Michael Klapdor and
Don Arthur, Social Policy
Social security and welfare represents 35 per cent of the Australian Government’s expenses. The level and sustainability of this expenditure will be a key issue for the Parliament.
Commentary on welfare expenditure often focuses on income support to working-age people. However, key drivers of growth in expenditure are expected to be in the National Disability Insurance Scheme and assistance to the aged.
In 2016–17, the Australian Government estimates
that it will spend around $158.6 billion on social security and welfare,
and around $191.8 billion in 2019–20. This category of expenditure includes a
broad range of payments and services including:
- most income support payments such as pensions and allowances (for
- family payments such as Family Tax Benefit
- paid parental leave pay
- child care fee assistance payments
- funding for aged care services
- funding for disability services and
- payments and services for veterans and their dependents.
This administrative category of expenditure does
not include other programs associated with the welfare state such as health and
education (including income support for students) but does include a broader range
of services and supports than are often associated with the term ‘welfare’. Public
debate over the cost of welfare often focuses only on cash payments to working
age people such as unemployment benefits and the Disability Support Pension
(DSP) but these payments only represent around 17 per cent of welfare
expenditure as presented in the budget and are not the main drivers of growth
Key drivers of cost increases
Welfare and social security programs are primarily
demand-driven, so costs are affected by factors such as population growth,
population ageing, labour market changes and economic circumstances as well as
policy changes relating to eligibility requirements. Most welfare payments are
also adjusted regularly to maintain their value over time.
The biggest driver of growth in both welfare
expenses and overall government payments is the National Disability Insurance
Scheme (NDIS). As shown in figure 1, expenditure on disability services was $4.7
billion in 2015–16 but is expected to rise to $24.0 billion in 2019–20 when the
NDIS roll-out is completed (the Australian Government is responsible for just
over half the NDIS expenditure of $21.6 billion in 2019–20 with states and
territories funding the rest). The Parliamentary
Budget Office (PBO) estimates that real annual growth in expenditure on the
NDIS will be 43.6 per cent between 2014–15 and 2025–26, rising from almost zero
to 1.1 per cent of Gross Domestic Product (GDP) (see ‘Funding the National
Disability Insurance Scheme’ elsewhere in this Briefing Book).
1: Estimated Australian Government expenses on social security and welfare
Australian Government, Budget strategy
and outlook: budget paper no. 1: 2016–17, pp. 5-25-5-29.
According to the PBO, expenditure on child care will also grow from 0.4
per cent of GDP in 2014–15 to 0.7 per cent in 2025–26 (from $6 billion to $20
billion) as a result of the Government’s proposed
child care package.
The ageing population will see aged care
expenditure grow from 0.9 per cent to 1.1 per cent of GDP. Expenditure on the
Age Pension is expected to grow in nominal terms to $72 billion in 2025–26 but
not as a percentage of GDP. Expenditure on carer payments is also expected to
rise, partly as a result of population ageing, from 0.5 to 0.6 per cent of GDP
(from $7 billion in 2014–15 to $18 billion in 2025–26).
Expenditure in some areas is expected to decline with Family
Tax Benefit falling from 1.4 to 0.9 per cent of GDP over the medium term—partly
as a result of policy changes. Income support for jobseekers is projected to
fall (from 0.7 per cent to 0.5 per cent of GDP), as is expenditure on Parenting
Payment (0.4 per cent to 0.3 per cent of GDP) while DSP is projected to remain
at 1.0 per cent of GDP.
Given its size, the welfare budget is often a
target for savings measures, particularly in the face of budget deficits. While
welfare expenditure is increasing, it is primarily in areas tracking
demographic trends—support for the aged—and areas in which there is bipartisan
support for additional funding—disability services and child care. It will be
difficult to achieve significant savings without looking at addressing spending
in these areas, particularly the largest component: the Age Pension. Working-aged
payments are a less contentious target for savings but are not the source of the
Government’s main fiscal pressures (see: ‘Where to for welfare reform?’
elsewhere in this Briefing Book).
D Arthur, What counts as welfare spending?
, Research paper series, 2015–16, Parliamentary Library, Canberra, 2015.
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