How increasing Newstart might give every Australian a pay rise

Newstart Allowance pays unemployed Australians just $280 a week, but there’s a growing economic argument that increasing it might benefit workers too.

• Simple ways to cut your mobile phone costs
• The savings tip that can deliver you extra cash

Fresh calls for increasing unemployment benefits are gaining momentum as the Federal Government struggles with a sluggish Aussie economy.

Newstart Allowance pays its 700,000-plus recipients just 66 per cent of what retirees receive from the age pension, but both major political parties have been reluctant to raise it.

It’s a touchy subject. No government wants to be seen as handing out more free cash to dole bludgers, but the bludger tag shouldn’t be blanketed on everyone seeking unemployment benefits.

Many Newstart recipients are simply down on their luck on the work front, have been applying for jobs galore without success or suffer from health, family or geographic issues that make employment difficult.

There’s growing social pressure to give them a bigger helping hand, and there’s an economic argument for it too.

A campaign to increase Newstart Allowance is under way.

Increasing Newstart might actually help give everyone a pay rise.

That’s because boosting unemployment benefits is the fastest way to pump extra cash into the economy. And cashed-up businesses are more likely to lift wages beyond the paltry growth we’ve seen for years.

Almost every dollar of extra Newstart gets spent immediately, unlike tax cuts for middle and higher incomes that are more likely to get saved or pumped into their mortgages.

We’ve seen this with this year’s tax cuts, where billions of dollars were handed to 10 million workers through tax refunds but retail trade has still struggled.

Newstart pays a single jobseeker $559 a fortnight (an age pensioner gets a basic rate of $850) and if you’re living on just $280 a week you’re probably going spend any spare cash on food, children, clothing, technology or other stuff.

The idea of raising Newstart has been supported by respected economists including KPMG’s

Brendan Rynne and AMP Capital’s Shane Oliver.

KPMG reckons it should rise by $100 a week, while other reports recommend a $120 weekly rise to keep it relative to wage rises. Newstart is indexed to Consumer Price Index inflation but that has climbed slower than average weekly earnings.

Could you survive on less than $280 a week?

A report released last month by the South Australian Centre for Economic Studies says there is no substantive reason as to why Newstart lags the age pension except for “the socially defined labels of deserving/undeserving recipient and entitlement/non-entitlement”.

A Senate inquiry into the adequacy of Newstart heard from financial counsellors last week and their news was grim. They said many people receiving the benefit saw no point in having a budget because the amount paid was so small, and there had been a big jump in unemployed women using “predatory” payday loans.

More tax cuts are coming, and the government announced an infrastructure spending boost last week, but neither have the immediate economic impact of handing out more Newstart Allowance.

Despite the strong economic arguments, many people will still echo the government line that the best form of welfare is a job, and believe that dole bludgers don’t deserve charity.

Even if that’s your mindset, don’t discount how a higher Newstart might help the economy and everyone’s wages.

@keanemoney

Originally published as How increasing Newstart might give every Australian a pay rise