Recent discussions of welfare reform have been unusually divided. Many see the Australian welfare state transformed by neoliberal economic restructuring, which has increased inequality and left many vulnerable (Bryson and Verity, 2009; Jamrozik, 2009). Others have argued that alongside market restructuring Australian governments have also renovated past social protections, expanding social spending and addressing new forms of social insecurity (Castles, 1994; Mendes, 2009). The diversity is partly explained by the focus of enquiry. Looking specifically at aggregate social spending, and on the distribution of social spending, confirms a substantial renovation (Fenna and Tapper, 2012). However, a number of associated changes potentially contradict this. Economic and social reforms have undermined the basis of older forms of social protection, increasing reliance on social spending (Smyth, 2006). Policy change has also concealed some of the largest increases in public assistance, via the tax system, which exaggerate, rather than mitigate, market inequalities (Stebbing and Spies-Butcher, 2010). Finally, the nature of spending has changed, increasing conditionality for many (Mendes, 2009).

This chapter starts from the premise that understanding changes in Australian social policy requires an historical analysis of the Australian Settlement and its transformation. Much of the increased social spending has been a direct response to the new challenges facing workers and their families as the Settlement has been unwound. Some of the most fundamental challenges that remain emerge because policy has not always been sensitive to the potential inequalities generated by market reforms, or political strategies have failed to maintain a sense of solidarity with those marginalised from paid work. The chapter begins with an overview of the original wage earner settlement and its demise. It then discusses how social policy reform has responded by modestly renovating welfare institutions. An account of the shortcomings of this renovation follows, exploring both how this has happened and the potential implications of these trends. It suggests that Australia's welfare state has certainly felt the impact of neoliberalism, but this has not been a simple process of ‘shrinking the state’, rather it suggests a ‘hollowing out’ of social protection (Wilson et al, 2013).