Assessing Developments and Prospects in the Australian Welfare State Presentation to OECD,16 November, 2016 Peter Whiteford, Crawford School of Public Policy https://socialpolicy.crawford.anu.edu.au/ peter.whiteford@anu.edu.au Twitter: @WhitefordPeter
2 Outline Background Incomes, inequality and prosperity Social security and employment Assessing policy developments Policy reviews Activation The investment approach The National Disability Insurance System (NDIS) Challenges and prospects
Incomes, inequality and prosperity 3
4 Trends in income inequality in Australia, 1981-82 to 2013-14 Gini coefficient
Trends in real mean and median household incomes in Australia, early 1980s to 2013-14 (1981-82 and 1993-94 = 100) 5
6 Trends in real incomes at different decile points, Australia, 1994-95 to 2011-12 Percentage change in real equivalent income unit income 1994-95 to 2002-03 2002-03 to 2007-08 2007-08 TO 2009-10 2009-10 to 2011-12 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% -5.0% P10 P20 P30 P40 P50 P60 P70 P80 P90
Change (%) in real median equivalised household disposable income, 1995 to 2012 (or nearest year) Source: Estimated from OECD Income Distribution database, http://stats.oecd.org/index.aspx?queryid=46022 70% 60% 50% 40% 30% 20% 10% 0% -10% -20%
8 Social security and welfare how Australia compares
9 Social spending, OECD, 2014 or nearest year (% of GDP) Spending on cash benefits Spending on Health and Services Belgium Italy Austria France Portugal Finland Spain Greece Slovenia Hungary Luxembourg Denmark Germany Poland Ireland Japan OECD Netherlands Czech Republic Sweden Norway Slovak Republic Switzerland United Kingdom Estonia New Zealand United States Canada Israel Australia Turkey Iceland Chile Korea Mexico 8.6 0 5 10 15 20 25 Sweden Denmark France Finland Netherlands Germany Belgium United Kingdom New Zealand Japan Norway Australia Iceland United States Austria Italy Spain OECD Luxembourg Switzerland Czech Republic Canada Ireland Hungary Slovenia Slovak Republic Portugal Poland Greece Israel Korea Estonia Chile Mexico Turkey 10.4 0 5 10 15 20
Public spending on income-tested benefits, % of GDP, OECD countries 2012 10
Net replacement rates for low paid workers in first six months of unemployment, OECD countries, 2013
Australia s social security system is more targeted to the poor than any other OECD country Ratio of transfers received by poorest 20% to those received by richest 20% Source: Calculated from Table s 3 and 5, OECD, 2014, http://www.oecd-ilibrary.org/economics/economic-growth-from-the-householdperspective_5jz5m89dh0nt-en
Welfare receipt in Australia % of working age households receiving income support payments by period 13
0-4 5-9 10-14 15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70-74 75-79 80-84 85-89 90-94 95-99 100+ Government spending per person 2012, $ 000 per year per person 80 60 Aged care 40 Age Pension 20 Education Health Other 0
15 Employment, unemployment and disadvantage
How does Australia s employment performance compare? In 2015 Australian employment rates overall were the 12 th highest in the OECD (72.2%). In contrast, employment for youth (15 to 24 years), Australia is ranked 4th highest among OECD countries. The level of part-time employment is the third highest in the OECD after the Netherlands and Switzerland. Around 29 per cent of the workforce are employed part-time. Most part-time workers are women around 72 per cent. Around 46 per cent of female employees and 15 per cent of male employees participate on a part-time basis. Temporary employment as defined by OECD is among lowest. Involuntary part-time employment 7.2% of the labour force and 30% of parttime workers is the highest in the OECD (2.9% is OECD average and 17% of PT workers). Employment rates among lone parents are among the lowest in the OECD. Total joblessness among families with children is among the highest in the OECD but may have improved in ranking terms. 16
Joblessness in Australia is highly concentrated in households where no one is in paid work Working age population nonemployment rate Share of working age in jobless households Ratio of household to individual joblessness UK 27.4 16.3 0.59 Germany 34.5 19.4 0.56 Norway 24.8 13.1 0.53 Australia 28.4 14.2 0.50 Denmark 24.5 9.2 0.38 Sweden 26.1 6.2 0.24 USA 28.5 6.3 0.22 Japan 30.7 5.1 0.17 Spain 35.7 5.8 0.16
Assessing policy developments 18
Trends in social security spending, Australia, 1980 to 2012 Spending on cash transfers as % of GDP 19
