Is it cheaper to end poverty than to maintain it? Research says yes
Melissa Fisher, who relies on unemployment benefits, says she is barely surviving.
"It's really hard … you're making choices that nobody should actually have to make," the Adelaide woman tells The Business.
"Every day it becomes a battle of whether you eat three times a day or if you see a doctor."
A few years ago, however, Melissa was among the Australians who had a reprieve from poverty.
At the start of the COVID pandemic, a "coronavirus supplement" doubled most welfare payments, essentially ending poverty for many, for a brief moment.
But in March 2021, the supplement was scrapped and thousands of families were allowed to fall back into poverty.
That's despite research suggesting that it may be cheaper to end poverty than to maintain it.
Melissa Fisher says policies based on "this idea that those in poverty have to be punished" keep people like her poor. (ABC News: Stephen Opie)
We don't count the 'big costs' of poverty
It's not a simple equation because many of the potentially preventable costs of poverty won't be realised until poverty is reduced.
Gianni La Cava, research director at think tank e61 Institute, says we can estimate many of those costs, however.
"We know that there are big costs associated with maintaining poverty, not just for the affected individuals, but for society as a whole," Dr La Cava tells the ABC.
"There's extensive research that shows that poverty is associated with poorer rates of health, lower rates of education, higher rates of crime.
"These are all costs to society as well — and we know that these costs are highly persistent … across generations."
Gianni La Cava says the COVID pandemic response showed governments could lift people out of poverty. (ABC News: John Gunn)
He says the COVID pandemic was a "real world experiment" in how government support programs help people and businesses.
"We know it lowered hardship a lot. We also know that people spent a lot of that increase in income, so it potentially stimulated the economy," he adds.
The supplement cost $20 billion over about 12 months.
As this chart by the Grattan Institute from February 2021 shows, the COVID supplement lifted the JobSeeker rate above the Henderson poverty line, a long-running benchmark of poverty, and the relative poverty line, which is half of median household income.
The unemployment benefit, in inflation-adjusted 2020 dollars, has fallen further and further below the poverty line. (Grattan Institute)
Dr La Cava estimates the increased JobSeeker payment boosted consumption in the economy by between $4.5 billion and $5 billion.
"These are people that are really cash-strapped … they are going to go out and spend it," he says.
In November 2024, the NSW Council of Social Service released a report on the economic costs of child poverty in New South Wales.
It said it was the first time in Australia that the economic costs of child poverty had been systematically quantified.
It found child poverty costs New South Wales $60 billion every year.
That included $25 billion in direct costs to governments and the economy, and $34 billion in costs related to diminished health and life expectancy due to child poverty.
It was equivalent to 7.8 per cent of gross state product.
Economic costs real, but people pay the real price
The direct impact of poverty is carried by individuals and their families, but many of the costs incurred by poverty are shared by taxpayers.
"Giving people enough money to live has immeasurable value in their lives and in the whole community," says Kristin O'Connell from the Antipoverty Centre.
Kristin O'Connell says there is "immeasurable" benefit to the community when people can afford to take proper care of themselves. (ABC News: John Gunn)
"We know that when people are able to take care of themselves and those around them that there's less strain on our health systems, less strain in our education system, that people are able to do things for each other that take the pressure off in other ways."
Melissa Fisher is living proof. She is an artist who relies on income support from JobSeeker due to disability, as chronic health conditions make it difficult to work.
When the COVID-era payments boosted her income, she was able to eat more nutritious food, afford the medicines she needed and pay to attend a gym.
As a result, her health improved.
"Your life just is really, really hard," says JobSeeker recipient Melissa Fisher. (ABC News: Stephen Opie)
But when the supplement ended, her diet became less healthy and she had to put off visiting the doctor or buying medicine.
"A few years ago I had actually been diagnosed with malnutrition and scurvy," she says.
Melissa has a skin condition that requires care and antibiotics that can cost her $150 a fortnight.
If she can't afford them, she may require overnight stays in hospital, which costs taxpayers potentially thousands of dollars a day.
"It's so frustrating … when I get put in hospital I end up being there for a week on [intravenous] antibiotics," she says.
"I know the outcome of not buying the things I need for my health, but I also know that sometimes I don't have a choice."
Poverty means avoidable costs mount, paid by all
The federal government has a body that looks the adequacy of welfare payments — the Economic Inclusion Advisory Committee (EIAC) — and has recently increased welfare payments including JobSeeker and rent assistance, but not by as much as advocates would like.
