What future for welfare?

In 2010-2011 the federal government spent 8% of gross domestic product on welfare (including both cash handouts and services). Unemployment benefits – the most contested area of welfare spending – made up only 5% of total government spending on welfare, or 0.004% of the entire budget. Welfare spending (including income support) has also increased at a much slower rate than areas such as health care, at just 3% over the last decade (compared to a huge 46% growth in healthcare over the same period).

Yet, as Philip Mendes has argued, spending on welfare relief ‘has been the foremost issue in the minds of those who wish to reduce state intervention and enhance the importance of the market place’.

In the lead up to the 2014 budget we are once again debating welfare and the future of social policy ostensibly to reduce the budget deficit. Professor of Social Policy Paul Smyth (Melbourne University) reflects on the current debates around welfare and what they mean for the future of social policy.

Amid rumours of yet another war on welfare in the coming federal budget, the Abbott government will soon reveal where it stands on one of its great policy challenges: the future of social policy. The late twentieth century triumph of economic rationalism gave rise to an international trend to ‘end welfare as we know it’. In the twenty first century Australia has been part of a global welfare policy shift towards social investment in inclusive growth. Will the budget really be an attempt to wind back the clock? Soon enough we should have our first clear indication of the idea of welfare which informs the new governments’ marvellously ambiguous slogan of ending the age of entitlement.

To understand the new global social policy context of which we have been part think of Europe and think of Asia. For old school economic rationalists, the European social model represented everything that was wrong with welfare. High quality universal social services and comprehensive social insurance created economic sclerosis crippling Europe in the newly globalised economy. However, economic outcomes in the wake of the global financial crisis have delivered European Union policy makers a very different conclusion. Essentially what has been learnt is that a lot of what we call welfare is actually vital economic infrastructure and helps stabilise demand in economic downturn. Thus economies with high public investment in social infrastructure outperformed those with less. Indeed countries like Spain which have responded to economic crisis with deep cuts to public education and health are seen as potentially consigning their people to a second-class future in Europe. Alarm at this emerging scenario of social divergence among member countries led the EU, in 2013, to institute the ‘Social investment Package’ which sets out the kinds of positive social policy investments countries need to make if a united Europe is to be maintained.

If the importance of social investment is the lesson from Europe then the need for inclusive growth is the welfare theme of the Asian century. For economic rationalists the absence of welfare states in fast growth Asian economies was always a trump card in their war on welfare: growth first and welfare after! Over the last half decade, however this ‘trickle down’ approach to social policy has been clearly and explicitly abandoned by the World Bank and the IMF in their prescriptions for a more integrated approach to sustainable economic and social development. The historic impact of this new thinking is reflected in the creation of forms of universal social insurance in China for old age and unemployment while Indonesia launched its universal health insurance system in January 2014.

Of course, Australia has been no stranger to this international resurgence of the importance of social investment in inclusive growth. Here the Abbott government may well take its cue from its conservative predecessor. Initially John Howard appeared as an economically rational enemy of welfare but ended with historically high social spending. Why? The social impacts of the major economic restructuring of the period simply could not be ignored. Remember One Nation. Howard saw the necessity of supporting the ‘battler’ – especially through family tax payments. In its terms, Labor went on to elaborate a fairly complete package of support for ‘working families’ while also launching our Australian version of a ‘social investment package through the COAG human capital reforms focussed especially on the early years and youth.

This redesign of the Australian social policy system for the open economy has never been fully recognised for the achievement it is. It has been til now a more or less bipartisan recognition of the importance of social policy both as an investment in the economy but also in supporting individuals and families as they face the new social risks engendered by the open economy. It is certainly to be hoped that the new government builds upon and not disrupts these new foundations.

Of course we do face tougher economic times with declining revenue and an ageing society. But with hard decisions to be made all the more reason for clarity about our welfare goals. In the evolution of our new welfare system not all of the reforms would pass the tests of good investment and greater inclusion. Here middle class welfare is a central if muddled issue. Obviously the ‘working families welfare model’ embraces the middle class and is critical to maintain. But even while it was being created a second or what some call a ‘dual welfare state’ was emerging. This targeted upper income groups especially through subsidies to private social services such as schools and health but also the retirement incomes of the wealthy. In terms of the new welfare paradigm these look more like overinvestment in a few when others lack the basics. They point more towards exclusive rather than inclusive growth.

In historical terms it would be a setback if ‘ending the age of entitlement’ proves nothing more than the indiscriminate war on welfare associated with economic rationalism. It is to be hoped that the Abbott government will indeed build on the more demanding and far more rewarding challenge of integrating the pusuit of economic efficiency within an overarching vision of a fair society.

Posted by Gemma Carey