Look to New Zealand to help people on long-term welfare

Several aspects of the New Zealand welfare model are likely to deliver significant benefits for Australians trapped in long-term welfare dependency.

In recent weeks a flurry of political announcements has been made to the effect the federal government intends to reshape the welfare system as we know it.

The Social Services Minister Christian Porter indicated the Turnbull government endorses a so-called "investment approach" in which more intensive assistance packages are tailored for people at risk of long-term welfare dependency.  And in the very near future, the government expects to obtain results from a study using extensive longitudinal data analysis of DSS clients gathered over the past 15 years.

This information should reveal client groups with similar characteristics transitioning in and out of receiving certain working-age welfare payments, and the length of time that groups of people are getting welfare.

The reform agenda is expected to go beyond the more intensive use of welfare administrative data, since the government also intends to commission the non-government sector to establish plans assisting vulnerable people off the welfare rolls.

Encouraging tailored services for targeted groups, and even "social impact bonds" rewarding social entrepreneurs with public funding only when they achieve adequate outcomes, a potential exists for economic and social participation to be enhanced greatly.

The inspiration for these suggested changes happen to come from our near neighbour, New Zealand, whose centre-right government has pioneered better evaluation of welfare costs and is experimenting with alternative, non-governmental modes of assistance.

After finding that an insufficient focus on paid employment in the New Zealand welfare system created high levels of avoidable long-term benefit receipt, the Key government announced its investment approach to welfare in 2011.

The epicentre of this approach is an actuarial model projecting the future fiscal liabilities associated with long-term welfare receipt, and using projections to better target assistance measures based on the likelihood and extent to which future dependency could be reduced.

If providing more upfront assistance to somebody on welfare today would reduce their probability of remaining on welfare long-term, implying a reduced forward liability, then such a strategy could conceivably be endorsed under the investment approach.

As New Zealand's Minister for Finance Bill English said during a recent visit to Australia, "reducing misery, rather than servicing it, requires us to organise responses around these individuals, with them at the centre of public spending".

English added, "we are prepared to spend money now to secure better long-term results for the most vulnerable … and lower costs to the government in the future".

The Key government has claimed improvements in welfare outcomes and budgetary cost projections in the longer term, although some of these outcomes may also be influenced by improved economic conditions and refined actuarial welfare liability estimation methodologies.

Even so, the assessment that the investment approach contributed to 40,000 fewer Kiwi children living in a benefit-dependent household is noteworthy for Australia with a similar problem of intergenerational welfare dependence.

In fairness to the other side of the argument, however, the reforms have been contentious and numerous defenders of the welfare status quo, both here and across the Tasman, have argued the investment approach harms people more than it helps.

Some New Zealand critics argue for a broader balancing of economic benefit and cost considerations, rather than a liability calculation, when evaluating welfare policy changes, while others worry that reform is merely code for cutting people off welfare at any cost.

Economists have good reasons to advance the cause for comprehensive cost-benefit appraisals to assess the social, economic and fiscal performance of the welfare state, and it is possible future welfare policy would be framed using this broader methodological approach.

But the quantification of the full gamut of benefits and costs is difficult and prone to misapplication, not to mention political controversial every step of the way, so social policymakers maybe are some distance away from practical and feasible cost-benefit at this stage.

The advocates for change have been at pains to indicate their investment approach to welfare isn't a fiscal cut model in disguise, given that actuarial analysis may reveal additional and upfront supports are needed to build up economic resiliency for certain welfare client groups.

Certainly the New Zealand Productivity Commission, in a recent social services reform inquiry, "received no evidence that a simplistic interpretation of the [investment approach] is encouraging staff to, for example, push people off benefits they are entitled to or into unsuitable jobs".

Anyhow, a reduction in long-term fiscal liability imposed by the welfare state shouldn't necessarily be interpreted as problematic, because of the correlation between lessening welfare dependency and improved economic and social participation.

As many welfare experts rightly indicate, a sustained transition from fiscal dependency to satisfying and meaningful employment may contribute mental and other health improvements, better social connectivity, self-reported enhancements to well-being and other benefits.

Several commentators who criticise the investment approach to welfare reform decry the lack of satisfying employment opportunities available for those transitioning off welfare.

Accepting the argument that the availability of high-paying and interesting work, or lack thereof, is a legitimate concern, then it would be best to reform policies in an effort to ramp up economic growth and cut living costs.

The point being made here is that initiatives such as deregulating labour markets, eliminating occupational licensing restrictions, cutting red tape and taxes on childcare and other important services are necessary to make measures for a more sustainable welfare system a resounding success.

A dimension to this debate that seems to be somewhat downplayed is the potential of the investment approach to transform bureaucratic incentives, traditionally oriented toward maximising welfare budgets with seemingly less of a concern about affordability and maintaining a genuine safety net.

In this context, Jenesa Jeram of the New Zealand Initiative has poignantly asked, "why should taxpayers entrust government with even a cent more of their money, when it is unclear whether the current spending is effective and reaching the right people?"

The investment approach is unlikely to serve as the final destination for welfare reform, but nonetheless would appear to be an improvement upon the status quo.

If the model could be more ambitiously used as a basis for comparing and rewarding the efficacy of alternative publicly funded welfare interventions, delivered either by government or NGOs, then all for the better.

It would be a shame for Australia to forgo welfare reform, akin to the investment approach or even something else, for fear that it might actually reduce long-term dependency upon the state.