Way back in 1993, John Hewson went to the federal election with a package of radical neo-liberal reforms, Fightback!. It proved unsaleable despite the longevity of the Labor government and the economic troubles facing Paul Keating. In the memory of political commentators, ’93 is supposed to have been mainly about the GST (perhaps because that’s what the Liberals ultimately blamed their loss on, in effect). They forget that through public interventions by ACOSS, welfare groups and churches, as well as the Labor party’s own line of attack, the radical rethinking of social policy the Liberals’ proposals implied was well debated, and proved not to Australian’s taste.
John Howard’s great insight as a politician was that he could introduce much of Fightback! gradually, without saying so, and while reframing the political and cultural debate around social policy so as to stigmatise welfare as something akin to an addiction (“dependency”, “dysfunction”) or even a genetic condition.
The neo-liberal governments in New Zealand in the 1990s openly cut unemployment benefits to put downward pressure on wages, to create the “incentive” for people to take any job available (while simultaneously ensuring that jobs on offer would be more insecure and much worse paid). We’ve had the same thing happen here over time, via a variety of sneaky measures.
Today, Peter Martin takes a look at how different indices of consumer prices and the cost of living are disproportionately applied to different categories of welfare payments, and the consequences of that differential for the unemployed. He links to a recent article by Peter Whiteford at Inside Story which takes a more comprehensive view of this issue.
Peter Marting link should be http://www.petermartin.com.au/2011/02/cpi-does-not-measure-changes-in-cost-of.html
you put a slash at the end which 404s it.
Thanks – fixed.
I don’t think much of that particular story, but there is a deeper more important point, sure. The relative inequity between pensioners and dole recipients is the petty Howard shite that we all came to know and love, but the difference between the CPI and the cost of living doesn’t keep me awake at night, it’s pretty small in the scheme of things. And if it’s due to more taxes on cigarettes and alcohol, cry me a river. I believe in sin taxes. But for all that, the dole is inhumanly low, with capped rent assistance the worst feature.
Can’t see Gillard doing anything to fix this, but she’s Labor Lite, we know that.
I understand that the growing differential between the dole and the disability pension has seen dramatic shifts towards the pension in recent years. Peter Martin’s post here illuminates that: http://www.petermartin.com.au/2010/11/newstart-is-just-135-and-shrinking.html
To assist unemployed people to get workm aside from the basic problems of keeping a roof over their heads and feeding themselves, I would have thought it was an absolute necessity to make oneself employable one would need to be able to buy clothes to make oneself presentable to an employer, afford to have one’s hair cut for the same reason and be able to afford to pay utility bills so you can afford to shower and use a washing machine to wash your clothes to make yourself presentable. And thats not taking into account fares to employment agencies, Centrelink interviews and job interviews. I would think you would need to be able to do all these things as well as having a resume to be job-ready. Without them, Newstart is simply not sufficient to make people even look employable. So to say the best thing you can do for the unemployed is to find them a job, when because of their low level of benefit they can’t even get to first base with the requirements listed above if they’ve been unemployed for a lengthy period,
Its disgusting a Labor Government should treat people this way. Another instance when a true Labor person would tell their advisers on unemployment benefits ro get stuffed. Not that that will happen with this mob.
You’re wrong Paul. That’s how it was back in the 90′s.
Now to secure that job you also have to have access to a computer to write up resumes and covering letters (anything handwritten goes straight into the bin), have a mobile so you can be instantly contactable and have internet access.
Anything less and you’re on the fast train to dolesville.
The bar is a hell of a lot higher than when I was last looking. Add to that the removal of desperation and/or entry level jobs in supermarkets and it’s looking bleak.
Still the solution is easy. Just blame the unemployed and hope the bump in suicide rates take care of the rest. It’s what they’re doing in the UK.
I’d suggest that the one key thing to have in order to get a job is a job. Yes, it’s easier to get a job when you’re already working than if you’ve been unemployed, and the longer you’re out of work, the harder it is to get back in. Internet & mobile? Your new employer will give you those.