The EIAC says the low level of Australia's JobSeeker payment rate may be a net negative for workforce participation, since poverty is a barrier to employment.
The JobSeeker payment — previously called NewStart or, colloquially, "the dole" — is currently below all poverty measures and is far below the average of similar nations, leaving 830,000 recipients with extremely low incomes.
It says if the rate of JobSeeker and related payments were increased to about 90 per cent of the age pension (they're currently 67 per cent), it would not impact incentives to take up employment.
"The major cause of this is that the current level of JobSeeker payments is so low that even a substantial increase would still leave unemployed Australians on extremely low incomes compared to having a job," the EIAC says.
Hayley Winchcombe, an engagement manager at economics consultancy Mandala Partners, says if the JobSeeker payment is significantly raised, there will be clear benefits for people.
"They're more able to visit the GP, the hospital, they avoid a lot of health costs down the line and their children are able to grow up in households that can afford to give them nutritious meals and also to send them to school with everything they need to succeed," she says.
"It's certainly costing Australians a lot to have this level of poverty in the country."
Australia pays a heavy price for entrenched poverty, says Hayley Winchcombe. (Supplied: Sam Affridi)
Her research, released last year, quantified the microeconomic benefits of raising JobSeeker payments to 90 per cent of the age pension by tracking the mental health, physical health and child development outcomes for 20,000 people over 10 years.
It found every $100 invested delivered a $24 "social return" that included physical and mental health improvements and intergenerational benefits through positive impacts on childhood development.
There were "efficiency benefits" too, through fewer hospital and GP visits, lower mental healthcare costs, fewer justice system interactions and lower children's lifetime social security system use.
The methodology used in the Mandala research was extremely conservative, meaning the real benefits could be far greater.
"It's kind of an invisible cost where we don't look around and see necessarily the amount of burden being placed on our health system, on our homelessness services, on our justice system, from having these high rates of poverty," Ms Winchcombe says.
"But it is certainly very expensive, those costs, and what we've shown in our research is you can actually avoid a lot of them and generate a positive social return from investing in JobSeeker."
Let's add up the cost of poverty
According to Ms Winchcombe's report, increasing the JobSeeker payment for the 20,000-person cohort in the study would cost the government $301 million.
"This represents a transfer from the government's balance sheet to the balance sheet of households," the report explains.
"Households spend this money in the economy."
And that would generate an economic return as well as a $72.3 million (24 per cent) so-called "social return".
As the table below shows, that social return would be delivered through three primary channels:
- Government savings ($16.7 million)
- Benefits to individuals ($18 million)
- Broader social benefits ($37.6 million)
These figures are for the study's sample of 20,000 people. The number of people on JobSeeker is about 40 times that.
Kristin O'Connell, from the Antipoverty Centre, says most Australians also aren't aware of the huge financial costs involved of running a system that keeps people in poverty while forcing those same people to engage with private job service providers.
"Higher income support payments would be more effective than having these providers in place," she argues.
"But at the moment the government is spending around $4 billion a year — and that cost is rising per person — to force people to do compulsory activities that don't get them jobs, that cause harm and currently are operating unlawfully.
The Department of Employment and Workplace Relations recently found parts of the "targeted compliance framework (TCF)" system, which oversees the tasks job seekers are required to undertake as "mutual obligations" to receive income support, were "not operating in alignment with the law."
"When we talk about that $4 billion a year, that is about one quarter of the total amount they spend on the Jobseeker payment," says Ms O'Connell.
Social Services Minister Tanya Plibersek says the government has boosted the age pension by up to $5,000 a year, JobSeeker by up to $4,000 a year and commonwealth rent assistance by almost 50 per cent since coming to power in 2022.
"Providing pathways out of poverty is good for individuals and good for the economy," she notes in a statement.
Ms Plibersek points to $230 million in programs to tackle entrenched disadvantage as well as tax cuts, cheaper medicines, cuts to tertiary education debt, and energy bill relief as ways the government is "making a real difference to make sure no one is left behind".
Advocates have argued for more substantial increases to key welfare payments to reduce poverty and disadvantage.
Melissa Fisher thinks the policymakers have the equation wrong.
"We have this idea that those in poverty have to be punished and we don't — we're already punished enough.
"I think lifting people out of poverty is a policy choice. That's all it is and the government could make that choice."