Ideas@TheCentre
A European-style welfare crisis for Australia?
This year the Commonwealth will spend more than 35% of its $376 billion budget on social security and welfare, or about $131 billion dollars. Through a combination of higher pension indexation rates and an ageing population, government expenditure on social security and welfare will increase to around $150 billion by 2015-16.
Government expenditure on assistance for people with disability, through the disability and carer pension, is expected to increase rapidly.
Once the National Disability Insurance Scheme is fully operational in 2018-19, it will cost government $22 billion and will grow rapidly at a rate of around 6% every year. This will be on top of the $15 billion a year currently spent on the disability support pension (DSP) and another $6 billion on carers.
Likewise, payments for families and children currently cost the budget around $30 billion (of which about $20 billion is for family tax benefits), and are expected to grow rapidly.
Future levels of welfare spending are setting Australia on the path of a European style catastrophe.
What do we have to do to stop a similar crisis from happening here?
The CIS has launched the TARGET30 campaign to get government spending and the corrosive welfare state back under control. An immediate TARGET30 action could be taken by scrapping Family Tax Benefit Part B which costs taxpayers $4.5 billion a year. The Schoolkids Bonus should go too for a saving of around $1.2 billion. The exemptions from means testing for Carer Allowance and the Child Care Rebate are other opportunities for savings.
In the medium-term, changes to the DSP and the age pension are needed for further budget savings. The DSP can be reformed to include participation and activity test requirements for people with a partial capacity to work, and the eligibility of current DSP recipients should be reassessed under the tougher rules introduced last year.
Raising and aligning the age pension and preservation ages (the age which you can access your superannuation), and requiring the mandatory annuitisation of retirement benefits, would help ensure more people are using more of their own money to pay for their retirement.
While Europe and the USA are reforming their pension systems and cutting spending through austerity programs, Australia is increasing spending and adding to its welfare state. If we don’t stop now and reverse, the prospect of a European-style financial catastrophe in Australia will become more and more real.
Andrew Baker is a Policy Analyst at The Centre for Independent Studies. He is the author of a forthcoming Target30 publication, Tax-Welfare Churn and the Australian Welfare State.
