Centre for Policy Development's Blog, page 122

Miriam Lyons | The Drum Budget 2011

CPD's Executive Director Miriam Lyons joined Ross Cameron and Marius Benson on the ABC's budget night edition of The Drum. Broadcast shortly before the budget speech, host Steve Cannane prompted discussion on the targetted surplus, leaked cuts and spending priorities. What are some of the missed opportunities in this year's budget?

Watch Miriam on The Drum here.

Insight | Budget 2011

CPD thinkers will be watching closely at the give and take that is Budget night to decipher what the axe-wielding and spending really means.

Here's a preview of what will be in this special Budget edition of InSight:

Asylum seekers continue to suffer because of poll driven policies and their fate remains an enormous political problem for Australia. John Menadue & Kate Gauthier add up how expensive trampling on human rights really is. They find that a new approach is not only urgently needed but that it but saves money too.
Can arbitrary cuts under the guise of efficiency deliver a better public service? James Whelan & Jennifer Doggett take a look at the political and policy failure that is the Efficiency Dividend. What will these continued cuts mean?
This is Gillard's first budget as PM. She has abandoned her predecessor's rhetoric on equality. And Swan does not seem to be implementing a Keynesian approach as Treasurer. John Quiggin looks at the resurgence of neoliberalism under a Labor government.
Does eliminating all debt really add up to good economics? Ian McAuley considers whether a budget deficit is really what we should be worrying about.
Will Swan deliver a budget that capitalises on Australia's natural advantages to rapidly scale up clean energy technologies? Fiona Armstrong & Laura Eadie look at the investments being made to green our economy and the options beyond that.
There's already been a great deal of noise about the proposed cuts to welfare. No surprises that the most vulnerable in our society are bearing the brunt of cost cutting. Eva Cox takes a look at who is still getting the government handouts – the rich.
When the axe is being wielded, it is often the arts that feel much of the pain. Ben Eltham takes a look at what the budget means for arts and culture.
Will this budget deliver the reforms our ailing health needs or will the cuts cripple it further? Jennifer Doggett examines how healthy this budget really is.

Ben Eltham | Expect A Deficit. And Don't Worry

Tonight's budget will hold some surprises but being in deficit won't be one of them. As for commentators who ask whether Swan's been tough enough? Ignore them, writes Ben Eltham

Read Ben's article, originally published at New Matilda, here.

The first thing you need to understand about tonight's budget is that it will be in deficit. The second thing to understand is that this is not a bad thing.

It's a measure of just how effectively the Opposition has crafted its economic message against Labor — and just how poorly Julia Gillard and Wayne swan have explained their own policies — that the Government's entire fiscal strategy is being framed around getting the budget back into surplus by 2012-13.

Believe it or not, the sky won't fall in if the budget does not get back into the black in the next couple of years. Australia has one of the smallest government debts of any industrialised country. The economy is growing and the expected income and company tax receipts from rising wages and corporate profits will automatically take the balance sheet into the positive in the next few years.

In other words, all the tough talk from the government and doom-laden rhetoric from the Opposition is simply smoke and mirrors.

Australia is not even a very highly taxed nation. Depending on what measures you use, Australia is either below average or almost at the bottom of the list when it comes to the tax take of the government as a percentage of the economy. Compared with many high-taxing European nations, we run our welfare state on a shoe-string; nor do we spend anything like as much on infrastructure or health and education as many otherOECD nations.

So there's plenty of room for the government to move — if it wanted to. But, for a range of reasons entirely to do with politics, the government has tied itself to an ambitious program of spending restraint in order to demonstrate that it is a "responsible economic manager". That's because the Opposition has effectively won the battle of ideas over whether we should be borrowing to invest for the future, or running down our shared physical and human capital in order to balance the books. Debt and deficit = bad; surplus = good.

The problem is, there is no way the government can deliver a surplus tonight. This will allow irresponsible critics like Joe Hockey to bang on about massive debts and deficits when, in fact, these numbers are tiny by international comparisons.

It doesn't help that many of the so-called impartial commentators, like Deloitte Access Economics' Chris Richardson, share the curious fixation on government spending, without stopping to ask whether a modest deficit might be a good price to pay for a stimulus package that avoided the deep recessions still gripping the US, UK, Spain, Ireland and many other rich nations.

