Welfare to work: a reform agenda in progress

Dr Matthew Thomas and Dale Daniels, Social Policy Section

Australia’s population is ageing. At the same time, spending on income support payments as a whole (and not just age pensions) is anticipated to increase. Without on-going high rates of economic growth, the nation will struggle to support its ageing population and those who rely on government income support.

Australian governments have long recognised the need to increase workforce participation—to support economic growth, increase social participation and reduce welfare expenditure. Since the mid 1980s Australia has, along with most other OECD countries, been progressively introducing active labour market policies. These policies seek to closely integrate labour market programs and income support policies. In doing so, they aim to increase the employment participation and self-reliance of people otherwise dependent on government income support.

Recent reforms

Arguably, the most significant move in this direction has been the Welfare to Work reforms introduced by the Howard Government in 2006. These reforms increased the range and number of people required to look for and accept work and expanded the support and assistance provided to these typically disadvantaged jobseekers. In particular, the reforms targeted principal carer parents, people with disabilities, mature age job seekers and the very long-term unemployed.

The results of the Welfare to Work reforms have been mixed. While there is evidence that the changes resulted in people from some of the above groups leaving income support for employment (mostly parents), for members of the other groups the results were minimal. Indeed, in some instances, the reforms may have merely encouraged a shift into Disability Support Pension (DSP), the only remaining non-activity tested payment.

In a bid to address these problems, and to increase workforce participation more generally, the Labor Government introduced further changes. These included, among other things: reconfiguring employment services to better cater to the needs of disadvantaged job seekers; increasing the Child Care Rebate; introducing paid parental leave; increasing from 2017 the age at which people can access the Age Pension; and, tightening access to the DSP. Many of these measures have only recently been implemented and their success or otherwise has yet to be determined.

An unfinished agenda

Generally speaking, Australia is doing relatively well in terms of working age employment participation. As at 2008 Australia’s participation rate of 76.5 per cent for people aged 15 to 64 years was the tenth highest in the OECD. That said, there is room for further reform to improve the participation of sole parents and those with more moderate levels of disability.

Incremental reform of income support over the last 30 years has been aimed at creating a more active system that supports self provision. The chart below points to the successes and failures of those efforts: the phasing out of a plethora of payments for groups with limited workforce attachment to restrict income support to those who study, care for others, have disabilities or are searching for work; the shifting of groups no longer catered for to the remaining passive disability payments; and, the limited impact to date of repeated efforts to move people with disability and sole parents to independence through employment. This mixed picture points to the failure of some reforms, the incremental nature of others and the need for further reform to complete the transition towards a fully active income support system.

While the working age participation rate is expected to rise from 76.2 per cent in 2009–10 to 79.7 per cent by 2049–50, this is insufficient to cancel out the impact of ageing on workforce participation. Age-related pension expenditures are expected to increase as a share of GDP in the years to 2049–50. The only other payments for which expenditure is expected to increase are DSP and Carer Payments. Hence, if overall working age participation is to be increased, reforms in areas that would help to increase the participation of people with disabilities and carers may be required.

Doing away with any design features that create incentives for disadvantaged people to seek to qualify for DSP on account of its non-activity tested status is one such reform. Another is the provision of sufficient support and services to ensure that people with disabilities and carers are able to function in the workplace. What is required in the disability services area generally is continued and consistent investment and better planned and integrated service delivery. The introduction of a National Disability Insurance Scheme, as is currently being considered, may be a means to address this problem, as well as meeting the broader needs of people with disabilities and carers.

Chart 1. Main categories of workforce age income support recipients as a proportion of the workforce age population, 1978 to 2009 - Text version

Chart 1. Main categories of workforce age income support recipients as a proportion of the workforce age population, 1978 to 2009

Sources: ABS (2006), Australian Historical Population Statistics (cat. no. 3105.0.65.001), Table 19. Annual reports and statistical publications of the Department of Family, Housing, Community Services and Indigenous Affairs, the Department of Veterans Affairs, the Department of Education, Employment and Workplace Relations and their predecessors.

Library publications and key documents

Treasury, Australia to 2050: future challenges, Treasury, Canberra, 2010, http://www.treasury.gov.au/igr/igr2010/

Department of Employment and Workplace Relations (DEWR), Welfare to Work Evaluation Report, DEWR, Canberra, 2008, http://www.workplace.gov.au/workplace/Publications/ProgrammeEvaluation/WelfaretoWorkEvaluationReport.htm

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