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RUBY:

From Schwartz Media, I’m Ruby Jones. This is 7am.

We don’t have enough money.

That’s what governments say this time of year, as the case is made for the poorest and most disadvantaged among us to get more support in the budget.

But is it true? And if it is, are there ways to repair the budget that would leave enough money to do things like raise people out of poverty?

Today, economist and CEO of the Grattan Institute, Danielle Wood, on how we can afford to raise the rate, and more ways to fix the budget.

It’s Monday May 1.

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RUBY:

So, Danielle, over the last decade or so, people who are on income support have found it harder and harder to survive - especially so, as the cost of living has risen. And I know that this is something that you've been looking into as an economist. So I thought we could begin by talking about who those people are, and what they’re telling us about their experiences.

DANIELLE:

Yes, sure. So this problem or this challenge, I should say, has been a long time in the making. And really we've let people, particularly on JobSeeker payments, fall behind. These payments haven't increased, or increased very little in real terms, over the past 20 years and that's meant that they've been falling further and further behind living standards in the broader community. And what that means practically, is that the level of those payments, if you're a single person on JobSeeker, you're living on $50 a day, you are simply not able to afford the basic necessities of life.

Archival tape – Speaker:

“So, I declare open, this hearing of the senate, community affairs references committee enquiry into the extent and nature of poverty in Australia. And I want to begin by acknowledging the traditional custodians of the land…”

DANIELLE:

There are stories coming out of that consultation of people, you know, talking about the very difficult choices they have to make.

Archival tape – Ms Wren:

“The pandemic and the associated lockdowns shone a light on what is important for us as a society. It was a time when millions of Australians experienced the pain of having our health, income, freedom, our connection to others, maybe even our hope for a better future, diminished and constrained.”

Archival tape – Ms O’Connell:

“People on poverty level payments long term… sorry, I talk to a lot of people… die by suicide at roughly twice the rate of the general population.”

DANIELLE:

Do I take my medicine or do I heat my house? Can I afford to pay my rent this fortnight?

Archival tape – Case study:

“There is a real social aspect to the increased cost of living. Aside from getting to vital appointments, I can't afford additional fuel to visit family or friends, and I can't afford to buy additional food to invite them over, even for a meal or a coffee. I'm embarrassed and increasingly isolated. The lack of social contact is debilitating. This is the person living on JobSeeker.”

DANIELLE:

And I think one reason that we've got to this point is that a lot of people think of somebody on these payments as, you know, someone who's trying to avoid work, hanging out, playing computer games, or people think of it as just a payment that people are on for a very short time while they're moving between jobs. The reality is that people on these payments now skew a lot older. 50% are over 45 years of age. A lot of older women are now on these payments, particularly because of changes that are being made to the age pension and the disability support pension. And people tend to be on them for a lot longer. So 80% have been on for one year or more. And the reason is, is they have either specific barriers in terms of location, they might face discrimination in entering the workforce, and often they might have disability or caring responsibilities which make it, sort of, not possible for them to take a job. So the fact that you have people on these extremely low levels of payments for an extended period of time is causing huge amounts of financial hardship.

RUBY:

And so how drastic, then, would the change need to be to bring JobSeeker payments in line with the cost of living? And how urgent do you think it is that something like that is done?

DANIELLE:

Look, there's all sorts of numbers that float around. The Economic Inclusion Advisory Committee came up with the figure that if we wanted to restore it to 90% of the aged pension, which is where it was at 20 years ago, you would need to increase it by $132 a week. That is obviously a very sizeable increase. There are other benchmarks you could use that might give you a slightly lower number, but the bottom line is you're going to need a pretty big increase to get you something that covers the basic necessities. Look, I think there is urgency here. We know that people across the board are struggling with cost of living at the moment. These people were already vulnerable. And the problem is getting more challenging.

RUBY:

And the JobSeeker payment, it's been practically frozen for a long time now. And the previous government didn’t want to raise it. Labor has been in power for close to a year, but it also doesn’t seem ready to make changes to the rate, does it?

DANIELLE:

Look, I think you're right. They haven't shown much appetite and they’ve sent some signal that they won't be going with the recommendations of their own committee.

