Retrenching or renovating the Australian welfare state: the paradox of the Howard government's neo-liberalism


Philip Mendes, Department of Social Work, Monash University, 51 Argyle Road, Kew, Victoria 3101, Australia


Most conventional studies of the former Australian Liberal–National Coalition government refer to its neo-liberal ideological agenda: its concern to reduce government interference with free market outcomes by restricting access to social security payments. That analysis suggests a substantial retrenchment of the Australian welfare state based on redirecting responsibility for the disadvantaged from government to corporations, private individuals and families. Yet there is increasing evidence from reliable sources that the government has not reduced social expenditure, and that increasing resources have been directed, particularly via the family payments system, towards some disadvantaged groups such as low-income families and the aged. Utilising the theory of the US political scientist Paul Pierson, this article explores the joint paradox of Australian neo-liberalism: the punitive treatment of some disadvantaged groups such as the disabled and lone parents versus the generosity towards other groups and, more generally, the growth rather than decline in social expenditure. The author asks what this paradox tells us about the likely future of the welfare state in Australia and elsewhere.


Over the past three decades there have been numerous reports of a welfare state crisis in advanced welfare states. These reports have in part reflected perceptions that welfare spending was out of control and hence economically unsustainable (cited in Castles, 2004: 1–3). But they have also incorporated the assumption that the political attack by neo-liberal governments on the welfare state in the USA, UK and elsewhere has resulted in substantial welfare retrenchment. However, Paul Pierson's research in the mid 1990s suggested that this was not the case. Pierson used a combination of qualitative data on expenditures and qualitative analysis of welfare state reforms to compare the extent of welfare retrenchment in the UK, the USA, Germany, and Sweden. His emphasis was on reforms that indicated structural shifts in the welfare state such as significant increases in reliance on means-tested benefits, major transfers of responsibility to the private sector, and dramatic changes in benefit and eligibility rules that signal a qualitative reform of a particular programme. On the basis of his findings, Pierson argued that the welfare state was not in crisis and that there was little evidence of major social expenditure cuts. He suggested that the resilient welfare state had created major interest group support networks based on welfare provider and welfare consumer groups, which acted as barriers to substantial retrenchment (Pierson, 1994, 1996).

The debate about the extent of retrenchment has more recently been overshadowed by the contest over globalisation. One perspective, known as the ‘hyperglobalist thesis’ (Held et al., 1999: 3–4), views globalisation as systematically transferring power from national governments to uncontrollable market forces and new economic actors, such as transnational corporations, international banks and other financial institutions. Consequently, globalisation leads inevitably to the decline of the welfare state through the vetoing by international financial markets of initiatives towards greater social expenditure and full employment. However, this perspective arguably ignores the continued impact of national political and ideological pressures and lobby groups on policy outcomes. It also fails to acknowledge the significant existing and continuing differences between welfare states which, in turn, reflect differing national economic and social systems (Swank, 2002; Timonen, 2003: 47–49).

A second perspective, which may be called the ‘sceptical thesis’ (Held et al., 1999: 5–7), holds that globalisation has relatively little impact on welfare states. Welfare state retrenchment primarily reflects domestic political and ideological influences rather than globalisation pressures. However, this perspective arguably neglects the significant political and ideological influence of globalisation and global policy actors on domestic policy debates (Palier & Sykes, 2001: 7–8).

A third perspective, which may be called the ‘mediation thesis’ (Palier & Sykes, 2001: 5–8), acknowledges that globalisation is impacting on welfare states, but argues that the impact varies from country to country and, in turn, is mediated by specific national factors such as political and ideological pressures and the impact of lobby groups. The influence of globalisation on welfare spending appears to be determined, at least in part, by internal political choices as much as by externally imposed economic imperatives (Castles, 2004: 21–46; Yeates, 2001: 142–147).

