Who are the real bludgers?

Date
    March 13, 2013
    The Age

Welfare dependency, most agree, is an ugly thing. It is also a loaded term that brings to mind bludgers addicted to government benefits.

We're not thinking, of course, of the 44 per cent of taxpayers who get more in benefits than they pay in. Who dares suggest ''working families'', even if quite well off, are guilty of some sort of moral failing for accepting state handouts?    

It seems the better off feel entitled to better treatment by government. Their status as wealth generators is a passport to ''diplomatic immunity'' from accusations of sponging off the state - however disproportionate to need their benefits and tax concessions may be. Similarly, while age pensioners get the biggest slice of $132 billion in welfare spending (36 per cent of the budget), they are seen to have earned the right to be dependent on government - even those living in $1 million-plus homes. Pensioners and their assets are untouchable, too.

The young, unemployed and single mothers are subject to a different standard. They get lower benefits, often too low to keep them out of poverty, but are treated as a morally suspect underclass that lives off taxpayers who have worked hard for everything they have.      


The young jobless have even been accused of being ''job snobs'' who just need to get off their bums to find work. Under-30s in areas with unskilled job vacancies may lose benefits under the Coalition, which also wants long-term unemployed under 50 to work for the dole. Their ''free ride'' is set to end.      

Single mums have already copped it. The Gillard government shifted them from a single parent benefit to Newstart, which allows fewer hours of paid work before payments are cut. The government disregarded the impact on low-income families to save $728 million over four years.

However, much better-off ''working families'' who have come to rely on government to boost their finances seemingly have little to fear from the bipartisan savings drive.      

Families with children are the second-biggest recipients of welfare spending - about $34 billion a year. Most goes on family tax benefits A and B, but there are also childcare benefits and rebates, paid parental leave, schoolchildren's and baby bonuses and carer allowances. The full list of family benefits is very long.

Many who receive family welfare are, on any reasonable definition, not needy. Couples with two children in the middle 50 per cent range of incomes ($80,000 to $135,000) may qualify for most or all of the above benefits. One partner can earn up to $150,000 and the second up to $25,623 and they can still get something from Family Tax Benefit B, which costs about $4.5 billion a year.

A reality check on incomes: 50 per cent of households had incomes below $65,000 in the 2011 census. Half of all workers earn $50,000 or less.

Given how much welfare money goes to middle and high-income families, you'd think the budget costs of ''middle-class welfare'' would be a natural target for savings, especially when Abbott has declared: ''The fiscal position will always be better under the Coalition because budget surpluses and reducing debt, paying back debt, that's in our DNA.''

Yet family payments seem to be off-limits. The Coalition even proposes to add Abbott's $3 billion-a-year paid parental leave plan so benefits for high-income earners are proportionate to their earnings.      

When last year's budget trimmed the baby bonus for households with incomes of up to $75,000 in the six months after birth, this was said to be a ''vicious and savage'' attack on families. But just because maternity allowances are an Australian tradition - Labor started them at five pounds in 1912 - that does not mean we can afford to make such benefits an inviolable universal entitlement.

What about private health cover, which gets government support worth $5 billion a year? Policy holders received a 30 per cent rebate on premiums regardless of incomes until the government legislated last year to reduce rebates for single people earning more than $83,000 (the top 20 per cent) and families more than $166,000. Rebates cut out at $129,000 and $258,000. The saving is $2.4 billion over three years.

Abbott vows to restore the full rebate for all as soon as possible, for the usual genetic reasons. ''Private health insurance is in our DNA. That is why we exist as a political movement, to give more support and encourage people who want to get ahead.''

They're getting ahead all right, especially via superannuation. Tax concessions cost $32 billion a year, but any move to stem the bleeding has the beneficiaries and their advocates screaming ''class war''.      

They're also winning that war hands down, by the way. Super concessions work by taxing contributions and earnings at 15 per cent instead of a taxpayer's marginal rate, so the benefit expands the more you earn. Treasury calculates the top 5 per cent of earners get 37 per cent of the value of concessions. The average male's total super balance as they near retirement isn't worth even half the top earners' average tax concessions of $520,000.

Mr Crook (well the author) has identified welfare churn

Quote:


Mind you, if you remove the churn, then the churn managers (AKA - Public Servants) would experience lots of job losses.

