19 May 2017

It’s time for a mature and apolitical welfare debate

Source: by John Hewson

Discussions of our welfare system are riddled with inaccuracies and “fake news”, ranging from stereotypes to claims about certain initiatives and commitments being “fully funded”.

You can always tell when a budget is on the horizon, as the media saturates with references to dole bludgers and various other welfare “cheats”, teenage pregnancies, “fake family structures”, “double dipping” and so on, all eliciting threats of yet another welfare crackdown. Many, if not most, of these claims tend to ignore the available evidence.

Social Services Minister Christian Porter oversees the most targeted and cost-effective income support system in the developed world. Photo: Andrew Meares

The classic is the annual attack on the unemployed – you know, the “layabouts” and “couch potatoes”, reluctant to attend job interviews, using their dole to sustain a certain “lifestyle” – as if their benefits dominate the welfare bill and are indicative of the magnitude of the so-called welfare problem, when in fact they account for only about 6 per cent of welfare spending and that spending is flat-lining, growing slower than GDP. Most unemployed are in fact desperate for a job.

Nevertheless, governments of various persuasions have announced over the years a variety of policy crackdowns to make it harder to receive the benefit – work-for-the-dole schemes; requirements to first run down “liquid balances” and/or to attend a specified number of job interviews and other job search regimes; in this budget, adding drug and relationship tests – all with penalties to delay or revoke benefits, in part or whole.

While, indeed, any genuine bludgers should be weeded out, the fact is the job market is quite difficult and getting worse. The measured unemployment rate is close to what used to be regarded as full employment. However, with most of the new jobs being part-time, “underutilisation” is more than double the official unemployment rate.

There is only one job available for every 10 who are out of paid employment or who want more paid work. Long-term unemployment has almost tripled since the GFC, and now accounts for some 70 per cent of those on the Newstart benefit. Moreover, by any accepted measure of the poverty line, these benefits are well below it.

Rather than being beaten up and stigmatised, the unemployed need a holistic, interdisciplinary policy response that covers economic growth and job creation through to education, training and retraining, as well as financial support.

More broadly, Australia has the most targeted and cost-effective income support system in the developed world, due largely to a commitment, by successive governments, to means-testing and targeting of benefits.

The largest area of the welfare bill is assistance to the aged (40 per cent) – with the age pension costing four times the Newstart benefit – ahead of families with children (23 per cent) and people with disabilities (20 per cent). However, over the four-year budget period to 2020/21, total assistance to the disabled blows out by some 60 per cent (reflecting the rapid introduction of the NDIS), becoming the second-largest share of the welfare bill. Indeed, spending on the NDIS increases by some 600 per cent, from $3.4 billion to some $20.3 billion.

The government’s claim the NDIS is fully funded by the increase of 0.5 per cent in the Medicare Levy is quite misleading. It certainly doesn’t fund all that $20.3 billion estimated for 20/21, but, together with the 2014 increase in the levy (also of 0.5 per cent) totalling about $9.4 billion, still only funds the government’s contribution to the Disability Care Australia Fund, and the NDIS Savings Fund.

The political spin is to create the impression the NDIS is fully funded. It would take the full Medicare Levy of 2.5 per cent just to fund the $20.3 billion estimated cost of the NDIS in 20/21 (leaving little for claimed funding of the Medicare Guarantee) which, in turn, is well under the $50.7 billion total cost of all assistance to the disabled in that year.

Moreover, levy and tax revenue estimates are based on the budget’s economic assumptions – especially wages, employment and inflation – which are optimistic, and most unlikely to be achieved. As a result, these commitments will be further unfunded.

The costs of the NDIS are likely to blow out as final eligibility and coverage are determined – especially if extended to include mental disabilities.

The challenge for whomever is in government through the 2020s will undoubtedly be how best to target disability assistance to contain its exploding costs, thereby having to face the thwarted expectations, and political fallout, that will ensue.

Given the projected further 20 per cent increase in assistance to the aged to some $75 billion in 2020/21 (at that point, still nearly 40 per cent of the welfare bill), it is also inevitable that further consideration will need to be given to increased means testing for the aged pension, probably to include the family home, above some limit, in the assets test.

Finally, genuine welfare reform must also include a willingness to increase the base Newstart and pension benefits to at least an accepted poverty line.

Given its budgetary significance, it is time for a mature, apolitical welfare debate.

John Hewson is a professor at the Crawford School of Public Policy, ANU, and a former Liberal opposition leader.

 

 

« All Sector News