The Modern Welfare State

During COVID I finally found the time to complete my book, Safety Net. The Future of Welfare in Australia. In it I explore the idea and ideals of how nations develop safety nets and delve in to how we have developed these in Australia.

Welfare is not an act of charity it’s an investment.

Here in Australia in the 1980s the safety nets of education, minimum wages, retirement benefits, income support and healthcare were at the forefront of the government’s work. No other country in the world can claim anything like this degree of investment in the minimum rights and privileges of its citizens.

To fund that investment, it was necessary to increase economic growth – to improve the efficiency of the economy and to distribute the outcome so that wages, social welfare and profits all increased. Secondly, to do all these things, while not increasing debt and inflation, it was necessary to increase productivity and competition.

The third characteristic was that it was pluralist in nature. Australia has a history of providing a safety both directly through the public sector and through partnerships with civil society and the non-government sector. This has been and remains a strength of Australia’s approach.

When all the great safety nets are considered, they have three elements: a national, a collective and an individual contribution. 

1.        The healthcare system has Medicare, private health insurance and private contributions.

2.        In education, there are public and private schools. Federal and state governments contribute directly. Parents pay a varying range of fees. When a person attends university, they generally pay a Higher Education Contribution.

3.        The wages system has a national minimum wage, collective bargaining and individual contracts.

4.        The retirement system has the pension, the Super Guarantee Contribution and personal contributions.

A public, pluralist and individual contribution are all part of Australia’s safety net DNA. This is the nation’s great achievement – arguably unique in its breadth.

The rationale for the welfare state remains compelling and relevant today. However, the institutions that compose it are in need of another burst of reform

We stand at a fork in the road.

The welfare state is experiencing cost and scope pressures that threaten its continued existence as a meaningful social safety net. In the decade following World War II, Australia reimagined and expanded the welfare state while paying off the debt incurred during the war. Today, we must achieve something similar.

The welfare state is motivated by three key rationales: the universal provision of key services, redistribution and risk management. All of these are important and, typically, mutually reinforcing.

You may ask ‘Why is reform important?’

I believe that the welfare state needs to return to its roots.

Of the three pillars, a greater emphasis needs to be placed on insurance and risk management (although not to the exclusion of universality and redistribution). Doing so will lead to institutions that are more outcomes-focused and capable of providing individualised, whole-of-life solutions to the most vulnerable people in our community. It will also allow us to achieve more without breaking the bank.

We must embrace this opportunity. It is the only strategy that will allow us to help those in our society who need it the most, while navigating the funding pressures that are already straining some of our most important social supports.

 Despite its resilience during COVID-19 pandemic, the welfare state is under threat from longer-term challenges. If left unchecked, these seemingly irresistible trends will increasingly undermine its effectiveness and sustainability.

 The modern welfare state is comprised of institutions that provide assistance through a variety of means: universal service (national health services), a safety net (transfer payments to old-age pensioners and the unemployed), sector-specific schemes (for workplace and transport accidents and veterans), lifelong assistance (disability programs) and redistribution (means-tested carer payments and child support). At the heart of almost all these schemes is the provision of payments or services that are contingent on a specified and often random event, be it poor health, loss of income, disability or an accident. That is why so much of the welfare state is often referred to as ‘social insurance’ or a ‘safety net’. At their core, many of these institutions are about protecting people when exposed to loss, when the occurrence of that loss was unpredictable.

In many ways, today’s welfare state has many of the characteristics of a vast insurance scheme. In that sense, social insurance is a communal venture in which we pool our resources to help those who, through no fault of their own, are left in need of assistance after fate has dealt its cards.

Framing the welfare state as an insurance scheme highlights the fact that many of us experience bad luck at some point in our lives and will therefore need support. When we think of the welfare state as redistributive, by contrast, it reinforces the ‘them’ and ‘us’ aspect, in which there is a class of people who give and a class of people who receive. When we think of the welfare state as insurance, it reinforces that most of us spend at least some time in both camps. This also more accurately reflects reality – as demonstrated in analysis by the Productivity Commission.

While insurance and risk management already play a prominent role in the welfare state, there are practical ways in which that approach could be strengthened. In some areas, such as the National Disability Insurance Scheme (NDIS), where insurance is embedded in the policy framework, the challenge is to improve risk management and service delivery. In other areas, such as aged care, healthcare for those with chronic conditions, and investment in skills, the opportunity is to explore ways in which insurance and risk management might be used to improve outcomes.

I’ll be exploring this and more over the next months as I want to generate a discussion about how we reform the welfare state, so it continues to serve each of us and our families as and when we need it, across all aspects of our lives.

Of course, if you want to do a deep dive into this, you can buy a copy of my book, Safety Net by following this link.

Interested to read your views on how we can reform the welfare state.