Not only is the unemployment benefit of $234 per week insufficient to keep the unemployed housed and fed but Centrelink are very intrusive in their micromanaging of the recipient’s affairs
- can’t get the dole until bank accounts below $500
- have to explain money deposited in account
More dole recipients are likely to find themselves on income management where 50% of the payment is quarantined to be spent of food. That will play well in Melbourne and Sydney where rents are $160 and $200 per week.
Last week the Prime Minister, Julia Gillard, said there were 2 million Australians of working age not in the workforce, there are 200,000 job vacancies.
Read Victor Quirk’s views on full employment policy at BillyBlog
tssk,
well, that just makes it worse. Who on unemployment benefits can afford a mobile, internet access and a printer.
Not the printer so much, Paul. The ink’s the killer even if your printer will allow you to use generic ink. And on $234/week, who could even afford 50-70 bucks for a cheap printer? And don’t get me started on how they’re meant to afford dental treatment.
The way the unemployed are marginalised is an absolute disgrace! It really makes me angry that their pittance is being eroded when the wealthy still have their bloated snouts in the welfare trough!
Get rid of the private health rebate and there’d be plenty of fat in the budget to get the dole up to the poverty line!
Wilful – If we add a third line to Martin’s graph we see another problem.
Pensions, including the Disability Support Pension, are benchmarked to 25% Male Total Average Weekly Earnings (MTAWE). So what if MTAWE grows faster than the minimum wage?
Imagine you’re a policy maker who thinks minimum wages are already too high. You worry that if the minimum wage isn’t held back, low skilled workers will become unemployable. And you worry about what population ageing will do the dependency ratio.
So we add the minimum wage to the graph and watch the lines stretch out to 2040.
What do you do?
Last time I was on the dole (a long time ago) I faced many humiliations. Two I remember quite well.
-I was forced to cash out my super. The DSS then accounted that income on the whole ammount pre-tax.
-I had a couple of interviews by Centrelink. In my flat. Low point. Him going through my underwear drawers to look for signs of co-habitation. Lower point. Having an arguement with him when he wanted to access my flatmates’ bedroom. (My arguement? He’s a taxpayer. You’re not going in there.) Lowest point. Having to prove that I wasn’t in a homosexual relationship with said flatmate by writing out a stat dec.
The intrusion into your private affairs is the worst thing about the dole. I’d do anything to avoid it again.
Don @10, enough to say I’m one of the bunnies in the bureaucracy who’s done exactly the exercise you point to, as well as many related ones. You can, in fact, do most of those exercises from publicly available data if you know where to look.
Yes, I agree the way they’ve treated the unemployed (many of whom these days are anyway only marginally employable at best because of disability, mental illness, etc), is an absolute disgrace to a Labor government. And bad economics as well as bad social policy.
I’m not commenting beyond that – too close to my current work.
Part of the problem is that we have been in continuing recession for over 35 years with official unemployment over 4% and real unemployment much higher than that. As a consequence, we have redesigned jobs in a way that has seen work that used to be done by the less able merged into jobs that require higher qualifications, we have seen a rise in the qualifications “required” for a job driven in part by the availability of people who have those qualifications and we have forgotten how to use skilled workers efficiently.
Worse still, we have been lumbered with an RBA that steps in to slow down the economy whenever there is a whiff of “skills shortage” – So business never has to learn how to overcome skills shortages by either training more people or relearning how to make better use of the unused skills that are available.
It might help if we redefined “productivity” as output per AVAILABLE man hr instead of output per hour worked.
It would help if the RBA was reduced to being part of the economic team and deliberately slowing growth was seen as something other than the preferred way of dealing with temporary shortages.
It would also help if we identified what needs to be done to allow the economy to remain healthy with real unemployment levels close to what we enjoyed during the fifties and sixties.
We should:-
i) abolish unemployment benefits
ii) abolish the minimum wage
iii) replace the above two items with a modest social wage that comes without strings, and can be claimed as a tax rebate or as a weekly payment if your low income. Call it a negative income tax if you prefer.
iv) massively increase the tax free threshold
TerjeP: A social wage has the attraction of creating hassle free welfare and getting rid of the disincentives for unemployed people to take casual work, run micro business with irregular income/expenses etc. If it is combined with a flat tax at the same rate as the company tax and negligible tax free threshold it gets rid of most of the lurks that the better off use to reduce their taxes. However, a $470/fortnight (current single dole)social wage would cost about $270 billion/yr (21% of GDP) which would have to be paid for by a much larger tax take.