In response, a number of commentators (mainly influenced by the mediation thesis) have reaffirmed the essential soundness of Pierson's earlier thesis. They argue that there is no empirical evidence of universal welfare retrenchment, that levels of welfare spending reflect considerable national divergence and autonomy and that, if anything, most welfare states are continuing to grow at a steady space (Castles, 2004, 2007; Starke, 2006).

Nevertheless, expenditure patterns are arguably not the only criteria to be considered. It would be useful to investigate the extent to which governments are continuing to take responsibility for maintaining minimum standards and reducing poverty and inequality (Mishra, 1990: 32–43). Some authors (e.g. Castles, 2004: 47–72) argue that there is no evidence of any significant change in the structure of welfare provision in most advanced welfare states. Redistributive welfare states have not suddenly become residual, or vice versa. But at the same time, there is evidence that many governments are acting to change the values and rules underpinning welfare assistance (Mishra, 1999). In particular, there is an international pattern of increasing conditionality of welfare payments. The harsher rules in the USA concerning time limits on payments for single mothers and the denial of benefits to unmarried teenage mothers are well known. But the UK, New Zealand, and a number of European countries have also introduced sanctions to persuade jobseekers to comply with their labour market obligations (Considine, 2001).

This brings us to the question of Australia. Australia has traditionally been described as a liberal or wage earners welfare state, based on selective, residual benefits and market provision of services with only a limited guarantee of social rights independent of the labour market. Nevertheless, the Australian welfare state has arguably been effective, via measures such as progressive taxation and the targeting of expenditure to the poorest groups, in alleviating poverty and income inequality (Whiteford, 2006: 46). However, it has been argued that residual states are more susceptible to retrenchment measures in that their institutional structures are less able to resist economic and political pressures (Swank, 2002).

In early 1996, the Liberal–National Coalition government led by John Howard was elected to power. By 2007, the Howard government had won four elections in a row, and was committed to a neo-liberal ideological agenda based on reducing social expenditure, and redirecting responsibility for the provision of welfare services to the disadvantaged from government to business, non-government charities and community service providers, private individuals and families. There is evidence from critical policy research that the government significantly transformed the welfare landscape in a retrogressive direction (Bigby & Files, 2003; McDonald & Marston, 2005; McDonald, Marston & Buckley, 2003; Marston & McDonald, 2003; Meagher & Healy, 2003; Mulgan, 2003). Using Pierson's (1994, 1996) analytical framework, we show that the government substantially reshaped the structures of income support for poor and disadvantaged people in Australian society. Yet, paradoxically, there is little evidence of reduced social expenditure by the Howard government. If anything, social spending – particularly via the family payments system – had increased, and this had resulted in improved outcomes for many low-income groups. This finding seems to confirm Pierson's earlier thesis that even neo-liberal governments find it difficult to retrench the welfare state. However, we also need to consider the evidence of a more punitive approach to some extremely disadvantaged groups as reflected in the recent harsh initiatives concerning low-income workers and new applicants for the Disability Support Pension and Parenting Payment. We explore the complexity of this paradox and its possible implications for the future of the welfare state in Australia and elsewhere.

The neo-liberal attack on the Australian welfare state

The Howard government's welfare retrenchment policies are best discussed within a five-part framework, as detailed below, which reflects the broader neo-liberal critique of the welfare state.

I: The capture of the welfare state by interest groups

According to public choice theory, self-interested lobby groups capture the welfare state in order to manipulate the redistributive process to their own advantage. These producers of welfare services (it is argued) have a vested interest in maintaining and expanding welfare programmes that have little to do with assisting disadvantaged consumers or alleviating poverty and far more to do with enriching themselves. Hence, they should be excluded as far as possible from public policy debates (Bennett & Di Lorenzo, 1985: 6, 182). Accordingly, the Howard government de-funded a number of welfare advocacy groups, such as the Australian Youth Policy and Action Coalition and National Shelter, and sought to limit the access and influence of other interest groups, such as the peak community welfare body – the Australian Council of Social Service (ACOSS) – which were in receipt of government funding (Maddison, Denniss & Hamilton, 2004). For example, the government issued a statement in August 1999 requesting that funded bodies work collaboratively with the Department of Family and Community Services and provide early warning for all controversial issues planned for media coverage that might attract public comment. This request appeared designed to muzzle funded bodies by reducing them to agents of government rather than autonomous vehicles for community participation in policy development and decision making (Moore, 1999).

