Since the heyday of universalism under the Whitlam Government, Commonwealth Governments on the both left and right have pursued means-testing as a standard policy. Most recently, it has been the current Labor Government vigorously pursuing means-testing on a range of existing Government programs.
The progressive case for means-testing argues that targeting is better use of finite resources and it ensures that those who can afford services and benefits are not subsidised by those on lower-incomes. But is means-testing automatically more progressive than a universal program? A recent report from the British Fabian Society casts doubt on it.
Using international data, the report shows a paradox of redistribution. Where benefits are more targeted, the likelihood of addressing poverty and inequality decreases. Targeting leads to a fall in overall generosity, leaving poor families worse off than when benefits are widely available. Interestingly, the OECD made a similar point in December last year, stating that:
The main reason for less effective redistribution over the past 15 years was on the benefit side: levels were cut and eligibility rules tightened to contain expenditures for social protection
The reality is far more complex. Targeted measures may be more progressive that universal approaches but this is based on the assumption of the same amount of spending. Expenditure tends to decrease as welfare states become more targeted, meaning less is redistributed to those from a lower socioeconomic background. The report concludes:
Any increase in redistribution from an increase in targeting is clearly outweighed by the smaller expenditure that is associated with the lower willingness to pay of targeted welfare states
It becomes clear that the debate on universal versus targeted programs should not be one about which is more progressive. It is fundamentally about how much we are willing to pay for improved outcomes. For social democrats, the focus should be on how to ensure the fiscal sustainability of universal programs, particularly managing the effects of an ageing population and a shrinking tax base.
Traditionally social democrats have looked for new sources of Government revenue or ensured universal access to schemes but funded it through progressive taxation and levies. However, a greater focus should be placed on designing universal programs that both improve outcomes but long-term will increase taxation revenue and/or decrease cost burdens on government.
Introducing universal early childhood education is a good example of the latter. A 2011 publication on universal childcare by British thinktank IPPR cited recent evidence from Quebec. The introduction of heavily subsidised universal childcare in 1997 increased labour force participation amongst mothers with dependent children, generating $1.05 for each $1 spent and reducing government support in the form of benefits. Universal early childhood education is just one example of universalism that is both fiscally sustainable and will improve social outcomes. These types of universal programs, fiscally sustainable and providing a service that most people will use, could become a centrepiece of a modern social democratic agenda.
Nearly forty years after the election of Whitlam Government, it’s time for Australian social democrats to have a serious debate about the limitations of means-testing and re-examine the principle of universalism in public policy.