The Commission of Audit Wants to Rip Up Australia’s Social Contract

The costs of many of the Commission of Audit’s recommendations may ultimately be too high for Australia, writes Veronica Sheen, Research Associate, School of Social Sciences at Monash University in this piece first published on The Conversation.

The recommendations in the Commission of Audit’s report, which was released yesterday, would, if implemented, erode the fundamental building blocks of Australia’s social contract.

The social contract – the suite of policies, legislation, programs, health care and social services – has served to ensure that every Australian is able to have a basic but decent standard of living. It has been carefully crafted over the 20th century since Federation.

The social contract has also served to ensure that extremes of poverty and inequality have been largely avoided, with some important exceptions.

Growth of the working poor

The Commission of Audit believes that the minimum wage should be set at 44% of average weekly earnings (AWE), which is a measure of average earnings across both part-time and full-time employment. Using AWE as a benchmark, rather than full-time average earnings, significantly erodes the value of the minimum wage because it includes the wage of people who are either underemployed (around 7% of the Australian workforce) or who choose to work in part-time jobs.

If the Commission of Audit’s recommendation is implemented, the current minimum wage of A$622.20 per week would be reduced to A$488.90 per week.

Of great concern would be its effect on people in part-time, casual jobs. It would reduce the current hourly rate of $16.37 to $12.80 per hour (plus a casual loading). For many people, including the 10% of the female workforce that is underemployed, this would be a large loss of income.

The recommendation on the minimum wage would shift the foundation of adequacy in wage setting as enshrined in the 1907 Harvester Judgment. It would take us down the track of an American-style working poor with all the negative social and economic consequences for society.

Big holes in the social safety net

The recommendation for reducing the minimum wage also needs to be set in the context of recommendations across the income-support system. There was no attempt to address the low level of unemployment payments in the form of the Newstart Allowance.

However, the Commission of Audit wants to make life harder for people forced to live on these low payments. Currently, earned income between $100 and $250 per fortnightreduces fortnightly payment by 50 cents in the dollar. The Commission of Audit recommendation means it would be reduced by 75 cents in the dollar.

This undermines efforts of people to sustain themselves while on low Newstart payments through a small amount of part-time work. This new taper rate would apply across the board to all benefits and pensions.

If implemented, the recommendation means that there will be a greater disincentive for people to take on any work as it will be more trouble than what it’s worth. It is exactly counter to the type of help a government would want to give people to get off income-support payments. It erodes people’s capacity to help themselves through paid work and will increase poverty. It could also extend participation in the grey or black economy.

The recommendation that young people on unemployment payments will eventually be required to move to areas with higher employment opportunities sounds like a bit of nasty social engineering. Historically, young people have moved to areas with greater opportunities and they don’t need a government regulation to do so. But they do need jobs with decent wages to go to.

A squeeze on age pensions

The change to indexing arrangements in the age pension, as recommended by the Commission of Audit, will erode the pension’s value if implemented.

The current arrangements ensure a modest but adequate standard of living for Australia’s older population. The erosion of adequacy sets the ground for the pauperisation of some groups of older people, especially single women (a group highly reliant on the full age pension) and those in rental accommodation.

There is a case for high-value housing to be included in the assets test. However, there would need to be a very careful assessment of the level at which this is set.

The Commission of Audit also recommends raising the pension eligibility age to 70 to take effect by 2053, linking the pension eligibility age to life expectancy. This long lead time is better than a transition as early as 2030 as some reports suggested. However, other factors still need to be taken into account, particularly the health status of workers in occupational and industry sectors where working to 70 will be very difficult to achieve.

Altogether, the recommendations across social welfare would create big holes in the Australian social safety net – one that has been carefully crafted since Federation. The fact that Australia has a well-targeted and efficient social welfare system is entirely overlooked.

The end of universal health coverage

The Commission of Audit recommendations on Medicare would fundamentally change the basis of our universal, publicly funded health system. The recommended GP co-payments are large at $15 and would be very hard on low-income earners. If implemented, this would undermine one of Medicare’s chief goals: to ensure everyone could see a doctor when they needed to.

However, it is also alarming that the Commission of Audit thinks that the well-off should be entirely out of Medicare for basic health services and should pay for them through the private system.

This recommendation would lead to Australia having a dual health-care system – one for the well-off and one for everyone else. This sets up the conditions for the higher-income groups to continually contest expenditures on a health system that they do not have access to themselves.

This is why a universal system works so well. It ensures social solidarity on the provision of health care. The Commission of Audit’s recommendation has the potential to set up the type of inequalities in health care combined with the exorbitant costs of the system that we see in the US.

Conclusions

The Commission of Audit has made much of the affordability of Australia’s core areas of social spending. But it might also have considered whether Australia can afford to rip up its long-standing social commitments on decent wages, an adequate social safety net and a universal health-care system. The costs of many of its recommendations may ultimately be too high.