Archival tape – Reporter 1:

“Could you live off the JobSeeker rate of $46 a day, and why has Labor dumped its policy to review the JobSeeker rate?”

Archival tape – Anthony Albanese:

“Well, we haven't dumped anything. What we've said is we don't have a plan to increase the JobSeeker allowance in our first budget.”

DANIELLE:

I think it's partly misunderstanding or the broad demonisation of people on these payments. The political will isn't necessarily there.

Archival tape – Jim Chalmers:

“You know, there are 37 recommendations in the Economic Inclusion Advisory Committee report and we will progress a number of them. But we've made it clear that we won't be able to progress all of them immediately.”

DANIELLE:

That said, there was some recent polling that suggested over 40% do support an increase, which is one of the highest levels that's been at. So the public is getting behind this. The other reason, of course, is it's costly and the kind of increase that was recommended by the committee would cost the budget about 6 billion a year.

Archival tape – Jim Chalmers:

“This will be a responsible and methodical budget. There will be a premium on what's sustainable and what's affordable. The budget pressures warrant that, and the global circumstances demand that.”

DANIELLE:

That's difficult in a world where the government has some structural budget challenges. It's got expenditure rising in other areas and I think that's probably what is leading it to push back on this change. What it seems like they may do is a policy that would help a smaller group, but a group very much that needs it, which is single parents. We're certainly hearing some whispers that that might be on the table, it seems government is taking that proposal seriously. The other recommendation was to increase the rate of rent assistance. That has fallen well behind growth in market rents. And so that would be another way to try and deliver just some targeted relief to those that need it most.

RUBY:

And so as the Labor government approaches this budget, which is their first May budget since coming to office, how do they seem to be thinking about it? What are you reading into the things that the Treasurer, Jim Chalmers, is saying in the lead up?

DANIELLE:

Well, the way that we would typically think about this is this is kind of the budget where they do the hard things. So the October budget was largely about delivering on election promises. The first budget is where you do the big stuff and the more controversial stuff and get it out of the way, get it bedded down to give yourself plenty of room before the next election.

The signals that we are getting in the lead up to this one is that it is probably going to be a little bit safer than we might expect. So the dismissal of the need to do the increase in jobseeker payment, I think, is one example of that. We will see some changes on tax, but they're pretty minimal and targeted towards those least likely to generate sympathy. So there's new earnings tax on very high super balances, balances above 3 million in retirement. There's rumoured to be a change in the petroleum resource rent tax to get some additional revenue from gas producers. But beyond that, the Government's not going to go much further. So I think it's kind of a continuation of the steady as she goes, conservative approach we've seen from this government to date.

RUBY:

We’ll be back in a moment.

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RUBY:

Danielle, you've been saying that when it comes to budget repair, all signs are pointing to there being no dramatic changes announced by the treasurer, Jim Chalmers? It is clear, though, that structural repair is necessary. So, can you talk to me a bit about the situation, the budget situation, that we're in at the moment, as you see it?

DANIELLE:

Sure. So there will be some good news actually in the short term in this budget. And that comes about because tax revenues are going to be higher than was forecast even in last October because commodity prices have been high and because the labour market has been strong.

Archival tape – Philip Lowe:

“A higher share of Australians have a job than ever before. Youth unemployment is the lowest in many decades. Underemployment is down and unemployment is the lowest in almost 50 years. So, many Australians are benefiting from the stronger labour market.”

DANIELLE:

But we need to differentiate between what will be short term good news versus the medium term position. And the medium term challenge is really that spending is growing quickly in a range of areas and we've made policy decisions that bank in higher spending through programs like the NDIS.

Archival tape – News anchor 1:

“The NDIS is forecasting its own annual cost to rise from $34 billion this financial year to close to 90 billion by early next decade. The second fastest growing cost to the budget behind interest repayments on government debt over the next decade.”

DANIELLE:

In Defence. We've seen a number of major announcements in recent months.

Archival tape – Jim Chalmers:

“We expect Defence spending in the budget to grow very strongly. The numbers will be presented in the May budget, if we can, but already we're spending 2% of GDP, already that's rising substantially. It's one of the fastest growing areas of spending in the budget.”

DANIELLE:

Health spending tends to grow faster than the broader economy anyway, and that's exacerbated by an ageing population, aged care spending.

