Welfare Reform

1
Welfare Reform

• Introductory Economics for the Treasury
• Guest Lecture 2
• Dr Judy Schneider
• Social Policy Unit

2
Aims

• To provide an example of how Treasury uses an
  economic framework in developing policy, in this
  case on Welfare Reform.
• This will involve the examination of both the
  uses and limitations of economics in an applied
  setting.

3
Overview

• Presentation covers
• Australias social security system
• the problems
• policy levers
• recent solutions
• future directions

4
Australias social security system

• Categorical system
• pensions (452pf)
• aged, carers, disabled, lone parents
• allowances (385pf)
• unemployed, students, special benefit

5
Australias social security system

• safety net system
• means tested, low payments, not time limited,
  wide coverage

• not a social insurance system
• employment related benefits, time limited,
  restricted coverage, churning, fraud,
  sustainable?

6
Welfare Reform

• Australian welfare system is relatively new and
  has been under constant revision
• Welfare Reform announced 1999
• final McClure report in 2000
• AWT announced in 2001-02 Budget
• Recognising and improving the capacity of people
  with disabilities announced in 2002-03 Budget

7
The problems

• Joblessness
• in 1995, had 900,000 children in jobless
  households
• 500,000 were in lone parent households
• 57 of lone parent households are jobless, 9.5
  of couple parent households are jobless
• ignores preferences (definition includes those
  who have chosen to be jobless)

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The problems (cont)
9
The problems (cont)
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The problems (cont)
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Increasing participation

• Policy levers
• financial incentives
• obligations
• services

12
Measures of disincentives

• EMTRs

Y-tax (30) FTB A taper (30) Medicare levy
(1.5)
Spouse receives max FTB B
FTB A upper threshold
Y-tax (42)
Y-support tapers (50, 70)
FTB A lower threshold
Y-tax (47)
Y-tax (17)
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Measures of disincentives (cont)
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Addressing disincentives

• Income and substitution effects
• income effect person has less need to work
• substitution person gains more from work
• Trade-offs between incentives and adequacy
• Trade-offs between incentives and churning

15
Other approaches

• Obligations
• no trade-offs with adequacy, targetting
• can be costly to administer
• Services
• can reduce frictional and structural unemployment

16
Policy examples

• Australians Working Together
• Working Credit,
• Work for Dole for under 39yrs,
• Transition to Work
• DSP Reform
• Transfer of new entrants to NewStart (lower
  payments, more obligations)
• 73,000 new places

17
Future directions

• A Common Working Payment?
• ie common payment level and taper for all working
  age people, which is subject to activity testing
  and add-on benefits based on individual needs as
  assessed by Centrelink.

18
Questions for discussion

• What policies should be implemented to increase
  participation by NewStart recipients and lone
  parents?
• Why dont people work now? (consider structural
  barriers, private costs and benefits)
• How can government assist and should it?
  (consider public costs and benefits of
  intervention)
• What are the pros and cons of a Common Working
  Age Payment?