Budget Review 2014–15 Index

Dr Matthew Thomas and Peter Yeend

Participation incentives for under 30s

There are several significant changes to working age income support arrangements in this Budget, targeting increased employment participation and self-support. They are:

• Compulsory participation requirements for Disability Support Pension (DSP) recipients aged under 35 years.[1] (See the budget review article Changes to the Disability Support Pension.) This is new; there have not been participation requirements attached to the DSP program since its inception in November 1991, nor to its predecessor, the Invalid Pension.
• A six month waiting period before payment commences for Newstart Allowance (NSA) and Youth Allowance (YA) claimants aged under 30 years, during which time they will be required to satisfy work search activity test requirements.[2] Meeting job search requirements will demand participation in Work for the Dole (WfD) but also registering with a Job Services Australia provider and actively seeking suitable paid employment. This has echoes of the school leaver deferment period, which applied from 1976 to 1998, in which payment couldn’t commence until the beginning of the new school year and in some cases the non-payment period was 12 to 13 weeks.
• The raising of the qualification age to access NSA and Sickness Allowance from 22 to 24 years of age.[3]

With the last two changes, it will be quite difficult for a young unemployed job seeker to access an income support payment if they have just become unemployed and are looking for work. As is stated in the Budget papers, the intention is that ‘young people should be earning or learning’.[4] For affected people aged under 30 the steps in accessing income support are summarised below:

• Phase 1 (Initial six months) – no payment of YA or NSA. Period can be reduced by previous full-time work history – one year of equivalent full-time work is one month off the maximum 6 months. There are exemptions.[5]
• Phase 2 (Next six months) – can access YA or NSA if undertaking a WfD program for up to 6 months.
• Phase 3—In the next six months the jobseeker can only access assistance indirectly via a wage subsidy paid to an employer. The subsidy paid to the employer will be the amount of YA or NSA otherwise payable to the jobseeker.
• Phase 4—This six month period is essentially back to Phase 2; that is, job seekers must participate in a WfD program to access payment of YA or NSA.

The six month waiting period measure is anticipated to realise savings of $1.2 billion over four years and will commence from 1 January 2015.[6] The bulk of the savings will be gained through the non-payment of any NSA or YA for this six month waiting period. Accordingly, in the forward estimates for job services there are significant amounts allocated to provide WfD programs and other employment assistance connected to these changes. This starts off at $19.4 million in 2014–15, increasing to $215.0 million by 2017–18.[7]

Notwithstanding the quite large increase in funding allocated to job services providers to cope with the increased demand from job seekers, there are few complementary job creation initiatives in this Budget. It is to be assumed that the Government is anticipating that employment outcomes will be largely achieved through the incentive effects of depriving job seekers access to income support, combined with increased job placement activity by Job Services Australia and wage subsidies.

Interestingly, the significant tightening of access to income support payments for younger people does not appear to have a corresponding impact on expected average duration on payment or exits off payments within 3 and 12 months of grant. The anticipated figures for these trends for both YA and NSA are not expected to vary from 2013–14 to 2017–18.[8] Given the quite radical nature of the ‘earn or learn’ changes, this seems odd.

Work for the Dole expansion

In keeping with its election commitment to ‘reinvigorate the Work for the Dole programme’, the Government has made WfD the default Work Experience Activity for job seekers under 30 years of age and allocated substantial funding for the program’s expansion.[9] This funding is more than offset by the anticipated $1.2 billion in savings over the forward estimates period to be realised through restricting young people’s access to income support.[10]

The WfD programme was introduced by the Howard Government in 1998. The program is based on the principle of mutual obligation, with the logic being that through participation job seekers are able to improve their prospects of gaining paid employment and give something back to the community that supports them.

The program has been found to have had a modest impact on job seeker employment outcomes.[11] According to two departmental evaluations of the program, WfD had a net impact on employment outcomes of over 7 per cent, and this was found to increase over time.[12] Given that many program participants are likely to be highly disadvantaged young people, Anne and John Nevile have observed that this is a reasonable result.[13] There is also some (albeit limited) evidence to suggest that the WfD program has helped to inculcate in some participants personal skills that improved their employability. These include communication, interpersonal and organisational skills, which can help to boost the self-confidence and motivation of participants.

