Inside Story

Post-pandemic, here’s the case for a participation income

For less than the cost of the Coalition’s Stage 3 tax cuts, Australians can be paid adequately to look for work or participate in socially useful activities

John Quiggin 18 June 2020 1563 words

Jobseeking and jobkeeping: people queuing outside a Centrelink office are reflected in a cafe window in the Melbourne suburb of Brunswick in March. Stefan Postles/AAP Image

If we have learned one thing from the Covid-19 pandemic, it’s that radically different ways of doing things are possible, and many of them are improvements on what we had before. Whatever happens to remote working, for example, it is hard to imagine anyone going back to the kind of meeting that involved participants flying in from all over the country, meeting for a few hours in the conference room of an airport hotel, then flying home again. The advantages of videoconferencing software like Zoom are undeniable.

Strikingly, the technology to do this has been available for years. It took the pandemic to make people try something different, work through the initial difficulties and conclude that the new way is better. The shift in sentiment has been such that the stock market value of Zoom exceeds that of the world’s seven largest airlines combined.

But the really big change has been the transformation of income support. On 1 March, when Australia recorded its first fatality as a result of the coronavirus, the government was still committed (at least officially) to a budget surplus. It had resolutely refused to increase the Newstart unemployment benefit, frozen in real terms by the Howard government in 1997.

Despite ample evidence to the contrary — including sharply increasing rates of underemployment — the government’s operational assumption was that anyone who wanted a job could get one, and an individual’s unemployment reflected his or her personal defects (a lack of job readiness, misguided job searching or just plain laziness). This assumption was reflected in a range of policy initiatives, including punitive compliance regimes, the Work for the Dole scheme and the rollout of cashless welfare cards.

Within a few weeks, everything changed. The government suddenly discovered that none of the usual rules applied. Unemployed workers could be paid a liveable income, called JobSeeker, at twice the value of the grossly inadequate Newstart. Under a second program, JobKeeper, businesses could continue to employ workers even if there was no work for them and no money coming in to pay them. Contracts were not inviolable laws of nature but social conventions that could be varied to meet the needs of the crisis.

The JobSeeker and JobKeeper programs have been highly effective in maintaining income for Australian households, even as the economy has gone in to what the government has called hibernation. There has been little evidence of the widespread economic suffering experienced in countries with weaker responses, most notably the United States.

But these schemes can’t last forever in their current form. The fact that JobKeeper is higher than the age pension is hard to defend, either politically or in terms of social welfare. It is an emergency response to the very specific circumstances of the pandemic, in which many businesses have been forced to close temporarily.

The Morrison government’s “snapback” would simply end JobSeeker and JobKeeper in September, six months after their inception. But most economists, notably including Reserve Bank governor Philip Lowe, doubt that this can be done without pushing the economy into a deep recession. Regardless of the macroeconomic analysis, there’s a more important question: even if we could return to the policies of the pre-pandemic years, should we?

The free-market economics underlying the desire to cut back public spending were discredited by the experience of the global financial crisis and the disastrous failure of austerity in Europe and elsewhere. The politics of welfare restriction are those of division and culture war, and are now directly opposed to the “we’re all in this together” lesson of the pandemic.

One way of extending that lesson into the post-pandemic era would be to adopt the concept of a liveable income guarantee or — to use the term put forward just before his untimely death by the great British economist Tony Atkinson in his book Inequality: What Can Be Done? — a “participation income.”

The idea of a participation income rests on the principle that everyone has a right to a living income along with an obligation to contribute to society. The first part of that principle has long been recognised in systems of income support for those unable to work because of age, disability or unemployment, or because they need to care for young children.

Under the market liberal ideology that has held sway since the 1970s, eligibility and support in all these categories have been tightened. The qualifying age for the pension has been increased to sixty-seven (from sixty-five for men and sixty for women). The Austudy scheme has been restricted to students over twenty-five. Applicants for disability pensions face increasingly stringent tests. Supporting parents are pushed onto Newstart as soon as their youngest child turns eight. Unemployment benefits have been frozen and compliance measures made ever more punitive.

The first step towards a participation income would be to reverse the changes of the past thirty years by setting all benefits at the same rate as the age pension and restoring more generous eligibility criteria. If we could afford these policies thirty years ago, we can afford them now.

Apart from jobseeking, what kinds of activity might we consider to be participation? Most of the many possibilities have precedents, but they haven’t been considered as part of a comprehensive program of social participation. They include:

• volunteering in support of organisations and causes, which might include firefighting and surf lifesaving, women’s refuges, or major public events like the Commonwealth Games

• working on grant-funded community projects, along the lines of the Community Employment Program introduced under the Hawke–Keating government

• setting up a small business

• artistic and creative activity (which were a notable aspect of the New Deal–era Works Program Administration in the United States)

• full-time study.

Obviously, the participation payment would not be available to people who are already in full-time employment. And, as with the age pension, assets and means tests would apply to people who receive investment income.

How we deal with intermediate cases — people with limited income from part-time work, for instance — would be guided by the principle that a well-integrated tax–welfare system should avoid creating the high effective marginal tax rates that result from the interaction of marginal income tax rates and the rates at which benefits are withdrawn through means tests.

Compliance measures within the tax and welfare systems should also be integrated. Currently these are massively asymmetrical, with the tax system essentially operating on the basis of self-assessment, subject to auditing, and the welfare system working on the assumption that recipients are cheats and must therefore be subject to draconian compliance rules.

The extreme example was the robodebt scheme (abandoned for now, but still set for a comeback) in which repayments were demanded from recipients on the basis of a mechanical and unreliable estimate. The asymmetry is even more striking when we remember that a single form of tax avoidance (profit-shifting by multinationals) is estimated to cost the Australian public nearly $10 billion a year, many times the amount recouped (and often then repaid) through the robodebt scheme.

As with the tax office’s business activity statement, the appropriate compliance regime for a participation income is a return, submitted quarterly and subject to audit. The assumption should be one of social solidarity rather than division.

How much would this cost? The current JobSeeker supplement is estimated to cost $14 billion over six months, or $28 billion if it were extended for a full year. If the benefit were set permanently equal to the age pension, the cost would be about half this much at the high rates of unemployment associated with the pandemic, and no more than a third (less than $10 billion a year) in the context of a recovery.

The number of people potentially eligible for a participation income but not currently receiving a benefit is harder to estimate. The largest group that might fall into this category, totalling around one million, are those who would like to work but are not currently searching. But many of these people are already receiving benefits or live in high-income households. Assuming half a million additional recipients and a cost of $24,000 per year, the budget cost would be $12 billion a year. Some of this would flow back to the government through a higher level of demand and resulting increased tax revenue.

The cost of the proposal may be compared with the revenue cost of the federal government’s Stage 3 tax cuts proposed for 2024–25, most of which benefit high-income earners. Treasury has estimated this as $95 billion over six years, or $16 billion a year.

Some observers might worry that people will be tempted to drop out of the paid labour force and rely on a participation income instead. As mentioned, the high prevalence of underemployment suggests that this would not be a huge problem. Most people would rather have a full-time properly paid job than a welfare benefit. To the extent that the system is incapable of providing this, a participation income is a reasonable alternative.

As we emerge from the first phase of the Covid-19 crisis, and also look back on the global financial crisis, we can, if we choose, try to patch up a system that is manifestly failing to deliver good outcomes. Or we can draw on the success of our collective response to the pandemic and start building something better. Contrary to Margaret Thatcher’s famous remark, There Is An Alternative. •