Alan Kohler: A plan for the new welfare state

On Tuesday night this week, in the Readings bookstore in St Kilda, Bill Kelty launched a new book about welfare, called Safety Net: The Future of Welfare in Australia.

It was written by Daniel Mulino, the Labor member for Fraser, a federal electorate in Melbourne’s western suburbs, and now chair of the House of Representatives economics committee.

Kelty said it may be one of the most interesting things to come out of COVID-19 lockdown, and will prove to be a source book for social democrats around the world.

And there is no doubt this is an important book, written by one of the more interesting politicians in Parliament: The 52-year-old Mulino was born in Italy and has served at all three levels of government – as councillor and deputy mayor of the City of Casey, an MP in the Victorian upper house and now the House of Representatives in Canberra.

His thesis is that welfare in Australia needs to be reformed, and he proposes five strategies for a “new welfare state”.

mulinoEssentially, he says it should be seen more as insurance, echoing the pithy quote attributed to American economist Paul Krugman: “America is basically an insurance company with an army.”

Mulino notes that since the end of World War I, the welfare state has grown from 2 per cent of GDP and a tiny fraction of government spending across the OECD to more than half of all government spending and about a quarter of the entire economy.

I checked the 1919-20 Australian federal budget in the archives, delivered in October 1919 by the Honourable Alexander Poynton for the Treasurer William Watt (who may have been sick – he was in poor health at the time).

In 1918-19, spending on invalid and old-age pensions and maternity allowances, the only two welfare items in the budget, totalled £4.5 million out of total expenditure of £44.3 million. That’s 10 per cent, but Mulino was talking about the OECD, across which welfare spending must have been a tinier fraction of the total.

I also checked the budget of 50 years ago, the last one brought down by Billy Snedden, and delivered four months before Gough Whitlam swept the Coalition from power in December 1972.

Welfare spending in 1971-72 totalled $2.15 billion in two separate accounts – health and welfare and “cash transfers to persons”. That was 23.6 per cent of total spending of $9.1 billion.

This year it’s 50.8 per cent of the budget. Over those 50 years, welfare spending has grown at 10 per cent a year, compound – faster than just about anything else you’d could name. In another couple of decades, it will consume the budget.

Mulino says the taxes required to fund the welfare state continue to grow as a share of the economy and the budget because of three factors: First, an ageing demographic; second, the fact that the growth rate in the costs of health care, aged care and many other government services exceeds economy-wide inflation; and third, the welfare state is expanding in areas such as disability and aged care.

A reformed, more efficient system

What’s to be done? Well, Mulino does not suggest higher taxes; he describes tax reform as a zero-sum game.

Instead, he proposes a reformed, more efficient welfare state.

“We already expect private sector IT platforms on our phones to provide individualised instantaneous high-quality services. Even though the public sector often provides more complex services than a meal or a trip in a car, the public sector will need to move towards this model.”

He suggests a wide application of the NDIS model of delivering welfare, where the individual gets the money, to spend how they wish.
“Reform should be framed around empowering beneficiaries to control what goods and services they receive and how. This will provide people with more autonomy and dignity, and ensure that scarce resources are directed towards what beneficiaries desire most.”

Mulino doesn’t deal with the blowout in the cost of the NDIS, except to assert, in a note to me, that it will better “after Labor has fixed it!”

Here is a summary of his five strategies for a new welfare state:

  1. Long-term outcomes. A greater emphasis on risk management is the best way to achieve better long-term outcomes for the people with the most chronic and complex needs
  2. Individual needs. An insurance approach will improve the extent to which government interventions reflect individuals’ needs. Focusing on individualised outcomes could also reduce inefficiency associated with siloed service delivery to the same person
  3. Individual preferences. Governments should establish markets and other institutions that can better reflect varying preferences
  4. Incentives. A greater emphasis on risk management will create powerful incentives to reduce risk in the most cost-effective manner
  5. Sustainability. A risk-management approach is critical to accurately measure and appropriately respond to long-term challenges to sustainability.

What comes out of the book most of all, apart from this idea of using a risk-management or insurance approach to welfare, is that it should be focused on the people getting it, not the governments providing it.

The overwhelming sense about welfare that you hear from anyone who has to tackle the bureaucracy that’s created to dish out the cash is of a deep reluctance to hand it over; they make it as hard and as de-humanising as possible.

Some insurance companies are like that, but the best, most successful ones make claims easy.

As Bill Kelty wrote in his foreword to the book: “Daniel Mulino makes out the case for welfare, not as an act of charity but as an investment.

“(His) work challenges the orthodoxy of the free-marketeers but also the Left believers in the theory of the magic pudding or the call to arms for class warfare.”

Alan Kohler writes twice a week for The New Daily. He is also editor in chief of Eureka Report and finance presenter on ABC News

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