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Select Committee on the Future of Work and Workers
18/05/2018

DAVIDSON, Mr Peter Andrew Geoffrey, Senior Adviser, Australian Council of Social Service

Evidence was taken via teleconference—

CHAIR: Welcome. I understand that information on parliamentary privilege and the protection of witnesses and evidence has been provided to you.

Mr Davidson : Yes.

CHAIR: I now invite you to make a short opening statement. At its conclusion we will ask some questions.

Mr Davidson : Thank you and good morning. I'll make a few comments on what's happening and not happening in the labour market, then home in on how the role of the social security system should adjust to changing labour-market circumstances. To begin with what's not happening, we don't believe 40 per cent of jobs, or more, are to be automated in the near future—many other submissions are also doubtful of this—nor do we believe it's inevitable that a majority of jobs in the near future will be casual or precarious. If we talk like that, we risk defeat before we start. In the past we have avoided the outcome of large-scale precariousness in employment, and we can do so again. As for what is happening, firstly, the share of low-skilled jobs, especially manual ones, is diminishing, and the labour market is a much tougher proposition for people with low skills and few qualifications. That is where much of the casualisation, precariousness and underemployment is occurring. There's a growing number of unemployed people who are cycling between those forms of employment and unemployment payments, and, indeed, a growing share of Newstart recipients who are excluded from the labour market altogether. Two-thirds of them have been out of paid work for more than 12 months. Roughly half of low-skilled jobs are part time, and I believe it's likely that most of those are casual but I can't put my fingers on the numbers there. It's many of those jobs that are at risk of automation: think supermarket checkouts, agricultural labour and so on.

Secondly, young people have been particularly affected post-GFC by these trends in the labour market, particularly affected by underemployment and particularly affected by precarious employment. There is a risk that if the next generation has low expectations of work and what it can offer them, that we'll have a self-fulfilling prophecy here around labour market change, in a bad direction. Thirdly, wage growth seems to have stalled. There's a question of whether that's a cyclical or a structural issue. Our feeling is that it's at least part structural, because there has been structural change in labour market institutions such as the decline in collective bargaining and union membership.

Fourthly, on the bright side, we should be able to reduce unemployment well below its current level, and probably below the lower limit that the RBA expects; namely, around five per cent. Given the sluggish growth in wages, there's a much lower risk these days in Australia and in other wealthy countries that a much lower unemployment rate will trigger accelerating inflation. What should we do about it? We need to rethink full employment. I believe we can probably get unemployment close to three per cent rather than five per cent with the right policies. And it's not just about jobs; it's about working hours, the predictability of working hours and the ability of people to combine work and care. So we need to think of full employment not just in terms of numbers of jobs but also what kinds of jobs, and how many hours. We need to recognise that precarious employment is inefficient as well as unfair. It's inefficient for employers in the long run. We also need that investment in skills and paid work experience for people with low skills, limited qualifications—especially the growing share of unemployed people who are long-term unemployed. We spend a great deal less on labour market assistance for that group than do most OECD countries.

Turning to the social security system, one thing it shouldn't do is automatically top up wages if they decline or they're insecure, unless there is a good reason to do so. If we use the safety net for that purpose, as a form of wage insurance—as has been proposed, for example, by a number of people in the US—then that will reinforce precarity and probably push down wages in the long run.

Turning to what it should do, what I just said does not imply that social security should be strictly limited to people not in paid work. Indeed, there are good reasons to supplement low pay, and those include the cost of children and the cost of private rent. We've been doing this for a long time, supplementing low pay for people in the private rental market and people who have dependent children. It doesn't seem to have depressed wages. A little known fact is that, over a working life, over 70 per cent of households have someone who's relied on a core income support payment such as Newstart, DSP and so on, not just family payments—I think this is research that Professor Peter Whiteford has done. So, over a working life, even the core income support payments have provided a floor underneath the incomes of most households in Australia.

The top priority from our point of view in social security is to lift the incomes for those who lack private income altogether and put a floor under minimum incomes. No-one should have to live in poverty in a wealthy country like Australia and, of course, we're a long way from achieving that. The Newstart allowance, one of the lowest payments, is just $270 a week, or around $40 a day, and it hasn't increased in real terms for 24 years, which means it's fallen way behind community living standards. There is a growing gap between that payment and pension payments, which are indexed to wages, and that gap for single people is over $170 a week at the moment.