Archival tape – News anchor 2:

“As the sector's budget sees a blow-out of almost $5 billion, aged care costs are now the Government's fifth largest spending measure, with the pay hike alone projected to cost $8 billion over the next four years.”

DANIELLE:

All of those things is pushing government spending up as a share of the economy. We haven't yet really had a discussion about how we pay for that. And revenues increased slowly, but there's a sizeable gap between the two. So that's the structural budget challenge. We have, sort of, pretended it's not there for a long time. We do need to start taking steps towards repairing that. It's important so that we have enough room to respond next time around there's an economic shock, and it's also really important that we're not pushing costs onto the next generation.

RUBY:

Do you think there is a case, then, for a more radical overhaul of how the government raises revenue and how it directs its spending? And what would that look like?

DANIELLE:

Yeah, look, I would like to see something a bit bolder, to be honest. And Grattan’s done a report that we've called back and black question mark that sets out a range of different things government could do on tax and spending that would make a difference. So this is about repairing the budget. It's also about creating room to do things that are very high priorities, like increasing JobSeeker. On the tax side, there's a number of proposals we've talked about: petroleum resource rent, redesigning the stage three tax cuts, those are the income tax cuts that are due to come into effect July next year. We proposed keeping some of them, but leaving in the 37 cent tax bracket, which would just reduce the size of tax cuts going to the high income earners, significantly reduces the cost of the package, returns about $8 billion to the budget and would be a much fairer and more fiscally responsible way to go about that. We look at things like tax concessions, sort of, leakages to the income tax base, which are growing bigger. Things like super tax concessions, things like negative gearing and the capital gains tax discount, things like the taxation of family and discretionary trusts. We think there's probably another 20 billion or so just through tightening those concessions and making them more targeted to their policy purpose. And then we look at a whole range of other things: fuel tax credits, raising the GST, super preservation age. You know, there are a whole range of things, frankly, that the government could look at that would raise revenue. On the spending side, we have wasted a lot of money on bad infrastructure and defence procurement decisions over the last decade. Stripping some of the politics out of those and making it more on the economic fundamentals would make a big difference. The special deal with WA on the GST at the moment is costing the budget about $5 billion a year in compensating the other states for that. And bigger things as well, like looking at including the family home in the age pension asset test above a higher threshold, could also raise money. And you know, those are big hard changes, no one's denying that. But those are the types of things that we need to be thinking about if we are going to address this structural problem.

RUBY:

And this Labor government, under Anthony Albanese, it has had a lot of success in terms of polling well by presenting not as a big target, it appears that the preference is to gradually and incrementally bring people along with them when they want to make change. But when you look at the budget, is there a risk that any change that is being made is too slow? And what does a future look like if we do take years to solve some of these challenges?

DANIELLE:

Yeah, I think you build up the political capital to spend it on things that matter.

You can be overly cautious with these things. The risk is if you don't move on any of these budget issues, so if we were to kind of keep locking in more spending without the revenue base, the structural problem gets bigger, debt continues to climb as a share of the economy, even as economic growth picks up. We see interest payments growing as a share of the economy. We're asking the next generation the bill for today's spending. Given that, we've left the next generation a pretty unworkable housing market, the costs of climate change are being pushed to them, they already have the fiscal challenge of an ageing population. I think that's pretty hard to justify. And so, you know, making hard decisions now is about not kicking that can down the road.

RUBY:

Danielle, thank you so much for your time.

DANIELLE:

Thanks for having me, Ruby.

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RUBY:

Also in the news today…

Over the weekend, Prime Minister Anthony Albanese committed $240 million to help build a new football stadium in Hobart, to be the home of a new Tasmanian AFL team.

Tasmania remains the poorest state in the commonwealth, with illiteracy rates at 50% and only 45 and a half percent of students completing year 12.

And,
The British Royal Navy has been left embarrassed after sensitive documents describing the workings of one of its newest nuclear submarines were left in the toilet of a pub.

The Furness Railway pub in Cumbria, where the plans were found, is a short distance from shipyards where Australians will undergo nuclear submarine training as part of the AUKUS deal.

I’m Ruby Jones, this is 7am. See you tomorrow.

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