Welfare as a Loan?

In Australia welfare normally comes as a gift.  You get money during a crisis and aren’t expected to pay it back.  However, it is worth asking if people on some types of welfare might be better off with some form of welfare as a loan (WAL) that provides more money during a crisis.  This post looks at how WAL might work for the unemployed:  

When writing  “Is Harassing the Unemployed Justified?”  what struck me just how harsh the current unemployment support system is.  For example during Sept 2014, the system would have made a single person with $5500 of fluid assets wait 13 weeks before unemployment benefits started.  In addition, the allowance for a single person was low at $250 per week (39% of the minimum wage.)  Worst of all, the before tax claw back can be as high as 60% for someone getting work at the minimum hourly rate.  The consequence of this is that, under some circumstances,  unemployed people can actually be out of pocket if they increase the amount of work they do.

A key driver for this harshness is welfare as a gift.  Anything done to reduce this harshness adds to an already large welfare bill.

WAL should not be just about reducing the welfare bill.  A good system should:

  1. Provide more help when it is really needed.
  2. Encourage people to delay borrowing money until they really need to.
  3. Provide more incentive to take casual work or risk taking a particular job.
  4. Avoid some of the costs and rorts associated with the existing system.
  5. Use the total amount owed to help work out who needs help or hassling.
  6. Reduce the stigma of “being on the dole.”

It is worth noting that, for financial years 06/07 to 10/11  only 14 to 19% of the unemployed had been unemployed for over one year with  50 to 58% having been unemployed for less 13 weeks. This suggests that Clive Palmer is not the only Australian who could afford to repay unemployment benefits received in the past.

The following is one suggestion for a WAL unemployment system:

  1. Most cash benefits would come as a loan.
  2. The loan would be $1.20 for every dollar received.  (Provides an incentive to delay taking the loan or borrow less initially.)
  3. The unemployed would be able to accumulate the right to borrow.  (Encourages people to delay taking a loan by assuring them that, if they decide it is necessary, they can borrow up to the full accumulated amount.)
  4. The amount outstanding is not indexed.  (We want as few people as possible to owe so much that there is no incentive to delay borrowing more.)
  5. The rate of repayment would depend on income in a similar way to the HECS system.
  6. The HECS and welfare repayment systems would be run together.  The total rate of repayment would be the same for someone with a combined HECS/welfare debt as they would be if they were on either a HECS or welfare debt.  (This is about fairness.)
  7. People would have the right to enter the WAL system as soon as they lose their job no matter whether they were retrenched or decided to leave the job.  (This is about removing one of the disincentives for taking a not particularly attractive job in the first place.)
  8. Some form of asset test would still apply but it should be more generous.  (Keep in mind that people with fluid assets will probably delay taking the loan anyway because of 2 and 3 above.)
  9.  There is obviously a need to reduce the rate at which a loan can grow when people get some other income.  However, the rate at which this kicks in should be slower.   (Keep in mind that many people may delay extending the loan anyway because of 2 and 3 above.)

There are other things that should be done to help reduce unemployment and welfare costs.  For example:

  1. Accept that there is a real and significant shortage of work.
  2. Start talking about work hogs, the employers that encourage people to be work hogs and the importance of sharing the available work.
  3. Levy the employers that allow/force people to be work hogs.  (Use the levy to pay the cost of our unemployment system.  Seems fair to me.)
  4. Levy employers that are using 417 visa’s etc. to avoid employing and training Australians.
  5. Stop vilifying the unemployed and get rid of policies that are all about punishing the unemployed for government and business failure.
  6. Set priorities.
    • Get at least one breadwinner employed  for families with dependant children.
    • Get the young employed.
    • Then worry about people who are close to retirement.
    • Those who don’t really need the income (or who would be happy on the dole) and who are happy to get the social benefits of working by volunteering, trying to start a new business or…
  7. Accept that people who are happy to be unemployed are an asset at times when there is a shortage of work.  (These people may make significant contributions to society as unpaid volunteers, micro business developers etc.)
  8. By all means encourage unemployed people to volunteer for community etc. work.  (However, don’t use these unpaid volunteers as a replacement for paid employees.)
  9. Understand why some jobs are hard to fill and try and do something about it.
  10. Understand what it is like to be on the minimum wage.
  11. Stop trying to drive down the income of the customers our business’s depend on.

Given a choice I would go for a fairer sharing of jobs and wealth ahead of improving the unemployment benefits scheme.

3 thoughts on “Welfare as a Loan?”

  1. What an excellent article!

    The underlying assumption is that such a system would be run by a rational, benevolent government for the benefit of all. Now that, we do not have – and, given the cosy (if noisy) closeness of one party to another, we are unlikely to get.

    Missing from the article is mention of the causes of welfare dependency, such as Fussy Employers who are rewarded by the taxpayers for causing unnecessary unemployment.

    Nor is there mention of Credentialism and its related evil, shonky “Standards”, which, through causing a massive blowout in child-care, health and housing costs, have bogged down labour mobility and thrown more and more people onto welfare dependency.

    How about counter-productive regulations and policies – in both business and government – that cause welfare dependency and discourage people supporting themselves? The ATO crackdown on grey nomads doing seasonal fruit-picking was, perhaps, the most egregious example of a horribly-expensive policy blunder that increased welfare dependency – but the corporate world is little better.

    Thanks for the article, John D. I shall have a lively discussion over it with my fellows – but definitely not within the hearing of a government or corporate decision-maker; don’t want to give those fools any new ideas.

  2. Thanks GB: You are right. There is a lot more to reducing welfare dependency than changing to welfare as a loan.
    You are also right that “Education as a business” has made things a lot harder for people who need to switch industries to get a job or get into things like child care. For experienced workers wanting got make a switch what is needed is often low cost, on-line courses that concentrate on what people really need to know instead of expensive face to face courses padded out to maximize fees. In many cases all that is really needed is a government run external test that allows someone to prove that they are qualified for a job. (Even worse are some of the lurk merchants that are signing people up to courses that they are not qualified to start.)
    We also need to stop allowing Australian employers to use 457 visas and their like to avoid having to train Australians like they used to have to do in the good old days.
    However, at the end of the day the real alternatives are creating more work or sharing the work more equally.
    A read a SF story a long time ago that was built around a scheme that allowed people to borrow instead of working up to the point where they had borrowed over some limit at which point they had to go to work. The story commented that some people in this world lived simply and never reached the limit while others started working long before the limit was reached because they found satisfaction in working. An interesting alternative to our world where we need shameless advertising to keep people buying enough to grow the economy fast enough to provide full time work?

  3. John D. Perhaps this is the time to re-examine the concepts of work and renumeration themselves at look at concepts such as productive activity – so as to include motherhood, low-impact lifestyle, on-the-job training and mentoring, culturally and socially valuable activity – and also at a broader concepts of rewards.

    It annoys me that a Professor of any of the ancient and classical languages with only a couple of post-graduate students or an inspiring great-grandmother is valued far, far less that some bozo who is supposed to be a “director(??)” of several dozen companies (must be borrowing Dr Who’s “Tardis” just to keep up with them all) or far, far less than a faulty artefact pretending to be a celebrity.

    Perhaps we should foist Joe Hockey up on his own petard by scrutinizing the terms Lifter, Leaner, Entitlement, Welfare and Obligation. Somehow, I don’t think he would like open and robust enquiry into them.

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