We haven't formed a view on the idea of a universal basic income or a basic income generally but, having said that, it does provide insights into how we might redesign a social security system to respond to labour market change. We are fans of the idea of a minimum income guarantee that no-one should fall below to ensure that no-one need fall into poverty. This is not a new idea—the Whitlam government examined it and advocated for it in the seventies; and the Howard government in the first of the McClure reports in the early 2000s was heading in that direction. The idea is a minimum base level of payment that no-one should fall below that is based on financial need, not workforce status. We need to move beyond the binary system we have now where social security payments are divided into pensions and allowances which are a kind of a hierarchy of deservingness, not a hierarchy of need. So we quarantine one group off into the pension system because it's assumed they're unable to work and they deserve therefore a higher payment and we leave them alone and not assist them to transition into paid work.

Of course these days it's recognised that many people with disabilities and people with caring responsibilities can and do engage in paid work. We need to move beyond that thinking to a social security system that responds to the more mobile workforce that we have not in a geographic sense but in the sense that people are transitioning in and out of jobs, training, care and so on. The system should help people adjust, not throw up barriers like having to prove that you'll never be able to work again to get a higher payment.

We want people to participate in the labour market where they can. You don't need to force people into penury and poverty, and punish them in order to achieve that. That's why we have work tests. So, a key insight—and I'm just about finished—of the idea of a basic income guarantee is that you put a minimum floor under incomes in the community based on need, moving beyond the complex mess that we presently have and, building in that core payment, supplements to meet needs like the cost of children and private rent that extend well beyond people who lack private income. We've been doing that for a long time. We could go further in that direction.

I'd like to end by saying that the social security reform of which I speak is not a party political issue. As I mentioned, it was raised by Bill Hayden in the Whitlam years. He talked about guaranteed minimum income, and, in the first McClure report in the Howard years, in the early 2000s, there was talk of a simpler social security system and a core minimum payment based on need with supplements on top for, for example, costs of disability, rent, children and so on. It was a conservative government in the UK that introduced what they call the universal credit, which is a system along those lines. There are many problems with the way they've implemented it there, but there are many people in the community sector in the UK who think that that basic idea is a good one. But the first priority really must be to do something about the lowest payments in the system—Newstart and youth allowance—which are the base or foundation on which the whole system is built, because you can't build a robust system of minimum income guarantees on a crumbling foundation like that.

CHAIR: Thank you very much. I hear what you say about levels of payment, and obviously ACOSS has been very strong in its position about lifting the Newstart rate in particular. I am, however, interested in digging a little more into any suggestions you have for how our social security system needs to be restructured to deal with a time when it seems more people are facing insecure work. In particular, I'd be interested to know anything about activity tests or other requirements that are currently in the system that haven't really kept up to date with the way the labour market has been moving.

Mr Davidson : Sure—and I should mention, since you've given me another go on Newstart, that our advocacy is for a $75-a-week increase in the single rate, which is where people are under the greatest hardship, and that is based on the latest budget standards research on the minimum income needed to meet the very basic cost of living.

On adjusting the system to labour market change, it is worth having a look at a proposal that, as I mentioned, was floated in the Howard years but, unfortunately, not implemented at the time. There was a discussion paper called Building a simpler system, and that was about structural reform of the system to deal with labour market change and also longstanding issues around how you combine work and care and work and disability.

On activity testing, if we move to a system where base rates of payment are based on need and not kind of locking people out of the labour market by pensioning them off, as the present system is, then activity tests are quite important. You wouldn't do away with them, but you would adjust them to people's circumstances. Unfortunately, in the present system we do have a one-size-fits-all kind of arrangement—a search-for-20-jobs-a-month kind of arrangement—which is forcing people to go through the motions to meet compliance requirements rather than doing what they know or what their employment service provider knows is needed to get that person into a job, and not just any job but the right job for them, one that will stick, to reduce this recycling of people back onto payments and out of jobs that don't stick.

All of the evidence suggests that the way to do that, in addition to lifting the skills of people, is to find the right job for them. So activity requirements really need to be adjusted with that aim in mind. Part of it is about skills development, and there are quite heavy restrictions on people in receipt of Newstart engaging in training, especially full-time training. Another foible of our social security system is of course that there's an even lower payment for people who are upgrading their skills through full-time education and training. Whether it's youth allowance for young people or Austudy for adults it's even lower than the Newstart payment—it's as though we assume these folk can rely on parents or they'll get a casual job and top up their income, as full-time students do. But the people we're talking about here are disadvantaged in the labour market and don't have those options. Many of them—very many of them—are adults, and so there ought to be a single level of payment for all with the activity requirements adjusted more to the circumstances of individuals.