In this context it is worth noting that last weekends SMH Irvine index quoted the “total benefit to taxpayers each year of all tax concessions, exemptions and loopholes from federal taxes” at a massive $113 billion so perhaps such a radical change to welfare and the way we are taxed is not as crazy as it seems. Particularly true that the rate for children will be lower. If we got rid of the lurks at state level we may even be able to pay a decent social wage by taking away the lurks.
But John D, wouldn’t a social wage of $470/fortnight immediately result in a $470/fortnight reduction in the wage bill of all employed Australians? So the shift would be largely neutral in terms of GDP, it would just move a portion of wages paid from employers to the government? And in theory, that $470/fortnight would then go into employers’ pockets, being taxed either at the company or personal tax rate; unless it was invested, in which case it would be taxed at the GST.
So I don’t think the increase in taxes would be quite as high as your figure implies.
sg: I included the % of GDP to give a feel for how much the social wage would add to the tax bill. The cost of the social wage does not detract from GDP.
It is years since I ran the figures but the last time I looked the flat tax/social wage combination would favour the poor and rich at the expense of middle income earners. (Not brilliant politics?)
There are likely to be some general financial positives out of the SW/flat tax:
1. Massive savings in cost of administering the tax system.
2. Removal of massive disincentives for the unemployed to work should add to tax take.
On the downside, many of the lawyers, accountants and administrators who benefit from the complexity of our system could be unemployed. (But brilliant politics?)
The most recent estimates I’ve seen are now quite out of date but if you wanted to pay a guaranteed income at the level of the age pension you would have needed a constant marginal tax rate of over 50% to pay for it, and I would guess that it is now over 60%. And that is without a threshold (since the basic income is the threshold).
A $470 a week social wage would not result in a $470 a week reduction in all existing wages since there are already quite a lot of people receiving a range of part-rate benefits.
You can reduce the headline outlay cost by paying part of it through the tax system, but this does not change the overall budgetary cost.
Any proposal that involves less than a 50% or 60% marginal rate either implies a large reduction in existing benefit levels or a substantial increase in the deficit, or both.
You can reduce the income tax rate required by increasing the GST, but if you then want to protect the real value of the basic income or negative income tax, you have to increase the level of the basic income to compensate.
John – Thanks for engaging. Let me leave aside my point (iv) for a moment. I’ll come back to it later if you like because I think it is very achievable but it will cloud the discussion at the moment.
Your calculation assumes that everybody gets something that they are not already getting. However that is misleading. Firstly the social wage would replace or reduce a lot of existing welfare benefits. It could be readily paid for by increasing the zero and 15% tax brackets to 30% such that middle and upper income earners get the social wage as a tax rebate rather than having the existing lower tax brakets. They would not be worse off but neither would they be better off or add to the cost of the initative. In essence above an income of about $30-40k you wouldn’t see a dime but below that income level you would see an increase in income, but not by the full amount of the social wage until your income hits zero. At which point you were problably getting paid something in the way of welfare under the previous system anyway. There is every reason to believe that the system would cost less once the employment related incentives are factored in. Obviously you would need a more detailed costing to get an exact formulation worthy of implementing. However the LDP did a basic costing of a similar system a few years ago with the help of an ex treasury economist and it was certainly feasible then.
The upside of a social wage over a minimum wage is that when you get work, and without a minimum wage there will always be some sort of work, then the work wages top up your social wage income rather than penalise it. EMTRs would be a lot lower. There would be more dignity because you can get work, even if low paid, and nobody harrasses you regarding the government handout.
Point (iv) is the next step. That you pay for through economic growth and a cap a freeze on real (ie inflation and population adjusted) government spending. Within 10-15 years you could abolish the entire personal income tax system. However if you just want to abolish income tax for those earning under $40k you could do it much quicker.
