Monday, March 16, 2009

Automatic stabilisers

Brace Bradbury is concerned about Australia's relatively weak automatic stabilisers
Is Australian social protection ready for the great recession? by Bruce Bradbury, Club Troppo .. Australia doesn’t really do social insurance. For many years income protection policy has focussed on poverty alleviation rather than protection against negative income shocks. The forthcoming recession might be a time when we begin to regret this model. As the graph below shows, Australian average income workers losing their jobs face a larger drop in income than in most other OECD countries.

... At the macroeconomic level, this suggests that the ‘automatic stabilisers’ will be weaker in Australia than in most other rich countries. At the household level, it will mean greater short-term income shocks than experienced elsewhere. This will play out in terms of mortgage arrears, increased debt and household stress, and perhaps most importantly, political discontent.

What can be done? We cannot build an unemployment social insurance model overnight – and maybe we shouldn’t. But we cannot expect that an income support system based on poverty alleviation will be a suitable response to an economic shock of the size of the one we are about to experience. In the absence of automatic stabilisers manual action is required. Small actions could include further relaxation of liquid assets tests (beyond those won by the Greens) and reductions in Newstart waiting periods. Temporary increases in the payments to Newstart recipients – who have been conspicuous in their absence from government handouts to date - are the most obvious response.

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