Further, the Treasurer, Peter Costello, released a draft Charities Bill that threatened to remove tax exemptions and concessions from organisations whose purpose was deemed to be ‘attempting to change the law or government policy’ if such action were ‘more than ancillary or incidental to their core purpose’ (Costello, 2003). The Bill, which was clearly influenced by public choice assumptions, appeared to be aimed at silencing charities, such as the Brotherhood of St Laurence and St Vincent De Paul Society, which provide direct welfare services and advocate for changes in government policy (ACOSS, 2003). The Treasurer had announced an indefinite deferral of the Bill, but charities remained concerned that the existing law might be used by the government to silence groups that were critical of government policy.

In an associated development, the Howard government funded the neo-liberal think tank, the Institute of Public Affairs (IPA), to audit non-government organisations, including ACOSS, regarding their relationship with government departments (Shanahan, 2003a). This audit provoked some concern given that the IPA was driven by public choice assumptions, and had a long-standing animus against both the welfare state and welfare lobby groups (Mendes, 2003). The IPA report recommended the introduction of a series of protocols designed to expose the allegedly overbearing influence of non-governmental organisations on government decision-making processes. The Howard government also committed AU$50,000 to develop a new Not-for-Profit Council of Australia, which would act as a single voice for all community groups, not just welfare bodies and charities. Many viewed the proposal – which did not eventuate – as an attempt to marginalise or replace ACOSS as the peak representative of the community welfare sector (Shanahan, 2003b).

II: Labour market deregulation

Neo-liberals argue that laws preserving minimum wages deny the less skilled and more disadvantaged workers access to jobs. They emphasise the need for a more flexible labour market without awards (legally binding conditions of employment) and minimum wages (Butler, 2006). They also insist that minimum wages should remain higher than income support payments in order to give unskilled workers an incentive to seek employment. Hence, it is argued that cuts to wages need to be accompanied by cuts to welfare spending in order to be effective.

In October 2005, the Howard Government introduced their Work Choices framework, which the opposition and trade unions argued was designed to reduce the wages and working conditions of less skilled workers. The framework incorporated a minimum safety net that included annual leave, sick leave, unpaid parental leave and maximum working hours; introduced a national industrial relations system to override state systems; abolished unfair dismissal laws for companies with fewer than 100 employees; limited the rights of trade unions to organise and to bargain on behalf of their members; eliminated the ‘No Disadvantage test’ for measuring individual workplace agreements against collective awards; and established an Australian Fair Pay Commission (AFPC) to set a minimum wage (Abetz, 2005).

At the time of writing, the AFPC was headed by Professor Ian Harper, an economist who has served on the Academic Advisory Council of the neo-liberal think tank, the Centre for Independent Studies. The Howard government argued that the Australian minimum wage was far too high at AU$484 per week (58.8 per cent of full-time median earnings compared with 43.25 per cent in the UK and 32.25 per cent in the USA), and asked the AFPC to focus particularly on labour costs including ‘employment and competitiveness across the economy and the capacity of the unemployed and the low paid to remain in employment’ (Cowling et al., 2006: 226). Conversely, the Howard government made no reference to preserving living standards or promoting fairness. It appears likely that the real minimum wage will fall over time, or at least grow at a considerably slower rate (May, 2005). Nevertheless, the initial decision of the Commission, in October 2006, was to grant a relatively generous increase of 5.6 per cent or AU$27 per week to low-wage workers to compensate for the estimated increase in the Consumer Price Index over the previous 18-month period. However, the second decision, in July 2007, granted a pay increase of only AU$10 a week for minimum-award wage workers – below the rate of inflation.

