The federal government’s largest single ticket spending item – welfare – has failed to rate a mention in the election campaign, writes Peter Whiteford.
It is the $152 billion elephant in the room. It accounts for around 35 per cent of total government spending. And it affects – in one way or another – most Australian adults’ lives. But beyond childcare policy, where is the discussion and debate about the Australian social welfare system in the election campaign?
In many ways, the debate about welfare has already been framed by the primacy of economic issues, and in particular whether either major party has a credible plan to return the Budget to surplus. That’s a shame, because there are many pressing issues in social policy that require a broader view than just looking at them through the narrow focus of a financial lens, particularly one focused on the short-term.
Spending on social security and welfare is the largest item in the Federal Budget, so it is not surprising that it is an important issue for governments concerned with cutting expenditure as the path to balancing the Budget.
Despite this, spending on social security in Australia is actually low by international standards. The main reason why our spending is low is that we have the most targeted welfare system in the OECD. More than 80 per cent of our social security payments goes to people in the bottom half of the income distribution; this compares to less than 60 per cent in the United States and less than half in Japan, and even less than this in most European countries.
The extremely targeted nature of our social security spending is also one of the main reasons why the level of government spending in Australia is the third lowest in the OECD. But because we target the poor more than any other rich country, cuts to social security have a larger impact on them than other income groups. Indeed, the OECD has calculated that cutting social security spending across the board would increase inequality in Australia by more than in any other rich country.
The 2014 Budget proposed a number of dramatic changes to social security including cuts to family payments, changing the indexation of Age Pensions, and restricting access to payments for the unemployed aged under 30. While social security and welfare is 35 per cent of the Commonwealth expenditure, more than half of all the proposed savings in the 2014 Budget would have come from this area. Payments for unemployed people under 30 account for less than 1 per cent of total spending, but they would have provided 10 per cent of proposed savings. The perceived unfairness of these and other changes proposed in 2014 led to them being blocked in the Senate and also raised the issue of whether cuts in government spending of this sort were a credible path to surplus.
One of the main concerns with the system is whether it is sustainable. While there is a lot of discussion around the growth in social security spending, over the last 20 years, spending by all levels of government has been broadly stable as a percentage of GDP. The proportion of the working age population receiving income support payments has fallen from around 25 per cent to less than 17 per cent in the past twenty years, or close to the level it was in the early 1980s. The proportion of people over 65 receiving an Age Pension or a Veterans Affairs or other pension has also fallen from around 85 per cent to 76 per cent, but there are a lot more people over 65 now.
Looking forwards, the latest Budget projects that spending on social security and welfare will increase from $152 billion to $190 billion, or from 9.3 per cent to 9.6 per cent of GDP by 2019-20. Spending on people with disability is projected to rise by around 1 per cent of GDP. This is virtually all due to the roll-out of the National Disability Insurance Scheme, a policy supported by all sides of politics.
All other areas apart from spending on the aged are projected to fall as a per cent of GDP, although falling spending on veterans will more than offset increased spending on the aged. Having said this, some of the earlier proposals for changes to family payments are still in the forward estimates, and if they are not passed by the new Senate after the election, spending will be higher. Looking further into the future, it is clear that the ageing of the baby boomer generation and increasing life expectancies will lead to higher spending on pensions and health care, and particularly care for the frail aged.
If we look at issues other than budgetary costs, there are many concerning social aspects of our current policy settings. While reduced, a significant proportion of the working age population continue to rely mainly on benefits for their incomes. It is certainly desirable for equity reasons and sustainability to reduce this, but we should also be concerned that further reforms really do improve equity in outcomes.
We now also require working age people to jump through a lot more hoops to get benefits than previously. New conditions such as Income Management and cashless welfare cards are seen by some as stigmatising and residualising the poor. The number of job search activities required of Newstart recipients is twice as great as the next OECD country (the UK), and this is for a benefit that for the short term unemployed provides the second lowest level of income replacement among rich countries. This is because the indexation provisions for unemployment payments are inadequate so that the unemployed are receiving almost the same real level of benefits as they were in 1996, and only marginally more than in 1975. For lone parents and couples with children there are similar risks because of changes to the indexation of family payments. On current policies we are likely to see working age households on benefits fall further behind relative to other Australians.
Few of these very important issues have surfaced so far in the election campaign, but they are discussions that we need to have – particularly as it should not be some of society’s poorest members that pay the highest price for bringing the budget back to surplus.