The welfare system, though effective in supporting mainstream Australia, has created welfare passivity in remote Indigenous communities. The structure of welfare discourages work: the unconditional transfer of money is sufficient to live on indefinitely; and effective tax rates for starting work are very high, up to 75%, meaning that some people keep only 25c of every dollar they earn. In addition, the employment services system has consistently low expectations of the unemployed. Welfare has become a destination.
Classical welfare (such as the Australian welfare system) was designed to be reciprocal, where working taxpayers collectively finance systems aimed at their own and their families’ security and development. It is about security and investing in capabilities, and has produced many great benefits for the great majority of Australians.
However, Indigenous Australians have largely not experienced the positive features of the mainstream welfare state – public health, education, infrastructure, a helping hand during short-term unemployment, and other aspects which have underpinned the quality of life and the opportunities of generations of Australians. They have only experienced the income support that is payable to the permanently unemployed and marginalised.
This passive welfare is not based on reciprocity and undermines the economic engagement that is central to individual and social wellbeing. It has resulted in an artificial or ‘gammon’ economy, so that many of the incentives currently faced by people in Cape York are perverse.
Incentives matter because they influence behaviour. Incentives can be in the form of both carrots (which ‘pull’) and sticks (which ‘push’). Currently, there are no meaningful sticks, and the only carrots ‘pull’ to passive behaviour instead of study or real work. The incentives inherent in current welfare arrangements in Cape York have led to an unemployment trap with all the resulting social consequences.
Incentives are changed by ‘getting the price right’: people need to perceive greater benefits from working, entrepreneurial activity, and investing in themselves (in their education, health and so on), than from staying on welfare.
Conditional welfare has been introduced as part of the Cape York Welfare Reform trial. Four obligations will be attached to welfare payments for all welfare recipients in the Welfare Reform communities. The four obligations are:
- making sure kids attend school
- keeping kids safe from harm and neglect
- not committing drug, alcohol or family violence offences
- abiding by tenancy agreements
From 1 July 2008, the Family Responsibilities Commission (FRC) – a new State statutory body – has been charged with ensuring that people live up to these responsibilities. The FRC has the power to determine whether a breach of obligation has occurred and the appropriate recourse for a breach. However, if welfare recipients do not adhere to these expectations, then the FRC can put their welfare under income management. This means that welfare payments are put aside for essential expenses such as housing, food, clothing, education and medicines.
Policy work is underway to design an alternative system to the existing welfare-centred system that people can ‘opt-in’ to. This system will increase access to opportunities and increase the incentives to move from passive welfare to training or employment, based on obligations for the individual.
(07) 4046 0600