The welfare state remains the subject of intense debate over its effects and effectiveness. How has it responded to changes in community values, political priorities and global economic forces? Statistics on the size of the welfare state must be treated with care, particularly those which compare developments across different countries. The Australian data confirm that spending by government on welfare programs continued to rise over the 1990s, as had employment in those industries that provided welfare services. The same general trend is apparent for most other OECD countries, although Australia continues to spend one of the lowest proportions of GDP on its welfare programs. In 1992, the ratio of social expenditure to GDP in Australia was lower than that prevailing in all but five OECD countries in 1980. Whether the past trajectory of welfare expenditure continues on an upward path, will depend on how the welfare state responds to some of its current challenges. Three of the specific 'crises' alleged to be confronting the welfare state are discussed in this paper: the demographic crisis; the crisis of affordability; and the crisis of legitimacy. All three phenomena remain relatively poorly understood and each would benefit from an increased research effort. Those who describe the underlying forces as constituting a 'crisis' are generally trying to generate community support for the need for change. While it is clear that contextual changes often require a change in policy, the crucial issue facing the Australian welfare state is whether it can embrace internal change without undermining its role as the buffer against external change for those who are experiencing it.