Yes, this Government has certainly overseen some debacles in spending programs. The home insulation program may not actually have been the safety disaster everyone seems to believe it was, but it certainly was an expensive way of addressing greenhouse gas emissions. The Defence Department continues to warm its metaphorical slippers by burning piles of $100 bills, and there have been the usual blow-outs in immigration detention costs. But these are quite minor in the broader scheme of a federal budget worth more than $300 billion. Let us not forget that one of the single biggest Commonwealth outlays are grants that go straight to the states in order to pay for schools, roads and hospitals.

The madness of Wayne Swan's quest to prove his budgetary mettle is that on any objective measure, he's already proved it. As a Labor Treasurer, he's been highly successful at avoiding a recession, restraining government spending, while still looking after the least fortunate with measures such as a permanent increase to the base rate of the pension and big tax cuts low-income earners. Unfortunately, Swan gets very little credit for such achievements. In the topsy-turvy world of Australian political commentary, the government cops a lot of criticism for things it has no control over, like the cost of electricity bills, and very little credit for the things it has done that have been highly successful — such as the stimulus package.

Hence, tonight's budget will unsurprisingly be analysed in terms of whether the Government has been "tough enough". This is nonsense. The Government does not need to be tough. There is no crisis in government spending — in fact the Government spends quite responsibly.

Of course, there will be winners and losers. Some people will have their benefits trimmed and some public servants will lose their jobs — or at least be made redundant and moved elsewhere in the bureaucracy.

There will also be plenty of small, targeted bribes for certain interest groups — many of which have already been announced. This is the normal politics of the budget.

And there will be a deficit. A very large sounding deficit, perhaps of as much as $50 billion. But when your hear that number, just remember that it would have been perhaps twice or even three times larger if the Government had not implemented the stimulus, and Australia had slipped into a deep recession.

Finally, pay no attention to anything Joe Hockey says in response to the budget. That way you can save yourself the trouble of trying to work out why it doesn't make sense.

 

 

A New Approach: Breaking Australia's stalemate on refugees and asylum seekers

CPD is preparing to release a briefing paper which puts Australia's refugee and asylum seeker policies under the spotlight.

A New Approach will examine Australia's refugee and asylum seeker programs, past and present, within an international context – and outline options for real reform to break the current impasse which has slowed our nation's progress towards truly effective solutions.

This report promises practical alternatives for dealing with refugees and asylum seekers more fairly and cost-effectively, to shift this vexing public policy challenge from stalemate to success.

As part of the release of A New Approach, CPD will also publish an education manual in e-book and booklet formats, under a Creative Commons license, to help inform all Australians about the facts of Australia's immigration program, and to widen the circle of inclusion of public debate on this critical issue.

To stay up-to-date with commentary from the authors of A New Approach in the lead up to the report's release, email: refugee.policy@cpd.org.au

"If Malcolm Fraser had decided that he wouldn't take Indo-Chinese refugees until he'd consulted opinion polls or focus groups, Australia would never have taken Indo-Chinese refugees. But Malcolm Fraser didn't take polls. He decided leadership was essential, it was something that Australia had to do, morally justified, and would be of benefit to this country if we did so."

- John Menadue, Former Secretary of the Department of Immigration and Citizenship

About the authors

John Menadue

John is a Board Director of the Centre for Policy Development. He was formerly Secretary of the Department of Immigration in the Fraser Government 1980 – 1983, when the Immigration Minister was Mr Ian McPhee. John was also previously Secretary of Prime Minister and Cabinet under Prime Ministers Gough Whitlam and Malcolm Fraser, Ambassador to Japan, and CEO of QANTAS. More recently, John shared his insights into to the story of Australia's multicultural mix in the SBS documentary series Immigration Nation.

Kate Gauthier

Kate is on the academic staff of the Migration Law Program within the Legal Workshop at the Australian National University. Until recently, she was the National Director of refugee policy lobby group A Just Australia.  She is the chair of the community group ChilOut – Children Out of Immigration Detention and sits on the NSW Legal Aid Review Committee.

Formerly, Kate worked as the immigration and refugee policy adviser to Senator Andrew Bartlett and as the community liaison officer for Senator Aden Ridgeway.  She was a co-founder of the Refugee Assistance Project, a board member of Pol Min (Political Ministry Network) and has regularly visited remote detention centres for 10 years. Kate has sat on a variety of government and Ministerial advisory panels on asylum seeker issues.

Eva Cox | Smarter Budget Cuts? Government to Target the Usual Suspects

Did Budget 2011 to deliver "wild" cuts? Eva Cox questions  whether the balance is right.

