Speech to CEDA

Speech Location:

Australian Parliament House, Canberra

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E&OE

Introduction

One of the great dictums in Public Policy - regards the wisdom of fixing things that are not broken.

The converse to this dictum is also powerfully simple - if you are going to engage in reform – it is critical to identify with great precision the problems that exist with the present system.

Over the last 4 years the Government has focused on the overarching problem of sustainability in the welfare system.

The problem BEING that welfare spending was growing faster than the taxpayers’ ability to pay for it. 

The result of failing to deal with this sustainability problem would be the need to continually borrow money to fund today’s welfare system growth - that approach would simply loads on debt to be repaid by our children. 

This outcome should be unacceptable because borrowing money to fund present recurrent expenditure forces Australians to pay for the welfare system of their own time in the future and also retrospectively pay for the welfare system of our time.

Sustainability

When we came to office in 2013 Labor had imbedded ongoing structural spending substantially in excess of realistically deliverable revenue.

  • Under labor in 2008-09, the yearly welfare bill climbed to be more than 100 per cent of the personal income tax take.
  • That figure is now 80%.
  • Across Government - the Turnbull Government is reducing overall expenditure growth, with real growth in payments in this Budget restricted to 1.9 per cent (down from around 3.5 per cent under Labor).
  • In 2018-19 the Government will no longer be borrowing to fund recurrent expenditure in the welfare system or elsewhere.

That is the most undersold piece of good news for any young Australian in this country.

Because welfare spending is such a huge part of the Commonwealth budget - restraining welfare expenditure growth has been a big contributor to the fact that now the Turnbull Government joins the Howard Government as the second of only two modern governments to have managed to have expenditure growth lower than revenue growth.

The simple fact is that under Labor social security and welfare spending was growing at almost double the rate of revenue.

Under Labor the growth rate of job seeker income support was 13.5 per cent a year (four times the growth rate of revenue over the period).

That was entirely unsustainable AND under the Coalition, this has been reduced to 3.7 per cent a year growth.

In total, since the 2013 election across government combined savings of $150 billion have been achieved, $25 billion of which has been achieved since the 2016 election.

Of this, around $30 billion in savings has been achieved from the Social Services portfolio since being elected in 2013. 

Ensuring the sustainability of our welfare system has been a challenging process.

Take for example the measure to save more than $6 billion from repealing payments that Labor said would be paid for by the Minerals Resource Rent Tax (which raised next to no money) – notably the Schoolkids Bonus and Income Support Bonus.  

That decision was difficult, not overly popular and open to ruthless political point scoring by the Opposition BUT it was also absolutely in the nation’s best long term interest.

Structural Reform

Having made significant inroads into the sustainability problem - - in this recent Budget the Turnbull Government has turned its attention to deep structural problems inside the welfare system.

Going back to the idea that if you are going to engage in reform – it is critical to identify with great precision the problems that exist with the present system.

The problem identification process has essentially taken two years’ work by three Ministers.

After 2 years working with Minister Michaela Cash in Employment and Alan Tudge in Human Services what we found is that when it came to the structure and actual on the ground operation of the Australian Welfare System, the problem was not that it was hard to identify problems.

In fact there were so many problems with the working age payment system - the real challenge we faced over the last two years was discovering all of the problems, understanding their effect and, particularly, how one set of problems would interact with another set of problems.

The simplest description I can give of what we found after long inquiry into the structural operation of the welfare system is that it fails the people who need the most help.

Two thirds of people inside the welfare system never miss or might only miss one appointment in a 6 month period.

About a quarter of people granted Newstart are off payment inside three months (and almost two-thirds / 63% are off in less than a year).

But critically there are a huge number of component parts of the welfare system that were failing badly and placing stress on the system as a whole if no effort were ever made to fix the broken parts of the system you run the risk of what engineers call cascading failures. 

These usually begin when one part of the system fails and nearby parts must then take up the slack for the failed component.

This in turn overloads new component parts, causing further failures, prompting additional component failures in a vicious circle.

Only in a welfare system the failures are represented by human lives that we have failed to improve.

Simply put the system has been putting too many people into too many TOO HARD BASKETS and not giving them the focus, attention and help they need.

So for example:

  • While most people never miss an appointment - about 100,000 people are persistently missing multiple appointments and so decreasing their chances of gaining employment.
  • Nearly half of this 100,000 do not appear to have any identified issues that would make it hard for them to apply – the system for this group is not sufficiently stringent to enforce the mutual obligation of job seeking.
  • So how do more than 40,000 people systemically game the system – simply because compliance systems are dysfunctional.
  • On the 380,000 occasions in 2016 where people missed an appointment without a reasonable excuse less than 10% faced any financial consequence.
  • The present compliance system is astonishingly slow -- 12 weeks of inadequate job search is required before any financial penalty is applied and that penalty will often not take effect until weeks after the last failed activity.
  • A system in which consequence is so far removed from cause is never going to encourage a change in behavior.

A good single example of the system gaming is the rule that if you have missed appointments your payment is suspended until you re-engage by going to an appointment.

This process works on a two week payment cycle so if you miss all your appointments but go to an appointment on the last day of the cycle you do not suffer any penalty.

Last year 7,006 jobseekers missed their appointments and then re-engaged only on the last day of the cycle– 3,100 did this 6 times during a year.

The system also fails the 60,000 or so people who regularly miss appointments AND WHO DO have significant barriers to employment in their lives.

This is because we do not engage with them enough and the new simple demerit system of compliance is designed to assist in this regard.

In compliance and mutual obligation setting the system lets people down through complexity and inconsistency.

