‘Welfare’ is most commonly used to describe income support payments. The broader system of taxation and transfer payments is especially important in Australia's model of targeted redistribution. Benefit payments have been significantly restructured since the 1980s, and rising total benefit payments, especially to families with children and older people, have contributed to the increase in total social spending. These changes have not only been driven by demographics but also by deliberate policy decisions. Alternatively, a process of ‘welfare reform’ has introduced conditionality into income support for the unemployed, seen the erosion of the adequacy of that income support, and shifted many people from more generous and secure payments to the residualised unemployment benefit.

Both these trends – rising spending on families and older people and more conditional and meagre spending on the working-age population – have proven politically resilient. While there are partisan differences in pace and emphasis, these twin trajectories have been broadly advanced under both Labor and Coalition governments and reflect broader international trends (see OECD 2022a; OECD2022b; Knotz 2018).

This chapter explores processes of ‘residualisation’ as an example of liberalisation within government payment systems. Residualisation restricts the role of social spending to the margins, constructing market incomes, especially labour market income, as the primary means for most people to secure their needs. I argue the examples of family benefits and unemployment benefits provide two models of residualisation that reflect the alternative processes of hybridity and dualism, even though both reinforce the primacy of the market.

The reform of family benefits reflects the mobilisation of feminists, who successfully politicised the needs of families with children to increase benefit rates, and worked inside state bureaucracies to challenge how value was measured and rewards distributed. Those efforts interacted with the rising power of economic rationalists to produce ‘affluence testing’, combining flat-rate benefits with generous means-testing, that is widely seen as a fiscally efficient ‘hybrid’ model of benefit support (Stewart and Whiteford 2018). Alternatively, unemployment benefits have become subject to a severe form of paternalism that reinforces divisions between the deserving and undeserving poor.