CHAIR: In what you just said you might have been referring to what I'm about to ask. Aside from the activity test issues, do you think that our current social security system adequately acknowledges that a higher number of people are having their wage go up and down, sometimes quite markedly, from week to week or fortnight to fortnight because of the variable nature of their work? Does our current system adequately acknowledge that? If not, what changes could be made?

Mr Davidson : I think it's fair to say that, given the high levels of casual and part-time employment in Australia, especially for low-skilled workers—we have the second-highest rate of both casual and part-time employment overall, but it's particularly concentrated amongst the group who are unemployed and on benefits—we've probably made more adjustments than most countries have in that direction. Ironically, while we have one of the most targeted social security systems in the world, because we don't have social insurance, our income tests are more liberal than most OECD countries. In most OECD countries the social assistance or safety net payments have dollar-for-dollar taper rates in their income tests. There's no room to move at all. So we've come a long way, but there's further we could go. I think it's not so much a matter of adjusting thresholds and taper rates as about the timing of payments and the timing of receipt of wages. For example, under the present system if you get a casual job you have to report it to Centrelink, and that's complicated. One of the main reasons for the robodebt fiasco was that a whole lot of people are in and out of casual work, and the system makes it difficult to report their income and to adjust their payment—and Centrelink very, very often gets it wrong. One of the reasons is that you can report that your wage has fallen or increased or that you're expecting it to, but until your wage actually changes up or down Centrelink won't make the adjustment. That is presumably intended to avoid employees and employers jointly gaming the social security system, but it creates a lot of problems for people who are on that merry-go-round of short bursts of casual employment.

The other problem we have in the present system is that, if you have a large slice of cash or full-time employment, for example, over the Christmas holidays when those opportunities often arise, there is very little allowance for you to, in the income test, receive that salary and it not affect your Centrelink payment. We've been advocating a $4,000 income bank, which is moving more towards the system that already applies to student payments, to give people more latitude to take up those opportunities. It's those subtle issues rather than the old payment rates and thresholds story where there's room for change.

CHAIR: What was the term you just gave for what you've been advocating for—the something bank?

Mr Davidson : The income bank. There is one for students, and it's much more generous than that—it's arguably too generous, because there's an assumption that tertiary students especially can spend half their time in paid work and still fulfil their study obligations. I think that's putting a lot of pressure on people when the solution is really to improve the adequacy of the base rate payment they receive—that's the real problem.

The Newstart arrangements, on the other hand, are much too stringent. This is in our budget submission which I think we submitted to you—at least the link to it. It's detailed there.

Senator PATRICK: Just very briefly, we had a briefing from people who are familiar with another jurisdiction that had low unemployment. They had no support network other than for disabled people and they basically said in that particular jurisdiction it appeared as though the government directed all of their effort at making sure: (a) that there was work; and (b) that they directed people into that work. They took an approach of: no safety net, but we'll bend over backwards to make sure you have a job. Is that the sort of philosophy ACOSS has had a look at?

Mr Davidson : We don't support that philosophy. That's akin to the US model—and, by the way, the US model isn't doing great on unemployment although the headline unemployment rate is low. They have a growing problem with long-term unemployment which labour market economists over there are scratching their heads about. The minimum wages are so low and there is so much turnover in jobs that, on the face of it, theory would suggest that most people could walk into a job but that isn't happening for a significant number of people. However, it is also possible to have decent income protections for people who lack paid work in a flexible labour market, and that's a system that the Europeans call 'flexicurity.' The best example of that is Denmark where there are relatively few employment protections by European standards but, if you lose your job, there is a much more generous safety net than we have here but also a very strong investment in labour market assistance to upskill people, give them work experience in regular jobs on normal pay and pathways back into employment with a particular focus on people who've been out of work long term. Their long-term unemployment rate is very low as a result.

As I say, we can do a lot better than five per cent; that's nowhere near ambitious enough. In the good old days it was two per cent unemployment. But you don't need to remove the safety net for that purpose. Indeed, workers will resist a flexible labour market if there isn't a safety net to back them up. What is needed to get unemployment down is a degree of flexibility in the labour market, which doesn't necessarily mean casualisation. In Denmark, for example, the level of casual employment is very, very low and there are programs to assist that low-skilled group of people who I referred to earlier who are being left behind in the labour market so that they stay engaged and get a job that is suited to them.

Senator PATRICK: I've got to be careful here; I'm sitting between a Liberal senator and a Labor senator! If I were to say the Liberal government had a philosophy that said, 'Don't adjust Newstart,' which appears to be the position they've taken, and were they to be re-elected, the decision not to increase Newstart—and I'm not privy to their strategy at all—would end up creating a de facto situation where you don't have a real safety net. Therefore, maybe a different approach is required whereby you do direct more resources into making sure there are jobs and getting people back into jobs.

