The long view of reforming welfare illness

How did “welfare” come to be a dirty word, signifying a sort of social and individual sickness instead of wellbeing? That sad decline drove the quest for reform through the welfare working group which reports tomorrow.

The group has been on a long journey. Will ministers tread the same route?

The group was set up because numbers on solo parent, sickness and invalids benefits have climbed and so has the cost and because long-range projections are that, without a change in policy and administration, the cost will continue to climb.

Bluntly, ministers want cuts in benefit rolls. They want to prod or entice a lot of beneficiaries into paid work.

This has been cloaked in self-improvement language: being in paid work is good for self-esteem and the potential to contribute to society. True, if the work confers dignity, which not all work does. And if children are less well fed, cared for and educated and have less self-esteem as a result that may drive up benefit, health, addiction and prison costs 10 or 15 years hence.

The “problems” of “welfare” are intergenerational: save money now the wrong way and the next generation has to spend more. Great short-term politics but poor strategy.

That has been the welfare working group’s actual challenge. Its terms of terms of reference essentially directed it towards symptoms, not causes. So expect some quick fixes tomorrow. The group has to help Bill English cut his bill. There are a lot of easy hits, with international examples to cherry-pick.

But along its journey the group has been pestered by people who think reform should get down to root causes. (It has also been pestered by some advocates of palliatives, trying to offset the painful impact of cost-cutting but they were essentially in the same ministerial short-term trap.)

Dealing with root causes requires a long view. In this context the group has been attracted to some insurance concepts. Deep in its November options paper it suggested taking “a long-run perspective of the potential lifetime costs” by “incorporating some insurance-based investment strategies into the benefit system”.

The group has found almost no public appetite for shifting from taxpayer-funded benefits to an insurance system like ACC’s is for work accidents. The group’s focus was on importing into benefit management the notion of fully funding future liabilities, which insurance companies must do and which ACC is required to do by 2019.

The majority on benefits are there only for a short time — a period of unemployment, a marriage breakup, a temporary illness. They don’t stack up future liabilities. The focus is on those who park on benefits for long periods, even lifetimes, some of whom bequeath benefit dependency to their children. (Some, of course, have no choice because of a psychological or physical disability. They are a separate category.)

ACC has systems for identifying those accident victims who are most likely to turn into long-term claimants but who can be rescued with early intensive intervention. Similar techniques could be used to identify likely long-term benefit-dependents, the group was told.

ACC uses actuarial techniques to assess the full costs of those who do become long-term claimants. In that context costly upfront spending to divert them is justified as investing: the return is lower future costs.

As with accident claims, so with benefits, it was argued to the working group. So either start to assemble a fund for future income-support liabilities on a basis similar to ACC’s taxpayer-funded non-earners account or, in one formulation, create a notional fund and in a sense “borrow” against it for the upfront investment.

Officials outside the group say this investment approach is where the working group has headed. They say it is also likely to recommend a new agency to target those most likely to become long-term beneficiaries to rescue them before the mindset is embedded. Add, they say, more contracting out to private sector and not-for-profit enterprises and tighter accountability.

Will a government fixated on cutting “spending” follow the working group down that “investment” track?

Both John Key and English have taken an interest and when they join forces what they say goes. Key has said in the past he wants his legacy to be what he does for disadvantaged children and long-term benefit dependency condemns children to disadvantage in or near poverty. English made a show late last year of joining Paula Bennett to launch the Ministry of Social Development’s online map detailing all social services delivery contracts.

So tomorrow could in retrospect mark the start of a shift from thinking of income support — and other “social” programmes — as “spending” to thinking of, and judging, them as investment, with a measured return. That way this generation might put a stop to a history of piling up costs for future generations.

And we might get back to thinking “welfare” is wellbeing, not a social illness.