Call me crazy, but I think the following are valid solutions to the problem that will, unquestionably, reduce the welfare bill without slashing payments, imposing draconian eligibility criteria or stigmatising those receiving welfare.
Let’s start with the obvious one – unemployment benefit payments.
History shows that the best way any government can cut unemployment is by growing the economy at a strong and sustained pace. After two years in which annual GDP growth has been soft, below trend and disappointing, unemployment in Australia is around 750,000 people or close to 6% of the workforce.
If the government were to actually do something about growing the economy faster through infrastructure, addressing inequality or a counter-cyclical use of fiscal policy, unemployment would fall and, voila, payments to the unemployed fall.
There’s the first solution.
Next is the aged pension. Everyone knows that if retirees are to avoid relying on the welfare system, contributions during working life need to be around 15% of income. They are currently set at 9.5%, a rate that will remain for the next five years after the Abbott government decided to freeze contributions rather than fast track a rise to 12%.
Paul Keating wanted to increase the rate to 15% in the early 1990s but John Howard ensured the welfare bill would explode in the decades ahead when, in 1996, he and treasurer Peter Costello froze contributions at just 9%, which is where they stayed for 11 years. Keating says this has cost the average worker $300,000 in retirement savings over a lifetime and is a reason why the age pension is a large and growing welfare cost.
The solution? Lift the compulsory contributions to 15% forthwith. Problem fixed.
Disability payments are a more difficult issue to tackle because many aspects of disability are health-related rather than linked to economic growth. That said, government intervention to promote the provision of skills and training for people with disabilities will improve their employment prospects; in addition, the provision of high-quality health care can help lessen the severity of disabilities and increase opportunities for those with disabilities to participate in the workforce.
Efforts to tackle skills, education and workforce participation for the disabled are not only a decent thing to do, they help reduce the welfare bill.
So rather than addressing the high cost of welfare payments by making it harder for people in need to receive them, there is an alternative: stronger growth, lower unemployment, higher contributions to superannuation and a nurturing of people with disability so that they can gain meaningful opportunities for employment.