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Monday, 16 June 2014

Joe Hockey: all's fair in welfare and budgets | Business |

Joe Hockey: all's fair in welfare and budgets | Business |

Joe Hockey: all's fair in welfare and budgets

by  Greg Jericho

When it comes to the statistics on inequality and welfare dependence, it all depends on how you look at it

Joe Hockey
Joe Hockey suggested his critics were indulging in '1970s class welfare'. Photograph: Dan Himbrechts/AAPImage

It’s abundantly clear that the criticism of the budget as being
unfair and fostering inequality has hit a nerve. Last week the
treasurer, Joe Hockey, attempted to sell his budget as fair in a speech
he gave to the Sydney Institute, entitled A Budget for Opportunity.
Unfortunately, the evidence Hockey used to make his case showed that his
budget fails to meet his own objectives.

After firstly suggesting
his critics were indulging in “1970s class warfare”, he attempted to
argue that his budget was all about equality. But whereas he accused his
critics of being concerned about equality of outcomes, he was focused
on equality of opportunity.

Apparently this is a superior form of equality. And it appears he views the main impediment to such equality is welfare.

noted, with strange amazement, that the amount spent on welfare
amounted to “35% of the federal budget”, and that more is spent on
welfare than “on any other single policy area including health,
education or defence”.

We can only hope Hockey did not think this
unusual, because we have always spent more on welfare than on health,
education or defence. Even the US, with its huge defence budget, spends
more of its federal budget on welfare than defence.

And actually, our spending on welfare has declined over the past decade as a percentage of both the budget outlays and GDP:

Spending on both health and education have outpaced
social security spending this century. But social security was Hockey’s
main target, and he argued that “payments are too broadly available to
too many people. As a result, less is available for those most in need.”

support this assertion he noted that the OECD had recently found that
“Australians in the lowest 20% of income had the highest reliance on
government for income of any country in the world.” This is not quite
true – we have the fourth highest reliance.

He also
asserted that our lowest 20% “have less private income and more
government income than Germany, France, the Netherlands, Finland, Norway
or many other countries where government is much larger and the private
sector smaller as a percentage of the economy”.

is true, and I guess he thought it a winning point. Hilariously,
however, the very OECD report that he cited shows that our welfare
system is actually not too broad, but highly targeted. Indeed, his own
statement gave it away. If our government is a much smaller part of the
economy, and we spend less than other nations overall on welfare, but
our lowest 20% get more welfare than others, then clearly our welfare
system is much better targeted.

The OECD’s report, Economic Growth
from the Household Perspective, which Hockey cited, did indeed show
that our lowest 20% are more dependent on welfare than most other
nations, but it also showed our top 20% were the least dependent on

Even more damning to Hockey’s argument, Australians on
both median and average incomes are less dependent on welfare than all
other OECD nations except Mexico and Korea:

If Joe Hockey wants to suggest our welfare system is too
broad he is best not to compare us with Germany, France or the
Netherlands. And perhaps in future he should also not cite a report that
actually contradicts his argument.

The OECD in the
past has, like Hockey, talked about equality of opportunity. But for
equality of opportunity to mean anything it needs to be about more than
just as Hockey would suggest, about getting people to the starting line.
How you do after the race starts has a lot to do with luck and
individual ability, but also the situation of life into which you were

In 2007, the OECD noted that equality of
opportunity is highly linked to social mobility – i.e. the level with
which your parents determine your income. It noted that a driver of
increasing equality of opportunity was to reduce income equality. It
also noted that a key role in improving equality of opportunity is
“early childhood education, care and health”.

These “in-kind
payments” – such as education and health care – are crucial for reducing
inequality. As I noted in May, while such benefits go to all, they
greatly reduce inequality.

Hockey, however, seemed to suggest our
current tax system could be considered unfair. He noted that “just 10%
of the population pays nearly two thirds of all income tax. In fact,
just 2% of taxpayers pay more than a quarter of all income tax.

Maybe these taxpayers would argue that the tax system is already unfair.”

And he is right, the richest do pay a lot of our income tax:

But as I noted last month, such people are dentists,
doctors and lawyers. They have achieved such an income in part because
they were able to attend subsidised education at a university. In
effect, the public subsidised them then so that when they earn more
later, they are expected to take on a greater share of the tax burden.
And that tax burden allows the government to help lower income people
get good health care and education so they might be able to go to
university, get subsidised education and become one of the higher tax

It’s a social contract, and it works well.
Australia’s social mobility is quite good – not as good as in
Scandinavian countries, but not as bad as in the US.

But when Joe
Hockey turned to talk of higher education he noted that the government’s
policies mean that “no longer will the brickie, the painter, and the
chef be subsidising the degrees of the dentist, the doctor or the lawyer
to the extent that they currently are.”

And this causes a fatal rift to the social contract.

the subsidy to those studying to become doctors, dentists and lawyers
is reduced then so too is their obligation to pay the tax burden that
they do. This budget inevitably creates a drive for lower taxes for the

And with lower taxes means less government revenue to
spend on benefits, and less to spend on education and health and other
benefits which decrease income inequality and improve equality of

Joe Hockey’s budget contradicts his own
statements about what it is meant to achieve. In his speech, Hockey
suggested that he admires “Australians’ egalitarian concerns
forfairness”. He may “admire” those concerns but his budget displays he
does not share them.

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