Those following welfare policy might have been hearing a lot about the “New Zealand model”. Social Services Minister (and former Cleo Bachelor of the Year finalist) Christian Porter talked it up quite a lot yesterday at the National Press Club. And it’s not the first time government figures have cited the Kiwi inspiration. What is it, and should we adopt it?

The Kiwi welfare reforms in brief

The “New Zealand model” of welfare refers to a series of changes introduced in 2012 and 2013 by the Key conservative government. The policy was championed by minister for social development Paula Bennett, an unusual politician who gave birth to her daughter at 17 and received welfare payments for several years. She went on to study social policy and moved into policy positions after graduation, and she was elected in 2008.

The Kiwi system is characterised by a big data, early-investment approach to welfare spending. Aggregate statistics of those on welfare are carefully studied to calculate what groups of people who get on welfare find it most difficult to get off it, and who cost the state the most in the long run. Those groups are then, where practical, targeted for “early investment” — a mix of sticks and carrots intended to get them off welfare payments, often at greater short-term cost to the government.

As the McClure Review into Australia’s welfare system described the Kiwi approach:

“Early intervention is a critical feature of an investment approach and involves targeting services and interventions to people at risk of becoming long term reliant on income support. There is strong evidence that early intervention is effective in preventing social problems, breaking the cycle of intergenerational disadvantage, and in making long term savings in public spending.”

To get into the detail, the Kiwi welfare system went from 11 to three main types of benefits:

  • Job Seeker Support;
  • Sole Parent Support; and
  • Supported Living Payment.

For the first two of these three categories, the system prioritises targeted case management, particularly for the young. Some of the changes introduced as part of the Kiwi system have included the establishment of the Youth Service, which was given NZ$149 million to provide education, training, income management and parenting training to those on the Youth Payment and the Young Parent Payment. There’s often a financial incentive to attending budgeting and parenting classes: for young people it’s $10 a week. Parents are expected to be in some form of training, even when their children are young — this takes the form of parenting classes in the early years, moving to preparation for work when a child turns three. If a single parent or job-seeker does find a job, benefits don’t cut out right away, but at a rate of $100 a week — intended to smooth the sudden loss of income that can come from the expenses of a new job and the delay of a first pay cheque.

That’s the carrot. Then there’s the stick. For the young unemployed, the reforms include an income-management scheme of sorts: rent and power are paid directly by the government on behalf of young people, and a payment card is provided for other expenses — the card can’t be used for alcohol or cigarettes. Everyone who can is expected to be seeking work or to be in training. Parents who don’t enrol their children in preschool and access regular health check-ups get payments docked. Parents who have a second child are exempted from seeking work for 12 months, but after that they are expected to seek work to the same level as they had been expected to when they had one child (part time when the child is between the ages of five and 14, full time after that) — a policy intended to discourage people having multiple children while on benefits.

Did they work?

The new system is measured, for better or worse, on one metric: New Zealand’s forward-estimated welfare liability.

A 2013 review found that that had reduced from NZ$86.8 billion to NZ$76.5 billion after the changes were introduced, and, adjusting for improved economic conditions, estimated NZ$1.8 billion of this liability reduction had come from the new welfare approach.

Is this the right metric? As University of Otago economist Simon Chapple has argued in The Conversation, “the over-arching concept behind the approach is sensible”. But he has other concerns:

“Despite the stated aims of the New Zealand policy reforms, the investment approach is not about finding people stable employment. Rather it is about getting people off benefit over time. That is what it measures. That is what is valued. That is how government agencies’ performance is rewarded.

“Leaving benefit and getting a job are positively — but far from perfectly — related. People may go off benefit into education, building up a debt they are unable to service. They may move into the black or grey economy. They may re-partner. They may move onto the streets. Or they may get a job.

“The investment approach is indifferent to all these vastly different potential destinations. And even if people go into jobs, the investment approach treats all jobs as equal. The approach is indifferent as to whether beneficiaries go to a well-paid job or not, whether the job suits family life or not, or whether the resulting commute is long or short.”

The reforms have also been criticised for making life harder for welfare recipients, encouraging them to drop out of the system altogether. “It pushes families into poverty,” University of Auckland economist Susan St John told The Guardian in 2014. Last year, the Auckland City Mission said the number of homeless people in inner-city Auckland had doubled in two years. High rental prices were the main reason given, but the welfare reforms were also mentioned. People who don’t meet the new requirements have their benefits cut off — critics say they end up on the street as a result.

What will Australia’s policy be?

Taking a leaf from New Zealand’s approach to welfare was a key recommendation of the 2015 McClure review into Australia’s welfare system, which lauded the Kiwi policy’s “strong evidence base, commitment to flexibility and adjustment, consistent focus on achieving a return on investment and successful implementation”.

Adopting such a policy here would improve the efficiency and effectiveness of welfare in Australia, the review stated. New Zealand has a higher rate of participation in the paid workforce than Australia — achieving the same level here would boost GDP per capita by 1.75%, the review found.

The federal government is adopting the recommendations.

This is a data-heavy approach — the first step is figuring out the lifetime liability of Australia’s welfare system, to highlight groups that would most benefit from early intervention. This has started to happen. The 2015-16 budget contained $33.8 million to track the lifetime costs of people on welfare. The results of the first study — outsourced to PwC, was released by Porter yesterday.

The Baseline Valuation Report identified three groups who have “particularly poor outcomes” in welfare dependence, including 11,000 young people accessing the carer’s allowance (who will go on to access income support for an average of 43 years of their lives, the report argues) and 4370 young parents (45 years). The reasoning is that young carers and parents are disadvantaged when it comes to setting up their careers in their youth, and thus highly likely to find themselves on welfare for the rest of their lives. Early intervention in these cases, Porter said, could save the government a lifetime of benefits payments.

What now for Australia’s welfare policy?

At the moment, all we’ve had is the broad strategy. No concrete policies to impact welfare recipients have been announced — the focus has been on measuring the system first. Porter says by the end of the year, a $96 million fund will be open to charities, governments, social policy experts and industry to suggest ideas ideas about how to move people out of the welfare system and into paid work.