March 6, 2015 3:16PM

Australia Could Show a Way Forward on Welfare Reform

By Charles Hughes

As previous Cato work has shown, our current welfare system fails us in a number of ways. It is both overly complex and inefficient: over 100 different programs spend roughly $1 trillion each year yet do relatively little to actually lift people out of poverty. In some cases, the overlapping programs can create "poverty traps" that make it harder for people to climb the economic ladder.

Despite many warnings about the welfare system’s underwhelming performance, reform remains elusive. While there are encouraging signs that some policymakers are taking the issue seriously, reform ideas have not yet gained significant traction or translated into concrete policy change.

Each year of inaction comes with a heavy price tag: another trillion dollars spent with very little to show for it. After the relatively successful welfare reform of 1996, the welfare system in the United States has largely been on autopilot. Annual spending continues to increase with few efforts to address or even identify the many problems still present.

In contrast, in Australia a new comprehensive review of its welfare system shows the country is earnestly grappling with this issue and seeking real solutions. Their efforts are an encouraging sign that broad, substantive welfare reform is still possible.

Last week, Australian Social Services Minister Scott Morrison released the final report from a group commissioned to provide an in-depth review of Australia’s welfare system. The authors identify many of the same problems found in the antipoverty programs in the United States. The ad hoc development of the dozens of programs that make up a "patchwork quilt" welfare system leads to "unintended complexities, inconsistencies and incoherencies" and "does not provide clear rewards for work."

Too often, beneficiaries who can work do not, either because doing so would disqualify them from disability programs or because the welfare system creates perverse incentives where additional earnings actually leave them worse off. As more beneficiaries are relegated to the economic sidelines, their likelihood of long-term dependency increases, exacerbating the fiscal burden of the welfare system. Welfare expenditures already account for a significant portion of government spending in Australia, and will only increase in the future barring substantive change. Those realizations have lent a sense of urgency to reform efforts in Australia that hasn’t been seen in this country in the 21st century.

Recognizing the Australian welfare system’s pressing problems, the report's authors recommend making welfare simpler, the rewards to work easier to understand, and the transition from welfare to work smoother. They propose consolidating the 20 income support payment types and 55 supplementary payments that Australia offers to just five payment streams. Able-bodied working-age adults would only be eligible for two. Beneficiaries with disabilities would be able to work to their fullest capacity without being disqualified.

The authors also propose a new major initiative, the Passport to Work, that would support beneficiaries in their transition to work by making it "clear to recipients how their income support package would be affected when moving into work or increasing hours and what would happen if work reduces or ends."

This in-depth review identifies the many significant problems with the "patchwork quilt" welfare system in Australia and offers a way forward that would make it more efficient and improve the lives of its beneficiaries.

Whether these recommendations lead to real reform remains to be seen. But the government’s decision to commission this report signals a willingness to address these many problems, and the recommendations have a substantial amount of support among policymakers like the social services minister. The Australian experience so far shows that they are facing up to the serious shortcomings of their welfare system and trying to address them in a comprehensive way, which could serve as a valuable lesson for the United States.