A New System for Better Employment and Social Outcomes: Final Report
A New System for Better Employment and Social Outcomes
Report of the Reference Group on Welfare Reform to the Minister for Social Services
FINAL REPORT
February 2015
ISBN number: 978-1-925007-78-7
© Commonwealth of Australia 2015
With the exception of the Commonwealth Coat of Arms and where otherwise noted all material presented in this document is provided under a Creative Commons Attribution 3.0 Australia licence. The details of the relevant licence conditions are available on the Creative Commons website (accessible using the links provided) as is the full legal code for the CC BY 3.0 AU licence. The document must be attributed as the Department of Social Services A New System for Better Employment and Social Outcomes - Interim Report of the Reference Group on Welfare Reform to the Minister for Social Services.
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Table of Contents
Introduction
Executive Summary
Consolidated List of Recommendations
Pillar One: Simpler and Sustainable Income Support System
Pillar Two: Strengthening individual and family capability
Pillar Three: Engaging with Employers
Pillar Four: Building Community Capacity
Case for Reform
Introduction
Towards a simpler system that rewards work
Complexity
Payment Rates, Means Testing and Marginal Tax Rates
Payment Duration and Transitions
System Coherence
Problems Caused by Inconsistency in Indexation
Singles and Couples
Characteristics of People on Newstart
Assistance with Housing
Benefits of Work
Intergenerational Benefits
Community Benefits
Activation Works
Expectations and Attitudes
Meeting Future Economic and Social Challenges
Changes in Industry Composition of Employment
Changes in Skill Levels
Changes in Labour Force Participation Rates
Entrepreneurship
Wanting to Work More Hours
Labour Mobility
Current Job Vacancies
Future Employment Opportunities
Sustainability
Social Sustainability
Fiscal and Economic Sustainability
Transitions
Life Course Transitions
Work Transitions
Risk Factors
The Reform Agenda
Pillar One: Simpler and Sustainable Income Support System
Introduction
Employment Focus
Complexity
Adequacy
Means Testing and Marginal Tax Rates
System Coherence
Housing Assistance
A New Payment Architecture
An Integrated System
Design Objectives
Five Primary Payments
Previous Reviews
Payments Reflecting Need and Capacity to Work
Tiered Working Age Payment
Three Tiers
Supported Living Pension
Child and Youth Payment
A Simpler Structure for Family Payments
Costs of Children
Income Support Packages for Parents
Childcare
Age of Independence
Carer Payment
Age Pension
Recommendations
Supplements and Concessions
Supplements
Concessions
Recommendations
Adequacy
Payment Rates
Balancing Adequacy and Work Incentives
Adjusting Payments
Twin tracked Approach to Adjustments
Periodic Review of Community Living Standards
Automatic Cost of Living Adjustment
Recommendations
Making Work Pay
Passport to Work
Coherent Withdrawal Rates
Targeting Assistance to Need
Recommendations
Housing Assistance
Recommendations
Transitioning to the New Structure
No Reduction in Payment
Impact on Different Groups
Implementation
Recommendations
Pillar Two: Strengthening individual and family capability
Introduction
People Living a Life They Value
Strengthening Individual and Family Capability
Mainstream Services
Building Capability for Work
Financial Capability
Family Support
Mental Health Services
Housing
Recommendations
An Investment Approach
Assessing Risk
Flexible Funding
An Australian Investment Approach
An Australian Investment Approach
Recommendations
Mutual Obligation
Economic
Responsibility to Work
Work for the Dole
Social
Pillar Three: Engaging with Employers
Introduction
Where are the Jobs
Changing Labour Market
Employment by Industry
Growing Industries
Employment Growth by Skill Level
Top Occupations by Skill Level
Employment Growth by Region and Labour Mobility
G20 Employment Plans
Recommendation
Role of Employers
Business Case for Diversity
Employer Attitudes
Employment Models
Better Support for Employers
What Employers Want
Better Jobs and Skills Matching
Employment Services and a New Income Support System
Assistance for Employers
Recommendations
Jobs Plan
Context
Jobs Plan – People with Disability and Mental Health Conditions
Recommendations
Pillar Four: Building Community Capacity
Introduction
Role of Civil Society
Partnerships
Philanthropy
Social Purpose Capital Market
Impact Investing and Social Impact Bonds
Social Enterprises
Volunteering
Recommendations
Role of Business
Corporate Social Responsibility
Large Businesses
Small to Medium Enterprises
Micro Businesses
Microfinance
Social Businesses
Mutuals and Co operatives
Recommendations
Role of Government
Recommendations
Role of Technology
Civil Society
Business
Government
Recommendations
List of Appendices
Appendix A: Reference Group Members
Appendix B: List of Public Submissions to the Reference Group
Appendix C: Summary of Public Submissions to the Reference Group
Appendix D: Summary of Online Comments to the Reference Group
Appendix E: List of Stakeholders who attended Roundtables
Appendix F: Summary of Main Themes from Stakeholder Roundtables
Appendix G: Summary of Main Themes from Customer Roundtables
Appendix H: Transitions Across the Life Course
Appendix I: Australian Government Expenditure on Income Support and Selected Elements of Australia’s Social Support System
Appendix J: References
Introduction
About the Review
In December 2013, the Minister for Social Services, the Hon. Kevin Andrews MP, commissioned a review of the welfare system.