20 The Australian welfare system has been extensively reformed since the 1980s Liberalisation of unemployment benefit income tests in the 1980s. Income-testing family allowances 1987, increases in income-tested family payments and integration of in-work and out of work family payments between 1987 and 1993. Following the recession of the early 1990s, the benefit system for the unemployed partially individualised and dependency payments for spouses (usually wives) of recipients started to be phased out. The pension age for women was gradually increased from 60 to 65 years. The Coalition government from 1996 increased family assistance particularly for oneearner families, and also increased assistance again after 2000 when the GST was introduced. Activation policies for working-age welfare recipients were increased for the unemployed after 1996 and extended to parents from 2006. Since 2007 the Labor government targeted more tightly a number of family payments. Age and disability and carer pensions were significantly increased in 2009 and the withdrawal rate on payments was increased from 40 to 50%. The age pension age will be gradually increased from 65 to 67 years between 2017 and 2023
21 Trends in the number (000s) of unemployed and unemployment benefit recipients, 1978 to 2012 1000 Unemployed Recipients 900 800 700 600 500 400 300 200 100 0
Feb-1978 Dec-1978 Oct-1979 Aug-1980 Jun-1981 Apr-1982 Feb-1983 Dec-1983 Oct-1984 Aug-1985 Jun-1986 Apr-1987 Feb-1988 Dec-1988 Oct-1989 Aug-1990 Jun-1991 Apr-1992 Feb-1993 Dec-1993 Oct-1994 Aug-1995 Jun-1996 Apr-1997 Feb-1998 Dec-1998 Oct-1999 Aug-2000 Jun-2001 Apr-2002 Feb-2003 Dec-2003 Oct-2004 Aug-2005 Jun-2006 Apr-2007 Feb-2008 Dec-2008 Oct-2009 Aug-2010 Jun-2011 Apr-2012 22 Trends in underemployment, 1978 to 2012 12.0 Underemployment rate Males Underemployment rate Persons Underemployment rate Females 10.0 8.0 6.0 4.0 2.0 0.0
23 Changes to dependency payments Access to Widow B Pension was limited in 1987, and then closed to new entrants in 1997. Wife Pension was closed to new entrants in 1995. Partner Allowance and Mature Age Allowance were both closed to new claimants in 2003, and by 2008 there were no longer any recipients of Mature Age Allowance. Since 2005, new grants of Widow Allowance have been limited to women born on or before 1 July 1955. In combination with the partial individualisation of benefit payments, this has significantly reduced the effect of assuming dependency within the household.
PW 24 Change in number (000s) of working age income support recipients, 1996 to 2014
Per cent of working age population receiving social security benefits, 1976 to 2014 25
Lone parents :policy developments 1942 Introduction of Class A Widows Pension. 1968 States Grants Deserted Wives Act assisted deserted wives in first 6 months after desertion or birth. 1973 - Introduction of Supporting Mother s Benefit providing assistance after six month waiting period. 1977 Introduction of Supporting Parent s Benefit covering fathers. 1980 Six month waiting period for SPB abolished. 1989 - Sole Parent Pension replaced Class A Widows Pension and SPB. 1998 Parenting Payment Single (PPS) replaced SPP. 2006 - Child eligibility age lowered from 16 to 8 years for new applicants for social security payments, with new applicants having participation requirements and claiming Newstart. 2011 Amendment to grandfathering to restrict impact of new birth. 2013 Remaining grandfathered recipients moved to Newstart.
Lone parents on PPS or equivalent as % of working age population, 1974 to 2014
Trends in principal source of income for lone parents, Australia, 1994-95 to 2011-12
Employment to population rate (%) among lone parent families, 1980 to 2012
Lone parents and apparent outcomes Lone parents have enjoyed significant real increases in income since the 1990s Employment increases have been significant and reliance on social security has reduced Lone parents have moved from the lowest income quintile to the second lowest Income inequality among lone parent families has increased, and relative poverty rates have been stable Housing costs may have increased as lone parents are now more likely to be private renters Much of the improvement in the economic circumstances of lone parents appears to have started before policy changes. Some of the changes appear to reflect changes in demographic composition of the lone parent population.
