Tighten the rules on welfare payments

Mission Australia chief, Toby Hall, has attacked the Gillard government’s budget decision that from 2013, single parents who claim Parenting Payment should look for part-time work once their youngest child turns eight years of age. Those who don’t find a job will be transferred to Newstart Allowance, which pays $120 less each fortnight. Hall thinks this is ‘harsh and unfair’ (The Australian, 24 May). He wants the federal government to follow Britain and introduce a single welfare benefit so that everyone gets paid according to need, rather than by the category of claimant they happen to fall into. But he should be careful what he wishes for.

Hall’s model is the ‘universal credit’ to be introduced in Britain next year. It is intended to ensure that everybody is better off working than staying on benefits, so even an extra hour of work always pays. This makes it a very expensive reform –British taxpayers will have to find at least another £3 billion to fund it because the benefits taper has to be flattened and extended to ensure that people are always better off as their earnings rise.

Given the Australian system’s well-known problem of weak financial incentives as people move from benefits to work, there might be some lessons we can learn from Britain’s universal credit, but a reform like this would be expensive and would not guarantee reduced dependency rates.  A leaked UK government report last year warned that the financial incentives in the new system will be ‘insufficiently compelling’ to encourage many welfare recipients to exchange their benefits for a wage packet. The carrot still looks pretty puny, so sticks will be needed too.

This is why the universal credit is part of a much broader welfare reform package being introduced by the British government. Its £3 billion cost has only been accepted because the program as a whole is making a serious attempt to reduce the crippling costs of welfare dependency.

One way this is being done is by reducing the amount of time single parents can stay on benefits without being expected to work. Hall thinks it is ‘harsh and unfair’ to expect single parents to look for a job once their youngest child turns eight, but in Britain, they are now required to look for work once their youngest child starts school, at the age of five.

This makes sense. We know that people find it harder to get back into the workforce the longer they stay out of it, so the sooner single parents on benefits can return to the habits of working, the better chance they have of avoiding a lifetime of dependency. Once their children start school, they have time for a part-time job.  So if Hall wants to follow Britain’s lead, he should be campaigning for the federal government to terminate eligibility for parenting payments much earlier than it is proposing. Eight is too late.

Australia could also follow Britain’s example on eligibility rules for disability payments. In both countries the number of people claiming benefits because they say they are too incapacitated to work has escalated since the 1970s, and both have been tightening the rules recently, but Britain has been much more radical.

In Britain, the last Labour government’s tighter Work Capability Assessment resulted in 39% of new claimants being found capable of working, with another 17% capable of doing some work with additional support.  With a further 36% dropping out before their claim could be evaluated, this left just 8% who genuinely could not be expected to work.

The Coalition government is now re-assessing existing claimants, and so far, 37% of these have been found fit for work and transferred onto the equivalent of Newstart.  Australia has reduced DSP numbers by just 2,000 this year.  Clearly much more could be done.

So yes, by all means, let’s follow Britain’s lead and think about introducing a single benefit for everyone of working age. But don’t stop there. Tighten up the eligibility rules for the Disability Support Pension, take a second look at those who have been claiming the pension for years to see if they really need it, and get single parents back into the labour force once their children start school. There is more to welfare reform than amalgamating the benefits.