Submission Adequacy of Newstart and related payments and alternative mechanisms to determine the level of income support payments in Australia BY: Michael Sanderson

Preface

As one who was forced to use Newstart I can attest from personal real life experience that Newstart plus all the associated supplementary payments is woefully inadequate.

This submission describes an alternative approach which addresses by default most if not all the items of the Terms of Reference (TOR).

The private sector will never have the capacity to employ all those who are unemployed, how can 200,000 jobs employ 700,000 unemployed. Add to this the underemployed who are subject to similar hardship.

People don’t need income support; they need a job that pays a living income.

The case for Full Employment

The Australian economy like most advanced economies uses NAIRU (Non-Accelerating Inflation Rate of Unemployment) as a buffer stock. While the Australian Federal Government (all franchises) continues to embrace this policy, involuntary unemployment and under employment be in Australia will always be unsolvable.

If the Australian Federal Government adopted NAIBER (Non-Accelerating-Inflation-Buffer Employment Ratio) it would solve the issue of involuntary unemployment and under employment in every part of Australia.

An employed buffer stock (NAIBER) is far superior to the contemporary unemployed buffer stock (NAIRU). From the perspective of the private sector an employed buffer stock is far superior. It facilitates the movement to the private sector without extreme demand pull. In times of depressed economic conditions not dissimilar to what is developing now, NAIBER acts as a counter cyclic bottom up fiscal stabiliser.

A Full Employment Policy

Let’s not lose sight of the fact that the current unemployed buffer stock (those on Newstart) is employed by the public sector to do nothing more than to apply for jobs that don’t and cannot exist in the private sector.

Renowned heterodox economist worldwide advocate that where the Federal Government is a currency sovereign as Australia is, it should fund a Job Guarantee (JG) that pays a living income, that is locally controlled/administered. The Federal Government should set the parameters and definition, which should always and only be for the public purpose/good. To ensure that the most appropriate projects are undertaken for a particular community and its skill sets, abilities and disabilities, the JG must be locally administered and have no connection or control from a central body or the private sector, including private charities and not for profits. Religious as well as secular organisations should also be excluded.

Depending on the skill sets and local requirements a JG could carry out many of the requirements of the ‘Terms of Reference’ (TOR) and so much more:

 Would establish a productivity linked living income.  Would be a Buffer stock of employed workers for the private sector.  Would eliminate involuntary unemployment and underemployment.  Would tailor jobs irrespective of abilities or disabilities.  Would be instrumental in closing the gap.  Would improve skills.  Would rebuild communities.  Would improve existing public facilities and services.  Would create new public facilities and services.  Would facilitate vocation and education improvement.  Would facilitate reskilling and retraining.  Would improve community communication online and hard copy.  Would recession proof Australia.

Options within the defined parameters would only be restricted by skills and resources.

Impact on the Private Sector

The positive benefits for the private sector cannot be understated. Imagine a small remote Regional Community affected by drought, were people are leaving, the schools and hospitals are in danger of closing, businesses are closing due to a shrinking population and those who remain have little disposable income. Unemployment and underemployment is rampant.

A JG would mean all within that community would be employed and be earning a living income, they would not require Newstart. This initiative could employ local primary producers who themselves have become temporally unemployed because of the drought. People within that community would not be forced to leave.

A small coffee shop, the local pub, and regional service businesses would have a sustainable community to service, and community members will have a greater disposable income with a JG than without one.

A JG would not only create regional jobs, it would ensure that a stressed community, its institutions and businesses would survive adversity and remain productive.

Closing the Gap

The vexed problem of indigenous equity and autonomy has not and cannot be solved by intervention. A JG would fully employ all unemployed who identify as indigenous without the paternalistic control and oversight of contemporary initiatives past and present.

Mental Health

It is well known that unemployment and under employment both contribute to the growing burden of mental health. The first thing that a JG that pays a living income does is get rid of the stigma and isolation of unemployment. Because the JG is community administered it enables the community to be closer to participants and identify any potential mental issues.

Disability and the NDIS

Because a JG can adapt a job to an individual’s abilities, those with disabilities can also be employed. A JG would encourage interaction of those with disabilities with their communities, reducing isolation and the negative effects. A JG depending on the ability of the community and with the approval of the disabled person may be a superior mechanism to implement the NDIS.

Skill Development

Skill development be it formal or informal should be part of a JG. This would make JG participants more productive and more attractive for private sector employment.

Participation of the elderly

It is argued that the old age pension should be lifted to the same living wage of the JG, but without the requirement to make the time commitment. It is also argued that many older Australians with skill and experience should be encouraged to participate voluntarily in the JG as mentors and educators. This would mean that older Australians would have a living income, purpose and remain engaged with their communities and/or regional communities they visit as nomads.

Minimum Wage

The living wage would by default become the minimum wage. This living income once established should be linked to national productivity, rising and falling with productivity. The total income within the JG would never be greater than the living wage. In order to increase ones income one would have to engage in private employment which could be part time over and above JG commitments without penalty or full time private employment.

Industrial Relations

Employers because of the current NAIRU policy can use employee vulnerability to abuse and underpay, as demonstrated by the 7 Eleven exposé. The JG would mean that an abused employee could simply leave knowing that they could be employed by the JG. Employers would have to offer terms and conditions that are at least equal to the JG. The feature that would be attractive, yet also unattractive to the two major political franchises is a JG disempowers big business and big unions.

