Jenny Macklin is still dealing with the response to her terse answer “I could” to the question of whether she could live on unemployment benefit. But the policy shift that led her in front of the cameras is the product of a complicated history that might be worth explanation. I’m going to go from memory, and invite commenters to supply links or corrections for my recollecitons.
The story starts in the 1960s, at a time when unemployment was very low, and spells of unemployment very short. Whether in fact or reality, the archetypal single parent was a widow. The vast majority of income support took the form of age pensions, which were means-tested and set at a very low level. Around this time Ronald Henderson estimated a poverty line at 25 per cent of average weekly earnings (AWE), well above the basic pension.
Over the late 1960s and early 1970s, pensions were increased to approximately the Henderson poverty line. In combination with some additional concessions and the introduction of Medicare, these changes virtually eliminated poverty among the old.
The changes to the value of the old age pension, relative to weekly earnings have been sustained. Initially, unemployment benefits and supporting parents benefits (which replaced the former widows pension, IIRC) rose in line with the old age pension. Both were indexed to the CPI, but ad hoc adjustments kept them broadly in line with AWE. But the Howard government replaced CPI adjustment with AWE adjustment for pensions, while retaining indexation to the CPI for unemployment benefits. The result has been that the value of UB (now Newstart or some similarly Orwellian name) has fallen relative to both pensions and incomes generally.
Around 2006, the Howard government turned its attention to supporting parents, introducing a rule that recipients would go on to UB when their youngest child turned 8. At the time, the measure was strongly attacked by Labor. Here’s Penny Wong. Existing recipients were exempted (the term “grandfathered” does not seem apposite here), with the implicit promise that they would remain under the old rules. In the search for a surplus, the Gillard government decided to abandon that promise and push existing recipients with children over 8 onto UB. The question that got Macklin into trouble was about that decision.
There is a defensible case for setting the old age pension higher than UB, particularly if the government pursues active labour market policies to help the long-term unemployed find jobs. The pension needs to be enough to live on for decades, over which time household goods have to be replaced, and other long-term expenses addressed. Most spells of unemployment last only a few months, so various kinds of expenditure can be deferred. But the gap that has emerged over the past 15 years is much larger than can be justified in this way, particularly in the case of supporting parents, who are more likely to spend long periods out of employment. Instead of completing the Howard agenda, the Gillard government ought to be looking at increasing the real value of benefits, allowing the unemployed to share in some of the growth in incomes for the community as a whole.
fn1. In other respect, showever, the generosity of the pension system peaked around 1980. Means tests, which were eliminated in the 1970s, were reintroduced in the 1980s, and the pension age has gradually increased.