Early intervention can kill welfare dependence

A more effective welfare management: the New Zealand experiment

Australia should look across the Tasman Sea for an innovative approach to deal with high youth unemployment levels.

The ratio of young Australians not in employment, education or training has substantially increased since the GFC. Currently 360,000 young people aged 15–24 are outside the workforce and full-time studies — a 25% hike since 2008 — and potentially on the route to a lifetime welfare dependence trap.

In 2012 New Zealand implemented a series of welfare reforms, including the introduction of an investment approach for the long-term management of its income support system. Through this new approach, actuarial valuation is used to determine the most effective forms of support to empower welfare recipients for a successful transition from welfare dependence to the workforce.

This is a win-win outcome for both government and jobseekers, with the disadvantaged youth prominently featuring in the program. In New Zealand, more than 70% of the total costs have gone to people who first received a benefit before reaching the age of 20.

The process is intelligently simple. Public money and services are targeted where the return in future savings on welfare spending is the greatest — that is to say, where the taxpayer dollar has the highest impact in assisting those in the welfare-to-the-workforce transition.

Further, in order to provide more flexibility with the use of welfare funds, a multi-category appropriation (MCA) was introduced in 2014, allowing the government to relocate resources where they can be most effective.

Since its implementation, the estimated the total lifetime costs of the New Zealand’s welfare system have already reduced from NZ$86.8 billion in 2012 to NZ$69.0 billion in 2014. Out of this total reduction, NZ$4.0 billion was claimed to be directly linked to initially targeted welfare interventions that promoted a higher than expected number of welfare recipients going off benefits, as well as a lower number of new recipients coming on.

A similar approach should be implemented to assist at-risk young Australians. International evidence shows that effective welfare assistance for some disadvantaged groups at risk of long-term income support reliance can require a considerable amount of public resources. Hence, an actuarial approach could assist to make the case for these targeted transition-to-work programs as sound investment decisions with effective intervention in early career stages. This could benefit struggling disadvantaged youth at risk of lifetime welfare dependence, provided they receive appropriate resources to become fully integrated back into society.

The Australian government is expected soon to respond to the 2015 McClure Report on welfare reform which strongly advocates for the implementation of a similar actuarial methodology. In its own words,  an “investment approach would provide necessary support to those who are at significant risk of long term income support reliance and have capacity for self-reliance through work with the right support and intervention.”

In a strong sign of commitment, the 2015-16 Federal Budget already provides funding over the next four years to develop an actuarial valuation of Australia’s welfare system, including data collection from longitudinal surveys.

Let’s hope the new leadership in Canberra heed the winds of change from our Tasman neighbour. It is time for a more rational, evidence-based support system that successfully lifts the chances of our disadvantaged youth escaping a lifetime of welfare dependence. For this to happen, the investment approach of welfare spending should be fully implemented in Australia.

Dr Patrick Carvalho is a Research Fellow at the Centre for Independent Studies and author of the research report Youth Unemployment in Australia, published this week.