Wfd has also been the subject of some criticism.[14] Much of the criticism has been either to do with the compulsory nature of the program or the claim that participation in WfD actually reduces people’s probability of finding employment. The latter is primarily based on the argument that the work experience gained by WfD participants is relatively ineffectual in that it is not linked to paid work or accredited training.[15] There is also the possibility that WfD participation has a ‘lock-in’ effect for some participants, reducing their job search activity.

Most critics agree that, to the extent that the emphasis of the program is primarily placed on ensuring job seeker compliance and that they give something back to the community, its potential will go unrealised. They argue that the focus should instead be placed on improving the program to ensure that its value and effectiveness in helping job seekers to find jobs is maximised.[16]

Tougher compliance measures

The Budget introduces tougher compliance measures for job seekers who refuse work without good reason or fail to comply with activity test requirements. The measure is anticipated to realise $20.9 million in savings over four years.[17]

Under current arrangements, refusal of a suitable job offer without a valid reason and persistent non-compliance with participation or Activity Test requirements constitute ‘serious failures’. The penalty for a serious failure is an eight week non-payment period. However, a job seeker’s payment can be reinstated if they participate in a Compliance Activity or if it is determined that they would be in severe hardship as a result of the application of the penalty. The Budget measure discounts that possibility for job seekers who refuse a suitable job offer and allows only one opportunity to waive the penalty for job seekers who are persistently non-compliant.

Judging by job seeker compliance data (for the 2012–13 financial year), the vast majority of serious failures are for persistent non-compliance.[18] Relatively few serious failures are for job seekers who refuse a suitable job or do not commence a suitable job. A majority of the sanctions for serious failures are waived. This is because job seekers either comply with the requirements imposed on them or are found to be in financial hardship. Ultimately, a non-payment period was imposed on 6,863 job seekers in the 2012–13 financial year. This measure is likely to result in a relatively small increase in financial penalties due to its deterrent effects. However, where penalties are imposed this could result in considerable hardship for the job seekers involved, who are typically disadvantaged.

Wage subsidy for older job seekers

The budget provides $304.1 million over four years to increase the wage subsidy for employers who hire job seekers aged 50 years or over for at least six months ($3,000 after six months, $3,000 after 12 months, $2,000 after 18 months and $2,000 after 24 months).[19] This is not new funding. It is funding that has been freed up through abolishing the Mature Age Worker Tax Offset (MAWTO) from 1 July 2014, which results in savings of $760.0 million over the forward estimates.[20] The previous government had already begun phasing out the MAWTO from 1 July 2012 and redirecting savings to other ‘better targeted’ mature age employment initiatives.

The measure is a modified version of the Government’s election commitment to introduce a seniors employment incentive payment. The commitment was to pay $3,250 for employers that employ, for at least six months, mature age job seekers who had been unemployed for six months or more and in receipt of income support payments.[21] The measure replaces the Rudd-Gillard Government’s Experience+ Jobs Bonus scheme, which provided a $1,000 bonus for up to up to 10,000 employers who took on a worker aged 50 years or over for at least three months.[22] It also builds on a range of training and support measures for mature age workers and job seekers that were introduced by the previous government, especially in the 2012–13 Budget.

The payment ‘is designed to help overcome the initial reluctance of some employers to appoint older jobseekers’.[23] There is no complementary measure calculated to help counter negative stereotypes and many employers’ prejudices against mature age job seekers more generally.

Comments

The workforce participation measures contained in most budgets are typically comprised of ‘carrots’ and ‘sticks’; that is, they provide incentives designed to encourage and assist people into paid work, and sanctions for those who do not accept these opportunities. In this budget, the emphasis is very much on activating unemployed young people through the use of ‘sticks’. There is comparatively little in the way of enhanced employment support services, skills and training programs for them.[24] Indeed, the measures applying to young people are severe and appear to be premised on the notion that many unemployed young people are reluctant to work.

In a buoyant labour market such measures might be deemed reasonable—as ‘tough love’. However, in a subdued labour market, ‘characterised by weak employment growth, a falling participation rate and a rising unemployment rate’ that is ‘forecast to edge higher’ these measures could have serious deleterious consequences for some young people.[25] As noted above, departmental estimates suggest these measures will have little impact on the duration of unemployment, and hence many young people will spend extended periods with no source of income. They are therefore likely to have to rely upon their families’ goodwill or, if this is not forthcoming, on charities and welfare services, for housing and other basic requirements.[26]

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