31 The National Disability Insurance Scheme
The National Disability Insurance Scheme The NDIS is being introduced progressively around Australia from 1 July 2016. To become an NDIS participant a person must: Have a permanent disability that significantly affects their ability to take part in everyday activities; Be aged less than 65 when they first enter the NDIS; Be an Australian citizen or hold a permanent visa or a Protected Special Category visa; and live in Australia. By 2019, the NDIS will provide about 460,000 Australians under the age of 65 with a permanent and significant disability with the reasonable and necessary supports they need to live an ordinary life. The NDIS takes a lifetime approach, investing in people with disability early to improve their outcomes later in life. Individuals can self-manage their plan or members of their family can. The scheme is not income or means-tested. The Scheme is funded by an increase in the Medicare Levy plus savings from previous State Government programmes. 32
33 The National Disability Insurance Scheme Self-managed participants can select a preferred service provider and claim the expense through the Scheme. There are three options for self-managed participants to pay providers: Option 1: Self-managed participants can negotiate with providers to pay invoices within seven to 30 days as part of their service agreements. Option 2: Self-managed participants can submit a payment request prior (within one week) of receiving the support if the participants have an established service agreement and the provider requires payment on day of service. Option 3: A self-managing participant can choose to pay a service provider upfront and claim the expense back through the Scheme. The NDIS will typically pay claims, once received, within two to four days. https://www.ndis.gov.au/people-disability/fact-sheets-andpublications.html
34 The National Disability Insurance Scheme The NDIS Outcomes Framework has been developed to measure goal attainment for individual participants and overall performance of the Scheme. There are 8 Outcome Domains ( Domains ) in the framework. Daily Living Home Health and Well-being Lifelong Learning Work Social and Community Participation Relationships Choice and Control
35 The National Disability Insurance Scheme In the NDIS payment system, supports for participants fall into three Support Purpose categories: CORE A support that enables a participant to complete activities of daily living and enables them to work towards their goals and meet their objectives. CAPITAL An investment, such as assistive technologies, equipment and home or vehicle modifications, funding for capital costs (e.g. to pay for Specialist Disability Accommodation). CAPACITY BUILDING - A support that enables a participant to build their independence and skills. Most supports are priced per hour of service; Support packages for independent living for people with high needs can be up to $4,800 per week. Differing levels of support depending on levels of need.
The investment approach 36
37 The investment approach The development of an investment approach was one of the recommendations of the McClure review of Australia s welfare system. The New Zealand government originally developed the investment approach in response to a review on welfare dependency, which was specifically asked to look at the insurance industry for ideas on reform. The government has subsequently commissioned four actuarial valuations in 2011, 2012, 2013 and 2014. The Baseline Evaluation report released in September 2016 was an initiative of the 2015-16 budget, when the government allocated A$33.7 million to establish an Australian Priority Investment Approach to Welfare based on actuarial analysis of social security data. Groups identified by the approach will receive support from current programs and from new and innovative policy responses to be developed through the A$96.1 million Try, Test and Learn Fund, which was announced in the 2016-17 budget.
38 The Baseline Valuation Report, 2016 https://www.dss.gov.au/sites/default/files/d ocuments/09_2016/baseline_valuation_re sults_report_accessible_version_12_july_ 2016_2pwc._2.pdf The report estimates the lifetime costs of the social security system as close to $4.8 trillion.
39 How do we get to $4.8 trillion The report takes the population of Australia in 2015. Then, on the basis of past patterns of receipt of payments, it projects the amount of money the population will be paid over the rest of their lives and converts this into the present value of this lifetime spending, with a discount rate of 6% reflecting the fact a dollar is worth more today than in the future given the capacity to earn interest. The population modelled in the report includes: around 5.7 million people currently receiving various income support payments (of whom 2.5 million are age pensioners); 2.3 million people not receiving income support payments but who receive other payments (mainly families receiving the Family Tax Benefit); around 3.9 million who were previously receiving payments; and just under 12 million people who are not receiving any payments currently or have not in the past. The lifetime valuation is about 44 times the total amount of payments in 2014-15 (A$109 billion). But it also includes people s future age pension entitlements. Given the average age of the total population is 39 and that on average Australians can expect to live into their 80s, it is not surprising the estimated lifetime cost is more than 40 times the current level of spending on cash benefits.
