Speeches

Speech - Welfare Reform - Reducing dependency and setting higher expectations

24-October-2016

Check against delivery

 

One of the defining characteristics of a modern prosperous country is a strong social security safety net so that when people are down on their luck, we look after them.

This has been a feature of Australian society for many decades and we should be collectively proud that our system saves thousands of people from being hungry or without clothes or shelter. 

Today, however, the welfare system is creating problems that we never intended. The design and structure of it has meant that for many capable working age people, welfare is no longer a safety net, but a destination.

One in eight children is now growing up in a jobless household.  Nearly forty percent of those children will themselves be on welfare by the age of 20.  We have regions where business owners can’t get workers to do entry level jobs such as fruit picking or working in abattoirs, but where youth unemployment is high.

There are whole regions where as many people receive their income from welfare as from a job.

This of course has financial implications for the nation.  The welfare system is now the largest part of the budget ($160 billion, a third of all expenditure) and growing the fastest – about 6 percent per annum.  This is clearly not financially sustainable.

But the foundational problem is the dependency it creates in capable people.

Each of us would probably know of individuals or families who are stuck in the welfare cycle. Over time their motivation collapses and their capabilities diminish. The purpose, the structure and the dignity which comes from work is lost to them and sometimes the despondency crosses over to the next generation.

Indigenous leaders have been the most articulate and persistent advocates of the need to address this problem, perhaps because they see it most acutely in the remote locations.  And my work in indigenous communities over the last 15 years has most clearly informed my views on this topic.

Noel Pearson has been writing about the poison of passive welfare since his seminal essay “Our right to take responsibility” which he published back in 2000.  He says that welfare dependency explains the social crisis in his communities: 

“It explains the phenomenon that even as our material condition improved over recent decades, our social conditions deteriorated….Passive welfare kills initiative …and pacifies recipients rather than invigorating them into social, political and economic action to secure a better deal for themselves and their children.”

Veteran land rights activist and former Australian of the Year, Galarrwuy Yunipingu, is even more blunt stating that welfare dependency ultimately kills such is its all-pervasive power to suck the life out of individuals.

But of course the challenge is not merely one for indigenous communities. Today we have hundreds of thousands of people right across Australia in this situation.  

No amount of extra welfare payments can change this situation. We might look at a heavily welfare dependent community and see impoverishment. But we could double the payments, and that impoverishment would not diminish.

The way a person obtains income is as important as the amount of that income. 

For able individuals, self-respect, dignity and economic empowerment ultimately increases when income is earned. Arthur Brookes, the head of the American Enterprise Institute, states this plainly: 

“The deep truth [is] that work, not money, is the fundamental source of dignity. Work is where we build character. …Properly understood, [it] is the sacred practice of offering up our talents for the service of others.”

Policies which trap or encourage people to be welfare dependent when they could be working are not moral policies.  To the contrary, they remove dignity and disempower.

From welfare to work: four elements to reduce dependency

The Turnbull Government wants to change this equation – to create better incentives, better supports, and ultimately improved and more fulfilling lives.  Our nation is greatest when we have all the human talent contributing to the greatest ability.

We are undertaking a program of reform based on boosting opportunities, creating more incentives for working, and more support for those who need it. This is challenging work, not least of which because it cuts across three portfolios: employment, social services, and human services.  However, we have three ministers in Michaelia Cash, Christian Porter and myself who are all aligned in our intent to increase opportunity, and reduce dependency.

Our program starts on the opportunity side.

Every lever of government is geared towards growing the economy and creating more jobs: company tax cuts; our innovation agenda; more infrastructure and free trade deals.  There are 474,000 more jobs today than three years ago.

We are also creating specific opportunities for young people through the Youth Jobs PaTH Programme announced in the last budget, and is being led by Minister Cash. PaTH is a three staged pathway (Prepare – Trial – Hire) where we are getting people ready by providing pre–employment skills training; giving them a go, by getting them into an internship; and then getting them into a job, including with a wage subsidy of up to $10,000 to the employer.  One hundred and twenty thousand opportunities will be provided.

This Programme will bring together young people that want work experience but who need some extra help with employers. We have listened to employers and are delivering.

However, while creating opportunities is necessary, it is not sufficient. We know there are jobs available today in many locations which employers struggle to fill. Over the next few years, there will be 100,000 more jobs in aged, disability and child care, but if nothing changes, it will be difficult to transition people presently on welfare payments (including on a carers payment) into these roles. 

We must therefore also reform the welfare system of payments and supports to ensure that welfare is a safety net, not destination.      