No argument from me.  Eliminate the middle class welfare.  That is where the payment of net tax comes into the equation.

Remove the churn and even you Mr Crook would see that the cost of Govt is bourne by an ever decreasing amount of actual tax-payers. 

Roughly 25%.  A minority enslaved by the majority in our ochlocracy...

Both of you, crookie and bam, are right to identify the takers without need in the middle and uppermiddle classes.
What's the political solution to this? Both main parties are going to keep churning it out because of the marginal seat votes, or as Latham called them - the aspirational voters.
Doesn't divert from the takers at the other end of the scale though. I would maintain there is a sizeable minority whose sole aim in life is to live off the welfare state.
I don't argue though that there are not in a lot of cases good reasons for that attitude. I mean, if you grow up in a household with two previous generations of unemployment, it's going to be difficult to follow the example.
But that in turn doesn't mean all & every kind of effort should not be made to turn it round. Can it be done painlessly? Don't know.

bogarde73 wrote on Aug 7^th, 2014 at 10:42am:

It's not so much the aspirational voters in general, but the aspirational voters that are swinging voters. They make up the largest cohort of swinging voters, so naturally they benefit disproportionately from largesse.

Governments ignore the unemployed at their peril. Unemployed people who are swinging voters usually vote against incumbent governments. When we had full employment, any government that allowed unemployment to exceed 2% was in trouble. It doesn't happen as much these days because the goalposts have been shifted and the unemployed have been shafted.

Quote:

It is unfair to single out all social security recipients just to ensure that this tiny minority is "punished". A small minority of people will attempt to exploit various financial systems, and it does not matter what that system is. The numbers are similar.

A great many more people exploit the taxation system than exploit social security. Many people make up bogus tax deductions just to get more money from the government.

Many people make up bogus tax deductions just to get more money from the government.

Probably most rather than many, speaking from my experience in a former life as a tax agent. You wouldn't believe the hostility I received when I told them to go somewhere else.

bogarde73 wrote on Aug 7^th, 2014 at 11:04am:

The structure of negative gearing is all wrong, and it is used as a vehicle for income destruction for tax purposes. Its interaction with the concessional rate of capital gains is particularly unfair.

I have always advocated the abolition of negative gearing and replacing it with a fairer system that is harder to rort. Instead of negative gearing, apply any losses against future profits for that property including the sale of the property. The only way someone can apply a loss against other income is if they sell the property and still have an undischarged loss; then it's a real loss and not a pretend paper loss. Capital gains should also be taxed at full value because capital losses are tax deducted at full value.

Swagman wrote on Aug 7^th, 2014 at 10:47am:

Probably because you don't generally define it. You also rarely discuss all the largesse claimed by the wealthy and when it is discussed your argument changes. Here, for example, you're claiming that negative gearing is "legitimate" yet Australia's unrestricted negative gearing regime is the most generous property tax concession in the world and is rorted openly. It costs billions of dollars a year. We don't need it, and other fairer systems are available that will still provide for fair tax deductions but not so as to provide a vehicle for tax rorts.

Swagman wrote on Aug 7^th, 2014 at 10:47am:

Income tax deductions on superannuation contributions.

Superannuation contributions are taxed at a flat 15% for all taxpayers, and the wealthy receive most of this concession disproportionate to their earnings. Some low income earners actually pay a higher rate of tax on their contributions, while high-income earners can reduce their tax by a huge amount. It is being rorted on a massive scale: high-income earners over the preservation age can dump most of their income into super, receive the 15% tax concession, then take it straight out again.

There are better ways to encourage savings that don't cost tens of billions of dollars a year.

Swagman wrote on Aug 7^th, 2014 at 10:47am:

Deductions against income are legitimate expenses, but the structure of negative gearing is not. Once that loss can be applied against other income, it ceases to be a legitimate deduction against expenses incurred for that asset.

bogarde73 wrote on Aug 7^th, 2014 at 12:14pm:


Yes - the discussion point is whether or not changes are needed and in what areas.  From what I can see, recent governments have a dismal showing in the economy, so something needs to be done to rein in excessive borrowing and spending on 'dead stock' that produces nothing.  Someone said that the money invested in property would be better put to use in funding industry and real infrastructure.

Something to look at.

Many a current tax dodge could be banished overnight with the stroke of a pen.