Peter W: If you take welfare expenditure and tax lurks and perks off the $270 billion you end up with $67 billion or 35% of the $189 billion received as taxes on income for 06/07. This figure assumes that every Australian man, woman and child receives the magic $470/fortnight There would be additional savings as a result of the much simpler tax system.
My take is that the social wage/flat tax approach is not completely ridiculous and certainly has advantages – but whether it is worth pushing hard for I simply don’t know.
John D
Apologies for the long response.
I think the difficulty is in the detail.
In June 2010, the estimated population was 22.3 million, of whom 16.6 million were 20 years and over.
To start with I don’t think you need to pay children the same as adults (that is overly generous even by my standards!) The highest current rate for teenagers is around $6,200 a year. So paying that amount to everyone up to the age of 20 costs about $35.2 billion. Paying everyone 20 years and over the current single rate of Newstart ($12,250 a year) costs around $196 billion. Putting the two together the “gross” cost would be around $230 billion.
Now the original post by Kim pointed out that NewStart is a lot lower than the Age Pension, which including supplements is around $18,700 a year. If you wanted to pay everyone 20 years and over at this amount, then the gross cost is around $310 billion, which with family payments gives a combined cost of $345 billion).
My comment did refer to paying people at age pension rates. You don’t need to do this, but if you don’t you cut benefits for the aged, people with disabilities and carers and some lone parents by around $6,000 a year or roughly one third. Alternatively you can have a separate system for pensioners, but this complicates the system again, since you have to go through approximately the same administrative processes to decide who qualifies for the higher rate of payment.
The $189 billion you refer to as coming from taxes includes taxes paid by companies and superannuation funds. If you only include income taxes paid by individuals then the amount collected in 2008 was $121 billion. Total income of individuals was $583 billion (taxable income is lower).
The most recent figures I have seen for social security and welfare spending was that in 2008 it was $97 billion (although this includes a range of things like child care subsidies and rent assistance and some services as well). This amount will have gone up since 2008, notably because of the increase in pensions.
But in the current system out of the $583 billion of individual’s incomes, income tax is $121 billion or 21% on average. If we were to pay all adults the current rate of NewStart and kids the current highest rate of FTB this would have a gross cost of $230 billion or 39% of total individual income, and if we were to pay all adults the age pension rate it would cost $345 billion or 59% of total individual income. (Note that total individual income includes taxable social security benefits, so there is a bit less than this in terms of other income to be taxed.)
Now we could get more money out of corporations or superannuation funds, but the crucial question is how much?
There is also around $100 billion in tax expenditures as you mention. So if you add this entire amount to the total cost of current social security and welfare provisions, you are getting into the ballpark of the $230 billion needed to pay all adults the NewStart rate. However, you need to find another $115 billion if you want to pay the Age Pension rate.
However, the crucial point about the estimate of tax expenditures is that they are estimated on the basis of what people would pay under the current tax system and also assuming that there would be no behavioural response to any change in tax expenditures.
The largest tax expenditure is the exemption of the family home from capital gains tax – estimated to be worth over $30 billion (if I am not mistaken).
The problems with getting this money are multiple. First it assumes that the same number of houses would be sold at the same price if we taxed capital gains on owner-occupied housing. Now assuming that any government could successfully implement such a tax, I suspect that behaviour would change – fewer people would sell houses and prices are likely to drop. The second part of this might be desirable from some perspectives (unpopular with current owners!), but it would mean that the revenue collected would be less than the tax expenditure estimated. In addition, this does not take account of any other changes. For example, currently we have deductibility of mortgage interest expenses for investment properties and most countries that have family homes included in capital gains also allow mortgage interest to be deducted. The overall impact on revenue of this is not clear. You could argue that we shouldn’t allow deductibility of mortgage interest, but again there are problems of implementation.
Some of the other smaller tax expenditures are also not really available when you introduce some form of GMI/Basic Income. For example, there is about $2 billion in the tax exemption of family payments, $0.5 billion in exemption of child care benefits, and $2 billion for disability payments, plus there are various tax offsets for pensioners, beneficiaries and other low income people (and not so low income older people). Now unless you make the basic income taxable, these tax expenditures don’t exist when you shift to the Basic Income/GMI and flat tax model.