Read Eva's article on the proposed budgets cuts and the tendency for the rich to continue to benefit at the expense of the poor, originally published at Crikey, here

With the federal budget in the next week, there is the usual jockeying for headlines by various groups. The interest groups include those who want more for their constituency and those who are scared they may lose some benefits or privileges. It seems that the more powerful the groups are, the less likely they are to have their government support cut. The cabinet has not reported focus on our many programs of welfare for the rich, such as superannuation concessions, but is making lots of noise on the need to persecute poor beneficiaries.

We need to question whether the balance is right. Why spend a large amount of public funds on executives car subsidies, rich retirement subsidies, privileged healthcare subsidies and other such tax expenditures? They are politically easier to hide as it's usually money that is not collected rather than money that is spent.

However, the net result is the same, general revenue is equally reduced by the concessions and expenditures. The Henry Review was in favour of rationalising and making these types of payments more equitable but this is part of his report that neither side has adopted or even considered.

It is interesting to look at the relative costs of some such programs. According to the Australian Tax Office tax expenditure statement2010/11, the estimated tax concessions on superannuation contributions will cost us more than  $30 billion next year. This is not much less than the $34 billion we will spend on the age pension. However, they serve different purposes: one funds those older people without enough income, (but could be trimmed at its upper levels); the other primarily supports higher income earners by diminishing their tax liabilities by $20 billion tax, (30c plus) in 2011/12.

This includes the 35% estimate of the concession that goes to the highest income earners who are unlikely to ever claim the age pension.

This expenditure is the difference between individuals being taxed on their super contributions and earnings at their marginal tax rate and the 15% concessional tax in super. This "spending" is due to rise by $7 billion in two years presumably in part because of raising the contribution rate towards 12%.

Reducing this by two thirds would allow some concession to people up to median earnings and add the bulk of $20 billion extra to spend on the equity programs rather than supporting the relatively well off. This sum would cover current spending on the disability support pension at $13.4 billion and job seeker income support at $7.2 billion and would allow the latter to be raised to take recipients out of dire poverty.

The policy choice is to use public money to mitigate the difficulties of surviving on low payments or forgoing tax to ensure a more comfortable tax payer supported retirement for the better off. Note that ACOSS points out that Australia is mean in its income support, as we spend 3.2% of GDP on payments versus 6.5% on average in the OECD.

Many other public "payments" benefit the better off and could be cut without seriously affecting their financial viability. These include the following tax expenditures and payments.

Dependent spouse offset
$485 million


Heath ins rebate
$3500 million


Tax shelter for trust etc
$1400 million


Termination payments
$500 million


Tax baby bonus ( mat leave is taxed!)
$110 million


Mature Age Worker Tax Offset
$445 million


Concessional tax non-superannuation termination benefits
$1300 million


Application of statutory formula value car benefits FBT
$1220 million


Capital gains tax discount for individuals and trusts (50%)
$6700 million


Total
$15,160 million

Cutting these back would provide maybe another $15 billion-plus that could be saved or even substantially shaved without leaving anyone in dire distress or even significant financial stress.

There are also other areas of spending, such as defence and immigration, that could have major cuts and make Australia fairer. I could suggest "wild" ideas such as abolishing mandatory detention and closing Christmas Island, and other expensive, either unjust or ineffective, programs. Money could be saved by not extending income management as it costs about $80 per week per person for administration. This would allow more money to go to expanding Aboriginal-controlled services than work.  But all these are not even up for discussion as they are seen as no-go areas by both sides of politics.

Instead, the indications are the government will go for more targeting of the usual populist scapegoats: those of working age not going to a job each day. This seems to be the new mantra of our future, get up early and take the kids to school then go to your workplace … This leaves out those who for a range of reasons, cannot be part of this and assumes this is their choice and not the result of social exclusions. There is no understanding of prejudice and discrimination by employers , for instance.

There are rumours of tightening of various rules for the formally unemployed and persecution for those presumed to be wrongly receiving disability payments. The welfare sector is alarmed and had a meeting of most major welfare agencies on Thursday, in Canberra. They were modestly asking for positive support rather than scapegoating but were substantially undermined by Mission Australia's latest pitch for government approval.

They complain of non-compliance that suggests they are promoting  their failures to make their services relevant to their many "clients", despite being handsomely paid for finding jobs for nearly 60,000 unemployed clients.