III: Welfare dependency

According to this concept, government welfare programmes have a ‘perverse’ effect: they produce poverty instead of relieving it. For example, the influential North American political scientist, Charles Murray (1984), argued that by providing automatic support for the disadvantaged, the welfare state undermined individual responsibility and made it profitable for the poor to become dependent on welfare.

Neo-liberals construct welfare recipients as fundamentally different from the rest of the community. Dependence on welfare is interpreted as an addiction not dissimilar to that of helpless dependence on drugs and alcohol or gambling (Harris, 2000: 282). They argue that the state should act to motivate and discipline welfare recipients and reintegrate them with mainstream social values and morality, such as self-reliance and the work ethic. Income security should shift from being a right or entitlement to a privilege. Welfare dependent individuals should be given incentives to choose employment over welfare.

The Howard government introduced a number of measures to eliminate alleged incentives to welfare dependency. Most of these initiatives involved the incremental tightening of access to benefits rather than wholesale changes to entitlement criteria. For example, the government strongly tightened the criteria and level of payments for unemployment benefits by toughening the activity test and associated penalties for non-compliance, reducing rent assistance for single people who share accommodation, extending the liquid assets waiting period, introducing a means-tested common youth allowance, and imposing a 2-year waiting period for new immigrants.

In September 1999, the Howard government announced a review of the welfare system designed to prevent and reduce welfare dependency. The then Minister for Family and Community Services, Senator Jocelyn Newman, argued, in an accompanying discussion paper, that dependency on social security payments had increased from around 10 per cent of workforce-age Australians in 1978 to 18 per cent in 1998, totalling some 2.6 million people. She described ‘long-term welfare dependency’ as having major social and economic consequences, including intergenerational welfare reliance, and called for a shift from long-term welfare support to greater self-reliance so that people could move off welfare more quickly (Newman, 1999). It should be noted that this increased reliance on social security payments was in part a statistical illusion, reflecting a large shift from full-time work to casual and part-time work, increased divorce rates, the introduction of supplementary payments to low-income working families and other changes to eligibility criteria (Disney, 2004: 198).

Other Ministers reiterated these concerns. The then Federal Minister for Employment, Workplace Relations and Small Business, Tony Abbott, argued that the welfare state and welfare agencies encouraged a culture of long-term welfare dependency. Abbott is reported to have said that keeping people on social welfare for an indefinite period is not compassion, it is cruelty masquerading as kindness (cited in Henderson, 1999).

And the then Employment Services Minister, Mal Brough, argued (on the basis of a highly subjective government study) that as many as one in six job seekers were ‘cruisers’ who enjoyed their freedom and were not genuinely interested in seeking work. Brough called them ‘dole bludgers’ who exploited ‘the generosity of the Australian taxpayer to fund their lifestyle choice’, and promised to ‘make them feel a lot less comfortable and far more active’ (Brough, 2002). This rhetoric led to the introduction of tougher measures to punish long-term unemployed people labelled ‘shirkers’ who were, allegedly, deliberately avoiding work (Karvelas, 2005).

The Howard government also consistently raised concern about the increasing number of Australians in receipt of the Disability Support Pension – up from around 300,000 in 1990 to around 700,000 in 2004. Some commentators attributed this increase to liberalised eligibility criteria that expanded beyond solely medical impairment to include job availability, while others argued that it primarily reflected a growth in the number of people with disabilities and limited job opportunities for older males (Parliamentary Library, 2005). Similar concerns were expressed about the sharp rise in the number of single parents receiving parenting payments over the past 20 years totalling, in 2006, approximately 450,000 out of a total population of more than 21 million.

In its 2005 Budget, the Howard government introduced tighter eligibility rules for the Disability Support Pension (DSP) in order to force thousands of recipients with a limited work capacity onto unemployment benefits. From July 2006 onwards, new applicants for DSP were granted the pension only if they were able to work less than 15 hours a week, reduced from 30 hours a week. Those who were ineligible for DSP would instead mainly go onto the Newstart Allowance and be subject to a part-time work test (if they were able to work between 16 and 30 hours a week).

