Our View: Cashless benefits have unintended consequences

According to reports at the weekend, the state is to get tougher on benefits handed out to migrants and asylum seekers.

Some of the measures make sense such as better means-testing of those receiving benefits, and also more protection of vulnerable migrants from exploitative landlords but this would require huge resources when as it is, beneficiaries are barely paid their allowances on time.

One of the steps suggested by the authorities is introducing pre-paid benefits cards meaning that the money will only be able to be spent in Cyprus. Apparently some welfare beneficiaries send money back home, while the deputy ministry of welfare also bemoaned that money was being spent on alcohol and cigarettes.

This is a great idea in theory but before the state goes off half-cocked and wastes millions in implementing such a system, they might want to study what has happened in Australia, which has been trialling cashless benefits cards in some regions since 2016.

The first thing that happened was that many people living within the pilot regions moved elsewhere to avoid it. The pilot involves allowing 20 per cent of the benefits to be banked and the remainder to be spent conditionally at approved outlets.

Since then, although the Australian government is keen to expand the programme, a number of investigations and senate hearings came to the conclusion that it did not work as expected. The dispute between proponents and detractors is still ongoing.

The global charity organisation St Vincent de Paul, which has studied the outcome of the pilot programme concluded that denying people access to cash had a number of negative consequences. Most welfare recipients, it said, did not have substance abuse problems or gambling issues but ended up cut off from the cash society including access to small cheaper stores and second-hand shops and markets.

Meanwhile, those who had abuse problems turned to crime instead to get hold of more cash. And, in addition to an increase in crime, there had been more suicides.

“The most comprehensive evaluation of income management could not find any substantive evidence of the programme having significant changes relative to its key policy objectives, including changing people’s behaviours,” the NGO said.

On top of that the government has spent nearly million AU$20 million on the pilot which equated to over AU$10,000 per person participating in the trial. This money, detractors say, could have been spent on more useful social programmes. Half of the money went to the private company contracted to operate the system. The Vincent de Paul pointed out that if it was rolled out nationwide, the cost to the country as a whole would outweigh any benefit.

If the Cyprus government jumps into this thinking, they might want to run a proper cost-benefit analysis first and take into account the unintended consequences. If not, those who know how to cheat the system always find a way while the taxpayer and people who need the most help will be the biggest losers.