A measure of Labour's success in government, he said, would be how far it cut social security spending, rather than raising it, by getting people off benefit and into work.
And while the state had to remain the guarantor and the regulator of social security provision, including pensions, it had to be only the administrator of some of these, he said.
Mr Smith's sharp departure from traditional Labour approach of the 1970s and 1980s comes hot on the heels of the shadow Chancellor Gordon Brown's warning that Labour could scrap child benefit for children aged over 16 from well-off families.
Mr Brown's plan yesterday continued to provoke opposition within the Shadow Cabinet. Joan Lestor, spokeswoman on overseas development, wrote to the shadow Chancellor to express her anger. Those close to her said a number of other senior Labour MPs were also raising objections.
New Labour's thinking on the benefits system was revealed in a lecture to the left-of-centre Institute of Public Policy Research. He said: "The welfare state is after all a framework which the Government sets in order to enable citizens to achieve security; it is not a particular mechanism per se for delivering that security."
He said it was "absurd" for the left to regard how much it spent on social security as "a badge of virtue".
"It isn't a mark of progressive success if you are spending more and more on a benefit system." If that were the case, Peter Lilley, Secretary of State for Social Security, whose government had doubled the numbers dependent on state benefits, would be "in the pantheon of socialist heroes".
Rather it was "a mark of success if you can help people to move off benefit and into work - it is progress if we can end up as a result spending less on social security". The test for Labour would be how well it spent the resources available.
He coupled that with a warning that individuals have "a responsibility to make provision in our own lives for those times when we can't earn and support ourselves". That implied private provision, with Mr Smith expected to propose that Serps be replaced by second pensions paid from investments rather than taxes.
Despite the message that Labour wants to cut welfare spending, Mr Smith pledged: "Labour won't ignore poverty in the way the present Government has done. We will want to put it high on our agenda."Reuse content