Learning from the experiences of the United Kingdom and New Zealand, we are doing the policy work to bring about some incremental changes. There are four elements to a better system.

First, we need to simplify our intensely complicated payment system for work capable Australians under the age of 65, as recommended by the McClure Review. We presently have around 20 payment types and 49 supplements. The objective will be to not only create a more simple and manageable structure, but to do so in a way that minimises situations where there are weak or no financial incentives to work due to the interaction of welfare and income tax thresholds. Too many instances arise at present where the amount of total welfare allocated is comparable to what could be earned through work.

Noel Pearson called this problem the “welfare pedestal”.  The idea that someone sits up on a welfare pedestal and sees little financial incentive to embarking upon the employment staircase.

The complexity of the system also creates perceived disincentives: people often mistakenly believe that they will lose payments by taking more work even if they will not. Minister Porter and I acknowledge that structural reform in this area will require a considered, consultative process as we undertake this reform.

Second, is to invest additional resources and support for those groups in the community that we now know are highly likely to have a life of dependency without intervention. This is the Priority Investment Approach outlined by Minister Porter last month and involves a $96 million fund to support innovative approaches to change trajectories. In New Zealand, thousands of people in target groups such as young mothers have been moved from dependency to self-reliance with the welcome secondary effect of reducing the long term welfare costs by an estimated $12 billion. We are calling on innovative organisations to help craft solutions.

Third, is setting higher expectations in our compliance system to ensure that those who are capable of work undertake job search activities and take a job one when one presents itself. I will expand upon this in a moment. 

Fourth, in some troubled communities, we are trialling a new way of delivering welfare via a cashless debit card that cannot be used for gambling, or the purchase of alcohol or illicit substances.  The express purpose of these trials is to reduce the social harm caused when the welfare dollar is massively abused, particularly on huge volumes of alcohol.  It is early days in these trials, but impressive results are coming through including reductions in hospital presentations.

 

Exhibit 1: The four elements of the government’s welfare reform agenda

Setting higher expectations in welfare obligations

There has already been much discussion about three of the four elements outlined above, but less on welfare obligations.  Let me expand on why compliance with obligations is critical.

A responsible government that seeks to improve lives should aim to design the payment system so that there are strong positive incentives to search for work and take a job when available.

For most unemployed Australians, the concept of a job and the ability to provide for themselves and their families is enough incentive.  However, there will always be a few who try and avoid work or game the system. There are others who have not had role models in their lives who have experienced working.  For them, working is not a social norm.  

To prevent such people falling into long-term dependency, they need encouragement to look for work, to take a job, and hold it down.

At the moment, our expectations upon capable job seekers as reflected in the practical application of the welfare obligations are too low – to the detriment of the individual and the community.  I will provide evidence of this in a moment.

Why are expectations important? Because we know from other policy areas that expectations are likely to be met, whether those expectations are good, bad, correct or misguided.  

Professor John Hattie, Australia’s foremost educational academic, makes this exact point in relation to the expectations that teachers place upon students. High performing schools are characterised by high expectations, irrespective of the demographic composition of the students.

We recently introduced a campaign setting the expectation that people get their children immunised and we backed it up with a “no jab, no pay” policy.  What happened?  A record number of families receiving government support for childcare took action to have their kids immunised.

Our road authorities, particularly in Victoria, now expect us to stay within the speed limit at all times. There are no excuses countenanced and considerable non-negotiable penalties apply if we don’t abide.  Now, it is rare to see people deliberately speeding, and the road toll consequently is far lower than in previous decades.

So what are our expectations upon job seekers?  On the surface, there appears to be stringent requirements.  But it is more illusionary than real.  In the practical application, they are not consistently present.

To start, there are more than 400,000 capable people who are not subject to any work-related mutual obligations in exchange for their payments.

Those who are subject to obligations have what appears to be a robust set of conditions attached to their welfare payments. They are told that they must look for work and abide by a job plan that will be developed with them by their Job Service Provider. This will typically mean attending interviews that become available, and taking jobs which are offered. It will require people to do work for the dole after 12 months.  If an individual does not meet those requirements, the concept is that a penalty is imposed. For example, a reduction or suspension of payments.

However, in practice this rarely happens.

Let’s take an example of a person on Newstart who has a job interview, but they don’t turn up and consequently miss the opportunity for that job. Remember that to get to this point, they have already been assessed as having capacity to work.

Step one is that the jobactive provider will check why the person didn’t turn up and whether they had a “reasonable excuse”.  A “Reasonable Excuse” is outlined in legislation and there is a debate about whether those deemed “reasonable excuses” are aligned with community standards. We have a concern, particularly, that having drug or alcohol issues can be considered a “reasonable excuse” under current definitions.

