Welfare campaigners say they oppose a proposal to create a significantly more generous “unemployment insurance” scheme for the newly unemployed while leaving others on a much lower payment.

Nine newspapers reported on Wednesday that a proposal was circulating within the Morrison government that would mean jobseekers got 70% of their former income for six months and then reverted to the old Newstart base rate of $565 a fortnight, as part of a possible overhaul of the welfare system.

The idea is based on a new unemployment insurance proposal by the Blueprint Institute, though it differs in that jobseekers would still reportedly be returned to the old rate of $40 a day. The thinktank says the government should also provide a $150 one-off boost to jobseeker payments, essentially maintaining the existing coronavirus supplement.

Unemployment insurance payments under Blueprint’s Jobmatcher scheme would be capped at $2,692.30 a fortnight – about five times higher than the base rate of jobseeker without the coronavirus supplement.

Blueprint argued in a paper released this week “increased support” in a “step-down system” would incentivise job searching and “reduces the risk of welfare dependency”.

But welfare campaigners and the Greens immediately rejected the proposal, while Labor said it would not address “long-term unemployment which disproportionately impacts older workers and students”.

Cassandra Goldie, chief executive of the Australian Council of Social Service, said “everyone should have enough to cover the basics, regardless of how long they’ve been locked out of paid work”.

“That’s why we’re firmly against this proposal, which is out-of-touch with the realities of trying to find paid work, especially for single parents, the quarter of people on jobseeker who have a disability or illness, the 40% who are over 45, and others who haven’t been able to get experience or qualifications,” she said.

Kristin O’Connell, a spokesperson for the Australian Unemployed Workers Union, said it was an “ill-conceived, regressive scheme” that placed “the greatest burden on those who can least afford it, and delivers the least to those most in need”.

She said the proposal would “further disadvantage people who’ve been out of the workforce for a longer”, and argued “living in poverty makes it hard to remain employable”.

“Our welfare system must be equitable, and not create an underclass of longer-term unemployed people,” O’Connell said.

Guardian Australia reported in 2019 how Australia’s jobseeker payment is one of the lowest benefits in the OECD for the short-term jobless. It fares better on global comparisons for the long-term unemployed, though it is still below the average.

Australia is one of few OECD countries – along with the UK, Ireland and New Zealand – that offers a time-unlimited unemployment benefit. Other nations’ schemes taper down and usually end completely after a certain amount of time.

In some cases, such as the Nordic countries, governments also provide social assistance payments when a person’s unemployment insurance – funded by worker contributions – run out.

Supporters argue unemployment insurance paid at rate closer to a person’s past income provides a softer landing for those who lose work, helping them back into employment faster but also allowing them to wait for a job suited to their skills.

Others say it risks undermining the universal nature of Australia’s social security system and should not be considered a priority when the existing jobseeker benefit is so low.

Blueprint said the government was “hamstrung” by the current jobseeker payment’s “flat payment structure” and “forced into a trade-off between living standards and work incentives”.

It said its proposal – where jobseekers get 70% of their former income for six months, capped at $35,000 – would cost $9bn a year. It proposes funding the scheme through a 1% worker levy or cancelling the next increase in the superannuation guarantee.

“While we could (and should) offer more generous compensation to the long-term unemployed, it is plain that we are most out of step in terms of how we compensate the short-term unemployed,” the Blueprint report said.

The thinktank added, though, that the jobseeker payment should also be increased by $150 a fortnight and pegged to wages, rather than inflation, to better keep pace with living standards.

Labor’s social services spokesperson, Linda Burney, said the government was merely fuelling speculation about income support and leaving people “anguished by the uncertain future that lay ahead for them after March”.

“We will consider the detail of the way forward on jobseeker when or if the government announces it.

“One thing is for certain, this current proposal does not address the issue of long-term unemployment which disproportionately impacts older workers and students.”

The Greens senator Rachel Siewert said those on unemployment payments did not need a lower benefit to be incentivised to find work and that other factors were at play.

“For a start you can’t find work if there isn’t enough jobs,” she said.

Despite the pre-pandemic Newstart payment falling to record lows, the average time jobseekers were spending on the payment had been steadily increasingly since 2014.

A spokesperson for the social services minister, Anne Ruston, said she wouldn’t comment on speculation.

The Blueprint Institute was approached for comment.

This content first appear on the guardian

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