Seeking a soft landing between rock and a hard place on JobSeeker raise

A permanent increase to the underlying JobSeeker welfare payment is no longer a question of if but by how much.

This reality has landed Scott Morrison between a rock and a hard place. It can be almost assured that in coming weeks he will announce a perpetual lift in the rate to partially compensate for the axing of the temporary coronavirus supplement on March 31.

The less likely option would be to extend it until May and announce a permanent solution in the budget, but the Prime Minister and Josh Frydenberg are faced with a more daunting question than simply timing, considering the significant economic, fiscal and political dimensions to the problem they now face.

Reserve Bank boss Philip Lowe may have stepped over the line in his speech on Wednesday in commenting on it at all, but his view is shared by many in government. Raising the normal rate of JobSeeker is an issue of fairness.

The issue of equity, however, is shared both by its recipients and those who pay for it, taxpayers, presenting a political quagmire for a conservative government seeking to position itself as compassionate while seeking to restore fiscal integrity.

Morrison needs to land on an increase that keeps the wolves from the door for those who are on it, but it can’t be so high that it acts as a disincentive to get people off it. For macro-modellers in Treasury, working out that magic number may well be like throwing darts at a spreadsheet.

The popular economics bible Freakonomics cites an experiment conducted at a childcare centre in Haifa, Israel, where parents were habitually late to pick up their children. When the centre imposed a modest fine for tardy parents, the number of late pick-ups doubled. Parents either thought a $4 fine was cheap babysitting or preferable to the guilt of having to apologise to teachers.

Author Steven Levitt said of the study there wasn’t a problem that economists didn’t believe couldn’t be solved by an incentive. Almost. “Economics is, at root, the study of incentives: how people get what they want, or need, especially when other people want or need the same thing,” he wrote.

“Economists love incentives. They love to dream them up and enact them, study them and ­tinker with them.”

The Morrison government is now posed with a Freakonomics conundrum over JobSeeker.

The economy is in a different state now to where it has been before so trying to model people’s behaviour in response to it will be a greater challenge. Tinkering is precisely what will be going in the expenditure review committee of cabinet.

Several regional MPs (Liberal and Nationals) raised the issue in the joint partyroom this week. The deep concern within government is the impact elevated JobSeeker payments are having on regional labour shortages.

Government schemes offering cash payments for the unemployed to work in the bush were barely moving the dial before the pandemic. The take-up rate under even more generous schemes has been next to zero.

While there is a strong sentiment in favour of a permanent increase in the payment to keep the unemployed out of poverty, Morrison will be acutely aware of the sentiment among many Coalition voters who will resent having to subsidise higher dole payments out of their pockets.

If Morrison thought a 2050 net zero emissions target was a minefield, what to do about JobSeeker presents an entirely new political and economic vexation.