Federal budget: JobSeeker increase for over 55s only ‘dangerous’;Grattan Institute CEO

Grattan Institute chief executive officer Danielle Wood said she understood the federal government’s desire to keep any welfare payment increases “modest” given current fiscal constraints but cautioned against splitting welfare payments based on age.

“I do think it is a bit of a slippery slope, this division of people on those payments,” she told the National Press Club in Canberra on Wednesday.

“Equally, people under 55 are really struggling to get by.”

Ms Wood spoke alongside RBC Capital Markets managing director Su-Lin Ong and EY Oceania chief economist Cherelle Murphy on Wednesday as the Albanese government puts the finishing touches on its first full federal budget.

The government is yet to confirm media reports the budget will include a JobSeeker increase for people on the payment who are aged over 55 when it is handed down next Tuesday, but the idea has stirred a backlash from welfare advocates and some Labor MPs.

Ms Wood said she wasn’t a fan of the proposal but she wouldn’t begrudge anyone over 55 an increase if that was all that was on the table.

Labor has already rejected calls from two government-commissioned expert panels for a substantial increase to the rate of JobSeeker for everyone on the payment.

The economic inclusion committee – which Labor set up last year in exchange for key crossbencher David Pocock’s support in passing its industrial relations reforms – recommended Jobseeker be lifted by $132 a week.

That recommendation would help some 920,000 Australians on JobSeeker and related payments but it would cost the budget almost $6bn a year.

Ms Wood said she expected Labor to take a cautious approach to the budget and provide modest cost-of-living relief such as changing dispensing rules – which will allow Australians to save money on common medicines but won’t cost the government anything.

“The needs of the most vulnerable suggest spending more. But the macroeconomic and fiscal circumstances dictate restraint,” she said.

However, Ms Wood also outlined an alternative path in which the government could support more ambitious projects such as increasing JobSeeker and other welfare payments.

“Of course, all that daring has a price,” Ms Wood said.

“And the government would need to neutralise the inflationary and fiscal impacts of these proposals by making hard decisions on increasing taxes and reducing spending elsewhere.”

The Grattan Institute has proposed redesigning the contentious stage three tax cuts to make them less generous to the highest income earners.

The third tranche of cuts legislated by the Morrison government with Labor’s support scraps the 37 per cent marginal tax bracket and lowers the 32.5 per cent marginal tax rate to 30 per cent.

Set to come into effect in July 2024, the reform also increases the threshold for the 45 per cent marginal tax rate, so people earning between $45,000 and $200,000 will pay the same 30 per cent tax rate.

The Grattan Institute says the government should retain the 37-cent tax bracket in order to reduce the size of the cuts for high-income earners and save about $8bn a year.

“That alone would offset the fiscal and inflationary impact of a JobSeeker rise,” Ms Wood said on Wednesday.

Labor before the federal election in 2022 promised to keep the stage three tax cuts in place but the inflation crisis has prompted calls for a rethink of the policy.

Originally published as Leading economist criticises idea of increasing JobSeeker only for over 55s