A different kind of welfare reform

PART ONE – A critical analysis of Australia’s welfare policy
PART TWO – Empowering the Poor: Towards a Progressive Version of Welfare Reform


PART ONE – A critical analysis of Australia’s welfare policy


Most conventional studies of the Coalition’s welfare policies refer to its neo-liberal agenda: its attempt to reduce government interference with the free market by restricting access to social security payments. If that analysis were correct, we should have been able to observe a significant reduction — or ‘retrenchment’ – of the Australian welfare state based on the redirection of responsibility for the disadvantaged from government to corporations, private individuals and families.

Yet there is increasing evidence that the government has not reduced social spending, and that – particularly via the family payments system – increasing resources have been directed towards particular disadvantaged groups such as low-income families and the aged.

This paper draws on the theory of the US political scientist Paul Pierson to explore the paradox of Australian neo-liberalism: the punitive treatment of some disadvantaged groups such as the disabled and sole parents, versus the generosity towards other groups. It will also attempt to explain the counter-intuitive growth in social expenditure under a party that supposedly adheres to a ‘small government’ philosophy.

Over the past three decades there have been numerous reports of a welfare state crisis. These reports in part reinforced the perception that welfare spending was out of control, and hence economically unsustainable. They also pointed out the assumption that the political attack by neo-liberal governments on the welfare state in the USA, United Kingdom and elsewhere had resulted in substantial welfare retrenchment.

However, the research of Paul Pierson in the mid 1990s suggested that the welfare state was not in crisis and that there was little evidence of major cuts to social spending. He argued that the resilient welfare state had seen the creation of major interest group support networks. These networks, based on the connection between welfare provider and consumer groups, acted as barriers to substantial welfare retrenchment.

Nevertheless, expenditure patterns are not the only criteria to be considered. We also need to investigate the extent to which governments are taking responsibility for maintaining minimum standards and reducing poverty and inequality. For example, there is evidence that many governments are acting to change the values and rules underpinning welfare assistance, following an international pattern of increased conditionality of welfare payments.

In early 1996, the Liberal-National Coalition Government headed by John Howard was elected to power and has won four elections in a row with a strong commitment to a neo-liberal ideological agenda. Using a five part framework based on my book Australia’s Welfare Wars (UNSW Press, 2003), I argue that the government has substantially reshaped the structures of income support for poor and disadvantaged people in Australian society.

A) The capture of the welfare state by interest groups


According to public choice theory, self-interested lobby groups take advantage of the welfare state in order to manipulate the redistributive process for their own benefit. Thus, the welfare state and its services operate in the interest of the well-paid social workers who administer them, rather than in the interest of the disadvantaged consumers whom they are intended to serve. Accordingly, the Howard Government has withdrawn funding from a number of welfare advocacy groups and sought to limit the access and influence of other government-funded interest groups such as the peak community welfare body — the Australian Council of Social Service (ACOSS). Changes to the regulations governing charities’ tax status can also be viewed in this light.

B) Labour Market Deregulation


Neo-liberals argue that laws preserving minimum wages deny the less skilled and more disadvantaged workers access to jobs. They emphasise the need for a more flexible labour market without awards and minimum wages. In October 2005, the government introduced their Work Choices framework which seems designed to reduce the wages and working conditions of less skilled workers. They also established the Australian Fair Pay Commission headed by Professor Ian Harper, a hardline economist. Under this framework the real minimum wage is likely to fall over time, or at least grow at a considerably slower rate.

C) Welfare Dependency


The concept of welfare dependency infers that government welfare programs have a ‘perverse’ effect; they produce poverty instead of relieving it. Neo-liberals construct welfare recipients as fundamentally different from the rest of the community. Dependence on welfare is interpreted as an addiction not dissimilar to helpless dependence on drugs and alcohol or gambling. They argue that the state should act to motivate and discipline welfare recipients and reintegrate them with mainstream social values such as self-reliance and a stable work ethic. Welfare-dependent individuals should be given incentives to choose employment over welfare in an environment where income security is considered a privilege rather than a right or entitlement.

The Howard Government has introduced a number of measures to eliminate alleged incentives to welfare dependency, including the recent Welfare to Work Bill. These changes seem to be closely linked to the industrial relations reforms described above. It is likely that many single parents and disabled claimants will be forced to accept any available job, irrespective of the wage being offered.

