift is a move away from austerity, which would be “damaging to the economy”. Shane Warne would be proud of the spin. Figures show that Australia’s income support for people who are unemployed will now fall to one of the lowest in the OECD, the group of 37 mostly wealthy countries. It will be higher than only Greece and New Zealand. (The old Newstart rate of $40 a day was the lowest in the OECD).

Hallmark of austerity

Low expenditure on social services, which includes income support, is a hallmark of austerity. The government’s claim that higher (read: adequate) income support payments disincentivise people from applying for a job is getting repetitive. And this is one falsehood that will never become true, no matter how many times it is repeated.

There are already 13 jobseekers for every job vacancy. Vacancies for dishwashing and similar jobs have seen thousands of applications per role. Not only are there simply not enough jobs to go around, but higher social support has been linked to making it easier, not harder, to get a job. Pushing people further into poverty makes them less, not more, likely to get a job.

Prime Minister Scott Morrison – in a pre-recorded interview for ABC Insiders – was unable to answer a straightforward question of whether or not Treasury had done any modelling on the economic impacts of cutting the coronavirus supplement. His dodging of questions spoke volumes.

Deloitte has, however, modelled the economic impact of cutting the coronavirus supplements. It suggests the cuts will cost the economy $31 billion and 145,000 jobs over the next two years, doing more harm than good. The Australia Institute agrees. Australia’s most eminent economists agree. Even the Reserve Bank agrees that the baseline welfare payment should increase permanently.

The more concerning issue, though, is the downstream health effects. Australia is facing a potentially more deadly epidemic than Covid-19. An epidemic of suicide, poverty, homelessness and early deaths. But unlike the Covid-19 pandemic, this epidemic is largely avoidable.

Recessions have a curious influence on health. They do lead to some better health outcomes – when people have less money, their use of alcohol and cigarettes sometimes decreases; participation in exercise can increase, as people without a job have more time.

Serious harms await

But there are serious harms, too. And these reflect the downstream effects of government policies.

When austerity policies – reducing government spending – are introduced in times of recessions, the health effects are profound. Mental health problems increase, leading to an increase in the number of suicides. Reduction in unemployment support leads to increased rates of poverty and homelessness, which lead to a skyrocketing risk of the spread of infectious disease, development of multiple medical conditions, and early death.

The collapse of the Soviet Union in the early 1990s resulted in extensive privatisation and dramatic cuts to social spending. This saw an estimated three million excess deaths in the years that followed. Following the East Asian financial crisis in 1997, there were 10,400 more suicides across Japan, Hong Kong and Korea in 1998 compared to the previous year. Malaysia refused to cut government spending and sailed through with the nation’s health intact.

Burdening the health system

These are but a few examples of the profound damage austerity can cause. The damage is exacerbated by cuts to health budgets that often occur in times of financial crisis, particularly when tax revenue is down. Yet at these times, the burden on the health system is greater, with more appointments and services required, leading to worse health outcomes because of the overloaded system.

We have spent much of 2020 seeking to minimise the spread of Covid-19 and ensuring hospitals are never overwhelmed. Australia has done a remarkable job from a global standpoint.

Yet the worst has passed, and the government has now started withdrawing one of the most important weapons in the arsenal for continuing the fight against Covid-19.

The effective unemployment rate already sits at 13%. Now with the cut in JobKeeper, we can add another 145,000 Australians to that tally, many of whom will be plunged into poverty. The Guardian interviewed four young people last week, who had been beneficiaries of the Covid-19 supplement. Freya, 22, was able to pay for her arthritis medication, and afford her room in a share house, without skipping meals. Similarly, Jess, 21, and Jade, 24, were able to buy medication they needed, eat fresh food and not skip meals.

Advance Australia Unfair: tax cuts to favour men over women, old over young, rich over poor

Beyond poorer nutrition and the unaffordability of essential medications, countless Australians will lose a safe roof over their heads. Homelessness is associated with extraordinary rates of infectious disease, from tuberculosis to scabies – largely a result of inadequate access to services that enable adequate hygiene. Think it’s possible to socially distance in a homeless shelter? Think again.

With unemployment rates so high, people will not stay home when unwell due to fears of losing work – which has been considered a major driver in the spread of Covid-19 in Melbourne.

The government is cutting taxes and putting more money in the pockets of wealthy Australians, while withholding support from the poorest Australians. Reduced spending on social services is the root of many of the health consequences of past recessions. The Coalition’s temporary swing to the centre lasted long enough for the worst of the pandemic to subside – then it was back to the free-market policies that have seen a meteoric increase in the wealth of billionaires in 2020 while global poverty is increasing for the first time in decades.

Society pays price for inequality

But even those who support the removal of JobKeeper should be concerned. Cutting taxes for the rich while reducing welfare is going to turbocharge the increasing inequality that successive Liberal governments have presided over. The thing about inequality is that it leads to entire societies performing worse, not just the lower socio-economic groups affected. Infant mortality; drug abuse; poor mental health; obesity; child wellbeing; education; teenage birth rate; imprisonment; violent crime and homicide.

The Covid-19 pandemic was always going to lead to economic crisis. But the government can respond in ways to tackle it. In the wake of the global financial crisis, the federal government increased fiscal stimulus – as advised by the then Treasury secretary Ken Henry: “Go early, go hard and go to households.” Australia was one of the few countries in the world to avoid a recession.

There is another way to tackle the economic crisis Australia faces. Instead of taking inspiration from Thatcherism and Reaganism, Frydenberg and the Coalition should look closer to home at Kevin Rudd’s and Ken Henry’s response to the global financial crisis – a path that promises recovery for both the economy, and our health.

Michael Tanner is completing a Doctor of Medicine/Doctor of Philosophy. His writing explores the intersection of economics, the media and public health. His writing has also been published in The Age.

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