Creating unemployment benefits

With the Senate Community Affairs Committee holding an inquiry into the adequacy of Newstart Allowance and an ongoing debate over the cashless debit card, it’s worth revisiting the origins of unemployment benefits in Australia.

Many of the current debates over unemployment payments have returned to the same issues policymakers grappled with in the 1930s and 40s—whether the root of the problem lies in the labour market or the behaviour of individuals; whether benefits should be paid in cash; and whether payments should be able to support recipients for long periods of time. The only debate that appears to have been settled is how the scheme should be funded.

The Curtin Labor Government introduced unemployment benefits in 1945. Like the age and disability pensions, it was a taxpayer funded scheme with a means test that ensured it was targeted at those most in need. It was designed as a temporary support for workers who were between jobs.

At the time, much of the debate was over how the scheme would be funded. Robert Menzies, the leader of the Liberal Party, argued that workers and employers should pay into social insurance fund that would cover the cost of claims. Under this kind of scheme there would be no mean test. He argued:

The moment we establish, or perpetuate, the principle that the citizen, in order to get something he needs, or wants, and to which he has looked forward, must prove his poverty, we convert him into a suppliant to the State for benevolence. That position is inconsistent with the proper dignity of the citizen in a democratic country. People should be able to obtain these benefits as a matter of right, with no more loss of their own standards of self-respect than would be involved in collecting from an insurance company the proceeds of an endowment policy on which they have been paying premiums for years.

Menzies described Labor’s taxpayer-funded, means tested scheme as humiliating and ‘pauperising’.

While there was debate over funding mechanisms and means testing, there was little disagreement about the need to replace the approach adopted during the depression of the 1930s.

During the Great Depression of the 1930s, state and territory governments responded to poverty amongst the unemployed by handing out ration tickets that could be exchanged for groceries. Many recipients found the experience degrading. For example, a 1931 letter to the editor recalls the case of a young man ‘whose connections bear the best reputation’ who called at the local police station to ask for rations:

… this young fellow was turned over like a common 'dip'. Pockets searched and finding a shilling in them, insult was added to injury by the remark: 'I suppose you're keeping that for Minny Golf to-night.’

Adding to the humiliation of asking for rations were the scores of newspaper articles claiming that thousands of fraudsters were drawing the ‘dole’, that recipients were bartering their ration tickets for beer, bets, or even the services of prostitutes. Other articles recounted stories of lazy ‘dole’ recipients living in luxury.

After the experience of the depression, both sides of politics had come to see unemployment as primarily an economic rather than a moral problem. In 1941 the Joint Committee on Social Security reported:

For long it was held that poverty was the fault of the individual and was solely due to inefficiency, improvidence, dishonesty, drunkenness and the like. More modern opinion is that poverty is mostly not the fault of the individual but of the environment in which he lives. Social services were developed largely because of the conviction that it is misfortune, not inherent evil, which brings people into want, and therefore it is the duty of the community to mitigate the worst effects of that want.

When Ben Chifley, the Minister for Post-War Reconstruction, announced Labor’s new scheme he made it clear that the unemployment benefit should not be seen as a ‘charitable dole’. While the scheme was not contributory, he argued that workers paid for their benefits through a graduated income tax. To reinforce the difference between the new scheme and the old state and territory ‘doles’, Chifley stressed that the new benefits would be paid in cash rather than in ration tickets and quoted from Fabian socialist George Cole’s book on the new Beveridge plan for social security in Britain:

No doubt, if they are given this, they will spend some of the money unwisely; but to allow a margin for unwise spending is part of the price society has to pay for freedom. A State in which every citizen received his income in kind, with no allowance for personal tastes, would be a Slave State.

Unemployment benefits were not the government’s primary response to unemployment and poverty. In a 1945 pamphlet titled Social Security and Reconstruction, Chifley argued for policies that would make social security benefits less and less necessary. The government’s full employment policies were designed to reduce the risk of future economic depressions and widespread cyclical unemployment. And by matching workers to job vacancies, the new Commonwealth Employment Service (CES) would reduce frictional unemployment.

With policies in place to manage the labour market, the social security system was designed to deal with the problem of short-term unemployment. This is part of the rationale for setting benefit levels low. When the Port Kembla Labour League lobbied the government to increase benefit levels, Labor’s Minister for Health, Nicholas McKenna responded:

When determining the rate of benefit, regard, was had to the fact that the benefit payments were to be of a temporary nature only, and that the claimants for benefit would normally resume work within a short space of time. In these circumstances, and in view of the wages received during employment, it is considered that the rate is not unreasonable.

Much has changed since unemployment payments were created. Issues that seemed settled in the 1940s are again up for debate. And the major issue of that era—whether to move to a social insurance system—is rarely debated now.


Flagpost is a blog on current issues of interest to members of the Australian Parliament

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