The concept of the welfare state was originally conceived as a safety net for the vulnerable, ensuring nobody falls below a dignified standard of living. In Australia it has grown into a vast network of social support in which everyone participates.
For the elderly there is the age pension, the Commonwealth Seniors Health Card, the Support At Home Program, the Home Equity Access Scheme, and the Pensioner Education Supplement. For the disabled there is the Disability Support Pension, carer payments, carer allowances, and the National Disability Insurance Scheme.
For families there are the Family Tax Benefit, the Parenting Payment, Parental Leave Pay, and the Child Care Subsidy. For the unemployed there is Job Seeker, Youth Allowance, and the Farm Household Allowance.
For students there is Youth Allowance for Students and Apprentices, Austudy, ABSTUDY, the Higher Education Loan Program, Tertiary Access Payments, Relocation Scholarships, Fares Allowance, and Assistance for Isolated Children Scheme.
For veterans there is the Gold Card, the White Card, Non-Liability Mental Health Care, the Service Pension, Veteran Payments, and Disability Compensation Payments.
In health there is the Pharmaceutical Benefits Scheme, subsidised health insurance, plus the public hospital system.
While universality in social spending is often romanticised as a tool for social cohesion, this has an obvious limit. As Margaret Thatcher famously said, sooner or later you run out of other people’s money.
That stage has now been reached – Australia borrows money to fund all this support with no prospect that it will ever be repaid. A way of reducing welfare spending must be found.
The government can ensure the resources of the program are prioritised for participants who have no other financial recourse
The problem is, Australian voters have repeatedly shown a preference for more government spending to boost services and benefits, and will ferociously resist the removal of any benefits, while also opposing increases in taxes (except taxes imposed on other people).
That leads to politicians promising more generous spending while saying nothing about how it will be funded. They win votes, but the result is a ballooning budget deficit.
Many people like to imagine a Coalition or One Nation government would be courageous enough to explain to the public that this is not sustainable and welfare must be restricted. History suggests that is a false expectation, at least for the Coalition. The last time the Coalition attempted to rein in spending was 2014, when it was blocked in the Senate. For the following eight years in government, welfare spending rose relentlessly.
And even if a government was elected with a plan to reduce welfare spending, the Senate would be a problem. As I have discussed previously, changes to the method of electing the Senate (introduced in 2016 by the Coalition with the support of the Greens) have made it unlikely the conservative side of politics will achieve a majority in the foreseeable future.
Short of a financial crisis that prompts Australians to reconsider their addiction to “free money”, the problem is not going away. A politically palatable means of winding back welfare needs to be found.
The answer might be means testing. Voters already accept, at least in principle, that welfare should be based on need. What is required is a consistent, transparent, convincing approach, with no exceptions or carveouts.
Currently, means testing is none of those. Some benefits are strictly means tested, some are generously means tested, and some are not means tested at all.
Eligibility for the age and disability support pensions, for example, is determined by income from all sources plus assets (investments, vehicles, superannuation balances, but not including the family home).
Eligibility for the Commonwealth Seniors Health Card is subject only to taxable income. Neither non-taxable income such as superannuation, nor assets, are considered.
Eligibility for the standard Child Care Subsidy tapers according to income but does not cut out until family income reaches $538,520 per year. There is no assets test.
And the NDIS, the most expensive and widely rorted program of all, has no means test whatsoever. Personal income, employment status, family wealth, bank savings and assets have zero impact on either eligibility or the amount of funding received.
What’s needed is a sound definition of need; plenty of prosperous people refuse to accept that they are wealthy, many feel entitled to benefits on the grounds that they pay a lot of tax, and many feel entitled on the grounds that others in a similar situation claim them.
Clearly, any government seeking to bring welfare spending under control will need to deal with such attitudes, cautiously and incrementally.
One argument for comprehensive means testing is generational equity. Australia faces unprecedented demographic pressures, primarily driven by a shrinking ratio of working-age taxpayers to retirees. Allowing the wealthy to access public funds means placing burdens on younger generations of taxpayers. Even omitting the family home from the age pension assets test, for example, means pensions are partially funded by the taxes of those who cannot afford to buy a home at all.
What is required is a consistent, transparent, convincing approach, with no exceptions or carveouts.
Providing childcare subsidies to high-income households reduces the pool of funds available to lower-income families which face genuine barriers to workforce participation. Proper means-testing of childcare support would allow the government to invest in fully subsidised care for disadvantaged families, where the evidence shows childcare is worthwhile and makes a difference.
True fairness, something most Australians rate highly, does not mean treating everyone identically regardless of their wealth; rather, it means distributing public resources progressively so that those with the least receive the most assistance.
This includes programs that have traditionally resisted strict financial scrutiny, such as the National Disability Insurance Scheme. This was designed to transform the lives of Australians with significant and permanent disabilities. However, its loose management and skyrocketing costs have threatened its ongoing viability.
While disability affects individuals across all socio-economic spectrums, the capacity to fund personal care, home modifications and specialized therapies varies widely based on private wealth. A wealthy family with substantial assets is far better equipped to absorb the costs of private therapy than a low-income family struggling to pay rent.
By introducing comprehensive means testing to the scheme, the government can ensure the resources of the program are prioritised for participants who have no other financial recourse, keeping the scheme solvent and maintaining value for those who depend on it for survival. Well-designed taper rates can mitigate the risk of welfare traps, ensuring that individuals are always financially better off by working or investing.
More broadly, what’s needed is a change in culture. Ultimately, welfare is charity. Before governments got involved it was provided by churches, benevolent organisations and compassionate individuals. Public welfare is not an investment fund that yields a guaranteed dividend to every citizen regardless of their financial status; it is community-funded insurance against hardship and vulnerability.
Many Australians already know that. Governments just need to convince a few more.