What does $4.8 trillion mean More than half the total estimated lifetime spending will be on age pensions. The average lifetime cost per current client is made up of A$150,000 in age pensions and A$115,000 in all other benefits. For previous clients, the corresponding figures are A$114,000 in age pensions and A$60,000 in other payments. For the balance of the Australian population it is A$88,000 in age pensions and A$77,000 in all other benefits. For people of working age who are currently receiving benefits it is these other payments that figure larger than age pensions. This is particularly the case for people receiving parenting payments, where the age pension is only around one-quarter of their total lifetime costs. New Zealand s actuarial model does not include family payments. And nor does it include national superannuation their equivalent to the age pension as it is provided free of any income test to people aged 65 and over. By including both age pensions and family payments, the Australian report produces significantly higher lifetime costs relative to the size of the economy. 40
41 Groups with poor outcomes and high costs The report highlights three groups of people who are expected to have very-high average lifetime costs and poor lifetime outcomes: For 11,000 young carers, it is expected, on average, they will access income support in 43 years over their future lifetime; for 4,370 young parents it is expected, on average, they will access income support in 45 years over their future lifetime; and for 6,600 young students it is expected, on average, they will access income support in 37 years over their future lifetime. These projected future histories will involve lifetime costs for these three groups of between A$2 billion and A$4 billion. In all of these cases, however, a substantial part of their estimated costs relates to years to be spent on the age pension.
42 Assessing the investment approach Very early days! The principle of early intervention is admirable Focus should be on sustainable improvements in outcomes Rigorous evaluation is essential and government seems to have committed to this, but there are complexities Who has responsibility to intervene possible cost shifting and blame
Future challenges A significant proportion of the working age population continue to rely mainly on benefits for their incomes it is desirable for equity reasons and sustainability to reduce this, but we should also be concerned that further reforms really do improve equity in outcomes. Australia escaped a major economic downturn from the Great Recession. This is a very major advantage in facing future challenges. But real wage growth since 2013 has been minimal and most employment growth has been part-time, Population ageing will soon start to have a much more significant impact on the costs of the system. The Grattan Institute (2013) estimates that on current trends there would be a deficit of 4% of GDP by 2023 (2.5% at the Federal level). There are significant needs with reforms to introduce greater support for disability services, for aged care and nursing homes, for dental care and to improve equity in the education system. These reforms need to be properly funded. Indexation provisions for unemployment payments are inadequate as are benefit levels. Similar risks to future family payments. We are residualising the poor are we introducing the concept of deserving and undeserving? Because the Australian system is the most targeted to the poor of any rich country, cutting social security benefits would increase inequality more than any other OECD country. All proposals involve complex trade-offs and genuinely difficult choices, which will require detailed public discussions and consultation and (hopefully) consensus. 43
Additional material 44
Spending on cash benefits for unemployed, OECD countries, 2011 % of GDP
Spending on active labour market programmes, OECD countries, 2011 % of GDP 46
Participants (% of labour force) in ALMPS and income support for the unemployed, selected countries, 2013 Social insurance Australia - Social assistance Other ALMPs 6.71 1.85 Denmark 1.79 3.41 0.94 6.08 Finland 3.99 4.63 1.13 4.41 France 8 1.58 0.07 5.11 Germany 2.14 4.45-3.07 Italy 4.41-2.4 4.65 Netherlands 4.91 4.68-4.08 New Zealand - 2.18-2.33 Sweden 2.51-1.93 5.34 United Kingdom (2009) - 5.04-0.23 47
Trends in the number of lone parents and those incapacitated or without participation requirements on Newstart/Youth allowance (other), 2007 to 2015 Year Temporary ill or incapacitated No participation requirement or in Disability Management Services Lone parents Total Number on Newstart or Youth Allowance (other) 2007 39,008-12,559 486,491 2013 71,162 59,787 111,288 800.039 2015 72,362 64,218 119,869 (2014) 849,164