More reform threatened

The Turnbull government is apparently keen to undertake more reform, in this case applying to the welfare system. This weekend I saw a couple of media reports, unsourced but apparently based on material supplied by Social Services Minister Christian Porter, based on the “alarming” projection that welfare payments will rise from $154 billion to $270 billion in a decade, more than can be accounted for by inflation and population growth.

A huge dollar figure makes for a scary headline but not for sensible analysis. The prosaic facts underlying this projection are
(a) Welfare payments are dominated by the old age pension
(b) The value age pension increases in real terms over time, since it is linked to earnings
(c) Even allowing for an increased age of eligibility, and more reliance superannuation, the proportion of the population eligible for the old age pension is unlikely to fall

Put these facts together, and it’s virtually certain that the welfare bill will grow broadly in line with national income (usually measured by GDP), and therefore will outstrip growth in population and inflation. Indeed, a quick check suggests a compound rate of growth of about 6 per cent*, almost exactly in line with nominal GDP (assuming 3.5 per cent real growth and 2.5 per cent inflation).

The government’s proposed reforms appear to involve attacks on recipients of welfare in the popular media sense of the term (Jobstart, disability benefits and so on). But the only ways in which the growth rate of the welfare bill can be held much below that of GDP are
(i) Freeze the real value of age pensions, as has been done to Jobstart since the 1990s; or
(ii) Reduce access to the age pension, either by further raising the access age or by tigntening means and assets tests.

* Porter’s briefing apparently suggested 7 per cent, which I can’t replicate. Feel free to check.

56 thoughts on “More reform threatened

  1. Ivor :
    Everyone has the right to a single home to live in for as long as they want.

    That’s a completely different discussion, though. It’s also radical, in that I don’t think it’s ever been implemented by anyone, anywhere. Even basic hunter-gatherer societies demand that people work to have somewhere to live, if they can. And all the modern social housing I’m aware of restricts both who can move in, and kicks people out if they misbehave. You can’t just rock up and say “gimme house”, then start collecting bodies in barrels.

    As far as pensioners go I’m a bit torn. I’m aware that my family have been forced to sell properties that we would rather have kept, and another side have a family trust specifically to avoid the laws that would force the sale of that property. It’s all very well saying “gift it to the kids” but that will be assessed as a market value transaction and taxed accordingly (which is a good thing), but not everyone can afford to pay the tax on something that has appreciated to the point where everyone involved couldn’t jointly buy it. So we end up with tax dodge trusts set up so that the family farm can stay in the family.

    Not sure what the solution is, and I suspect that the best option is actually forced sales. But that requires more than just taxing and forced sale of houses belonging to people unable or unwilling to transfer their house to a trust.

  2. @Ernestine Gross

    Thank you for your comprehensive reply. You have convinced me that “a progressive inheritance or death duty” would be the way to go. That could help ameliorate a lot of other developing inequality problems in the extant economic system. I mean in particular the current patrimonial concentration of capital as identified by Piketty. The issue I guess is how do we Australians as a polity ever get those taxes instituted (or re-instituted) in practice?

    Overall, I still adhere to the position that our systems of ownership and allocation are wrong in the first place. Preventing most maldistribution in the first place would be preferable to redistributing afterwards. You might see a different handling of markets and institutions as the answer (complete the markets, ensure minimum wealth conditions etc.) I might see a different ownership structure (worker owned and managed cooperatives) as the answer. The comprehensive answer might even be a hybridisation of those sort of ideas. But that is another long discussion of course.

  3. Thanks John. Just a note re unemployment benefits: the allowance hasn’t been called ‘Jobstart’ for many years. It’s now known as ‘Newstart’.

  4. @Mercurial

    I had never thought about this before and I should have. The change in terminology is openly revealing. It is clearly no longer realistically expected that the process will lead to a job start as the economy is too weak to create enough jobs, So it just gets a wish-washy, weasel word of new start which could mean anything.

    It is common and correct to be reminded, even officially, that we should not use denigrating terms when referring to different groups of people. So why is the motto “Work for the Dole” still in official sanctioned use? With its clear association with the term “dole-bludger” and the general negative connotations of the word “dole”, it is clear that as a disadvantaged minority, the unemployed are being denigrated.

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