Welfare review fails to understand Australia’s labour market

Kevin Andrews and the government’s vision for welfare reform depends entirely on whether labour market opportunities will open up to those for whom it has previously been closed. AAP/Gary Schafer

The interim report of the Review of Australia’s Welfare System, led by former Mission Australia CEO Patrick McClure, is a vexed piece of work. Much in it is commendable and even far-sighted, but there is also much in it that is deeply problematic, reflecting the limitations of the context in which it is written.

The report also contains some odd inconsistencies. It makes no mention of the dramatic reform to social welfare for people under the age of 30, which was announced in the federal budget in May.

The report also does not sufficiently account for the nature of Australia’s contemporary labour market, which imposes a significant challenge to the type of universal labour force participation that the government aspires to.

Core premises

The report is founded on several overarching premises about social welfare that radically extend current trends. These can be characterised as:

  • Assistance to those “most in need”, a phrase that appears consistently through the report. While this is intuitively fair enough, “most in need” is a subjective benchmark and can be set anywhere.

  • “Capacity to work”, which takes forward the welfare-to-work agenda of previous governments. But this is a much more assertive approach and marks some departure from existing practice, especially in relation to people with disabilities who previously may not have been deemed capable of workforce participation.

  • “Individualised tailoring” of assistance and requirements, which extends a long-standing commitment in government policy to case management. It also implies a vigorously “individualised” rather than “social” view of welfare. This has merit to some extent, but the systemic causes of social problems – such as unemployment – also need to be recognised.

  • A strong focus on “family functioning and capability”, which is an interesting development in social welfare. Income management is one of its contemporary manifestations. It invokes an idea that certain families are in effect dysfunctional and need intensive oversight and direction by a government official. Again, the danger is that some systemic causes of their problems are overlooked.

What’s missing

Absent from the report are some of the fundamental ideas that have driven the development of social welfare over the last century, and especially in the post-war period:

  • Social equity: welfare as a means of ensuring that very large disparities across society are mitigated through provision of basic income support.

  • Poverty alleviation: the report does mention this but only in so far as it relates to how work is better than welfare. It does not countenance social welfare as a means of ensuring that citizens can avoid the worst of poverty.

  • Managing social risks: the emphasis is on individual responsibility for averting risks such as long-term unemployment. This gives insufficient weight in the model of social welfare to the exogenous factors that affect risk of long-term unemployment, such as insufficient jobs or age discrimination.

Separation between pensions and working age payments

The report recommends a sharp division between pension payments for aged people or people with severe disabilities, and working age payments for everyone else who is deemed to have a capacity for some employment.

This recommendation has, at its heart, a view that everyone who has some capacity to work should work. It also asserts that the prime purpose of social welfare is to set such people on course for obtaining employment through targeted and individualised assistance as well as appropriate education and training, especially linked to local employment opportunities.

It is particularly focused on long-standing concerns that too many disability support pensioners could work but have little incentive or encouragement to do so.

It may be the case that many can work at least part-time. However, arguably too few such employment opportunities are open to them. For a start, in Australia there is a current underutilisation (unemployment and underemployment) rate of 13.5%.

Those on a disability support pension, previously counted as outside the labour force, would join this group of active jobseekers. They face a formidable level of competition for any employment vacancies.

The report calls for employers to lift their game in employing people with disabilities and cites a number of commendable initiatives in this area. However, the reality is that high productivity achieved through work-intensification practices is demanded in most employment situations. While not to underestimate people with disabilities, it is fair to say that a proportion will find this level of performance difficult to achieve.

In addition, social services minister Kevin Andrews has been saying that mental health problems of many people receiving a disability payment tend to be episodic, enabling them to work for extended periods. While this may be so, it is questionable as to how many employers will be willing to tolerate unpredictability of such employees.

The Abbott government is determined to reduce dependence on social welfare. AAP/Julian Smith

Better alignment between rate of pensions and allowances

The report recommends a better alignment between the rate of pensions and allowances. This is a long-standing anomaly in the social welfare system. The Newstart Allowance has become a very low-level payment and is now a “poverty trap”.

The report does not specifically mention this problem, but it does detail the extent of the anomaly. Most importantly, it does not engage with the question of what would be a decent level of payment for the Newstart Allowance.

Given the direction of government social welfare policy as per the budget, there should be disquiet about which direction the alignment goes. A change in the indexing arrangement for pensions has already been announced, which will reduce their value over the long term. It is conceivable that the alignment could be achieved through further reduction in pensions.

The report incorporates phrases such as “adequate support” and “adequate payments” but what this means is not interrogated. Realistically, it is hard to see the current government increasing the rate of Newstart or any other payment.

Tiered payment system

Much is made in the report of the need to simplify the income support payment system; it suggests a new binary pension/working age payment “architecture”. However, the proposal for working age payments is a “tiered” system which, according to the report:

… takes account of individual circumstances, such as partial capacity to work, parental responsibilities or limitations on availability for work because of caring.

But is this really simplifying the payments? Many questions arise, such as about the decision-making process for determining what tier an individual is allocated and what level of discretion the Centrelink official or other decision-makers will have, given the high level of “individual” management under such a system.

Overall, the vision for the reform of Australian social welfare depends entirely on whether labour market opportunities will open up to those for whom it has previously been closed. It could also be viewed as part of the agenda for the end of the age of entitlement.