Media Release: Opinion Piece: NZs data-based welfare system calculates future costs

5 October 2016

The Hon Alan Tudge MP

Minister for Human Services

Opinion Piece - The Australian

We often note New Zealand’s strong economic performance on this side of the Tasman, but its welfare reforms are equally far reaching and impressive.

Across the past five years, Prime Minister John Key and Finance Minister Bill English led a transformation that has changed the trajectory of welfare expenditure but, more important, also has changed lives for the better.

Recently, I travelled to New Zealand to gain a better understanding of the approach and aspirations of its welfare reform.

It has already informed the Turnbull government’s actions in this area and will continue to have a strong influence on our policy, particularly on the social investment approach that Social Services Minister Christian Porter outlined last month.

New Zealand’s starting point was to crunch the data to calculate the future welfare outlays of all current welfare recipients (which we have replicated).

This sounds painfully dry, but it is the catalyst for changing the thinking and approach to social disadvantage.

In short, New Zealand now has an assessment of the likely lifetime welfare costs of different groups of people based on analysis of huge volumes of data.

Analysis found, for example, that if a child has at least two of four identified risk factors (suffered child abuse, parents on welfare, mother has no formal qualifications, a parent who has been in prison), then it is likely they will cost $NZ170,000 ($161,000), in present value terms, in welfare and prison outlays before they hit 35. Where they have none of those risk factors, the expected future cost is $NZ33,000.

Calculating these future costs immediately forces government to refine its priorities and social investments.

Instead of giving equal attention to all welfare recipients and concentrating purely on how many are shifted into work (which encourages efforts on the more capable who are easier to place into work), it allows a more targeted approach and encourages increased investment on the more disadvantaged recipients, who otherwise would remain in welfare dependency for longer.

The approach, while rooted in a financial analysis of future costs, is not driven by cost savings, although the impact is beneficial to the budget.

As English said to me, it is about changing lives for the better and the New Zealand government is willing to spend whatever it takes as long it demonstrably improves the outcomes for the people. But by presenting the data in a financial way, it gains the attention and priority of economic ministers as well as social ones.

Indeed, the most important ongoing advocate for this approach in New Zealand is the Finance Minister.

The approach leads to greater co-ordination across government agencies by putting the individual rather than the service provider at the heart of the discussion. I saw this in action at one local New Zealand service centre (its Centrelink equivalent). When an individual walks through the door, the discussion is immediately about getting into work, not about which payment to apply for. The individual, if assessed as high need, is then given a case manager to help navigate their needs across agencies and ensure their obligations are fulfilled. For the under-18s, this includes the provision of a cashless welfare card and money management support.

To date, New Zealand has made most ground in two cohorts that have particularly high future costs: single parents and under-18s who enter the welfare system. I was told that there are 40 per cent fewer sole parents under 20 on welfare than seven years ago.

The Turnbull government is embarking on this similar agenda. We have undertaken the detailed costing analysis and have announced a commitment to the investment approach. More than $96 million is allocated to invest in innovative ideas to transform lives. We are also learning from New Zealand’s payment simplification process and its clearer set of mutual obligations.

New Zealand is already preparing for the next evolution of thinking. It eventually wants to be able to have individual liability assessments so it can be even more targeted. It is working on assessing the future costs of cohorts on different agencies, not just welfare: health, the justice system and housing. It is looking at whether it should hold agency heads collectively accountable for reducing dependency across the board, not just the delivery of their particular service.

Here we split welfare payments between state and federal governments, unlike New Zealand, meaning its experience is not directly translatable. However, the structure that New Zealand introduced is impressive, and it will continue to inform our welfare reforms aimed at reducing dependency.

As one senior official said to me, New Zealand and Australia are often on different policy cycles, which enables us to learn from each other. Right now, we are learning from them, but in implementing our own welfare reforms we hope that we see the cycle turn.

Alan Tudge is the Federal Human Services Minister.