No 44: In it together: why receiving benefits is far more common than we think

Australian data debunk the myth of welfare takers
People crossing the Bridge over Darling Harbour, Sydney, Australia. (Alex Proimos/Wikimedia Commons)

by Peter Whiteford

In January 2019 the Australian shadow spokesperson for employment services announced that the Australian Labor Party would reduce the number of job applications that unemployed people receiving benefits were required to make (twenty per month), as part of any future reform of Australia’s privatised job services.

Of the proposed change, Tony Abbott — one of Australia’s former Prime Ministers wrote on Twitter — “People on unemployment benefits are supposed to be looking for work. Applying for one job a day is hardly unreasonable. These proposed changes show Labor is now the welfare class party not the working class one.”

This rhetoric — the “welfare class party” versus the “working class party” — expresses a commonly applied dichotomy in Britain as well as Australia. People receiving social security payments are sometimes portrayed as a poorly behaved or even a fraudulent minority. Critics who espouse this belief see the receipt of benefit income as a failure of individual character.

In “Good Times, Bad Times: The Welfare Myth of Them and Us”, John Hills pointed to the British characterisation of “strivers” versus “skivers”, the deserving and the undeserving. This expression has been paralleled in Australia by one of the country’s former Treasurers, who defended the first Budget of the Abbott government against critical analysis of its regressive distributional effects, stating, “We must reward the lifters and discourage the leaners”. Similarly, in the 2012 US presidential election, both the Republican Presidential and Vice Presidential candidates referred to “makers and “takers” — those who paid income tax and those receiving benefits.

John Hills and others have challenged this for the UK. But what about for Australia? In fact, the evidence shows that people of working age who are “welfare dependent” for long periods are only a tiny percentage of Australians, while many middle-income individuals face risks of large income drops. These are particularly associated with health events but also with changes in employment and family status. The welfare state touches the lives of many more Australians than is commonly thought.

How the ‘piggy bank’ spreads income across the lifecycle

Australia relies more heavily on income-testing and directs a higher share of benefits to lower-income groups than any other OECD country. More than 80 per cent of cash benefits are received by the poorest half of the population. In New Zealand, this figure is 78 per cent and 73 per cent in the UK, compared to an average for OECD countries of 55 per cent (and less for the United States).

Does this mean that Australians are more likely to classify welfare recipients as “them” relative to “us” taxpayers? After all, the system is heavily targeted towards those with lower incomes. But in fact, Australia, like the UK, is more focused on what Barr called the “piggy bank” objective.

In the piggy bank the role of social security is to provide insurance in the face of adverse risks (unemployment, disability, sickness) and to redistribute across the lifecycle, either to periods when individuals have greater needs (for example, when the household has children) or have lower incomes (such as in retirement). This is apparent when we look at the redistribution across the life-course.

Falkingham and Harding compared Australia and Britain, estimating that in the mid-1980s in Australia, 38 per cent of lifetime benefits, on average, were financed through taxes paid at another stage in the lifecycle, with 62 per cent of lifetime benefits involving redistribution between rich and poor. In Britain, these exact shares were reversed. If we also take account of non-cash benefits — health and aged care in particular — then redistribution across the lifecycle becomes even more pronounced in both countries.

Using social insurance to mitigate risks for all

Just as Australia and the United Kingdom are usually classified as “liberal” welfare states, their labour market institutions are often seen as “flexible”, marked by relatively low levels of employment protection and high levels of changes in labour market status. High levels of labour market flows expose workers to risks of periods without earnings, but they are not the only risks to income security.   

Australian longitudinal data have been available from the Household Income and Labour Dynamics in Australia (HILDA) survey since 2001. What these data show is that all social and economic risks are more common than usually thought, but all problems are less intense than usually thought.

HILDA shows that large numbers of people either ascend or descend the income ladder. People rise up the income distribution when they finish studies and get jobs, when promoted at work, when they marry or because their children leave home. They fall down the income distribution when they retire or become unemployed, become sick or disabled or separate from partners, or because they have children.Crossing the Bridge over Darling Harbour

Various waves of HILDA show that illness and disability are particularly common. Around 40 per cent of the Australian population experience a serious personal injury or illness each year over a ten year period, and nearly 70 per cent of men and 64 per cent of women experience serious injury or illness to a close relative or family member over a ten year period

Over 9 years, 22 per cent of men and 16 per cent of women were dismissed from their job. For people aged under 25 at the survey’s start, 30 per cent were dismissed from their job over a nine-year period.

As a result of these risks, between 2001 and 2010, only 2.2 per cent of the Australian population stayed at exactly the same percentile of the income distribution.

Income-testing makes benefit receipt responsive to income changes that follow the experience of these risks. According to the latest HILDA survey, around 70 per cent of working-age households include someone who received an income support payment at some point between 2001 and 2015. This does not include Age Pensions or any family payments. Moreover, there are very likely to be even more households of the parents, children, brothers or sisters of those who received income support not counted in this group.

Over time, risks become both more common and less intense. The image of people “stuck” on welfare applies only to a tiny minority. Between 2001 and 2010, the proportion of working-age Australians who received 90 per cent or more of their income from benefits (not including family payments) for the entire nine years was 1.2 per cent.

The position for young people is even more striking. Eighty per cent of people under 25 in 2001 received income support at some time between 2001 and 2011, but only 0.3 per cent of these received 90 per cent of their income from welfare for all eleven years.

The prevalence of risks means that even in Australia with the most targeted benefit system in the OECD, the social security system is not “residual”, but is among the core institutions of contemporary society, and is one of the main levers not just of social policy but also of economic policy in dealing with risks. The evidence is overwhelming that Australian welfare, like the British welfare state, is not simply a matter of “them” versus “us”. We are all in it together.

Peter Whiteford is a Professor in the Crawford School of Public Policy at the Australian National University and a Visiting Fellow at the Institute for Policy Research at the University of Bath. He tweets at @WhitefordPeter.

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