The government's proposed changes to the unemployment system, explained

The federal government has proposed changes to Australia's $2 billion employment services system to make them "more responsive, effective and dignified".

More than one million job seekers will be affected, with changes including a redesign of service delivery and updates to provider incentives and mutual obligations requirements.

Policy experts say the shift, announced by Employment Minister Amanda Rishworth, reflects a step away from compliance-heavy settings towards support that could better help people find a job.

However, with the finer details of the new model yet to be designed, plenty remains unclear.

What are mutual obligations? 

First, some background on a term that's going to come up a lot.

Mutual obligations are job-readying activities, such as short courses and volunteering, that people on Centrelink payments including JobSeeker and Youth Allowance need to complete to continue receiving support.

Successive governments have stood by mutual obligations as an important feature of the social security system that encouraged people to keep engaging in job searches while receiving income support.

Detractors have long described them as punitive stressors that lower someone's job search capability, and if they did help them find work, it was in unsuitable, lower paid or lower skilled jobs. 

There have also been criticisms the private job agencies tasked with getting people into work prioritised those who were easiest to place in work in order to maximise payments.

Last year, the Commonwealth Ombudsman found almost 1,000 job seekers had payments unlawfully terminated over two years under the automated Targeted Compliance Framework that was set up to monitor mutual obligations.

What are the proposed changes? 

Now, onto the changes.

The biggest is the creation of three distinct service streams, with different levels of assistance depending on an individual's readiness to work, to replace the current "one-size-fits-all" approach.

Ms Rishworth said this included an "effective, fair and proportionate" mutual obligations system.

• Stream one will be a digital service for people close to the labour market. Its mutual obligations will focus on vocational activities such as job searches.
• Stream two will be comprised of provider services for people deemed to need more support than the online service can provide. Services under this stream — things like job coaching, work-ready supports and training linked to in-demand jobs — will need to "work for the participant" and be connected to jobs available where they live. Mutual obligations will need to be explicitly connected to a participant's goals, with the flexibility to adjust if needed.
• Stream three is aimed at people without "a linear path into work" and who need more support to build confidence. This stream could include alternative pathways to employment, including social enterprises. Mutual obligations will focus on "meaningful engagement and building someone's readiness to work".

The incentives paid to job agencies will differ based on the intensity of the services they provide.

Another change includes the development of a $27 million assessment tool to identify the job seekers who may need more intensive support and ensure someone's barriers to the labour market "are clearly identified and understood".

The information gathered would then help develop a "tailored employment plan" for the job seeker, replacing the current plans the minister said "usually reflect a standardised template ... often filled with arbitrary activities".

These employment plans would also take into account broader factors such as someone's health, housing and social support situation.

Specific details and steps to how this will be achieved were not announced, with much of it to be the subject of consultation with the sector.

Why is the system being overhauled? 

Centre for Policy Development policy director Cliff Eberly said multiple reviews over the past decade had consistently highlighted the system's limitations.

The 2023 employment White Paper and a parliamentary inquiry from the same year highlighted the one-size-fits-all approach was ineffectual.

The inquiry into the system, privatised by John Howard in the 1990s, also found it was overly focused on "kicking people off welfare".

The Commonwealth has been spending around $2 billion each year on the employment services system, and 20 per cent of those in it have been stuck there for five or more years.

"This is major, complex reform. But it will be worth it to realise the benefits of an employment services system that functions as it should," Ms Rishworth said.

This is the second shake-up of the system since the Albanese government was elected in 2022, when the old jobactive system was replaced by Workforce Australia.

What has the reaction been?

Parts of the unemployment sector have cautiously welcomed a change to the status quo, but expressed reservation about the new system given so much is still unclear.

Antipoverty Centre spokesperson Jay Coonan labelled the changes as a "timid approach" and warned that without changes to legislation or stronger oversight of private providers, "nothing systemic" was likely to change.

He pointed to high rates of payment suspensions — many later overturned — as evidence of wider problems, and said the government had not properly addressed the compliance issues raised by the Commonwealth Ombudsman.

The Australian Council of Social Service had been calling for the scrapping of mutual obligations altogether, and acting CEO Edwina MacDonald said the rates of Jobseeker, Youth Allowance and other payments needed to increase.

"[They] are so low, they create an additional barrier to people getting into paid work. People are focussed on struggling to survive, to keep a roof over their head and eat three meals a day, let alone buy a new outfit or get a haircut for a job interview," she said.

Greens social services spokesperson Penny Allman-Payne said the government's "tinkering around the edges" meant it was "keeping a for-profit system that causes harm to people".

Mr Eberly said the changes recognised that losing a job was often outside a person's control and could be a "really distressing event" and the system needed to focus on helping people "get back on their feet" rather than punishing them.

"The reforms are getting at the right things. Whether it becomes a major reform is about how well the new system is designed and implemented," he said.

What happens next? 

A public discussion paper has been launched, and the government has announced plans for a "user lived experience panel" as well as a "Employment Services Reform Advisory Group".

There is no firm completion date on the full national system being operational.

In the meantime, the minister has extended all current Workforce Australia contracts for an extra 16 months.