D) Mutual Obligation: the Deserving versus the Undeserving Poor


Closely associated with the stigma of welfare dependency is the notion of mutual obligation. Mutual obligation reflects the influence of the 19th century English Poor Law distinction between the deserving poor and the undeserving poor. The deserving poor — those who have become briefly dependent on poverty relief through no fault of their own, and who with some assistance, could return to independence — are to be cared for. However, the undeserving poor (more recently labelled the underclass) whose poverty is the result of laziness or moral failure are to be disciplined rather than supported.


The philosophy of mutual obligation inspired the introduction of the Work for the Dole scheme (WFD) which is based on the assumption that the unemployed have an obligation to give something back to society in return for the dole. Mutual obligation has also been associated with a generally punitive approach in both policy and rhetoric to the unemployed, seen especially in the increase in social security breaches and associated heavy fines.

E) Towards Private/ Charitable Welfare


Neo-liberals have had a consistent preoccupation with reversing the modern shift to state-guaranteed income security entitlements by returning the provision of welfare to families, private charities and churches. Similarly Prime Minister Howard has long favoured greater provision of welfare benefits and programs by private charities, renowned for emphasising the moral rather than the structural causes of poverty. Consequently, the government has placed charities at the centre of a number of government projects including the Job Network. Combined with initiatives to promote greater business involvement in welfare funding and provision, these policies suggest an erosion of the traditional responsibilities of the Australian welfare state.

These measures suggest that the government has little interest in using the welfare state to reduce poverty or promote greater equity. Nevertheless, the government has not reduced social expenditure, and continues to spend about half of its total budget on welfare, health and education. Specific spending on social security and welfare has risen over the past ten years from 35.4 per cent to 42.5 per cent of the federal budget. Australia spends about 18 per cent of its Gross Domestic Product (GDP) on social welfare, placing it in the lower to middle ranks of OECD countries.

Welfare spending is not out of control, it is being mismanaged.

Much of the assistance for low-income Australian families seems to be coming from family payments, which have increased by over $6 billion a year under the Howard Government. They now constitute the second largest item in welfare spending after aged care. Total spending on assistance to families with children amounts to $24.5 million; a figure equivalent to about three per cent of Australia’s GDP, and about 12 per cent of the Federal Budget. This is more than 1.5 times the OECD average.

Three of the key means of assistance are the Family Tax Benefits system, the Maternity Payment, and the Childcare Benefit.

The other major form of social spending is on aged care, which attracts five times more funding than support for the unemployed. The government has substantially increased senior concessions and payments including a major one-off payment in the 2006 Budget. It is noticeable that along with the age pension, family payments seem to retain high public support. In contrast, payments for the unemployed, single parents and the disabled seem to enjoy less public legitimacy. Single people living on unemployment benefits now fall an average of $77 a week below the poverty line.

The above analysis leads to mixed conclusions. On the one hand, the philosophical changes to Australian welfare policy are significant. The Howard Government has constructed a new public debate around the welfare system and welfare recipients based on narrow notions of individualism and self-reliance. The concern of some authors that welfare states are shifting away from the provision of minimum social standards seems to be confirmed.

On the other hand, Pierson’s argument that social expenditure is not decreasing and that the overall welfare state structure has not substantially changed, also receives significant support. Here is the paradox; a neo-liberal government committed to welfare retrenchment in principle has used the family payments system as an effective means of redistributing income to disadvantaged groups. Overall market-based inequality may be increasing, but government intervention is maintaining the real income of many poor Australians.

However, the recent simultaneous introduction of policy changes in both wages and welfare may substantially lessen the redistributionist impact of government policies.



Empowering the Poor: Towards a Progressive Version of Welfare Reform


While the current Coalition government may maintain the real income of poor or marginalised Australians, its neo-liberal agenda all too often undermines the potential for the longer-term success of welfare services. Welfare services in Australia should be driven by the needs and rights of service users rather than by those of government and service providers. They should be based on structural rather than individualistic definitions of social problems.

Three major principles would underpin a progressive version of welfare reform:

1) The provision of income security payments should be based on need, rather than employment status


Currently, welfare consumers are rigidly divided into myriad categories according to their labour market status. This categorisation has a number of negative political implications.

Firstly, it facilitates an exclusive focus on economic and labour market participation, and hence leads to repressive workfare schemes.