Further still, a jobactive provider, who considered that there are no reasonable excuses, can then exercise discretion as to whether to recommend a participation failure to Centrelink.

If such a recommendation does get submitted to Centrelink, the officials will then call the job seeker to discuss the incident. They will check again against the “reasonable excuse” list, but are empowered under the Social Security Guidelines to take into account any factor that they consider “may have affected the job seeker’s ability to comply”. Under the Guidelines, they are allowed to “interpret broadly” if the circumstances warrant it.

There will also be a certain proportion of submissions from the jobactive provider that are not valid because of procedural error.

In the final result, according to a recent estimate, only about four percent of those who fail to undertake a required activity without reasonable excuse receive a financial penalty.

Let’s get to the financial penalties themselves. At a foundational level, the two issues with the financial penalty regime are complexity, and immediacy.

In the case of our person who missed a job interview, if after all of the steps I just described, Centrelink does decide that a penalty should be applied, then they would likely be docked one day worth of their welfare payment. However, that penalty is only applied in a few weeks’ time, removing the immediacy of action, and consequence.

Secondly, like the welfare payments themselves, the penalty system is overly complex. Different penalties apply for missing different types of activities, and there are multiple discretion points, waivers, triggers for comprehensive compliance assessments, and varying types of financial and non-financial sanctions. In addition, it’s arguable that the 8 week penalties that can be applied for serious failures are too onerous and act to dissuade decision makers from swift and clear decision making.  If a Job Seeker can’t understand what the consequences will be for not complying with their mutual obligations, how can we expect that the compliance framework will be effective? 

Exhibit 2: Possible responses to non-compliance (having gone through the process outlined above)

Secondly, sanctions are often imposed far too late to be effective at shaping behaviour, and even when penalties are imposed, they can be waived. Take for instance failure to job search.  A job seeker has to fail in their job search efforts for 12 weeks before a financial sanction can be imposed.  

When the person finally reaches that 12 week threshold, the penalty is typically an 8 week payment suspension, which is arguably too onerous.  However, all it takes to have the suspension waived and to receive full back-payment, is for the job seeker to call and agree to undertake some activity such as further training in the future. The cycle then starts again.

In the last financial year, not a single person suffered a financial penalty (i.e. actually lost any welfare payments) for failure to job search.  Many had suspensions, but all were fully backdated.

If the same individuals overstayed a parking bay by even a few minutes, they would get a ticket. Regardless of the person’s background, we insist through our parking laws that individuals take responsibility.

But when it comes to critical activity to place people onto a better life path, we too often make excuses for them.

These illustrations that I have given are not examples of high expectations being set.  On the contrary, they embody expectations that are miserably low.  

Why can’t a person attend a job interview, when they have been assessed as being capable of working, and don’t have a reasonable excuse?  We should be insisting upon a higher standard.  Because if we do so, we would be telling people: yes you are capable of doing this and, yes, you can do it!

If they miss that interview, then they miss the opportunity to get onto a life path with the benefit of the dignity and wellbeing that comes with work and participating in society.

We don’t help anyone by excusing poor behaviour. It simply entrenches disadvantage and robs them of opportunity.  This is sometimes referred to as the “soft bigotry of low expectations”.

Setting low expectations is a sign of disrespect. Low expectations are often masked in the language of compassion. In fact, it is the very opposite. We make people more reliant by eroding their capacity to help themselves. We are telling them that they lack the capacity to change their lives.

We should be raising our expectations.

Over the next few months, Michaelia Cash, Christian Porter and I want to delve further into this and start the process of designing a new system built on higher expectations; where the standards are clear, fair and high, while still accommodating the fact that life throws up unexpected events.

This will be a core part of the government’s broader welfare reform agenda, as I have outlined above.

Conclusion

We must face the reality that in our desire to be a generous and caring society we may have reached a point where we have taken our good intentions too far, and are now causing harm.

Many unemployed people simply need a system that encourages them to have a go, supports them while they do it, and lets them know that we believe in their capability.

We need a version of Obama’s creed – Yes you can! – to express our belief in what people can do, not what they cannot.

Every person assessed as having capacity to work can job search, can interview and can do a job.

Our welfare system shouldn’t become a trap.  It should be a safety net, an enabler.  It should be backing people all the way to take a step up when an opportunity is available and expect that they will. 

We will always proudly have a generous social security net. But in providing a fair hand out in times of need, we must never lose sight of the fact that the most important assistance is the helping hand out of the system itself.

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