Don't rob the poor to pay the rich

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Piggy banks look frightened at the sight of one of their peers lying shattered and empty on the groundTravelling around rural and coastal towns, you cannot fail to notice the number of shops that have closed or are empty. Despite the overall good economic figures for Australia, many businesses are struggling. In addition, some of our major industries, including car manufacturing and refineries, are moving offshore resulting in big job losses, hitting towns like Geelong very hard.

Minister for Social Services Kevin Andrews is introducing a review of income transfers, particularly to the unemployed and those on disability benefits. He has said that the aged pensions will not be touched, though this is where most of the problem lies.

The age pension costs Australia $36 billion a year, a third of total welfare spending, with Family Payments costing $26 billion. In the last ten years, the cost of the age pension has increased by nearly $13 billion, but only $5 billion of this was due to ageing of the population. The rest of it resulted from generous changes to entitlements and eligibility.

The then shadow treasurer Joe Hockey on 17 April 2012 told the Institute of Economic Affairs in London that 'all developed countries are now facing the end of the era of universal entitlement'. He continued: 'Addressing the ongoing fiscal crises will involve the winding back of universal access to payments and entitlements from the state.' What might this mean?

The cost of various entitlements varied from $15 billion for the Disability Support Pension, $8 billion for Newstart, and $5 billion for Parenting Payments. Yet rather than causing a blow-out in the budget, as a proportion of the overall economy these payments have actually decreased over the last ten years.

One would welcome a review of the Newstart benefit of $36 a day for a single person aged 22 to 65 ($250.50 a week), which is only 45 per cent of the after-tax minimum wage and $130 below the poverty line. Compare this with the aged pension rate at $53 day. The Newstart payment is unconscionably low. Even the Business Council of Australia supports an increase in the Newstart allowance, by $50 a week in the view of welfare advocates. Newstart is very important in helping tide people over while searching for jobs, and is already tightly targeted.

The numbers of unemployed have been trending up from a low in July 2011 of 4.9 per cent to 5.8 per cent in December 2013, numbering 716,000 people. In December full-time jobs decreased by 31,600, though this was partially compensated by an increase of part-time employment of 9000.

This unexpected jump in unemployment may be partly explained by the Government from January 2013 moving 75,000 people off Parenting Payments to Newstart when one's child reached six years of age (for a couple) or eight years of age (for a single parent).

Quite properly the Government needs to work towards a more balanced budget after the deficit spending that protected Australia during the worst of the Global Financial Crisis. But as is evident from the European experience, austerity budgets and drastic cuts to spending only drive economies down further. As J. M. Keynes argued powerfully in the Great Depression, governments must stimulate and manage the economy in the interests of the whole people, especially the unemployed.

Had the Howard Government not been so generous with its tax cuts to upper and middle income groups, there would today be no budget deficit. The problem for later federal governments was how to restore adequate tax income, against the populist mantra of 'no new taxes'.

In large part, the answer lies in restoring greater equity to the tax system, especially by eliminating overly generous income transfers via tax concessions to upper income groups. For instance, government doles out largesse to wealthier groups through tax concessions on superannuation, negative gearing on house investments, tax deductions of billions of dollars a year to the mining industry for fuel, along with tax loopholes like family trusts, mortgage offset accounts and other devices.

Governments all over the world, including Australia's, are now making serious efforts to curtail transfer pricing by major transnationals, depriving countries of billions of dollars of tax by moving profits to pop up in low-taxed countries like Ireland. Google made profits of £900 million in the UK in 2012, but paid only £11.6 million in corporate tax. Google is not alone in such massive tax evasion.

The budget problems of the Federal Government are not caused by Newstart or disability pensions, which have been declining as a proportion of economic activity. The problems largely derive from inadequate tax revenue.


Bruce Duncan headshotBruce Duncan is a Redemptorist priest lecturing at Yarra Theological Union. He is director of the Yarra Institute for Religion and Social Policy and a founder of Social Policy Connections.

Piggy banks image from Shutterstock

Topic tags: Bruce Duncan, Family Payment, Disability Support Pension, Newstart

 

 

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A cogent and incisive article, Bruce. When taken with Irfan Yusuf's article (also of today) "Vulnerable victims of government hit-and-run" it provides a powerful critique of governmental (both Labor and Coalition) approach to welfare. I would love to think that the Government and its advisers read and take on board such articles which, whilst being eminently reasonable and non-sensational, expose a mindset and way of acting by those in power which do not augur well for Australia's future as a just and equitable society.
Edward F | 03 February 2014


Thank you Bruce,it seems democracy is very flawed -governments elected by a majority? with promises of improved social outcomes and then announce a mandate to take away basic support for those who can least afford to live in this wealthy country. Last night's Q&A on ABC panel discussed what is the core virtue of being Australian? The striking word was egalitarianism, "the strong looking after the weak", as this was the way Weary Dunlop and prisoners of war survived, and how our unique sense of mateship was revealed. We are revealed now as afraid of any sign of weakness, and derogatory labels and catch phrases and punitive laws for any one needing support are a death knell to egalitarian values.Shameful,this is also a tearing away any safe social fabric and propping up the wealthy is always false economy.
Catherine | 04 February 2014


Almost 13% of Australia's population can be classified as 'poor'. A number of the middle class are one generation away from being amongst the poor, having been able to access higher education, perhaps the first in their family to do so. As this group has aged a sense of entitlement has meant they may not want to struggle ever again - they become the recipients of middle class welfare in the form of pensions and part-pensions. The rich meanwhile become richer. Overhaul of tax systems, and a more compassionate attitude to the poor, including the working poor, needs to be a priority of our new hard-man Treasurer,Mr Hockey.
Pam | 04 February 2014


