Cashless Debit Card System
ECON111 Microeconomic Principles (Session 1, 2019) Assignment
N.B This is economics – diagrams are always your friend. The cashless debit card
In 2007 the Australian government first embarked on so-called income management policies with regard to certain forms of welfare payments in certain communities. The basic idea of income management is that control over spending by recipients of payments is limited in a number of ways – some part of the payment may be withheld by Centrelink in order to pay for essentials such as rent on the individual’s behalf; the component of the payment available as cash is strictly limited; payments might be restricted to particular electronic means (the BasicsCard); particular classes of goods (pornography, alcohol, gambling) could not be purchased using the specified electronic means.
In 2016 this approach evolved into the cashless debit card program. This involves an 80:20 split of welfare payments with 20% going into the recipient’s bank account and 80% going onto a debit card that can be used for purchases as usual wherever point- of-sale facilities are available. The card cannot be used to withdraw cash, or used at businesses that primarily supply gaming or alcohol products. Recently the Federal Government announced that all people under income management in the Northern Territory would be moved to the cashless debit card
The stated intent of the scheme is to reduce socially harmful outcomes in communities with high welfare dependence, by essentially forcing expenditure towards basic health and education maintenance and other supporters of child welfare in particular, and away from expenditures regarded as harmful and injurious. A recent discussion of the scheme from someone with involvement in its implementation can be found here and another perspective on evaluation here. An account critical of the approach can be read here.
1. (a) What are the economic justifications for distributing welfare payments via the cashless debit card? [5 marks]
As argued by the Federal Government, the cards, which quarantine eighty percent of the payments of a welfare recipient for use at predetermined stores result’s in a reduction in harm and violence related to irresponsible drinking, and gambling. Some areas depend heavily on social security, and this is most of the times intergenerational . The most at risk people among this population are often the most vulnerable especially children and women. If welfare is provided to support individuals, then it should not be used to acquire harmful drugs and alcohol that contribute to abuse and violence and traps citizens into poverty. It may be argued that people can still withdraw twenty percent of their payment and use it to gamble, buy alcohol or take part in the cash economy. However, if people spend a huge chunk of their payment on gambling, alcohol and pornography, there may be a severe financial problem, which can be protected by the card. The debit card does not exacerbate any economic insecurity as many people may think; instead, it is a secure economic payment because it does not change the amount received by the beneficiary. The card limits cash and cash economy which encourages the drug trade and sly-grog.
(b) Are they consistent with the standard economic argument that payment in kind is inferior in welfare terms to payment in cash? [see Unit 3 lectures, Week 4]? [5 marks]
2. (a) What ethical framework underlies the case for the cashless debit card you described above? [See Unit 5 lectures, Week 5] Explain. [5 marks]
(b) Would it matter for this case if people using the cashless debit card were worse off compared to being able to allocate their own expenditure? Why or why not? [5 marks]
3. What arguments are there against the program based on the ethical framework you identified in Question 2? [5 marks]
4. What arguments can be made for and against the program based on an opposing ethical framework? [See Unit 5 lectures, Week 5] [10 marks]
5. (a) Taking into account both the economic and ethical argument, is income management via the cashless debit card justifiable on balance or not? [10 marks]
(b) If so, should it be applied to all recipients of government payments (e.g. pensioners, students)? If not, why not? [5 marks]