New Deal for income protection?

anthony-odonnell-thumb Anthony O'Donnell

First published in The Age on 9 June 2009

Last Tuesday ACTU President Sharan Burrow used the council's congress to declare that transforming social protection and social insurance is now 'at the top of the union agenda'.

Many will see this as a fresh departure for the trade union movement. Unions have been traditionally concerned with fair wages and conditions for those in work, rather than alleviating the hardship of those who find themselves without work.

That isn't the whole story, of course. The 'accord' that the ACTU brokered with the federal Labor government in the 1980s saw wages growth traded off for significant social policy advances: the introduction of Medicare, a revamped family allowance system (the context for Hawke's infamous 'No child will live in poverty' pledge) and the bedding down of compulsory superannuation.

Nevertheless, Australia differs from many European countries where trade unions, along with employers, play a substantial role in the governance and administration of social insurance schemes and employment services.

Some two decades ago, political scientist Frank Castles characterised working class strategy in Australia as wage security for the worker rather than social security for the citizen. In the early decades of the 20th century, trade unions were successful at getting things like a fair and reasonable family wage and sick leave inserted into awards. What's more, Castles argued, the early success in establishing centralised wage fixing determined the future strategy of working class politics. There was little political pressure for subsequent expansion of the level and generosity of income transfer benefits. The protection of the take-home wage meant that labour was loath to support either contributory insurance schemes or an increase in the capacity of the tax base to finance increased transfers.

So Australia's welfare state for much of the twentieth century remained distinctly residual in character, based on means tested, flat-rate benefits financed out of general tax revenue.

While this meant that our welfare state was always seen as leaner and meaner than its western European counterparts, as long as our social security system operated in conjunction with a commitment to full employment, centralised wage fixing, award coverage and widespread home ownership, it amounted to what was, by world standards, a surprisingly comprehensive system of social protection.

However, as Professor Ronald Henderson discovered in the early 1970s, it was a system of protection which managed to exclude the usual suspects: Aborigines, newly arrived migrants, the aged, single mothers - all those who couldn't rely on the labour market or intra-family transfers.

In the two decades following Henderson's Commission of Inquiry into Poverty, which reported in 1975, the social security system was substantially upgraded with regard to coverage, the removal of some, but not all, of the moralism that informed certain eligibility rules, and substantially improved benefit levels, tested against more rigorous notions of need and adequacy. Over the same period, those other pillars of the postwar social settlement - a buoyant labour market and centralised wage fixing, the nuclear family, latterly home ownership - have all taken a battering.

Yet from today's perspective, Castles' characterisation of our welfare system seems unnecessarily limiting. The full array of income maintenance and welfare schemes in Australia exhibits a greater diversity than his model suggests.

State-based systems of workers compensation, which were amongst Australia's earliest income maintenance schemes, follow a social insurance model, based on contributory financing and offering earnings replacement rather than flat rate benefits.  Medicare follows an insurance model, based on a hypothecated tax. Both superannuation and the Higher Education Contribution Scheme ('HECS') follow a compulsory savings model - the first prospective, the second retrospective.

Recognition of this diversity is important, especially when considering appropriate models for new income maintenance schemes, and Burrow acknowledged the diversity of potential payment models and promised the union movement 'will examine them all'.

In this light it is useful to consider the most recent innovations in our system of transfer payments: the paid parental leave scheme proposed by the Rudd government.

At first glance it seems to confirm Castles' characterisation of the Australian model of welfare: a flat rate payment, financed out of consolidated revenue. What sets it apart is the level of payment, at a rate equal to the minimum wage.

In fact, the payment sits oddly within the panoply of welfare arrangements currently in place. As social policy commentator Julia Perry has pointed out, it is neither fish nor fowl: it is neither based on earnings replacement (like workers' compensation, or payment for other forms of leave that employers currently meet) nor 'needs' based (like disability or sole parents pension which, paid at a much lower level, are means tested and meant to alleviate poverty).

As Perry points out, as a tax-financed transfer scheme, the paid parental leave scheme introduces serious anomalies into our transfer payment system. If we compare it, for example, to the assistance for people who cannot work because of serious illness or disability (and who are not entitled to paid sick leave or workers compensation), it appears unjustifiably inequitable. An even more telling comparison, she points out, is with Carer Payment, where those also carrying out socially beneficial unpaid caring work get around half the minimum wage.

Perry favours a social insurance model for paid parental leave, as do John Buchanan and Louise Thornthwaite of the University of Sydney's Workplace Research Centre amongst others. As I indicated, such schemes already exist in the form of States' workers' compensation schemes. It would result in new parents being paid an income based on earnings replacement, and would be financed at least in part by a levy imposed on all employers. This would ensure that the cost of employing women who become pregnant is shared across employers, reducing the costs to individual employers.

Given how long it has taken for Australia to fall into line with other developed economies in adopting any scheme for paid parental leave, Burrow was probably right to welcome the federal government's proposal as 'historic'. But it might fall short of what she called for on Tuesday: a 'new deal' for income protection in Australia.