In addition, new applicants for the Parenting Payment (PP) would be transferred to the Newstart Allowance when their youngest child turned six, and become subject to a part-time work test of at least 15 hours per week. Current recipients would stay on PP, but would be required to seek work. The disabled and lone parents affected by the changes faced a major cut in their weekly income given that Newstart would be paid at a lower rate than both DSP and PP (approx. AU$40–50 less per fortnight) with higher withdrawal rates and lower tax rebates, and they would lose pensioner concessions. They would also be forced to comply with mutual obligation requirements, and the government announced, ominously, that charities would be asked to pay the rent and food of single parents who had their payments suspended due to not meeting work requirements so that their children would not suffer (Karvelas, 2006a). Overall, new DSP recipients risked losing up to AU$120 a week, and new PP recipients risked losing up to AU$100 a week when their private earnings reached AU$300 a week (Harding, Ngu Vu & Percival, 2005). These changes would seem to be closely linked to the industrial relations reforms described above, and it was likely that many single parents and disabled claimants would be forced to accept any job available irrespective of the wage being offered. In other words, being employed did not necessarily guarantee a living wage any longer.

IV: Mutual obligation: the deserving versus the undeserving poor

Closely associated with welfare dependency is the notion of mutual obligation. Mutual obligation reflects the influence of the 19th-century English Poor Law distinction between the deserving poor and the undeserving poor. The deserving poor – those who have become briefly dependent on poor relief through no fault of their own and who, with some assistance, could return to independence – are to be cared for. However, the undeserving poor (more recently labelled the underclass), whose poverty results from laziness or moral failure, are to be disciplined.

Neo-liberals, such as American political scientist Lawrence Mead, argue that the permissiveness of the welfare state is the key to understanding the growth in unemployment and welfare dependency. Federal welfare programmes give benefits to their recipients, but do not ask for anything in return. Jobs are available for all those who want them. Low wages, racism and inadequate childcare do not present serious barriers to employment. Many people voluntarily choose not to work for personal and cultural reasons. Mead believes that the welfare state should be based on the concept of ‘new paternalism’, which emphasises contractual duties and obligations as well as needs and rights. People should be offered a combination of ‘help and hassle’ to end the cycle of welfare dependency, and drive them into self-reliance. The principal and mandatory obligation should be to work for welfare benefits (Mead, 1997). Mead's ideas have had a significant impact on the Australian welfare reform process in that payments have increasingly become conditional rather than a right. The philosophy of mutual obligation particularly inspired the introduction of the Work for the Dole (WFD) scheme, which is based on the assumption that the unemployed have an obligation to give something back to society in return for the dole. The scheme does not involve any structured labour market training or education programmes, but rather aims to help the unemployed re-adjust to the routines and demands of the labour market. WFD removes the traditional automatic entitlement to benefits, and instead makes receipt conditional on undertaking prescribed work (ACOSS, 1999). The initial WFD pilot introduced in September 1997 was limited to just 10,000 young jobseekers aged 18–24 years, but over time the scheme expanded to include older unemployed people aged up to 49 years.

Mutual obligation has also been associated with a generally punitive approach to the unemployed, reflected in both policy and rhetoric. One particular example was the introduction of tougher requirements on the unemployed, including the expectation that they seek up to ten jobs each fortnight. Recipients who failed to meet these obligations were increasingly subjected to social security breaches and associated heavy fines. Overall, there was an increase in the number of breaches from 120,000 in 1997–1998 to 346,000 in 2000–2001 – an increase of 187 per cent in 3 years (Commonwealth Ombudsman, 2002). These breaches caused increased demand from low-income people for emergency relief and financial aid services and placed considerable pressure on charities and community welfare agencies. However, following a community campaign led by the Australian Council of Social Service and the National Welfare Rights Network, the Howard government eventually agreed to amend both breaching practices and procedures and the level of fines. The total number of breaches fell to only 112,000 in 2005, less than a third of the earlier peak figure (Centrelink, 2005).