What we are looking at is a complete failure of Labour to enact a "fairer go" when it had the chance. I agree whole-heardely that there should be reform of middle to upper class tax deductions, but there also needs to be a broadening of the GST, with compensation for the less well off. We will also need a lot more public housing as rentals dry up for a bit if we get rid of the negative gearing tax distortion. But we should NOT be cutting incomes at the bottom end at all! But the other failure of Labour was to encourage Union-induced inflexibility in the workplace, and unrealistically high wage levels in many places...that is the reason for jobs disappearing, as well as a strong dollar. We have been badly governed by the party of the less-well-off, and now we have the party of the better-off, and they will do what they do!
Eugene | 04 February 2014


A good analysis Fr. Bruce! However, life for the poor in Australia will probably get worse with both the major political parties and the majority of the Australian population being committed to a low and unfair tax regime. This will result in less money being available for social services such as public education, public health and welfare for the poor and disadvantaged. Australian society has become selfish and self centred with very little community culture.
Mark Doyle | 04 February 2014


A great leap forward in levelling the social playing field and creating a more equitable society in Australia would be for political parties which have a role in the Federal parliament undergo a moral conversion and undo legislation which allows the fabulously rich to hide behind the virtual tax free havens of family trusts which favour and shelter the robber barons and their courtiers.
David Timbs | 04 February 2014


John Howard is STILL to blame!
Elizabeth | 04 February 2014


Let us be clear that unemployment benefits should never come close to a minimum wage or the incentive to work would totally evaporate. I think a little bit reading would help the author to understand the the greatest social reforms in Australia were undertaken by Keating and Howard. It was the lunatic policies by Kevin Rudd which caused the massive budget blow-out. His open door policies to support the people smuggling industry had not only caused the death of many but it has also caused a massive hole in the budget. We also see “charities” and other “not for profit organisations paying their executives hundred of thousands of dollars a year and still crying “poor".
Beat Odermatt | 04 February 2014


Beat, Let's hear from you about the morality, social equity considerations of the very generous salary/packages of the Bank and other CEOs Inform the reader how these astronomical figures can come remotely near with what could be regarded as morally acceptable to the PAYE taxpayer and the idea of what would be regarded by those outside the circle of the captains of industry as socio-economically equitable. Impress us, Beat.
David Timbs | 05 February 2014


to David Timbs:David Yes, I am critical how some charities pay their executives massive salaries and leaving very little money for “good causes”. I also condemn any excessive greed in the commercial world. Excessive greed in form of massive pay for company senior executives sometimes is not something shareholders should tolerate. The ability of company board members to vote themselves massive pay increases is a licence for dishonest behaviour. What's about all the politicians having their yearly study tours to luxury destinations? We have excessive greed in all areas of our society.
Beat Odermatt | 05 February 2014


I was going to skip this item as generally they are narrowly focused and selective with information. I am well past retirement age and get absolutely nothing from the Government, except Medicare which I used to pay into. Governments of various colour have played around with Medicare to get a coat that fits and it is wanting, Government also say what private health funds can cover and so limit what can be offered to PAYING members. Don't start me on Pensions. Most age pensioners were in the work force for 50 years, the "rich" paying top dollar tax rates, but successive governments took all the cash and spent it on other things without consideration of the inevitable growth in retirement and little to expand the job markets for their children. It is all very well for governments to say everyone should save for retirement, yet governments did little to prepare for an aging population and the shrinking population of the available workforce. Governments solved the problem by increasing the retirement age, what is it now? 67, an increase of 2 years for men and 12 years for women. To enjoy retirement it is necessary to have mental and physical health.
FRED | 14 February 2014


Scaring off business is not the answer. We need to keep business here. Indeed, a lower business tax rate of 25% would help keep jobs here. Governments are beholden to 'dry' rationalist economic policies that don't work. In economic downturns pursuing contractionary fiscal policies amplify economic problems. We need strong social spending on health, education, pensions and unemployment so we can turn around problems quicker. Economic strength doesn't come from hanging more people out to dry; it comes from giving people a hand to stand-up and then move forward themselves. We can't afford to remove negative gearing; there is not enough housing stock as it is. But, allowing it only if the property is tenanted or occupied would address issues of low housing supply, with experts telling us that 7% of negatively geared properties have no one living in them. We need a genuine competition in politics and less 'me too' policy formulation, as they just race to the bottom. Government must pursue policies that are not damaging to large sections of the population. Ruining household incomes, particularly the poor is economic suicide as lower income groups have a higher marginal propensity to consume. Hurt them and retail suffers.
Matt Miller | 21 February 2014


A long-established principle of taxation is that business inputs are not taxed. Fuel excise rebate is not a concession to the mining and agriculture industries. It is raised to maintain road transport infrastructure.
Super tax concessions are limiting the rise in pension entitlements as the population ages.
Offset accounts do not reduce tax payable as the alternative is to pay the available cash into the mortgage.
Tax relief and packaging arrangements to churches and charities are a cost to tax revenue.
Peter | 22 February 2014


Matt: Numerous studies show that foreign investment is not 'scared off' by a corporate tax rate like Australia's, at only 30% (the US, for example, is at 40%). There is a huge range of factors that influence that decision.

Australia's taxes are quite low compared to comparable countries. We're lucky given how low they are that our gov't services are as good as they are! We have an tremendously efficient gov't.

Thx for the excellent piece, Bruce. Connecting the dots btw tax and public services is essential to creating a just civilisation fit for 21st century challenges.

If anyone is interested in taking action on this, check out the Tax Justice Network. E.g. petition here to stop int'l tax dodging: http://taxjustice.org.au/take-action/stop-tax-dodging/
notrocketscience | 22 February 2014


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