Autumn 2017

A history of social security in Australia

by Andrew Herscovitch and David Stanton

Just about everyone in Australia benefits from social security at some point in their life. Those who don’t are, for the most part, born into big money and remain very prosperous—and it is a fair bet that they will profit from some form of ‘welfare’ such as superannuation concessions (and negative gearing) through the tax system.

How did social security come to be so important in Australia?

Ahead of the centenary of the country’s national system of social security (in 2008) Andrew Herscovitch and David Stanton chronicled some significant milestones. [1] Here is a much condensed version of what they had to say.

The system is born

Before 1900 there was nothing in any of the Australian colonies that would be recognised today as social security. The only assistance available was through charitable relief provided by benevolent societies like the St Vincent de Paul Society. On the odd occasion, there was financial help from the authorities.

During the economic depression of the 1890s, pressure built for a more organised approach to the relief of hardship. In 1900, New South Wales and Victoria followed the lead of Denmark (1891) and New Zealand (1898) by introducing age pensions for those aged 65 and above. Queensland followed suit in 1907.

The Commonwealth began to pay age pensions in 1909, followed by ‘invalid’ pensions in 1910. Both categories of pension were means-tested. And the age pension schemes of the state schemes were terminated.

Maternity allowance, a payment to mothers on the birth of a child, was introduced in 1912. It was not means-tested, and was the last new benefit to be introduced for nearly 30 years.

What happened next: War and peace

World War 1 erupted in 1914. The period from then until the start of World War 2, in 1939, was notable for the complete absence of new Commonwealth benefits. Several attempts were made to change the system to an insurance model, which was funded by employer and employee contributions. In the end, nothing came of them.

Some states introduced measures of their own.

In 1923, Queensland initiated an insurance-based scheme of unemployment benefits, which was funded by employer and employee contributions.

New South Wales began paying widows’ pensions in 1926, and child endowment in 1927. A year later, New South Wales also introduced an insurance-based system of workers’ compensation – a model which other states copied in the years that followed.

The New South Wales widows’ pension and child endowment schemes were abolished in the early 1940s, when the Commonwealth introduced similar schemes of its own.

The Queensland system of unemployment benefits gave way to a means tested Commonwealth scheme in 1945.

Top left: Children line up for soup during the Depression. 1932. Courtesy of the State Library of NSW; Top right: image courtesy of Wollongong City Library; Bottom: Man and television set, circa 1970.

The 1940s: a decade of major reform

Australia had just gone to war again when the 1940s arrived. One might expect that reforms to social security would have been put to one side, given a plan to introduce a radical reform in the shape of an insurance- based model was dropped at the very last moment in 1939.

What actually happened was very different. The 1940s turned out to be a decade of major reform.

In 1940, the then Coalition government introduced child endowment, a universal payment to mothers for their children. In 1941, a bipartisan Parliamentary Committee began looking at further reforms.

A Labor government came to power in 1941. It began paying a means-tested pension for widows in 1942 – the new payment was available not only to widows, but also to other women who had lost the support of their partners – in other words, deserted wives (married and de facto) and unmarried women whose partner had died.

In 1943, allowances for pensioners’ wives and children began.

Unemployment and sickness benefits started in 1945. They were like pensions in that they were means-tested (albeit on a different basis). The introduction of unemployment and sickness benefits was part of a broader strategy to restore and maintain full employment, and was accompanied by the opening of the Commonwealth Employment Service (CES) to assist job-seekers.

Legislation introducing the Pharmaceutical Benefits Scheme was introduced in 1948.

From 1950, it provided free prescriptions for life-saving drugs. This was later extended to a wider range of medications but subjected to co-payments.

All quiet on the social security front: the 1950s and 60s

These years were relatively stable after all the changes of the 1940s.

Changes to Australia’s social security system included free medical and hospital treatment for pensioners (1951), additional support for pensioners paying rent (1958), a higher ‘single’ rate of pension (1963) to reflect the extra costs of living alone, and a major liberalisation of the means test on pensions (1969).

The pace quickens: the 1970s and 1980s

By the start of the 1970s, new questions were being raised. Was the social security system dealing adequately with poverty? How was it affecting people’s incentives to work and save? And were some groups of people in real need missing out?