The other big item relates to the concessions of various sorts for superannuation. Now I agree that these are ridiculously over-generous in many ways, but I doubt that you can just abolish them and expect to collect the amount of revenue that is estimated in the tax expenditures.
All of this does not mean that the system could not be simplified and that you couldn’t move towards some features of a Basic Income with a flat rate of tax. But it is not easy to do this, particularly if you don’t want significant losers among low income households.
PW@21
In same ballpark, Taxation statistics 2007-08 says australia’s landlords made “$32.7 billion in rental deductions”,
For perspective: those components of the deductions witheld from consolidated revenue pretty well match the aged ($32b) & families and children ($28b) components of the $97b socal security and welfare spent by consolidated revenue.
My fav. disparity is how taxees paying as individuals only claimed $33.6b (6%) in total deductions from their declared total income of $583.4b while folks using partnerships claimed $140.8b ($88) expenses in their reported total income of $159.1b.
My fav. parity is the $13.5b “required to be paid by other individuals to meet their annual tax liabilities” ( those caught cheating, n’est-ce pas?) and the $13b wasted on those those terrible disabled people.
TerjeP: When I first looked at the social wage/flat tax concept I calculated that a family averaging $50,000/yr over 5 years would, if I remember correctly, pay anything between 16 and 42% tax depending on how evenly the income was distributed over time and between partners. This is not only unfair but seeking to take advantage of this discrepancy is behind many tax reduction schemes. This problem can be avoided by using a flat tax with no tax free threshold. The problem remains if there is a tax free threshold and there are times when one or both partners earns less than the threshold.
I was also wanted a system that, if anything, made low income earners better off without risking stagflation as well as getting rid of welfare traps. Hence the use of the social wage as an alternative to the tax free threshold and a replacement for most forms of welfare.
I have no inherent objection to varying the social wage with age but do object to variations depending on whether someone has a partner or not.
It would be simpler if the social wage did not take account of disability but I think this is hard to avoid for social justice reasons.
Perhaps we should have a separate thread on this at some time?
I have political and social objections to some of terje’s points. Most of this due to inherent bias.
So putting that aside I can see that businesses could pressure the government to lower the minimun wage by running the arguement “you say the dole is generous enough to live on, why not then make that the minimun?”
the logic works. Either the governments agrees to lower the minimun wage or they look like liars.
Mind you it would suck to be someone on the minimun wage and have it lowered to dole levels. But social wellbeing is not something business need concern thmeselves about.
tssk said:
Not much of an arms business in Oz, tssk.
As for the logic of getting people to do the lowest paid jobs for the wage of the dole, I think it’s still firmly in the anticipation stage. Could go either way still, that one…
From what I remember it was Medicare that killed him.
At the last moment people voted to keep it, as all the exit polls showed.
Everyone hated Keating at that time and knew that he basically agreed with all the neo-liberal economic crap he espoused ( a true student of Stone he was). Plus they knew he was a hypocrite and wanted even more tax cuts for the rich and the corporates than had already been given under Hawke.
Plus a GST of course, which Keating has pushed hard of course, and everyone remembered that. Note the GST is the ‘ordinary persons tax’, rich people don’t pay it (a well hidden secret). Plus even a 5 minute think would destroy any of the arguments for it. Such as the ‘black economy’ argument. Really? A GST expands the black economy (think Italy, or here now).
But the only difference between him and Hewson was Medicare, which would have been abolished. And that got Keating in. Nothing else.
Note how much smarter Howard was, as he promised to keep it (which he did). He knew that any attempt to get rid of it was electoral death.
I mean apart from that was there a hairs difference in policies (as there is no difference now, except that Labor is even more pro coal than the Liberals)?
Both are fully signed up member of the post Thatcher/Regan neo-liberal economic consunsus:
Which is to push the neo-liberal economic model, which basically is: smash unions, rich pay no tax, stuff ordinary people, destroy the productive economy, expand the rentier and speculative economy, leave ordinary people as debt riddled, broken peons, scrabbling for a dollar to pay for some medicine for their children.
Bit like Egypt actually.