Australian Davos Connection Canberra Forum, Parliament House

Industrialised nations face huge challenges in social policy. Whether on welfare spending, ageing, jobs or access to housing, governments across the developed world are having to forge new directions and attitudes to improve the lives of their citizens.

I am very pleased to be in the Social Services portfolio at this time. Australia is a nation that has never shirked from these challenges and, as I will outline today, the Abbott Government is stepping up to the mark.

In the last decade, the bill for Australia’s welfare and social services has skyrocketed from $90 billion to more than $150 billion a year.

This includes a doubling in expenditure on age and disability pensions and job seeker allowances, a 350 per cent increase in child care subsidies and a fourfold increase in carer income support.

Looking forward a decade, in the next ten years the Social Services budget will hit $277 billion, a growth rate of more than five and a half per cent a year.

If we are going to sustain our standard of living and continue to be able to support those who are in need, we have to get this spending under control.

We need to become a country that acknowledges that the best form of welfare is a job.

That’s why the government is building a strong economy – jobs and growth being central to our efforts.

And we are achieving results. Australians have had 335,800 new jobs created since we were elected in September 2013.

This year alone nearly 163,000 new jobs have been created – that’s more than 23,000 new jobs each month, with female job participation is reaching record highs. Over 171,000 more Australian women are in jobs than at time of the 2013 election.

In fact over the past year our jobs growth has been stronger than in the US, UK, Canada – indeed stronger than every G7 nation.

As in many countries both in our region and around the world, economic participation is becoming increasingly important.

To maintain the standard of living we enjoy, as well as providing for reform initiatives such as the NDIS, we need to boost productivity and harness underutilised resources.

This means finding ways to help and encourage those outside the workforce to enter or return to work.

The Government is investing $6.8 billion to establish the new jobactive employment services to improve the quality of services delivered to both employers and job seekers.

The new services focus on getting results through a balance of obligations, incentives and assistance to help more jobseekers into work.

As well, the Budget strategy included the $5.5 billion Growing Jobs and Small Business Package to encourage employment generating investment and growth.

This includes a $1.2 billion national wage subsidy pool to support employers and assist job seekers into work.

On the social services front, the jobs and small business package will provide targeted support for young job seekers, mature workers, sole parents and the long term unemployed.

I am particularly concerned about groups of young people who are more susceptible to long term unemployment and the risk of welfare dependency.

The Government allocated more than $330 million in the Budget to implement a Youth Employment Strategy with programmes specifically designed to help young people get into work and to address the challenges that may be preventing them from being in work.

The unemployment rate for young people is more than twice that for Australians overall and they account for around 30 per cent of long term unemployed.

Around one in five young Australians is not fully engaged in either work or study.

We want young people to be aspirational, to be positive, and to be out there, participating and on the front foot.

A new $212 million Youth Transition to Work programme will help young people who have become disengaged from work and study and are at risk of long-term unemployment.

Eligible employers who take on a young job seeker can apply for a wage subsidy of $6,500 over a 12 month period.

This programme will be supplemented by $106 million for intensive support for key groups of vulnerable job seekers.

Our most vulnerable young people include those with disability, such as a mental health issue, those from poorer families, Indigenous Australians, those with lower levels of literacy and numeracy and those who have most recently arrived in Australia.

All these programmes are about getting in early to help get young Australians into work and off the welfare track.

It is about creating safety nets that act like trampolines not traps.

For many young people, the greatest challenge is to break out of the trap of intergenerational dependency.

Almost 40 per cent of Australian children who grow up in jobless families for example, are themselves welfare dependent by the time they are 20.

The welfare system itself – the way we do welfare – requires reform.

The need for welfare reform is a conviction increasingly shared by western Liberal Conservative Governments who have seen the devastating effects of out of control welfare on society, and on individuals.

In the UK, in Canada, and in New Zealand forward looking leaders are charting new courses to support the needy and the vulnerable within a balanced Budget.

They are repudiating what I have called the welfarist drachmanomics of Europe.

Our situation cannot be directly compared to that of Greece but Greece’s tragic failure to address unsustainable policies, including unsustainable welfare policies, is a lesson for Governments everywhere.

OECD research shows that although we were one of the countries least affected by the Global Financial Crisis, our real change in working age cash income support over the five years to 2012-13 was higher than the OECD average for that time.

Western Governments dedicated to reform have come up with some very promising options.

Two in particular I am very interested in are the Investment Approach to welfare, and Social Impact Investment, both of which were recommended by Patrick McClure team in his recent review of Australia’s welfare system.

Our Budget committed $20.7 million to implement an Australian Investment Approach.

This is about directing funding where it will do most good and, in particular, reduce long-term welfare dependency.

