Potential rorting a warning for PaTH program

Allegations of potential rorting of the Victorian Labor government's 'Back to Work' scheme is a warning shot across the bow of the re-elected Federal Coalition government's own wage subsidy program. Getting people into work is a laudable aim, but governments of all persuasions need to be careful of rent-seekers lining up to line their own pockets.

The announcement of a "new and ambitious" employment program in this year's federal budget sounded oddly familiar. It seemed that the Turnbull government had discovered Victorian Labor's 2014 election platform.

Apromise to create 100,000 jobs over two years was at the centre of Labor's pitch to make Daniel Andrews the next Victorian premier. The flagship 'Back to Work' announcement included a $100 million fund for wage subsidies of up to $1000 for business that hire unemployed youth, long-term unemployed or retrenched workers.

Similarly, the Coalition's Youth Jobs PaTH (Prepare, Trial, Hire) program aims to help 120,000 young people take advantage of employment opportunities – a key policy conforming to their election mantra of "jobs and growth". The $751.7 million package includes upfront payments of $1,000 to businesses that take on interns, and wage subsidies of between $6,500 and $10,000 to businesses that hire those interns on a permanent basis.

There is no doubt that youth unemployment is a major problem. According to the ABS, the national youth unemployment rate for May 2016 was 12.4 per cent – more than double the national adult rate of 5.7 per cent.

We need new ideas to tackle this problem. However, the Victorian Labor government's strategy of wage subsidies simply hasn't worked.

Figures from Victoria's State Revenue Office revealed that only 164 claims were made under the 'Back to Work' scheme between July and September 2015. In response to the slow start, the Victorian government increased payments to up to $12,000. Fast forward to July 2016 and the scheme is apparently "fully subscribed". This is curious given that only about $40 million of the $100 million fund has been spent, and 12,000 jobs had been supported by the wage subsidies – making Victorian Treasurer Tim Pallas' "stretch target" of 100,000 jobslook like quite a stretch indeed.

Where has all the money gone? Time will tell, with the Victorian Shadow Treasurer Michael O'Brien alleging rorting, and has written to the Victorian Auditor-General requesting a full investigation. Allegations that the scheme has been rorted are not surprising. Rent-seeking is much easier than running a profitable business. Besides, the subsidy offer provides a powerful incentive for businesses to fudge the paperwork to fit the eligibility requirements, particularly when combined with a government desperate to make its policy a success.

There is no value in these programs if they displace jobseekers that would have been hired without a subsidy, or if employment ceases as soon as the subsidy ends. For example, a departmental review of an existing Commonwealth program in 2012 found that "81 per cent of employers reported they originally intended to keep employees indefinitely, in practice only 57 per cent intended to retain the employees at the time of the survey".

There are fundamental questions for the Commonwealth government to confront. How can the Federal government's scheme succeed where the Victorian government's failed? What safeguards will be put in place?

On budget night Treasurer Scott Morrison said "we must do better than this. We must try new approaches, not just keep doing the same old thing". The problem with the PaTH program is that wage subsidies have been tried, and the problem of youth unemployment has persisted.

The Turnbull government could use its second term to champion a new approach to employment policy by opening up uncompetitive labour markets. It will be far more difficult than throwing money at the problem. But it would be in stark contrast to their opponents in Labor and The Greens who would prefer to retain an out-of-date regime that continues to lock young people out of work.