Punitive approach to restraining welfare costs lazy and short-sighted

November 17, 2015

he discussion being driven by the Turnbull government that there are “too many people on welfare” has as its driver a framework to make it harder for people to get such payments. It is about eligibility for the payments that is dominating the government’s plans for who will be on welfare in the years ahead.

According to Christian Porter, social services minister, annual government expenditure on welfare is estimated to rise from $157bn to $277bn in a decade. The vast bulk of these payments will go to aged pensioners, the unemployed and the disabled. When looking at this increase, Porter says there is a serious issue of how we pay for it and how we make the welfare system sustainable.

Porter’s approach is squarely on making it harder for people to get “generous” welfare payments. In his sights is a tightening of the tests for the unemployed to receive the Newstart allowance and for those unable to work to receive the disability support pension.

Let’s be honest here. This is lazy policy and looks at using punitive measures rather than limiting the supply of people who will need welfare support in the years ahead. Rather than tackling the welfare “time bomb” this way, it is possible to lower spending on welfare by encouraging economic growth, productivity and decency. What about reducing unemployment, encouraging more self-funded retirement and helping those with a disability through a mix of employment opportunities and preventative health care?

Call me crazy, but I think the following are valid solutions to the problem that will, unquestionably, reduce the welfare bill without slashing payments, imposing draconian eligibility criteria or stigmatising those receiving welfare.

Let’s start with the obvious one – unemployment benefit payments.

History shows that the best way any government can cut unemployment is by growing the economy at a strong and sustained pace. After two years in which annual GDP growth has been soft, below trend and disappointing, unemployment in Australia is around 750,000 people or close to 6% of the workforce.

If the government were to actually do something about growing the economy faster through infrastructure, addressing inequality or a counter-cyclical use of fiscal policy, unemployment would fall and, voila, payments to the unemployed fall.

There’s the first solution.

Next is the aged pension. Everyone knows that if retirees are to avoid relying on the welfare system, contributions during working life need to be around 15% of income. They are currently set at 9.5%, a rate that will remain for the next five years after the Abbott government decided to freeze contributions rather than fast track a rise to 12%.

Paul Keating wanted to increase the rate to 15% in the early 1990s but John Howard ensured the welfare bill would explode in the decades ahead when, in 1996, he and treasurer Peter Costello froze contributions at just 9%, which is where they stayed for 11 years. Keating says this has cost the average worker $300,000 in retirement savings over a lifetime and is a reason why the age pension is a large and growing welfare cost.

The solution? Lift the compulsory contributions to 15% forthwith. Problem fixed.

Disability payments are a more difficult issue to tackle because many aspects of disability are health-related rather than linked to economic growth. That said, government intervention to promote the provision of skills and training for people with disabilities will improve their employment prospects; in addition, the provision of high-quality health care can help lessen the severity of disabilities and increase opportunities for those with disabilities to participate in the workforce.

Efforts to tackle skills, education and workforce participation for the disabled are not only a decent thing to do, they help reduce the welfare bill.

So rather than addressing the high cost of welfare payments by making it harder for people in need to receive them, there is an alternative: stronger growth, lower unemployment, higher contributions to superannuation and a nurturing of people with disability so that they can gain meaningful opportunities for employment.