Adam Creighton has a must-read piece in The Australian:
Forty years ago last month the Henderson Poverty Inquiry put the “poverty line” in Australia, for a couple with two children, at an income of $62.70 a week, equivalent to about $28,600 a year in today’s money. By that considered evaluation of the range of goods and services deemed essential, poverty in Australia must be a thing of the past.
Today, an equivalent unemployed couple with two children enjoys $37,190 a year in direct cash social security payments from the taxpayer, excluding any other indirect federal or state government assistance, according to the Melbourne Institute. Equally, a single mother with four children receives $45,344 a year, which is, also, entirely net of income tax.
That is an astonishing number; $45,344 pa net of income tax. That is a number that needs widespread exposure. Being a single mother with four kids normally results from a series of choices – bad choices except for the perverse incentive where you get to loot the treasury and those individuals who make better choices.*
When thinking about how much we spend on welfare there are two others sets of numbers we need to keep in mind.
First the distribution of the income tax. I calculate this number (using different metrics) every year based on the latest ATO data.
So some numbers – the top one per cent of income earners pay 17.7 per cent of net income tax at an average effective tax rate of 41 per cent. The top five per cent of income earners pay 34.1 per cent of net income tax at an average effective tax rate of 36 per cent. The top 25 per cent of income earners pay 67.9 per cent of net income tax.
Second the distribution of the welfare spend. I’ve played around with some numbers here too.
The great American economist Deirdre McCloskey specifically argues that the policy of taxing the rich so that the poor might prosper has failed. She gives two reasons why that is so. First, following Robert Nozick, taxation is a form of slavery and is associated with various economic costs. She also argues that most social spending is not designed to benefit the poor, but rather the middle class. She illustrates this point by means of a back of the envelope calculation. The US government collects about 25 percent of US GDP in taxation and if a third of that amount were distributed to the 34 million Americans described as being ‘poor’ then each one would receive about US$30,000. A family of four – two parent and two children – would have a combined income of US$120,000 and could hardly be described as being ‘poor’ with that level of income. She concludes by observing, ‘So it must not be true that the government’s taxes go mainly, or even much at all, to the poor’.
It is possible to replicate that thought experiment in Australia. According to the Budget Papers the federal government intends to spend $121.9 billion in the 2011-12 financial year on Social Security and Welfare. That sum of money – 33.3 percent of the federal budget – does not include health, education or housing – items that also constitute welfare spending. Making the assumption that there could be as many as two and a half million poor Australians that level of expenditure would be enough to transfer over $48,000 to each of them. Even if we considered that the government should distribute money to the bottom twenty percent of Australians that would still amount to over $29,000 each.
As Adam Creighton points out, however, Australia simply does not have a poverty problem – we have a welfare problem and in particular we have articulate poverty pimps.
Crude politics is to blame. Politicians, encouraged by the welfare lobby whose existence depends on maintaining the “poverty” charade, have offered an even greater array of payments that they know, deep down, are not justified. It is difficult to see how this sad trend can ever reverse given the timidity most politicians now display.
Freezing social security payments in nominal terms and ending, prospectively, child payments for third and subsequent children might be a politically realistic place to start. Nevertheless, curbing such payments will prompt howls of protest and prove extremely difficult for any political party, however dedicated in principle.
Before that can happen the arguments need to be prepared. Putting out information on who gets what, who pays and, to be blunt, who deserves to get a hand out is the place to start. That does mean making value judgements about relative merits – something people are loathe to do. In particular the role of poverty pimps needs to be exposed and debated.
* No doubt the bleeding heart types will point to some individuals who become single parents through no fault of their own. I understand that can and does happen.