This morning, in bed, I sat wondering if going to work was worth it. Was the pay I would receive enough to get me out of bed and on to the bus to work? Sadly for me, I realised it was. Yet I realised that work pays for my accommodation, my food and everything else I need or want. The notion of work ‘paying’ is something that many of us take for granted when advocating for a more generous welfare system.
What many overlook is that welfare recipients who have access to the current suite of weekly payments, rebates, supplements and other benefits, could potentially receive far more than a minimum wage earner. Welfare payments have different eligibilities, which are traditionally created as policy responses to historic problems. Ultimately, our current welfare system, like our taxation system, has come to resemble a quagmire rather than an efficient process which helps people when times are rough, and incentivises people to get back into the labour force.
Misguided ‘benevolent’ politicians introduced the minimum wage to Australia as a method of guaranteeing that workers had a fair wage and were adequately rewarded for their labour. Yet the minimum wage, by its nature, is higher than the natural market price for labour, thus suggesting that most low-income workers should be incentivised by such a wage.
With around 10% of Australians waking up early, catching the bus, and receiving the Federal minimum wage, we need to ask ourselves: is it fair that a welfare recipient can earn more than them for not working? This question of ‘fairness’ is multi-layered.
The sad reality is that an unfair situation exists for the welfare recipient because first and foremost, it is not their money but taxpayers’ money which provides for them. As Milton Friedman said: “Nobody spends somebody else’s money as carefully as he spends his own” and so an added problem of welfare payments is that they do not guarantee an efficient allocation of government resources. In addition, the recipient is deterred from taking up an entry-level, minimum wage position where they could potentially receive less income than the steady largess, which government provides. Ultimately a welfare worker moving to a minimum wage position is often penalised for their labour rather than rewarded. It is therefore plain to see why many choose to remain on welfare for years: it is an economically rational decision not to work.
So who ultimately benefits from this system? We’ve established that the system can be unfair to minimum wage workers, who endure the hardships of work with a lower reward than someone who does not work, but it is also unfair on the taxpayers of Australia, who are being made to fund a system that is opaque, unaccountable and failing to deliver on its core responsibility.
Commentators have historically argued that there is no silver bullet to welfare reform, but a look at economic fundamentals could provide something close. Providing welfare recipients with the basic economic notion of incentives could be a step in the direction of reducing the Australian taxpayer’s welfare bill and getting more people back to work.
Implementing a cap on welfare payments at a rate that is below the annual minimum wage for a full time worker would restore the fundamental incentives that our economy has been built on. The Department of Social Services has historically endeavoured to provide incentives through ‘negative reinforcement’, e.g. recipients are expected to apply for a minimum amount of jobs per week and if a recipient fails to do so their payments are suspended. Yet surely incentives can exist without the heavy bureaucratic cost of checking if recipients have applied for twenty jobs or not?
Currently we have a welfare system that benefits only the people that are paid to administer it. The system is not fair to everyday Australian workers, who are being asked to pay tax to subsidise the lifestyles of people choosing to receive welfare rather than to work. It is also unfair to ask the taxpayer to continue to foot the bill for the administration costs of a system that has not been designed to serve its primary functions. Minimum wage workers are treated with contempt in a system that punishes them for choosing to work. It is these workers as a whole that would benefit the most from tax cuts, which could be funded by future Government savings in the Department of Social Services.
Our current welfare system needs major reform. Instead of being a comfortable source of income which demotivates and disincentives large groups of people from entering or returning to the workforce, the system should instead exist as nothing more than a safety net designed to assist those in genuine need and to provide them with stronger incentives to get back into the labour force and allow their work to pay for them, not the everyday Australian taxpayer.