Is welfare spending really unsustainable?

Peter Whiteford (Australian National University) has provided an excellent analysis of social welfare payments for Inside Story. He concludes that political and media concerns about relentless growth in welfare are difficult to substantiate – particularly when the total number of welfare recipients is close to its lowest level in the past twenty years.

The data show a prolonged fall in the number of welfare recipients since the mid 1990s, reflecting a long period of economic growth, a strong labour market, and the positive impact of policy changes since the early 1990s. While trends have not been as positive since 2008, they have been mild by the standards of earlier economic downturns in Australia. Trends in spending as a per cent of GDP show broadly similar patterns, with no evidence of major increases after 2008.

Furthermore, the two main pressures on DSP numbers – the ageing of the baby boomers and the increase in women’s pension age – are unlikely to continue to have such a significant impact, suggesting that numbers of recipients and levels of spending relative to GDP are unlikely to grow in the near future unless there is some form of economic shock.

Our main concern should be to avoid any significant blow-out in unemployment. Previous increases in unemployment in the recessions of the 1980s and 1990s had very long-term consequences, particularly for jobless families with children.

The problems that some people on welfare face in moving into work require a comprehensive analysis, however. Not all these problems are caused by the welfare system: other barriers to work include labour-market programs that are not equally effective for all, a lack of job opportunities in the regions where people live, poor public transport, inadequate and expensive child care, mismatched skills, and negative employer attitudes to people disadvantaged in the labour market. Changing incentives in the welfare system through reform of eligibility for specific payments is only part of an effective response to these challenges.

View the full article at Inside Story.