An alternative definition (as recognised in part by the McClure report on Welfare Reform) would encompass the social participation of consumers. This could include a variety of voluntary work and caring tasks including cultural, educational, environmental, and community activities. These unpaid work activities would range from from the more conventional; care for young children, the disabled, and people who are frail, aged or chronically ill; to manning the kiosk or clothes shop at schools and/or coordinating the local sports team to the less conventional; for example, participating in Local Exchange and Trading Schemes. The onus would then be on the welfare system to facilitate the social inclusion of consumers outside the paid workforce.

Secondly, the current emphasis of both major political parties on promoting a transition from welfare to paid work continually feeds back into the agenda of deregulating the wages system. The alternative proposal would accept that a certain section of the population will always remain outside the paid workforce due to the imbalance between supply and demand in the labour market.

Thirdly, it divides and separates poor and disadvantaged people from each other. Those on pensions (sole parents, disabled and the elderly) feel relatively privileged compared to those on unemployment and sickness payments, and are unlikely to join together in collective political action.

An alternative system based on what might be called a participation income could, over time, approximate traditional conceptions of a guaranteed minimum income – a scheme by which every citizen is guaranteed a basic income above the poverty line.

2) Welfare services should be delivered by local communities with extensive consumer participation and/or control


The current dominance of neo-liberal versions of globalisation suggests that effective resistance is more likely to occur at the local, rather than national level. Consequently, there has been discussion around the efficacy of promoting greater local participation in, and control of, welfare services and programs based on community development principles.

A ‘left’ version of community provision would be distinguished by its focus on genuine consumer participation in, and control of, the planning and delivery of services, with the potential for transforming welfare programs into longer-term user-controlled cooperatives. This reflects the distinction between what the British academic Peter Beresford has called the consumerist (external consultation with users by dominant policy makers and providers) and democratic welfare models (consumer group controlled policy agendas).

An innovative strategy for developing local community control, called Associationalism, has been suggested by the British academic Paul Hirst. Hirst proposes the establishment of voluntary self-governing organisations based on partnerships between service users and providers. This approach is appealing because it offers the potential for welfare consumers to become real players in the service delivery and policy development process. It also suggests the possibility of challenging the structure of the existing government-controlled tendering process, and transforming that model into a progressive form of service delivery. This approach would require the government to grant genuine independence to community forces so that they can both steer and run welfare programs based on the stated needs of their consumers.

For example, the major deficit of the current Jobs Network system is that it is bound by rigid contractual arrangements based on mutual obligation. At best, existing tenderers struggle to protect participants from the claws of the associated breaching system. At worst, some tenderers may enthusiastically comply with these sanctions. However, Associationalism suggests an entirely different outcome; an employment and training scheme run by a local cooperative (potentially involving trade unions or local councils) to meet the aspirations of participants, rather than those of government or providers.

3) Groups of welfare consumers need to be empowered to participate in welfare policy and service provision debates and processes


At present, income security recipients and particularly the unemployed are politically marginalised. This is despite the increasing imperative of most governments (even those influenced by neo-liberal/public choice philosophies) to consult with consumer groups. But when it comes to the welfare debate, consumers are granted little if any access to government decision-making processes. This was exemplified by the complete exclusion of service users from the McClure Welfare Reform Reference Group.

Yet if the welfare debate is to move into a progressive direction along the lines suggested above, significant progress would need to be made in facilitating the collective political representation of welfare consumers.

The experience of the last three decades suggests that traditional universalistic methods for organising the poor and unemployed don’t work terribly well. In part this seems to be because contemporary welfare recipients are characterised more by their diversity than by a shared or homogeneous set of values and experiences.

This suggests a need to form diverse coalitions of welfare consumers based on commonalities such as gender, ethnicity, age, disability, Aboriginality etc. Such coalitions are also more likely to work at the local rather than state or national level, and would then have the potential to feed into the type of progressive service delivery strategies described above.




The existing welfare state primarily operates on a top-down basis as something done by government and service providers to consumers. International trends suggest that this paternalistic structure will continue, but that direct provision may increasingly be transferred from government to large-scale McWelfare-type providers.

Traditional ‘left’ alternatives to welfare paternalism have largely failed. Social democrats have found it harder and harder amidst pressure from global financial markets to reinvigorate the progressive aspects of the welfare state.

Nevertheless, the current political climate with its rhetorical emphasis on community provision and consumer choice suggests some opportunities for new progressive models of welfare. Such reform could take the form of democratic partnerships between community providers and consumer groups at the local level based on consumer-controlled needs rather than what providers have on offer.