Ideas@TheCentre

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Improving welfare or wasting money?

Andrew Baker | 11 January 2013

The debate over the adequacy of the dole flared up again last week when Minister Jenny Macklin MP said that she could live on the base rate of Newstart Allowance – or $35 a day.

Given that Macklin, a senior cabinet minister, is on a salary of approximately $900 a day, the ‘gaffe’ appeared to be made by someone aloof and out of touch with reality.

More accurately, Macklin fell into a trap that was set by the welfare lobby to reignite their campaign for an increase of the base rate of Newstart Allowance by $50 a week.

Government estimates placed the cost of such an increase at $15 billion over four years. Rival estimates commissioned by the Australian Greens put the cost of such an increase at $8 billion over four years.

Whichever figure you choose, if the welfare lobby is successful in increasing the Newstart Allowance by $50 a week, it will cost taxpayers billions of extra dollars every year. That is on top of existing spending commitments for the National Disability Insurance Scheme and the Gonski school reforms.

Such an increase in the Newstart Allowance will also necessarily entail wasting hundreds of millions of dollars of public money too because the data shows that even at $35 a day, Newstart Allowance seems to be serving its purpose as a short-term payment between jobs.

Around 30% of Newstart recipients move off income support within three months and more than 70% of Newstart recipients move off it within 12 months. Increasing Newstart by $50 a week will result in a windfall financial gain for these individuals without changing their behaviour.

Hundreds of thousands of Newstart recipients will receive this windfall gain if the government caves in to the welfare lobby and increases the base rate of Newstart Allowance. What this means is that the government will spend hundreds of millions of dollars of public money for no public gain.

It would be the very definition of government wasting taxpayer money.

Andrew Baker is a Policy Analyst at The Centre for Independent Studies.