It is about investing upfront to make long-term savings and prevent long-term misery.

The Approach involves using actuarial valuations to assess which risk factors drive long term welfare dependency and which groups will be most helped by early intervention.

It works like insurance, examining forward liabilities, in this case welfare liabilities, and then directing funding to where it will be most effective.

It tells us where we should focus our efforts and where we should spend if we want to make a real and long-term difference.

The Investment Approach provides greater flexibility than the present system to stop, trial and expand programmes and services, and move funding to where it improves outcomes such as improving long-term employment.

New Zealand has already implemented an Investment Approach.

To give you an example of how the system works, New Zealand’s actuarial analysis told them young parents and single parents have the highest lifetime costs compared to other groups on welfare.

The New Zealanders are therefore concentrating on getting those young parents trained and into jobs through programmes of support and work obligation.

New Zealand Finance Minister Bill English reported recently that there are now 43,000 fewer children living in benefit dependent households than there were three years ago thanks to the Investment Approach, and the number of sole parents on a benefit is the lowest since 1988.[1]

New Zealand’s most recent welfare valuation found the future liability of beneficiaries had reduced by $7.5 billion in the last year, with $2.2 billion of that attributable to measures taken by the government.[2]

A procurement process for an actuarial service provider here in Australia is currently underway.

As I mentioned earlier, I am also keen to explore Social Impact Bonds.

Governments do not have all the answers. I think this is something you will all appreciate.

The McClure report acknowledged this and recommended greater community engagement and a more strategic approach to philanthropy when it comes to tackling welfare issues.

Social Impact Bonds harness the knowledge and initiative of those who work at the grassroots with vulnerable people.

I think they have a great potential to improve people’s lives and they shift the financial risk of funding social services to the private sector.

SIBs involve private investors, private sector providers and an intermediary to partner to fund and deliver agreed social outcomes.

If the outcomes are successfully achieved, investors receive their principal back and a return – taxpayers’ money is spent only on successful programmes and outcomes.

The Baird Government is already trialling two in New South Wales.

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

The success of the Benevolent Society’s Resilient Family Services will be measured at the end of the 5 year bond when payments are due to investors.

The other pilot SIB involves UnitingCare Burnside supported by Social Ventures Australia. The existing New Parent and Infant Network, or PIN, programme is being expanded with a $7 million investment.

In this SIB’s first year, a 7.5 per cent return was delivered to investors.

Commonwealth welfare liabilities identified through the Australian Investment Approach will have the added benefit of enabling SIB opportunities to be more effectively evaluated at the federal level.

You may be aware of the Prime Minister’s Community Business Partnership which brings leaders from business and the community together to promote philanthropic giving and investment.

Among other things, the Partnership is looking at the potential of impact investing to deliver more innovative services and achieve government objectives more effectively.

There are two other areas of reform that I would like to mention briefly.

One is child care reform, which was another big ticket item in this year’s Budget.

In talking of economic participation, we cannot ignore the fact that there are parents – most often women – who want to work or work more but are unable to because of lack of suitable childcare.

Child care is beyond their reach, either because it is expensive, unavailable or unsuitable to their work needs.

From July 2017, we will be introducing changes that will make it easier for middle to low income parents to hold down a job and raise their children.

This is why we are introducing the Jobs for Families Child Care Assistance Package, to make childcare accessible, flexible and affordable.

This is important for all parents who want to work, and especially for single parents entering or staying in the workforce.

It continues to concern me that 12 per cent of Australian children are growing up in jobless families – of which 42 per cent are single parent families – and I spoke of the likely intergenerational welfare consequences of that earlier.

Childcare is not itself a welfare issue. It is about workforce participation and strengthening the economy, including helping people provide for their families and their futures.

Women for example face disparity in superannuation for many reasons, but when they are unable to work at all, or only for a very short time, they do not even have the opportunity to save for their old age.

And this brings me to pension reform.

The Intergenerational Report brought this into sharp focus.

The Age Pension costs 2.9 per cent of GDP and takes a tenth of the Commonwealth Budget.

According to the Intergenerational Report such spending is expected to increase to 3.6 per cent of GDP by 2055.

The changes we have made in the Budget will ensure our age pension system is not only fairer and better targeted but also more sustainable.

More than 90 per cent of age pensioners will be better off or have no change to their pension.

At the same time, we will save $2.4 billion over four years.

All these reforms are examples of what I like to refer to as compassionate conservatism.

This means being firm, clear sighted and above all constructive about directing our compassion for those in need.

It means building safety nets that act not as traps that consign vulnerable citizens to a lifetime on welfare, but as trampolines from which they can bounce off and play their part socially and economically.

This is the path we need to take if we are to ensure both the individual and the nation’s welfare.