The purpose is to identify improvements to ensure the system is sustainable, effective and coherent, and encourages people to work. The Minister appointed an independent Reference Group to lead the review.
The Reference Group has considered the broad range of payments and services that are available for people of working age and considered whether they support people to participate in work to their capacity.
While the focus was on payments for working age people, the Reference Group considered issues that affect all payments, such as indexation. The Reference Group also considered how possible changes to payments that are within scope may impact on other payments.
The Reference Group’s work was informed by an analysis of the evidence base including: expenditure; types of payments and who receives them; expectations of and services for people receiving payments; influencing factors and trends; information available from a range of current and previous reviews and reforms, including recent overseas reforms.
The Reference Group tested this initial work, which was presented in its Interim Report, through extensive discussions with selected stakeholders and public submissions to help inform development of its Final Report.
During consultations, stakeholders and income support recipients generously provided the Reference Group with their time and feedback. These contributions had a profound impact on the development of the Final Report. The Reference Group is very grateful for the time and assistance provided by stakeholders and income support recipients during the consultation process.
Reference Group on Welfare Reform
Mr Patrick McClure AO chaired the Reference Group on Welfare Reform. The other members were Mr Wesley Aird and Ms Sally Sinclair. Brief biographical details are at Appendix A.
The Reference Group was supported by a Taskforce in the Department of Social Services in preparing this report.
Guiding Principles for the Review
The Reference Group was asked to advise on how Australia’s welfare system can:
- provide incentives to work for those who are able to work
- adequately support those who are genuinely not able to work
- support social and economic participation through measures that build individual and family capability
- be affordable and sustainable both now and in the future and across economic cycles
- be easy to access and understand, and able to be delivered efficiently and effectively.
Core Values for Reform
A new social support system has been developed to enable people to live a life they value through accessing a system characterised by the core values of:
- Participation—supporting people to participate both economically and socially and to engage with employers, and the wider community.
- Capability—building capability through skills and training so that people may reach their full capacity.
- Respect—treating all Australians with respect and dignity while acknowledging their diversity, individual challenges and aspirations.
- Fairness—providing equity across the welfare system which requires that people in similar circumstances are treated similarly and everyone can easily access payments they are entitled to.
- Adequacy—providing income support recipients with sufficient support to ensure a basic standard of living in line with community standards.
This would be delivered by a new flexible social support system that is simpler, sustainable, coherent and outcomes focused, with investments directed towards achieving clear, measurable improvements for people at risk of income support reliance, underpinned by a rigorous and transparent monitoring and evaluation framework.
Review Consultation Process
The Minister for Social Services, the Hon. Kevin Andrews MP, released the Reference Group’s Interim Report on 29 June 2014 to encourage public debate and discussion and to engage extensively with the public in order to develop its Final Report.
The Reference Group undertook a six week period of public consultation which included a call for public submissions and comments and the hosting of roundtables with key stakeholders in capital cities to discuss the future directions and questions identified in the Interim Report.
The Reference Group received a total of 271 public submissions from individuals and organisations. Where permission was given by the authors of the submissions, individual author names have been listed at Appendix B. The Reference Group also received a total of 231 public comments (of up to 500 words) from individuals.
A summary of the public submissions and comments received are provided at Appendix C and Appendix D respectively.
Thirteen roundtables were held in all capital cities and Cairns during July and August 2014 with a total of 175 representatives from key stakeholder organisations attending. The names of those organisations who attended roundtables in each location are listed at Appendix E. A consolidated summary of the major themes and issues that emerged from these stakeholder roundtables is provided at Appendix F.
Five individual customer roundtables were also held with more than 50 income support payment customers in Brisbane, Sydney and Melbourne during August 2014. The five customer groups were: sole parents; jobseekers; carers; students; and people with a disability.
A consolidated summary of the major themes and issues that emerged from these customer roundtables is provided at Appendix G.
Interaction with Other Reviews
Other reviews that may have implications for areas of the social support system that the Reference Group has noted are:
- The National Mental Health Commission’s Review of Existing Mental Health Services and Programmes
- The Productivity Commission’s inquiry into Childcare and Early Childhood Learning
- The Review of Employment Services beyond 2015
- The Review of Indigenous Training and Employment Programmes
- The Tax Review White Paper
- The Vocational Education and Training (VET) Reform process
- The White Paper on the Reform of the Federation.
