Opinion & Commentary
High time to start on the welfare cure
Fewer than one in 30 working-age adults depended on income support as their main or sole source of income 40 years ago. Today, the proportion is one in six. In less than 50 years, we have shifted from a household economy based on self-reliance to one characterised by widespread and ever-increasing welfare dependency.
Although we keep spending more on welfare, the demand for benefits keeps increasing. This pattern is unsustainable.
The more we spend, the more we destroy the will to work by increasing tax on those who are still working, and the easier it becomes to settle for a life on welfare.
There will always be some people who cannot be expected to support themselves on a long-term basis. But their numbers are not so large as to require a welfare system on anything like the current scale.
For most people, poverty is best avoided by getting into the workforce, not by relying on welfare payments. In the United States, a trend of escalating welfare dependency was dramatically reversed by introducing time limits, pushing claimants into work and increasing financial rewards for low-income working families.
US welfare rolls fell by 60per cent in five years. There are lessons here for Australia, but most of our welfare pressure groups and social policy academics refuse to listen.
They are more interested in increasing benefits than cutting the number of recipients.
They dislike mutual obligation, they disapprove of penalties for those who refuse to undertake activities in return for benefits and they think it is wrong to require claimants to work in jobs that may be relatively low-skilled or low-paid. This sort of thinking can only drive up welfare dependency levels.
The experts are out of step with public opinion. Australians think people who can work should do so, rather than relying on welfare.
Opinion polls show strong support for reducing dependency on the state and reinforcing self-reliance. To achieve this will require not only welfare reform but also labour market and tax reform.
Welfare reform must tackle the "big three" income-support payments. Unemployment allowances should be time-limited to prevent long-term unemployment. Most people who lose a job find another within eight weeks, but those who stay on benefits for an extended period lose the habit of working.
People who remain jobless for more than six months should transfer to a full-time Work for the Dole scheme to keep them active until they find alternative work.
The rules governing the Disability Support Pension also need changing to prevent people with mild or no disabilities from claiming. Because DSP is more generous than the unemployment allowance and has no mutual obligation requirements, there is an incentive for unemployed people to get reclassified.
Probably half of claimants now are "hidden unemployed". The Australian public wants disabled people to be properly supported, but it does not want people who are capable of working, sheltering undisturbed on DSP.
Parenting payments also need changing. More than half of lone parents rely on welfare as their only or principal source of income, and they spend an average of 12 years on benefits. This is not good for them or their children.
In the US and Europe, sole parents are expected to return to the workforce once their children start school. We should build the same expectation into our welfare system.
If more people are to move off welfare, we must ensure it pays them to work. Current levels of taxation on income discourage hard work and personal initiative, and the interaction of the tax and benefits systems penalises many who try to improve their situation.
The solution lies in disengaging the tax and welfare systems so that as far as possible they no longer overlap. This can be done by raising the tax-free threshold above the welfare-payments floor and replacing means-tested child payments with flat-rate payments that do not taper off as family incomes rise.
Getting people off welfare and into work also depends on increasing the supply of jobs, particularly for lower-skilled males.
Whenever government subsidies and job creation schemes have been tried, the results have been disappointing. A much better answer is to encourage employers to expand and take on more workers by deregulating the labour market. This means a more flexible award system, a lower minimum-wage floor and reform of unfair dismissal legislation.
Who will put all these proposals into practice? Mark Latham is on record as favouring greater self-reliance, and John Howard's government has been signalling for years its desire to reform welfare. But politicians are scared radical reform might cost them votes.
They shouldn't be. Most of the policies we need have the support of two-thirds or more of voters.
Tax and welfare reform designed to reverse the spiral of welfare dependency and reward personal effort would resonate strongly with voters.
The question is which of our major parties has the foresight to grab hold of this agenda and run with it?
- Professor Peter Saunders is author of Australia's Welfare Habit: And how to kick it, Duffy&Snellgrove, published today.