The then Treasurer, Peter Costello, went beyond existing government policy in urging that family payments also be conditional on good behaviour. Specifically, he urged that payments be taken away from undeserving ‘bad parents’, and instead be redirected to those deserving family members who were prepared to promote traditional values, such as support for the work ethic, responsibility for individual behaviour, and respect for authority (Costello, 2005). Similarly, the then Families Minister, Mal Brough, argued (with the apparent support of the Prime Minister) that families who wasted their payments on alcohol and gambling should be forced to set aside a proportion of their benefits for essential items (Karvelas, 2006b). In July 2007, the government announced a plan to quarantine up to half the welfare payments going to parents who were not meeting their responsibilities to their children. The scheme was to be imposed where children were considered to be at risk of neglect, and when children were not enrolled at or regularly attending school. It will apply to all income security payments, but not to family payments.

The most radical application of mutual obligation was in the area of indigenous affairs. In June 2007, the Coalition government announced a national emergency plan for remote indigenous communities to counter an epidemic of child sexual abuse. The plan included a range of measures to tackle alcohol abuse, improve school attendance, reform public housing arrangements and quarantine 50 per cent of all income support and family assistance payments, and was loosely based on a report by Aboriginal campaigner Noel Pearson. That report argued that welfare payments should be conditional and based on meeting the following four obligations: that adults receiving family payments ensure that children maintain a 100 per cent school attendance record; that adults prevent any child abuse or neglect; that adults not be involved in substance abuse, gambling or family violence offences; and that adults adhere to conditions of tenancy in public housing (Brough, 2007; Pearson, 2007: 7–9). Critics expressed concern that these ‘tough love’ measures were being applied to all indigenous parents whether negligent or otherwise, and that applying restrictions to welfare payments on the basis of race may have breached the Racial Discrimination Act (Ring, 2007).

V: Towards private or charitable welfare

A consistent concern of neo-liberals has been to reverse the modern shift to state-guaranteed income security entitlements and instead return the provision (and, if possible, funding) of welfare to families, private charities and churches, i.e. organisations renowned for emphasising the moral rather than structural causes of poverty. For example, groups such as the Charity Organisation Society Movement of the late 19th and early 20th century in the USA eschewed solutions to poverty and inequality based on social action or income redistribution, and instead concentrated on the regeneration of moral character (Wagner, 2000). Similarly, Prime Minister Howard long favoured greater involvement by private charities in the provision of welfare benefits and programmes. Both Howard and the then Treasurer, Peter Costello, particularly admired their emphasis on the personal and moral underpinnings of social problems, their ability to deliver programmes cheaply, and their supposed capacity to promote behavioural change (Costello, 2002; Howard, 2004). Consequently, the Howard government placed charities at the centre of a number of government projects. In combination with the initiatives to promote greater business involvement in welfare funding and provision, these policies suggested an erosion of the traditional responsibilities of the Australian welfare state (Castles, 2001).

The Job Network is the most significant and radical example of privatised welfare. The Network was introduced by the Coalition government in May 1998 to replace the government-run Commonwealth Employment Service (CES). It comprised about 300 commercial and non-profit organisations that successfully competed for the right to provide government-funded employment placement services. The Howard government argued that the Job Network would be more effective than the CES due to greater competition, increased flexibility to respond to individual circumstances, and emphasis on job placement outcomes rather than inputs. However, there appeared to be problems with referrals and registration, and the provision of adequate support for particularly disadvantaged groups (Disney, 2004: 201–203).

A number of the major Job Network providers are religious organisations and Tony Abbott argued that ‘There is something extra about people with faith in their hearts, and the love of God on their lips, that gives them that extra commitment to job seekers’ (Abbott, 2004: 4). However, there was some concern that privatised service delivery relieved government of responsibility for the care of disadvantaged groups, and could contribute to increased inequality (Smyth & Wearing, 2002: 236–238).

