Andrew Leigh

Why having the best social welfare system in the world matters to Australia - Business Insider

Quiz time. Of the roughly 200 nations in the world, which country’s welfare state is best targeted to those in need?

If you answered ‘Australia’, then you’re absolutely correct. It’s also a healthy sign that you haven’t been paying too much attention to Liberal Ministers like Scott Morrison and Christian Porter.

Because despite the demonisation of Australia’s social security system, Australia really does have a world-class social safety net. Not ‘world class’ in the aspirational sense – but world class in the Kyle Chalmers, Carol Cooke, Chloe Esposito kind of sense.

Put simply, a dollar spent in the Australian social security system does more to reduce inequality than a dollar spent in any other welfare system in the world.

As the Australian National University’s Peter Whiteford has shown, this didn’t happen by accident. Our pension has both an income test and an assets test. Unemployment benefits are set at the same level regardless of how much you were earning when you lost your job. We stopped paying the Baby Bonus to millionaires. One reason that so many people were critical of Tony Abbott’s parental leave plan is that it was a wage-replacement model, which gave the most to those who earned the most.

The result of so much targeting is that the size of government in Australia is considerably smaller than in most advanced countries. Put together the spending done by local, state and federal governments, and you’ve got 36% of the economy. 

Figures published by the advanced-country OECD put us second-lowest of 29 countries, with only Switzerland spending less. Government in the US makes up 38% of the economy. In most developed countries, government is over 40% of the economy. In eight advanced nations, government is over 50% of the economy. A targeted welfare system means Australians pay a lot less tax than citizens in most rich nations. 

As any great Olympic athlete knows, just because you’re on top of the world, it doesn’t mean you can’t improve. But it helps to come to debates over welfare armed with the facts. 

In 2001, 38% of those aged 18-64 lived in a household that received some income support. In 2014, the most recent year for which these figures are available, that figure was down to 32%. So much for a ‘crisis’ in welfare reliance.

Yet when you’re talking about welfare, the largest expenditure isn’t on unemployment payments (which are low by international standards) or on the disability pension (which is now much harder to access than it was a decade ago). The biggest single income support payment – indeed, the biggest single government program – is the aged pension.

Sure, we’re spending more on older Australians. But that’s because the share of the population who are aged 65 or over has been steadily rising. The baby boomers worked much of their careers in an Australia without universal superannuation, so it isn’t surprising that many are reliant on the aged pension. 

For all the rhetoric about ‘leaners versus lifters’, the fact is that Australia’s welfare system looks a lot more like a piggy bank than a conveyor belt. When times are good, we put money in. But when we find ourselves jobless, homeless, or with a disability, government protects us from poverty. That’s how social insurance is supposed to work. 

When it comes to working-age Australians, the data show that most households got some welfare, but few people were stuck on welfare. A recent analysis by the Melbourne Institute looked at welfare use from 2001 to 2014. Fewer than one in ten people were in households that got welfare every one of those fourteen years. But only three in 10 people were in households that never got welfare in that period. Most households got welfare for between one and three years. In other words, the social safety net caught them a few times – but they didn’t laze around in it.

But remember, that’s only a 14-year period. If you looked over a whole lifetime, the share of people who never use the welfare system during their working lives would be even lower than three in 10. So any attempt to divide the population into ‘us’ and ‘them’ misunderstands the fact that most welfare use is by people who are getting a hand up, not a hand out. 

On the Labor side of politics, we’re always up for a conversation on how to improve the safety net. After all, it was people like Bill Shorten and Jenny Macklin who argued in government for scrapping the Baby Bonus, creating the National Disability Insurance Scheme, phasing out the Dependent Spouse Tax Offset, and raising the full-rate pension. 

But if we’re going to talk about the welfare system, we have to start with the facts. 

If you can’t admit that the Australian system is the best-targeted in the world; that welfare usage by working-aged people is lower than in the Howard era; and that most of us access the welfare system at least once in our lives – then you’re not serious about evidence-based reform.

Andrew Leigh is the Shadow Assistant Treasurer, and author of Battlers and Billionaires: The Story of Inequality in Australia. His website is here.

This Opinion Piece was first published in the Business Insider on Tuesday, 5 October 2016.