Mr Davidson : Firstly, we haven't given up and won't give up. Secondly, we can walk and chew gum—Denmark's an example of that. We're not necessarily suggesting you need Danish tax levels to get there. We spend on labour market programs for unemployed peopleat amongst the lowest level in the OECD, and we have the lowest unemployment payment in the OECD. We can do better on both fronts. A lot of people say glibly that the best form of welfare is a job—I'm not suggesting that's where you're heading with this, but it's often said. But when you read the budget papers and the Reserve Bank discussion papers, they'll say the level of unemployment below which we'll have a serious problem with inflation is five per cent. That's 700,000 people. If we can't get unemployment below that—and we should try to do so—then it's bleedingly obvious that we need a safety net.

I'd just add that I'm seeing a lot of articles in the media—and a lot of people we talk to are concerned about this—about the level of street homelessness in our capital cities. It's growing out of control in Melbourne, Sydney, Brisbane—everywhere. A lot of those people are on Newstart, part of the reason being it's very difficult to get a disability pension these days. But another part of the reason is that there are a lot of people who don't have complex needs, who are just homeless because of (a) a lack of affordable housing and (b) Newstart. We really have to resolve that. Those people can't wait for three, four or five years to get a level of structural unemployment below five per cent. They can't wait.

Senator PATRICK: Thank you.

Senator STEELE-JOHN: Thank you so much for your submission. I would love to spend the next couple of hours in furious agreement with everything you've said, but I'll try to bring us to some useful recommendations for the committee. We've heard quite a lot about the lack of training in the space of ensuring that young people understand their rights and responsibilities in relation to the workforce. It would also be my observation that our education system inadequately prepares young people to understand how to access the social safety net. Inadequate as it is now, you simply aren't prepared properly before you leave school to engage with the system that exists for you. Is that your experience as well?

Mr Davidson : That's absolutely right. There is a general disconnect between the school system and the world of employment. It's not just about a lack of information; it's a disconnection. Why aren't there employers and unions visiting schools regularly to inform students, 'This is what it's like; this is what you need to know'? That would go such a long way to preparing young people for the world of work and also making those adjustments in the school system that are required to prepare them for it. I'm not suggesting that the education system should be instrumentally designed to prepare people for their first job, but—

Senator STEELE-JOHN: Apologies, Mr Davidson. I think I might have phrased my question poorly. I was going more to the idea that there should be a similar role for the education system in preparing young people to access the social safety net and the ways in which that is best done and whether you'd observed that that was a gap in the knowledge base of young people currently.

Mr Davidson : Yes, and, given the difficulty in getting into contact with Centrelink these days, that is a serious problem. What you will hear from many people—and I many years ago worked in the income support system and lots of people would say this—is, 'Don't tell young people about social security. They'll front up at Centrelink tomorrow and claim.' That thinking is a disservice to young people. I think you should put them in contact with both the world of work and the safety net and arm them with the information they need, and you've got to trust them to use it in the right way.

Senator STEELE-JOHN: So a recommendation of this committee may be that there is a need for increased levels of training and awareness of not only your ability to claim but just how to navigate the system. It's a rights and responsibilities thing, isn't it, so that you know how to access it but you also know how to use it so that you can use it responsibly and not run into problems. That sounds like something that would be valuable.

Mr Davidson : Yes, I agree.

Senator STEELE-JOHN: We've covered a lot of the ways in which the, for want of a better term, social safety net now functions as a kind of poverty trap, but I'm also interested in the ways in which it kind of leads you there. For instance, I'm aware particularly that to access Newstart you currently have to run down your savings below a certain level before you can access that payment. That seems to be another way in which it undermines you when you come into contact with it.

Mr Davidson : This is a classic example of how governments can be short-sighted. They're looking for the short-term savings, but by impoverishing people before they enter the system they make it much harder for them to search for employment, because they're constantly worried about whether they can afford their next meal. The Henry review, for example, recommended that the liquid assets test be abolished, and we would support that recommendation. There are a number of tests that are used to require people to run down their assets. For example, redundancy payments, workers' compensation and so on, which in a sense are fair enough though they've probably gone too far. Layered on top of that is this liquid assets test, so that it's literally very difficult for people to retain any kind of buffer for the shocks that are ahead of them if they need to rely on income support for more than a few months, and, unfortunately, as I mentioned earlier, many people do have to do so.

Senator STEELE-JOHN: Wonderful. Thank you very much. I don't have any more questions at this time.

CHAIR: Thanks, Mr Davidson. Thanks for joining us today.