The Howard government also strongly urged the business sector to take a more active role in the funding and provision of welfare services. In May 1999, Howard called for a social coalition between business, families, individuals, welfare and charitable organisations, and government to tackle social problems. Specifically, he urged the business sector to increase its contribution to the provision and funding of welfare services. He criticised business for contributing less than 5 per cent of total funds available to the non-government sector, and urged the development of a greater philanthropic tradition in Australia (Howard, 1999). To encourage a higher level of business philanthropy, the Howard government introduced a AU$51 million package of tax concessions for business contributions. It also allocated AU$13.4 million over 4 years for a Business and Community Partnerships initiative designed to strengthen the links between the corporate and community sectors. Some community groups questioned whether the government intended to use increased business donations as an excuse to reduce government spending and thereby to undermine the welfare safety net (Gray, Healy & Crofts, 2003; Raper, 1998).

Evidence regarding social expenditure and poverty

The measures above would suggest that the Australian government under Howard had little interest in using the welfare state to reduce poverty or promote greater equity. And, in fact, a number of government Ministers suggested that poverty was attributable to individual failings rather than to structural inequalities. Nevertheless, the Howard government did not reduce social expenditure and continued to spend about half of its total budget on social services such as welfare, health, and education. Specific spending on social security and welfare rose over the 10 years (between 1995 and 2004) from 35.4 per cent to 42.5 per cent of the federal budget, totalling nearly AU$80 billion per year (Australian Institute of Health and Welfare, 2006). Australia spends about 18 per cent of its gross domestic product (GDP) on social welfare, which places it in the lower to middle ranks of Organisation for Economic Cooperation and Development (OECD) countries (Whiteford, 2006). This sustained spending (see Table 1) has been assisted by the historically low level of unemployment in Australia (4.5 per cent in 2007), which has increased government coffers.

Table 1.  Welfare expenditure (AU$ million).
  1. Source: Australian Institute of Health and Welfare (2006).

Old age18,29827,678
Survivors 1,403 1,942
Incapacity related 9,25913,690
Other social policy areas 6,088 9,358

Research suggests that high-income earners are significantly increasing their share of Australia's wealth at the expense of average- and low-income earners (Australian Institute of Health and Welfare, 2005: 28, 52). However, the Howard government contested this finding, arguing that while the rich were getting richer, the poor (or at least poor families with children) were either maintaining or even improving their relative position. They were able to cite data from the National Centre for Social and Economic Modelling (NATSEM) suggesting that low-income Australians improved their income by between 18 and 22 per cent over the last decade. According to this data, the real disposable income of low-income families grew by an average of AU$87 a week – a rate of growth similar to that of middle-income families (Australian Bureau of Statistics, 2006: 3). Much of the assistance for low-income Australian families seems to be coming from family payments, which increased by over AU$6 billion a year under the Howard government. They constitute the second largest item in welfare spending after aged care. Total spending on assistance to families with children amounted to AU$27 billion, which equals about 3 per cent of Australia's GDP and about 12 per cent of the Federal Budget. This is more than 1.5 times the OECD average (Hill, 2006; Whiteford, 2006).

Three of the key means of assistance are the Family Tax Benefits system, the Maternity Payment and the Childcare Benefit. Family Tax Benefit A is a means-tested payment available to families with a dependent child under 21 or a full-time dependent student between 21 and 24, and is particularly targeted at assisting lower-income families who have secured paid work. In contrast, Family Tax Benefit B is a non-means-tested payment available for single-income families, both to lone parents and to families with one main wage earner with a dependent child under 16 or a full-time dependent student between 21 and 24. This benefit has greatly assisted lone parents, but has also come under some criticism because many millionaire husbands with non-working wives remain eligible. In addition, it appears to reward married women with children who do little or no work and, conversely, penalises, via high average tax rates, mothers who wish to return to work or work longer hours, although the total amount involved is only a maximum of AU$3,000 per year. In addition, the Howard government introduced a baby bonus later renamed the Maternity Payment of AU$3,000 (eventually to increase to AU$5,000) to assist families following the birth of their first child, and a childcare benefit and rebate to subsidise childcare costs (Disney, 2004; Hill, 2006).