A flurry of initiatives followed, including:

  • The abolition of the means test on age pensions for people aged 75 and over (1973) and 70 to 74 (1975). These were subsequently reversed in two steps (1978 and 1983).
  • The introduction of a pension-type payment for lone parents not receiving a widows’ pension (1973 for lone mothers, 1977 for lone fathers).
  • The removal of the assets component of the pensions means test (1976), followed by its restoration in a very different form (1985).
  • The creation of a new allowance for the parents of children with disabilities (1974).
  • The abolition of maternity allowance (1978), the purchasing power of which had deteriorated for many years prior to this.
  • The introduction of automatic increases in pensions and most other benefits to compensate for price increases.

Such changes took place against a backdrop of the Henderson Commission of Inquiry into Poverty (1972 to 1976). Its findings were not formally adopted, but they influenced policy decisions in the years that followed. In 1976, a proposal for national superannuation known as the Hancock scheme was rejected. Then came the rise of private superannuation as an instrument of retirement incomes policy—the government legislated to compel contributions by employers to superannuation for their employees.

Rapid change becomes the norm: the 1990s

The Cass Social Security Review had suggested Australia’s social security system should treat people more as individuals, and that the scope for dependency-based additional payments should be narrowed. Changes to the means test for unemployment benefits followed in the mid-1990s.

The former Commonwealth Employment Service (CES) was replaced with the Job Network in 1997, comprising Commonwealth-subsidised private and non-profit providers of services for job seekers.

Meanwhile, the recession of the early 1990s saw unemployment peak at more than 11 per cent, and the number of working-age people receiving social security payments rose dramatically. The economic tide began to turn by the mid-1990s, but the number of people who were receiving social security payments continued to climb. ‘Welfare reform’ became a central focus, and in 1999 the Commonwealth established the McClure Reference Group to consider the issue.

The new century

A package called Australians Working Together followed. Announced in the 2001–02 Budget, it was phased in over four years. The centrepiece of the package, at least in terms of cost, was a ‘working credit’ to ease the impact of means tests on working-age people in the early stages of returning to employment, after an extended period of reliance on income support. The package also provided for additional supports and services to parents, people with disabilities, the mature-aged, and other people who had been out of work for an extended period.

In its 2005–06 Budget, the Commonwealth announced a set of changes collectively called Welfare to Work, which took effect from July 2006. Their main impact was on lone parents with school-aged children, and on people with disabilities who had part-time work capacity. The measures:

  • reduced the maximum rates of social security entitlement
  • tightened the means test (aligning it with that for unemployed people generally); and
  • imposed an obligation on some recipients to work part-time or to look for part-time work.

Another theme of the new century was tax reform. The ANTS (A New Tax System) package, introduced in mid-2000, included sweeping measures to compensate recipients of social security payments for the price effects of the new goods and services tax (GST). The measures included:

  • A supplement to pension rates
  • Easing the means test on pensions
  • The removal of family payments from the Social Security Act
    and replacing them with a new and more generous Family Tax Benefit (FTB) scheme in separate legislation.

Throughout 2016, the Society’s National CEO Dr John Falzon maintained that a driving force of increased poverty was the low rate of the Newstart Allowance.

He argued the $38-a-day-Newstart-Allowance for single people was not enough to help them into jobs, and that it should be increased by $53 a week. The Society noted the allowance was equivalent to 40.2 per cent of the national minimum wage. ‘In real terms, we have not seen an increase to the Newstart Allowance since 1994’, Dr Falzon said.

While moving people off social security and into work is the intention of every government, Dr Falzon says unemployment is rarely a personal choice.

‘If we are serious about getting people into work, rather than look at individuals and pretending that the deficit lies with them, let’s look at the failures in the labour market.’

Conclusion

Herscovitch and Stanton’s research takes the story of Australia’s security system to 2008. The system has continued to change in the years since, but its essential shape has remained intact.

Much can be said about the system’s strengths and weaknesses, but three issues are worth highlighting here.

  • First, the system is ‘efficient’ in that it concentrates assistance most heavily on people with the least resources.
  • Secondly, housing costs are critical to the wellbeing of people who rely on the system. Rent assistance is available, but it is not enough to redress the effect of the rental costs many people face.
  • Thirdly, the rates of Newstart and related allowances are far from adequate.

How will the social security system as a whole look in 100 years from now? Given that the social and economic impact of climate and technological change is so unpredictable, forecasting the shape of social security is at best hazardous. Sometimes, however, the ‘more things change, the more they remain the same’.


Andrew Herscovitch is a writer and former senior public servant.

David Stanton was Director of the Australian Institute of Family Studies from 1999 to 2003 and senior public servant.

[1] Herscovitch, A and Stanton, D. ‘History of social security in Australia’. Family Matters, No. 80, Australian Institute of Family Studies.

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