Dutton's JobSeeker plans would at first leave 640,000 worse off and 168,000 better off

If this year’s budget measures are passed by parliament in the current sitting, the government has indicated that the single rate of JobSeeker payment will increase by around $56 per fortnight in September.

This will be the result of the $40 per fortnight increase in basic payment promised in the budget, plus the usual half-yearly indexation increase on the new amount, which this time will be 2.2% - for a total increase of nearly $41.

However, the Opposition has indicated it will oppose the increase and seek to increase the “free area” recipients can earn before losing some JobSeeker benefits, from $150 to $300 per fortnight.

This would cut the increase due in September to the 2.2% from indexation, which would make it about $15 per fortnight.

Late on Monday, the Opposition made clear that if its amendment fails it wouldn’t stand in the way of the government’s plan, but it’s still worth asking which arrangement would benefit whom, and which would be more effective at getting job-seekers into work.

More incentive to work?

Currently, a single person receiving the JobSeeker payment can earn $150 per fortnight before their payment starts to be reduced by 50 cents for each dollar of earnings. Once their earnings exceed $256 per fortnight, the payment is reduced by 60 cents in the dollar.

Once they start to pay income tax, the combination of the reduction in benefits and the increase in tax produces a very high effective marginal tax rate of 67.6%, meaning they lose 67.6% of the extra dollars they earn – much more than the highest-earning worker loses.

Opposition social services spokesman Michael Sukkar said increasing the income test free area before the benefits are reduced would make putting in more hours more rewarding:

There are 808,000 JobSeeker recipients across the nation of which more than 75% have zero reported earnings, with no part-time work. Increasing the income-free area before benefits are reduced incentivises those on working age payments to take up employment opportunities.

Winners vs losers

Given the Opposition says its proposal would cost $2.9 billion less over four years than the government’s, there would obviously be losers compared with the government’s measure.

Those currently without earnings and those already earning up to $150 per fortnight would not immediately benefit – and instead of their payment going up by $56 per fortnight it would increase by about $15 in September, leaving them $41 per fortnight worse off.

People would start to benefit once they earned $150 per fortnight; they would break even when they earned around $200 per fortnight; and they would benefit the most from the Opposition’s proposal when they earned $300 per fortnight or more, keeping $55.60 per fortnight more than at present.

Read more: How can more people be on unemployment benefits than before COVID, with fewer unemployed Australians? Here's how

My calculations suggest this means that, at first, the Opposition’s plan would leave about 640,000 JobSeeker recipients worse off, and 168,000 better off.

But if the change in the income test encouraged more people into part-time work, more would benefit – although this would require people without earnings or earning little to find part-time jobs that pay at least $200 per fortnight.

It is hard to see how this could happen for all of them.

Even if all the 430,000 Australian jobs currently vacant were filled by people on JobSeeker who would benefit from the change, more than 200,000 would miss out and be worse off.

Would the change get more people into work?

Implicit in the claim that what the Coalition is proposing would get more people on JobSeeker into work is the assumption that what’s keeping them out of work is insufficient rewards from part-time work. But this might not be the case.

The Bureau of Statistics is now funded to publish statistics on barriers and incentives to labour-force participation on an annual basis, with the most recent publication being for 2020-21.

That survey found the most common reason women were unavailable to start a job or work more hours within four weeks was “caring for children”, while for men it was “long-term sickness or disability”.

Wanting to maintain their level of social security payments is also a reason given for being unavailable for work, but it ranked tenth out of 11 reasons for parents, and seventh out of eight for people with long-term health conditions.

Many on JobSeeker can’t easily seek jobs

As shown in the chart below, the increasing share of people on unemployment benefits for five years or more parallels the growth in the share of people with only a partial capacity to work. It is currently almost 44% of people on JobSeeker, compared with just under 19% in 2012.

People living with a psychological or psychiatric disability or a musculoskeletal or connective tissue condition account for almost 80% of those assessed as having a partial capacity to work.

More than 60% of this group are aged over 45. Most of them are on JobSeeker long-term: 82% have been on it for a year or more, and more than half for five years or more.

The shift of these people to JobSeeker is the result of decisions of successive governments to reduce access to payments including the disability support pension and parenting payment single.

The increase in the threshold age for the age pension has also had a role – forcing people to stay on “unemployment” payments longer before receiving the pension.

Read more: Australia's 'retirement age' just became 67. So why are the French so upset about working until 64?

The OECD found in 2019 that the most common employment obstacles in Australia were “limited work experience, low skills and poor health”.

While providing good incentives to work is an important part of reducing long-term disadvantage, it isn’t the main part.

What the Coalition is proposing would provide some people more incentive, but it wouldn’t attack the most important barriers.

And it would make one worse.

The government’s Interim Economic Inclusion Advisory Committee (of which I was a member) reported this year that the low level of JobSeeker was itself a barrier to employment.

It’s one the Opposition’s proposal would do nothing to reduce.