Robbing Peter to pay middle-class Paul
There is no government today that restricts itself to the provision of law and order, justice, and national defence. We have all become accustomed to the state providing an array of services.
Some of these are more justified than others. Well accepted is support for the truly poor and needy — nobody wants to see anyone starving, or children missing out on healthcare or an education through no fault of their own.
Prior to the welfare state, in prosperous societies, private philanthropy undertook such tasks. That’s obviously changed, with various adverse effects. There is an inverse relationship between the size, scope, and number of private voluntary charities and the size of the welfare state. Governments tend to be inefficient, spending about 70 per cent on bureaucracy to get 30 per cent to the poor, whereas the ratio is reversed for the private sector.
State welfare and intervention also tends to undermine the spirit of voluntarism, which is still strong in Australian culture. For example, the Victorian government’s efforts to impose union rules on the Country Fire Authority, a volunteer and community-based organisation, is likely to have serious implications for its future.
But our sense of compassion, of extending a “helping hand”, comes to a shuddering halt when we are forced to assist those who don’t need help but are receiving aid merely because someone wants their vote.
This is the situation in Australia today. Millions of people who do not need welfare are receiving it. Millions who are quite capable of supporting themselves are being supported by others.
I am not merely referring to Disability Support Pension recipients who are not disabled, or those on Newstart who refuse to work. A far bigger problem is welfare paid to people who have good jobs and are not even remotely poor. This is known as “middle-class welfare”.
One of the most egregious examples is childcare support. This comes in two forms: the Child Care Benefit is paid to families with incomes up to $178,023 (or higher if you have more than three children), while the Child Care Rebate is not means tested at all.
From July 2018 the government wants to combine these into a single payment which will fall to $10,000 a child if family income reaches $340,000, then continue regardless of a family’s income. Those on million-dollar incomes will still receive it.
Another example is Family Tax Benefits. Families with six children, depending on their ages, are eligible for this, until their income reaches $242,000. There is no assets test either; a family with assets of over $5 million, a level most Australian households will never reach, can be eligible to receive tax money paid by a single person on a modest income.
No credible plan
Yet another is student loans. All Australian citizens, regardless of their household income or assets, have access to loans for higher education that are extremely concessional. No interest rate applies and the value of the debts is simply indexed to the CPI. Again, some students with high household net assets or income will inevitably be subsidised by those who are far less prosperous.
Finally, a retired aged couple who own their home can have an annual tax-free income over $75,000 before eligibility for the age pension ceases. Moreover, pension eligibility is not influenced by the value of the family home. There are people living in multimillion-dollar homes receiving pensions funded by the taxes of people who are never likely to own a home.
Some disabled people are also very well off too, yet their principal residence is also exempt from the assets test for the Disability Support Pension.
Australia currently has a $40 billion deficit and a public debt of $285 billion. Neither the Coalition government nor Labor opposition has a credible plan to address this. Both are content to pretend that debt and deficit can be ignored for at least the next four years.
This is not something we should tolerate. With our tax rates already high by both regional and global standards, and with so much wasteful spending, the elimination of middle-class welfare should be a high priority for any new government.
We can easily afford to support the poor and genuinely needy while reducing taxes for those battling to get ahead if we stop handing out money to those who don’t need it.
Originally published at www.afr.com on June 23, 2016.