Australian Priority Investment Approach to Welfare

The Australian Priority Investment Approach to Welfare is about using the best available evidence to ensure vulnerable Australians have a better future.

About the approach

Our welfare system ensures our most vulnerable will always have help. Through the Priority Investment Approach and by intervening early, we will be able to give those with capacity the opportunity to develop life skills and to participate economically and socially through work.

The Priority Investment Approach allows us to realistically look into the future and see where we are headed. Investing in early intervention now helps people from falling into the welfare trap and in the long run it saves money which can be used to help people in other ways.

How it works

The approach uses actuarial analysis to value Australia’s future lifetime welfare costs, and the costs of various groups within the population.

The first step in this analysis is the Baseline Valuation Report, which was publicly released on 20 September 2016.

The Baseline Valuation Report gives us a foundation to begin the investment process. This and subsequent analyses will help us develop evidence-based policies and programs and direct them where they best deliver results. Read more about the Try, Test and Learn Fund.

History of the approach

The review of Australia’s welfare system recommended that Australia adopt an investment approach to help ensure funds are invested in people most at risk of long-term welfare dependency, and that they would receive additional targeted support early.

The approach was established as part of the 2015-16 Budget. Funding included $20.7 million for the actuarial services, ICT capital, verification of the actuarial model and departmental resources. A further $13.1 million was also spent to maintain four longitudinal studies which will form part of the evidence base supporting the approach.

Frequently asked questions

Question Answer
Why has Australia adopted an investment approach?

An investment approach to welfare was a key recommendation of the McClure review. Specifically, the review recommended that actuarial analysis should be used to identify groups at high risk of long-term welfare dependency. This analysis would provide an evidence base for investments that will improve people’s life chances and to get people who can work, into work.

Australia’s welfare system ensures our most vulnerable will always have help, and by intervening early we will be able to give those with capacity a better opportunity to find work.

Employment has significant health and social benefits. Having a job also helps individuals build financial independence, and reduces welfare costs.

The Priority Investment Approach allows us to realistically look into the future and see where we are headed. Investing in early intervention will help people from being trapped in the welfare system.

What is actuarial analysis?

As recommended by the McClure review, the Priority Investment Approach is underpinned by annual actuarial valuations.

The valuations estimate the future lifetime cost of welfare payments to the Australian population and groups within it. This method is similar to the way that insurance companies estimate their future costs.

These valuations and accompanying analysis helps us to tailor investments to address barriers to employment for people who would be able to work with extra assistance, including building their capacity to work in the future if they can’t work now.

What is a future lifetime cost?

There are three different future lifetime cost calculations in the Baseline Valuation Report:

  1. 1. The total future lifetime cost is an estimate of the overall amount that the Government is expected to spend on welfare over the natural lives of the Australian resident population as at 30 June 2015.
  1. 2. A future lifetime cost for a group of people, such as current Carer Payment recipients, is an estimate of the amount that the Government will spend on all welfare payments for the people who were in that group in 2014-15, over the rest of their natural lives.
  1. 3. A future lifetime cost for a welfare payment category, such as the studying payments category, is an estimate of the amount that the Government will spend on payments in that category over the natural lives of the Australian population as at 30 June 2015.
What will Government do with the findings of the actuarial valuations?

The findings will help build better understandings of specific groups and their transition pathways into the welfare system.

This enables the development of tailored responses which improve people’s life chances and helps build the skills and experience they require to find work.

Will the Government cut support for people who are not able to work to reduce their future lifetime costs?

Our welfare system is there to support those who are most in need. It should also encourage people to build the skills, knowledge and experience required to find work and in doing so, reduce the risks of intergenerational welfare dependency.

We are using the Priority Investment Approach to identify groups at risk of long-term dependence on welfare who would benefit from additional help. For these people, the right policy supports at the right time could increase their prospects of getting and keeping a job.

Who performs the actuarial valuations?

PricewaterhouseCoopers (PwC) is contracted to undertake the analysis and provide four annual valuation reports of the Government’s future welfare costs.

How often are the actuarial valuations performed?

PwC has provided the Department of Social Services with the first report, known as the Baseline Valuation Report. PwC will provide an annual valuation of the welfare system for the next three years, with the final valuation by PwC occurring in 2018.

What will happen after 2018?

As part of their contract, PwC will be transferring knowledge and skills to the Department to continue this work after 2018.

Why perform regular actuarial valuations?

The Baseline Valuation Report is just the start. Each annual valuation will enable more sophisticated analysis and more detailed understandings of the pathways into the welfare system.

This will allow for further identification of opportunities to provide vulnerable Australians tailored support at critical points in their life.

This is a long-term investment in Australia but if we are to change our current system and break the cycle of welfare dependence we need to start now.

What are the data sources for the actuarial valuations?

Data sources include administrative welfare data from the Department of Human Services, Australian Bureau of Statistics population data and the Government’s longitudinal studies such as the Household, Income and Labour Dynamics in Australia Survey.

Will the data used in the actuarial valuations be released?

To help foster innovative ideas, insights from the analysis will be shared with experts outside of and inside government.

In addition, by early 2017, access will be provided to de-identified, DSS longitudinal welfare data which are one of the data sets used to underpin the Priority Investment Approach. The whole model will not be made publically available.

The Department will follow strict security and confidentiality protocols when providing access to de-identified data.

More information on how the Department will release the data will soon be available on www.dss.gov.au.

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