The Reference Group is mindful of these other reviews and that a number of them have yet to make their final reports public and that these have yet to be responded to by the Australian Government.
The focus of the Reference Group’s Final Report and its recommendations is on the longer-term future directions of the social support system, with the primary goal to maximise employment and social outcomes.
Executive Summary
Australia’s social support system needs major reform to deliver better outcomes for all Australians now and in the future.
Changes to the system over time have led to unintended complexities, inconsistencies and incoherencies. They have created disincentives for some people to work.
The system is out of step with today’s labour market realities and community expectations.
It is failing to identify groups at risk of long-term income support dependence and needs to refocus on early intervention and supporting individuals through difficult transitions.
Without reform, the fiscal, economic and social sustainability of the system will be compromised.
A new social support system is needed to improve employment and social outcomes. The current system is complex and does not support everyone, who is able, to work and be self-reliant.
An integrated approach is necessary which consists of four pillars of reform:
- Simpler and sustainable income support system
- Strengthening individual and family capability
- Engaging with employers
- Building community capacity
Case for Reform – Towards a Simpler System that Supports Work
A much greater focus on employment is needed.
People who can work should work to their capacity and rates of payment should reflect different capacities to work and support a transition to work.
People with very limited capacity to work should receive a payment that reflects that they are likely to be receiving income support indefinitely with little capacity to supplement payments through work.
Complexity
There are currently around 20 income support payment types and 55 supplementary payments.
The many payments and supplements have resulted in a system that is difficult to understand, navigate and administer. Existing means testing arrangements add to this complexity and result in a system that is confusing for income support recipients. This complexity leaves recipients unsure about the potential rewards from work.
These failings reduce the effectiveness of the system and can also undermine community confidence in the fairness of the system.
The current system does not work well for people with mental health conditions, which are often episodic. It also fails to differentiate effectively between permanent and temporary incapacity when assessing eligibility, rates of payment and associated services offered by the social support system.
Multiple payments and inconsistent rules around payments for dependent children and young people create further complexity.
Altogether, the income support system does not provide clear rewards for work and should be simplified.
System Coherence
The effect of different indexation measures, changing priorities and ad hoc policy responses have led, over time, to a ‘patchwork quilt’ income support system that is inequitable and lacks coherence.
People with similar basic living costs and similar capacities to work may receive very different levels of financial support, and have different participation requirements.
These differences significantly reduce the effectiveness of the system and lead to incentives for people to try and qualify for higher income support payments, rather than building their capacity and aiming for greater self-reliance through employment.
For example, pensions and allowances are indexed differently, which has created a widening gap between the two:
- allowances are indexed twice a year to the Consumer Price Index
- family Payments are indexed once a year to the Consumer Price Index
- pensions are indexed twice a year to whichever is higher—the Pensioner and Beneficiary Living Cost Index or the Consumer Price Index
- pension rates are also benchmarked to Male Total Average Weekly Earnings.
Adjusting income support payments to ensure they increase in line with broader changes in community living standards is not a simple issue and there are no easy solutions.
Benefits of Work
There are many benefits of work. Most people gain health benefits associated with employment, both physical and mental. Work can be a vital part of recovery for people with mental health conditions. Intergenerational benefits of work accrue as children who grow up in employed households have better social, emotional, physical development and learning outcomes. The community also benefits. Increased employment supports economic growth, minimises the cost of income support payments and increases the amount of tax paid.
Some people receiving income support have little or no requirements to participate in employment and tend not to access employment services. There is scope to improve employment and social outcomes for many people in these groups by reviewing their capacity, to encourage and require greater participation in education, training, work or other work preparation activities.
Meeting Future Economic and Social Challenges
The social support system should be re-designed to ensure it is responsive to the future economic and social challenges Australia faces.
The Australian economy has undergone major structural changes in recent decades.
As this restructuring continues, the nature and availability of jobs across the country and the skills required for these jobs will change. At the same time, the demographic challenges of the ageing of the population will continue as the ratio of the working age population to the over 65 age group declines.
These changes include:
- major changes within and across industries
- increasing skill levels
- an ageing population
- much higher participation among women and older Australians
- increases in the part-time and casual workforces.
Sustainability
For the social support system to be sustainable, it should be:
- Socially sustainable—building broad community acceptance and support, and reflecting community values and expectations. There is a need to ensure that the system is fair and seen to be fair across current and future generations.
- Fiscally and economically sustainable—despite Australia having one of the most targeted income support systems in the OECD, it is still important to ensure costs are constrained in the context of an ageing population and anticipated increases in government expenditure in health, age related pensions and aged care. There is also an opportunity to contribute to economic growth through greater levels of participation and improved labour force productivity.
Transitions
The success with which people make transitions during their life is a major determinant of their long term wellbeing.