  • There are 17 different types of non-compliance events triggering 6 different types of failure.
  • The 2014 McClure review he noted there were around 20 income support payments – each with different rules, taper rates and eligibility criteria -- this reform will end some of these and merge others into a new Jobseeker payment.

With so many payments the mutual obligation system is incoherent. 

  • An older job seeker is 13 times more likely to find work or increase their hours of employment when actively engaged in job search and yet an extraordinarily unhelpful part of the present systems is that someone between 55 and Age Pension age is not actually required to engage at all in searching for a job. That’s our welfare system giving up on people aged over 55.
  • Job seekers between 30 and 49 have significantly lower mutual obligations than those under 30 – which makes no sense whatsoever.

The system creates groups where the expectations placed on the welfare recipient is either too low or non-existent.

The enemy to attaining employment in any welfare system are structures that allow for too much passive receipt of welfare.

A very good example of this is the way in which the system boxes up and ignores and so completely fails to help people with drug and alcohol problems.

  • In 2010 the number of people who were exempt from mutual obligations to search for work was 7.7% of the Newstart population.That has increased by 80% to now be 13.9% of recipients and some of this is driven by increasing numbers being exempt for drug and alcohol use.
  • A person may receive a fixed period exemption from mutual obligations OR if they do not have one of these they may use a long list of reasonable excuses to not turn up to an appointment like a job interview.
  • The number of jobseekers getting a fixed period exemption because of drug and alcohol use has nearly doubled over the last 5 years to 5,526 people in September 2016.
  • AND the number of times drug and alcohol issues were used as an excuse for not turning up to an appointment increased by 131% in the last year to 4,325 instances.

It is clearly appropriate to have reasonable exemptions and excuses based around drug and alcohol issues BUT at present you can get the exemption or use the excuse WITHOUT anyone insisting on any effort or any plan to address the underlying problem. 

Failing to insist that an exemption or excuse based on drug and alcohol issues must be underpinned by an undertaking that some appropriate and active steps are being taken to address the underlying problem simply means we know about a problem AND continue to pay a benefit AND simply move on hoping for the best. 

This is a terrible failure to help thousands of people build better lives for themselves and is consigning too many to long-term welfare dependency with insufficient effort from us – the government - to change that. 

If we accept that Australians in these situations are vulnerable, then it’s a measure of our society how much we are prepared to do to help them overcome their problems and barriers to achieving fulfilling lives.

So as part of this reform we are requiring that exemptions and excuses based around alcohol and drug use should be assessed according to an additional criterion; decisions to exempt or excuse must take into account whether the person is actively undertaking an available treatment program or is accessing an available support service to address the underlying drug or alcohol dependency. 

In effect we are saying the taxpayer will accommodate the excuse or exemption but you have to do something as well and if you do we will help you.

We will also change the rules so that for the first time treating drug and alcohol issues will become for all job seekers a valid and counted job preparation activity. 

And we are also going to run a limited trial of testing to identify welfare recipients with drug related barriers to employment and help them get help to improve their lives as this has dominated most questions on welfare reform so far -- I’ll leave that to our Q and A session.

All these structural changes are accompanied by massive investments in helping people get work ready and get work.

  • Last year – the Commonwealth Government committed almost $685 million over four years from 1 July 2016 to reduce the impact of drug and alcohol misuse on individuals, families and communities.
  • This includes an investment of almost $300 million over four years as a part of the National Ice Action Strategy to improve treatment, after care, education, prevention, support and community engagement to tackle ice.
  • $96.1 million was allocated to establish the Try, Test and Learn Fund in order to identify groups at risk of long term welfare dependency and move them off welfare into employment.
  • $263 million to help parents prepare for work through a national expansion of the ParentsNext program in jobactive regions across Australia
  • $20.4 million to help increase the skills and experience of mature age job seekers through a Career Transition Assistance Program and expansion of the National Work Experience Program
  • $47m spent on getting more people participating within the Jobactive network

These reforms are about saving lives not saving money

Conclusion

In closing I might make mention of a question that was put during the press conference announcing welfare reforms.

It was too the effect that – ‘are you saying if someone is qualified as an aeronautical engineer they should be content with working in a café.’ 

There is a specific and general answer to this question.

The specific answer is that how content someone is depends on them and their job and whether they see how jobs in retail and tourism or care are great and valuable jobs or how they use an initial job to move into a second better job.

But the general answer to the question is that being dependent on yourself in a job is always better than being dependent on an unemployment benefit.

Warren Mundine’s elegant description of the evergreen importance of work is that “dependence is poverty. And the only escape from poverty is a job.”

There is a persistent idea in social services that because work necessarily involves costs associated with travel and preparation - that someone may be worse off working for an amount similar to what they might achieve through a combination of welfare payments.

While a persistent theory - this is an idea that misses the point - that many of the most important benefits of work are not economic.

Humans have always worked and they did so well before there was even such a thing as economies.

The reason we worked was to apply our individual capabilities to improve the circumstances of our families and our wider communities.

Before it was ever an economic exchange - work was (and still remains) a sacred form of giving - giving by the application of individual capabilities to greater goods.

This is why work provides depth and breadth to our lives.

Because when we exercise our capabilities the first reward is a sense of dignity, pride and purpose.

And when our capabilities are applied in our communities the second reward is that we are linked into those communities and isolation gives way to connectedness and belonging.

Work is more than money - it is self-worth from self-reliance, it's friendships, it's purpose and a meaning in life. So I would close by saying simply all our welfare reforms are about one thing giving more people more opportunity to grow with the benefits of work.