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Hon Sir Roger Douglas
Parliament Buildings Wellington
Saturday 14 August 2004

In 1930 Sir Keith Hancock described Australia's main political philosophy as follows:

"Australian democracy has come to look upon the State as a vast public utility whose duty it is to provide the greatest happiness to the greatest number."

A similar expectation has been true on this side of the Tasman.

Whether you agree that this is a rightful (and righteous) role of the State or not, the unassailable fact is that more than 60 years later the practical effects of this philosophy have not been what were expected.

In the years following the Second World War, there was a general consensus on the goals of the budding welfare system.

1. A reduction in social and economic inequality.
2. The fulfilling of certain basic needs, as of right.
3. The demonstration and encouragement of kinder and more communal relations between citizens.

On all three counts the present system could be said to have failed.

• Socio-economic inequality still exists and is possibly increasing;
• Some people continue to live impoverished and disadvantaged lives because certain basic needs are inadequately attended to
• And people's relationships with one another are not noticeably more harmonious or filled with neighbourly concern.

In addition, we have seen the development of two totally unexpected side effects:

• dependency through the creation of incentives that encourage people to change their behaviour and circumstances so as to qualify for benefits and ;
• political capture, where influential lobbies manipulate the redistribution process to their own perceived advantage.

Instead of fostering a sense of mutual obligation we have ended up with middle class welfare capture and welfare dependency.

We need to change the system's incentives.

We need to make the welfare area smaller by weaning the middle class away from benefits they don't need and in the words of John F Kennedy, we need to give the disadvantaged a hand up, not a handout.

The last is perhaps the most important as it affects us all when it is successfully achieved. Delivering real gains to people who are disadvantaged via self-help is crucial because it automatically delivers something of value to everyone.

The gains we should be aiming for are not just economic. Income is obviously important to the disadvantaged but it is not enough to remedy their situation. They have an even greater need to encouragement and opportunity to make real progress for themselves by themselves. In helping them to win independence and contribute more to society, instead of always being on the receiving end, their future is transformed and everyone else's improved. Those gains also have an important role to play in creating a dynamic economy that provides higher income for everyone and therefore builds a fairer society. The alternative is a country with a permanent underclass of alienated people with no stake in prosperity and no social harmony.

The key issues which affect the disadvantaged include unemployment, sickness, race, crime, health, education, housing welfare and the economy.

• None of the pressures these issues place on people can be solved with short-term, quick fix answers from government.
• All of them need to be placed within a medium-term approach to policy if they are to be solved.
• And most importantly because the issues are linked and the public know it, they cannot be solved in isolation, one from the other.
• Inadequate parenting, lack of motivation, insufficient skills, alienation, unemployment and delinquency reinforce each other.
• Low income, inadequate housing, poor health, lack of opportunity and inadequate economic growth are all part of the same syndrome.

People in these circumstances find it hard to survive without help. However, if the help we provide locks them into the role of passive recipients, all the state and society does is turn their vulnerability and dependency into a permanent condition.

It becomes a vicious cycle.

A central feature of life for many disadvantaged people is not just a lack of money - it is total lack of choice.

Any programme of reform has to be about:

• Goals, objectives, dreams and common-sense delivery.
• It needs to unite society by appealing to the majority of voters.
• It needs to encourage people of think about where New Zealand can be in the future and where they would like to be during the next 5 to 20 years.

Because the issues that surround welfare - unemployment, sickness, race, crime, health, education, housing and the economy are linked, any programme of reform must be packaged in such a way that it deals with all of these elements together.

Packaging reforms into large bundles is not a gimmick. The economy operates as an organic whole, not an unrelated collection of bits and pieces. Structural reform aims to improve the quality of the interactions within the whole. When reform is packaged into large bundles, the linkages in the system can be used to check that each action effectively enhances every other action. It also improves its selling potential.

• So what sort of package could fix welfare "once and for all"?
• What sort of programme has a chance of uniting New Zealand society, providing choice and giving the disadvantaged a stake in future prosperity and social progress?

Any programme of reform that hopes to achieve these objectives will contain both carrots and sticks.

I believe you have to start with the carrot and make it a big one, but a carrot that you can only keep if you contribute positively to society.

My carrot is to give every New Zealander of working age the opportunity to amass a small fortune during their working life.

• Currently the bottom half of New Zealanders in terms of wealth distribution have less than 3% of total wealth.
• 800,000 New Zealanders have less than $20,000 in wealth.
• 1 in 6 has a negative asset position.

The end result is that many of these people feel alienated with no stake in New Zealand's future prosperity or social harmony.