It is amazing how many commentators seem to think they have said something morally uplifting -- indeed the final word -- when they grandly declare that more money should be spent on schools, health, pensions, welfare, indigenous advancement or whatever.
In fact, that is precisely what we have been doing now for many years. The amounts governments spend, for example, on education or on income support per Australian have both more than quadrupled in the last 40 years, that on health has increased more than tenfold. In the same period, GDP per Australian slightly more than doubled. So government expenditure on these classic welfare-state activities has been growing faster than the economy, much faster than population. Indeed, they have been going up faster than taxes -- taxes per Australian went up a bit more than threefold in the period (all figures adjusted for inflation).
So there is nothing mysterious about what is driving welfare reform. The general trends are easily identifiable from budget papers and national account data -- my August 1998 Backgrounder From Workfare State to Transfer State sets them out. The welfare state, and welfare dependency, has been growing at a rate which is simply not indefinitely sustainable. In 1970, less than15% of those aged 15 and over were on income support; now over 30% are and the upward trend continues.
Since 1983, the scope of government action has narrowed, while the size of government has continued to grow, with the latter driving the former. When the Whitlam Government came to power, taxes were 23% of GDP: they recently hit a peace-time record of 31% of GDP, yet the general government sector's rate of saving has fallen dramatically. The fiscal pressure from the increase in the welfare state has generally been greater than increases in revenue through taxes, economic reform and growth.
Between the fall of the Whitlam Government and the election of the Howard Government, all levels of government spent $119bn or $7,000 per Australian more on recurrent (i.e. non-capital) expenditure than they took in revenue. Pensions and salaries were paid for by selling assets or borrowing money. Politicians are perennially tempted to "do a Harradine" -- to be in favour of expenditure, but not of the taxes to pay for it. This is welfare on the national Bankcard: it is buying the present by selling the future. And it is not only a matter of selling government businesses, private assets are also sold overseas to satisfy our welfare-inflated demand for capital. It is not merely the State Bank, but companies such as Arnotts, which are sold to foreign-capital providers to pay for welfare expenditure.
But we can't only blame the politicians. The appeal of government expenditure is the idea that someone else will pay for it. If we all get into that game, the easiest someone else to agree upon are those in the future.
Under this sort of fiscal pressure as the ethic of self-reliance has eroded, governments have been less and less willing to support mendicant industries. The job of industry is to provide revenue to support the growing welfare state, it is not to be a mendicant itself. Fiscal pressure has driven governments to rationalise government activities, to reduce liabilities and to increase economic efficiency in order to increase revenues and reduce non-welfare costs. That has led to de-regulation -- to improve the efficiency of markets -- and privatisation -- to pay off debts accumulated through rising expenditure, reduce infrastructure costs for industry and improve the efficiency of asset use and service delivery.
The Hawke Government used asset tests and provision of family assistance to low-income working families to improve the targeting of welfare. This process has been successful, with the lowest incomes having had the highest rates of income growth over the last 15 years -- over 30% growth compared to less than 15% for the top income decile (all income deciles have experienced income growth). There has also been increased delivery of welfare services through non-government bodies -- most dramatically through the replacement of the Commonwealth Employment Service with Job Network. Nevertheless, the growing rate of welfare dependency has not been directly tackled.
From 1988 to 1998, excluding various forms of age pension, the total number of pensioners went up by almost a half or 350,000 to over one million. Disability pensioners increased by 260,000 or two-thirds to over 650,000. Parenting payment (single) increased by 134,000 or 56% to over 370,000.
In the five years from 1993 to 1998, the total number of pensioners and other income support recipients -- excluding age pensioners, veterans and students -- went up by almost 106,000 or six%, to almost two million. This occurred while employment grew by twelve% to 8.6 million and unemployment fell 19% to 730,000. Yet the number on benefits directly driven by unemployment only fell by almost 44,000 or four%.
So, in a five-year period when employment is going up and unemployment is falling, we still get an six% increase in welfare dependency (in line with the six% growth in total population). The prospects when there is an economic downturn, and unemployment rises, are clearly worse.
The welfare system was originally designed to catch those who slipped through the cracks of work and family support. We now have about two million non-age welfare dependants in a population of 19 million with 9 million employed. Welfare has clearly expanded way beyond its original intention -- and is continuing to expand.
While policy changes -- most obviously in the labour market -- could make the economy more efficient, and so make the burden of a growing welfare state easier to bear, long-term trends (and US experience) clearly indicate that will not be enough.
If government is merely about doing good then there is no limit to how large it will grow: there is always more good to do. But the spruikers for social justice conceived as endlessly more government expenditure resent any suggestion that limits to government should be considered.
So the fiscal pressure marches on. Ironically, some of the strongest voices for this simple-mindedness are in the ABC and higher education. Since both represent regressive middle-class welfare at its worst, they are natural points for the fiscal pressure to be manifested -- so they are encouraging the pressures which lead governments to look for other ways to fund them.
The issues have gone way beyond public-sector-equals-compassion and private-sector equals-selfishness. They can only be properly resolved by some clear thinking about what really is the proper role of government. Welfare reform will only be effective if it grapples seriously with those limits. Mutual obligation -- the notion that welfare is something to be used and then grown beyond and should be structured to do this -- is clearly one aspect of this.
Growing welfare dependency can only be effectively tackled by policies which target dependency directly. The introduction of work-for-the-dole and the appointment by the Howard Government of the McClure Committee into welfare reform hopefully indicate that this is the next stage in policy.
Correction:
My article in the June issue Every Australian Child Deserves a Private Education should have read "the almost $5bn spent on capital investment and on income support for students". The slip was mine, not the Adelaide Review's.
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