Australian Priority Investment Approach to Welfare

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 look into the future and see where we are headed. Investing in early intervention will keep people from being trapped in the welfare system.

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 help 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.

There are three different types of future lifetime cost estimates in the Priority Investment Approach valuations:

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 lives of the Australian resident population at the valuation date.

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 at the valuation date, over the rest of their 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 lives of the Australian population at the valuation date.

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

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

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 have the capacity to work and 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) was contracted to undertake the first four annual valuation reports from 2015 to 2018.

From 2019, the Department of Social Services has been working with the office of the Australian Government Actuary to continue producing annual valuations.

Why perform regular actuarial valuations?

Each annual valuation will enable more sophisticated analysis and more detailed understandings of the pathways into and through 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?

Underpinning the Priority Investment Approach actuarial valuations is the social security administrative data from the Department of Human Services. This data is supplemented by other data sources such as Australian Bureau of Statistics population data, and data from the Household, Income and Labour Dynamics in Australia Survey.

Will the data used in the actuarial valuations be released?

To help foster innovative ideas for the Try, Test and Learn Fund, insights from the analysis were shared with service providers.

PIA analysis and insights are used for policy and program development by government departments.

The Priority Investment Approach dataset will not be made publicly available. A range of Social Security data is available through data.gov.au