Fiscal Stimulus and Control

A JG would be a superior counter cyclic, bottom up, fiscal stabiliser. Deficit spending is determined by the economy through maintaining full employment. No longer would there be a requirement for intervention by the Federal Government at the micro level to stimulate jobs or a committee like this one. The private sector would determine what projects to undertake and where to undertake them. They will do so with the confidence that they can draw from an employed workforce that will have a disposable income that can purchase what they produce.

Conclusion

What follows are descriptions of Job Guarantees, which starts off simplistically and becomes more complex. There are links to academic documents that go into significant detailed explanation.

Isn’t it time that the Federal Government to stop fiddling with the not fit for purpose Newstart and in matters that are the preserve of the private sector and just concentrate on jobs? Rather than being paternal, let people define what jobs need to be done in their communities.

THE FISCAL CASE FOR FULL EMPLOYMENT (By Michael Sanderson. Email [email protected])

 The RBA has little monetary capacity to further influence the economy.  The Federal Government, as currency sovereign does have the fiscal capacity.  A Federally Funded, locally administered, Job Guarantee that pays a living income would eliminate involuntary unemployment and act as a bottom up, counter cyclic fiscal stabiliser.  A ‘Job Guarantee’ replaces NAIRU (Non-Accelerating Inflation Rate of Unemployment) with NAIBER (Non-Accelerating-Inflation-Buffer Employment Ratio)  A JG would boost the private sector, breath life back into dying communities, address poverty, build skills, improve work ethics, recession proof the Australian economy and so much more.

Below are two highly respected academic reference documents.

The major report, a definitive work from Centre of Full Employment and Equity (CofFEE) http://www.fullemployment.net/publications/reports/2008/CofFEE_JA/CofFEE_JA_final_re port_November_2008.pdf By: Beth Cook, William Mitchell, Victor Quirk and Martin Watts (Email Bill Mitchell: [email protected] )

Maximizing price stability in a monetary economy https://www.sciencedirect.com/science/article/pii/S0161893817300017 By: WarrenMosler, Damiano B.Silipob

The “Bite-Sized” Explanation of The Job Guarantee as an Automatic Stabilizer By Ellis Winningham

The national government funds the Job Guarantee through deficit spending. The Job Guarantee creates a pool of employed workers outside of the private sector which the private sector can hire from at any time.

When the economy is doing well, demand for more goods and services pressures business to increase production. To do that, business needs labour.

Business hires workers out of the Job Guarantee and the Job Guarantee pool shrinks. As each worker leaves the Job Guarantee for private sector employment, that is another worker that the national government is no longer paying. So, as the Job Guarantee pool shrinks, the national government’s deficit also shrinks automatically, reflecting the smaller payroll.

When the economy is doing poorly, demand for more goods and services is less and so, business reduces production, laying off workers.

When business lays off workers, those workers leave the private sector, entering the Job Guarantee and the Job Guarantee pool expands. As each worker enters the Job Guarantee from private sector employment, that is another worker that the national government is now paying. So, as the Job Guarantee pool expands, the national government’s deficit also expands automatically, reflecting the larger payroll.

No politicians making…decisions on job creation.

The state of the economy automatically decides the appropriate level of the federal deficit to maintain full employment indefinitely.

Fiscal Policy and the Job Guarantee (By William F. Mitchell and Warren B. Mosler)

Most OECD economies have suffered from persistently high unemployment since the mid- 1970s. We have argued that the major explanation for this pathology has been a deficiency of demand promoted by inappropriate fiscal and monetary policy. Governments reacted to the onset of inflation with restrictive policy stances summarised by a fetish for budget surpluses. In doing so, they have failed to understand the opportunities that they have as the issuer of the currency.

In this paper, we have presented a framework for analysing these opportunities. In the context of the concern for inflation, we compare two buffer-stock means of stabilising the price level. First, the NAIRU approach, which uses tight fiscal and monetary policy to create a fluctuating buffer stock of unemployed designed to bring the competing demands over real income into line with actual output. The lesson of the last [43] years in many countries is that the pool has to be large and persistent. Advocates of this approach rarely recognise that the economic and social costs of the policy are huge and dwarf any known costs of microeconomic inefficiencies or inflation. Second, we introduce the Job Guarantee. This is an alternative option available, which, instead of mandating a buffer stock of unemployment to stabilise prices, governments can both more effectively anchor prices and maintain full employment with an open ended, fixed wage buffer stock of employed workers.

The JG approach is a paradigm shift from both traditional Keynesian policies and the NAIRU- buffer stock approach. The difference is a shift from what we term as “spending on a quantity rule” to “spending on a price rule”. Under the NAIRU approach, the government spends a given budget quantity at market prices. The private sector then adjusts to spending gaps via unemployment. The JG option represents spending on a price rule because the government offers a fixed wage to anyone willing and able to work, and allows market forces to determine the total quantity of government spending. It is available to the government as the monopoly issuer of fiat currency.

We show that budget deficits are necessary to maintain full employment if the private sector is to pay taxes and has a positive desire to net save. In this regard, the orthodox treatment of the accounting relation termed the government budget constraint as an ex ante financial constraint is in error. We show that government spending is only constrained by what real goods and services are offered in return for it. There is no financing requirement. Debt issuance is seen as part of a reserve maintenance operation by the RBA consistent with their monetary policy cash rate targets.

A link to the full discussion paper is below: https://openresearch-repository.anu.edu.au/bitstream/1885/40582/3/DP441.pdf