Investment approach to welfare

Budget Review 2016–17 Index

Don Arthur

The Budget provides $96.1 million over four years for the next stage of the Priority Investment Approach to welfare—the Try, Test and Learn Fund.[1] This builds on the first stage of the investment approach that was announced in the 2015–16 Budget.[2]

The investment approach to welfare

Inspired by a similar initiative in New Zealand, the Priority Investment Approach to welfare is designed to reduce long-term reliance on income support by people of working age. The approach has three parts:

  • Actuarial valuation: estimating the future cost to the income support system associated with people currently receiving working age income support payments. These valuations are produced annually to measure progress.
  • Predictive analytics: using historical data to identify the client segments that make the largest contribution to future costs—those most at risk of remaining on income support for long periods of time.
  • Try, test and learn: developing new measures designed to move at-risk income support recipients into employment, testing these measures by comparing the outcomes of those who received them to the outcomes of a comparable group of recipients who did not, and learning from the results.

The 2015–16 Budget included funding for the first two stages. In September 2015, Scott Morrison (then Minister for Social Services) announced that his department had awarded PricewaterhouseCoopers (PWC) a four-year contract to ‘provide annual valuations which determine the estimated future costs of the welfare system, looking at past evidence and how people interact with welfare.’[3]

The Try, Test and Learn Fund

In this year’s Budget the Government has announced funding for the third part of the approach:

The Government's new $96.1 million ‘Try, Test and Learn Fund’ (the Fund) will finance innovative policies to help the Government identify groups at risk of long term welfare dependency and assist them to move off welfare to employment. This approach aims to ensure that the Government funds programmes that actually deliver outcomes and cease or reform programmes that are shown to be ineffective.

The policies will be aimed at addressing barriers to participation and supporting people with the capacity to work to do so.[4]

This approach is sometimes known as ‘rapid cycle evaluation’. [5] Unlike more conventional evaluation approaches it focuses on measures that produce outcomes quickly. As a result it is more useful for trialling and evaluating measures designed to increase the rate at which recipients are placed in jobs than on measures designed to develop skills and help recipients progress to better jobs and more stable employment.

The income support segments identified through predictive analytics will not necessarily be the same as the target groups currently used by program administrators. Predictive analytics can group recipients using any combination of variables in a government’s databases—age, gender, education, location, number of dependents, age at which the person first started receiving income support or had a child, and so on. The analysis can also construct segments using rules that link variables together. [6]

It is not clear what kinds of measures the Government will trial using funds from the Try, Test and Learn Fund. The Minister for Social Services, Christian Porter, has said: ‘The Education, Health, Social Services and Employment portfolios will develop the policies with key input from external experts and the community sector’.[7]

A stronger outcomes focus

The investment approach has a strong focus on outcomes and represents a move towards targeting for impact.

Many older programs were not designed with a strong focus on outcomes. For example, ‘work for the dole’ was initially designed as a response to community concerns that young unemployed people should ‘give something back’ in return for income support payments.[8] In the past, participants in social policy interventions have been chosen because they are members of particular ‘equity groups’, such as youth, women or people with a disability. The focus has been on fair access to the program rather than on generating outcomes such as changes to future income support spending.

The investment approach adopts a different approach. Instead of using established equity groups or groups identified by stakeholders, it encourages policymakers to segment income support recipients by how likely they are to remain on payment and how well they respond to interventions. And instead of asking whether particular groups are getting their fair share of places on the program, it asks which groups are providing policymakers with the best return on investment.

Concerns about the investment approach

Stakeholders, interest groups and others may have a number of concerns about the Priority Investment Approach.

In New Zealand, there has been concern about the investment approach’s exclusive focus on income support savings.[9] In Australia, Department of Social Services officials have indicated that their approach will look ‘at a broader range of issues than just the impact on the welfare bill’.[10]

Because the investment approach allocates assistance according to expected return on investment rather than level of disadvantage, not all disadvantaged income support recipients will receive the same level of service. Just as analysis can show that some recipients represent a good return on investment, it can also indicate that others represent a poor return. This was a concern that surfaced during the late 1990s when the Howard Government was designing a new employment services system—Job Network. The Government’s initial proposal for a ‘capacity to benefit’ test to exclude jobseekers who were unlikely to deliver employment outcomes met with opposition from non-government parties and the community sector.[11]


[1].          Budget measures: Budget paper No. 2 2016–17, p. 142.

[2].          D Arthur, ‘Investment approach to welfare’, Budget review 2015–16, Research paper series, 2014–15, Parliamentary Library, Canberra, 2015.

[3].          S Morrison (Minister for Social Services), ‘Address to the Committee for Economic Development of Australia, speech, 18 September 2015.

[4].          Australian Government, Ensuring that the Government lives within its means: balancing the budget and reducing the burden of long term debt, budget document, 2016.

[5].          S Cody and A Asher, ‘Proposal 14: smarter, better, faster: the potential for predictive analytics and rapid-cycle evaluation to improve program development and outcomes’, in M Kearney and B Harris, eds, Policies to address poverty in America, Brookings, Washington, D.C., 2014, pp. 147–155.

[6].          E Siegel, Predictive analytics: the power to predict who will click, buy, lie, or die, Wiley, New Jersey, 2016.

[7].          C Porter (Minister for Social Services), Ensuring the government lives within its means: a targeted welfare safety net, media release, 3 May 2016.

[8].          D Kemp, ‘Second reading speech: Social Security Legislation Amendment (Work for the Dole) Bill 1997’, House of Representatives, Debates, 26 May 1997, p. 4026.

[9].          New Zealand Productivity Commission, More effective social services, August 2015, pp. 225–29.

[10].       Senate Community Affairs Legislation Committee, Official committee Hansard, 4 June 2015, p. 104.

[11].       For example: J Macklin, ‘Second reading speech: Commonwealth Services Delivery Agency Bill 1996’, House of Representatives, Debates, 26 February 1997, p. 1380.


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