International Conference on Welfare Reform: Meeting the Policy Challenges of Change

E&OE

I’d like to congratulate the organisers for bringing together such a rich forum for discussion on such an important issue for the nation’s future.

I think we can all agree the challenge of improving the welfare system so that it remains fit for purpose is enormous.

Australia’s social security system is a safety net for people in need who are unable to fully support themselves.

Regardless of our opinions on what it should look like, we value what we have because the strength of our society, our community and our economy depends on the national safety net. And besides that, Australians expect their government to support those in genuine need.

But the question is how do we ensure it is sustainable, to be there for those who need it into the future?

Some facts:

• The annual social service bill is $154 billion – that’s one-third of the Government’s Budget
• This bill will rise to $227 billion in the next decade as we see increasing pressure on the aged care, disability, carer and child care systems
• Since 2004-05 expenditure has doubled for the age and disability pensions and job seeker allowances. There’s been a four-fold increase in carer income support and a 350 percent increase in child care subsidies
• By 2018-19 the annual cost of the National Disability Insurance Scheme will be almost $20 billion, with $5.2 billion unfunded by the NDIS levy. By 2025/26 the total cost is projected to be $32 billion
• And finally, eight out of ten income taxpayers go to work every day to pay the welfare bill

The inescapable reality of rising costs is a compelling reason to reform our welfare system.

And there’s clear scope for making it more efficient.

Our complex web of 20 income support payments and over 50 supplements sits atop an even more complex framework of rates, eligibility, activity testing, and compliance.

This can result in people in similar circumstances having dramatically different experiences when they interact with the system.

At the very least we need to streamline the payments architecture and address anomalies.

This would bring greater simplicity and better equip us to more address the issue of effective marginal tax rates in welfare, removing disincentives to work.

We must continue the reform process so our welfare system not only treats people fairly, but also builds individuals’ capability and encourages people to work.

Because the best form of welfare is a job.

Those who can work should. They must not expect the state to support them. If they have the capacity and availability for work they should try to either get a job or stay in a job.

Of course the challenges we face are bigger than government alone.

Not-for-profits, philanthropists, churches, corporates, the volunteers and many others work to make a difference.

They recognise that simply paying our taxes and expecting the Government to do the rest is not enough. We cannot allow an all-encompassing state welfare system anaesthetise our citizens to community. Paying taxes is the law. As Australians, it is our instinct to go further.

Social Impact Bonds, or SIBs, are an innovation that empowers the community to be involved in assisting disadvantaged Australians through private investment. Investors provide capital and operational funding for community-based social programmes. They receive a dividend payment on the bond (plus the principal from Government) that’s funded from savings generated from the successful impact of the programme.

SIBs are being used to help single mothers at risk in Canada, unemployed migrants in Belgium, homeless people in Ireland, unemployed youth in Germany, people with diabetes in Israel and New Zealanders with mental health conditions.

Closer to home, the Baird Government in New South Wales is piloting SIBs in the areas of family support and child safety.

Common Ground in South Australia has just launched a SIB to combat homelessness. It’s the first in Australia and only the fourth of its type in the world.

The Benevolent Society is partnering with Westpac and the Commonwealth Bank to strengthen families and reduce the need for foster care.

UnitingCare Children will add another four centres to its New Parent and Infant Network thanks to $7million from Social Ventures Australia.

Social Impact Bonds are getting results.

Initial reports on the New Parent and Infant Network suggest that 66 children have been returned to their families from foster care. A further 35 children have been kept out of out of home care altogether. Meanwhile investors have received an interest rate of 8.9 per cent. It is estimated that an expanded program will save the government around $80 million.

The Investment Approach is another innovation that I’m particularly optimistic about. It recognises the need for a safety net that not only protects but also restores.

The Key Government in NZ has used it to reduce long-term welfare dependency.

It aims to direct funding where it will do the most good and establish a clearer link between the application of funds and how they impact on peoples’ risk of long-term benefit receipt.

Indeed it will help address a major issue highlighted by Patrick McClure’s review of the welfare system found. Patrick’s team found our system is struggling to identify and directly support groups at risk of long-term income support dependence. He said it needs to refocus on early intervention and support individuals through difficult transitions.

The Coalition Government allocated $20.7 million in the Budget to fund an Investment Approach because we believe it could be the key to minimising the intergenerational transfer of disadvantage.

The approach involves considering the fiscal, economic and social costs of welfare dependency and viewing policy initiatives as an investment against these costs.

We begin by assessing the risk factors for long-term welfare dependency and determine which cohorts will most likely benefit from early intervention. We get a picture of how we can make changes that benefit a person over their lifetime. Armed with this analysis the Government can invest in evidence-based programmes tailored to make the most difference to those groups whose pathway can be changed.

Each year actuaries will consider which policies are working for which cohorts on welfare payments, and which cohorts would benefit from a different approach.

Robust and ongoing evaluation will give us the evidence to refine policies to have the most impact and direct funds to where it will do the most good.

In other words policy-makers will identify groups whose lifetime trajectories are most likely to be improved as a result of early intervention. It means public investment is directed to those groups where returns are likely to be greatest.

It’s about directing funding where it will do the most good. It’s about getting results now. It’s about reducing long-term welfare dependency.

Our actuarial service provider will do an initial baseline valuation of the government’s social security liabilities. Then they’ll do another three valuations over the following three years.

The approach effectively runs the welfare system like an insurance company, where the taxpayer is paying the premiums.

If we get the Investment Approach right we will successfully intervene and reduce liabilities on the public purse because we are helping people to become independent and lessening their reliance on welfare, just like NZ’s experience.

I’d like to close by acknowledging Patrick McClure’s work. His continued contributions to the policy challenges in welfare are highly valued.

Patrick’s report has a lot of the detail on what I’ve talked about today. Importantly he has the evidence to support the case for change.

Patrick found that without changes, the fiscal, economic and social sustainability of the system will be compromised.

So we must meet the policy challenges facing us to ensure an effective welfare system that supports those who need it into the future.

We must support those unable to work, those genuinely vulnerable Australians, children and families who rely on our safety net while getting Australians who can do so back on track to the independence and dignity of paid work.

Thank you.

(ENDS)