The Prime Minister denied that family payments were a form of middle-class welfare, arguing instead that ‘they are tax relief for a universal reality – that it costs money to raise children’ (Howard, 2006). It appears that the Howard government was keen to use these payments to secure the votes of low-income working families as reflected in John Howard's assertion that ‘the Liberal Party has been a better friend of the Australian worker than the Labor Party could ever have dreamt of being’ (Howard, 2005). They also represented an important part of the Howard government's strategy to boost fertility rates in order to offset the demands of Australia's ageing population.

The other major form of social spending is on income support for the aged, which attracts five times more funding than support for the unemployed, at AU$28 billion a year (Australian Institute of Health and Welfare, 2006). The Howard government substantially increased senior concessions and payments, including a major one-off payment in the 2006 Budget. Noticeably, the family payments along with the age pension seemed to retain high public support. In contrast, payments for the unemployed, single parents and the disabled seemed to enjoy less public legitimacy. Single people living on unemployment benefits – totalling 305,000 (1.45 per cent of the population) for those who receive the maximum rate – fell an average of AU$77 a week below the poverty line. The Howard government appeared to be intentionally creating a two-tiered welfare system whereby increasing obligations were placed on the unemployed, disabled and single parents, while at the same time support for families and the aged was strengthened and expanded (Steketee, 2006: 83).

Public opinion clearly influenced the Howard government's willingness to reduce existing entitlements for some groups. Nevertheless, there is some evidence that welfare state networks succeeded in blocking the introduction of even harsher initiatives. For example, the Howard government did not go as far as it would have liked to with the Welfare to Work package, and the final version incorporated some concessions to welfare lobby groups and dissenting Coalition MPs (Schubert, 2005).


This analysis suggests a mixture of findings. On the one hand, the philosophical changes to Australian welfare policy are significant. The Howard government constructed a new public debate around the welfare system and welfare recipients based on narrow notions of individualism and self-reliance. There was no longer any serious discussion about the collective obligation of the state and community to defend the rights of the poor and disadvantaged, or about the specific role of the welfare system in promoting greater equity. Rather, income security payments were increasingly viewed as a means of social control designed to integrate recipients within the frameworks and values of the free market. Cuts to wages and welfare were synchronised with the aim of producing more work and less welfare. The concern of some authors (e.g. Mishra, 1990) that welfare states are shifting away from the provision of minimum social standards seems to be confirmed. On the other hand, the argument of Pierson and others that social expenditure was not decreasing and that the overall welfare state structure had not substantially changed also receives significant support. This is because, paradoxically, a neo-liberal government committed to welfare retrenchment in principle had, in practice, used the family payments system as an effective means of redistributing income to disadvantaged groups. Overall, market-based inequality might have been increasing, but government intervention maintained the real income of many poor Australians.

However, the simultaneous introduction of policy changes in both wages and welfare may have substantially lessened the redistributionist impact of policies introduced by the Howard government. The introduction of Work Choices (which the incoming Australian Labour Party government has promised to abolish during 2008) appears to have reduced the minimum wage, and at the same time the introduction of much lower income support payments for new applicants for DSP and PP appears intended to coerce people into work at whatever wage is offered (Smyth, 2006). To be sure, the Howard government made some concessions to its critics, reflecting Pierson's argument that welfare state networks may be able to block harsher forms of welfare retrenchment. In addition, it did not follow the USA in imposing time limits on payments for the unemployed or in denying benefits to unmarried teenage mothers. The general message seems to be that advanced welfare states offering social protection for disadvantaged groups are largely here to stay. Most Western governments will maintain stable or even moderately increasing levels of social expenditure. As suggested by the ‘mediation’ thesis, governments will also vary the actual distribution of that expenditure according to a range of internal political and practical factors, including electoral concerns, ideological agendas, the relative popularity of particular benefits, and the increasing demands of the ageing population.