Welfare reform

The Howard Government is about to embark on one of the most important and controversial of reforms -- reform of the welfare state.

Of course, welfare reform is not new.  Governments have been tinkering with the welfare system almost continuously over the last two decades:  the Hawke Government introduced better targeting and asset tests;  the Keating Government introduced the concept of reciprocity or mutual obligation and also introduced case-management which is designed to insure that welfare recipients do not get lost in the system;  the Howard Government has streamlined the benefits system and reduced poverty traps and through its work-for-the-dole program has also reinforced the concept of mutual obligation.

The process of reform is far from finished.  None of the reforms agendas started under the previous and current governments are complete.  Far too much of the welfare dollar goes to middle-to-high-income earners.  There are too many loopholes and hiding places in the system and poverty traps remain large and numerous.

The Government plans to (re)address all these in the soon to be released Green Paper.

The Government is also expected to inject an important concept into the reform process, which has the potential to radically alter the welfare system and the lives of those who are dependent on it.

The concept -- known overseas as "tough love" -- involves the use of sanctions such a time limits, reduction in benefits, reduction in range of benefits, to motivate, and if necessary to force, people to take steps to get themselves off the system.

While sanctions already exist on paper, they are limited in severity and application, are seldom enacted and are not a central part of the process.  The government's Green Paper is expected to recommend that they become a central part of welfare policy.

Its underlying philosophy is that welfare should not be a long term option, but rather a road back into the workforce, and that some people need both "a carrot and a stick" to induce them to take the necessary steps.

The key question is whether there is enough room in the work force for the people on welfare?  Sanctions that do nothing more than force people into perpetual training or make-work jobs are only a marginal improvement on welfare dependency.

Welfare reform based on this philosophy has proven to be highly successful in the US.  For example, in the State of Wisconsin -- a leader in reform -- the welfare rolls have been reduced by 80 per cent with most (76 per cent ) former welfare recipients in work in above-average-paying jobs.  Indeed, for the US as a whole, the welfare rolls are down by over 40 per cent over the 1990s.

Of course, in the US, a booming economy has played a major role in creating jobs to which the welfare recipients can go.  Equally however, welfare reform has contributed to the boom by ensuring an expanding workforce and reducing pressure on wages and inflation.

Given the robust nature of the Australian economy and a tightening labor market, the US experience indicates that now is the time to push the envelope on welfare reform.

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