This example is further evidence of the problems of outsourcing government services to the not-for-profit sector, which is now too closely tied to government approval for its funding. Mission Australia has a long record of being overly supportive towards government policies and practices, particularly under Howard. It collects $235 million of its $295 million income from government grants so has difficulty representing the needs of its welfare clients rather than its funder. Major contractors for government services can be seen to lose their legitimacy as independent advocates.

So come budget time there are relatively muted voices defending those targets that offer the most media friendly scapegoat cuts. This rhetoric survives despite the lack of jobs for Newstart recipients. My earlier calculations showed one possible vacancy for six possible job seekers!

 

Ben Eltham | Government Converges on Growing Cultural Reality

Media and communications policy is not currently end-user focused. Will the new policy review, the Convergence Review, deliver much needed reforms to the industry?

Read Ben's article on the Convergence Review and its impact on the media and communications landscape in Australia, originally published at Crikey, here

Last week I examined Labor's slowly developing National Cultural Policy. But right now, in Stephen Conroy's department of Broadband, Communications and the Digital Economy, there is another policy review under way — one that may well be more important for the future shape of Australian cultural policy than the National Cultural Policy itself.

The Convergence Review will, according to the government, "examine the policy and regulatory frameworks that apply to the converged media and communications landscape in Australia".

Chaired by former top IBM executive and current Screen Australia chair Glen Boreham, the review's terms of reference are very broad, including the relevant legislation such as the Broadcasting Services Act 1992 and the Telecommunications Act 1997, as well as regulators such as ACMA and no less than "the structure of the broadcasting, media and communications industries in Australia".

To say the review is long overdue is a little bit like saying it would be a good idea to buy a 56k modem so you can check out Geocities on your Netscape browser. And yet much of Australia's media and communications policy and regulation shares a pre-internet mentality.

Last week, the Convergence Review issued a framing paper, whichBernard Keane examined. He wrote that "the biggest threat in the regulatory consequences of this convergence review comes not via the NBN but from our big media companies and a government willing to play the traditional role of hand maiden to their desire to destroy competition".

It's hard to argue with him on this point: the history of media regulation in this country has repeatedly shown that powerful media owners are given far more consideration in policy formation than ideas of competition or the interests of audiences. For those who doubt Keane, look no further than the anti-siphoning rules, the no fourth network policy, or the remarkable decision to hand the free-to-air networks hundreds of millions in license fee rebates.

Given the importance of the Convergence Review to the eventual shape of the content industries in Australia, it's pleasing to see that a debate about the policy and regulatory frameworks surrounding them has finally emerged. Yesterday saw the release of a high-quality research paper on convergence by the University of New South Wales' Catharine Lumby and Kate Crawford, who are senior academics at the Journalism and Media Research Centre there.

Entitled The Adaptive Moment: A Fresh Approach to Convergent Media in Australia, the paper does a much better job than the Convergence Review Committee of setting out the patchwork quilt of competing state and Commonwealth regulations that supposedly govern Australian communications, media, broadcasting and the internet.

It's not a pretty picture. As they point out, because the internet is "a multifaceted, distributed network with no centralised gatekeeper", the "vast range of communication options it contains were once governed by distinct policy areas". As a result, "policy responses to convergence end up being ramshackle and jerry-built".

As a case study, they look at the absurd situation surrounding Australia's lack of an R18+ classification for video games. Australia is, in fact, "the only country in the developed world" without one, leading to the perverse outcome in which a lightly-edited version ofGrand Theft Auto IV was given an MA15+ rating and allowed for sale to minors, despite its high-impact scenarios depicting "murder, blackmail, extortion and s-x with prostitutes".

Australia's need for a new policy framework is unarguable. Lumby and Crawford provide one, geared around deregulatory impulses and a more end-user and audience-focused approach. They also make the obvious recommendations to abandon mandatory internet filtering, to reform the RC ("Refused Classification") definition, and to introduce an 18+ classification for games.

One way to do this, they argue, is to think about the regulatory environment in terms of three layers: networks, platforms  and content providers. They write:

"At the network layer, we argue, policy makers should focus on ensuring network openness, innovation and user choice. At the platform and content provider layers, government should work with industry and users, including in global fora, to encourage self-regulation while facilitating referral of genuinely disturbing material to national and international government regulatory instruments and agents. Community education about internet use, online security and legal obligations should be a priority in this area. There needs to be ongoing commitment to researching international approaches, emerging tools and community expectations."

Of particular interest is their suggestion that Australia create a new "one stop shop" regulator that they call a "Convergent Media Board", which they think should "act as Australia's centralised point of contact with international fora addressing media content governance". Such a board would not replace ACMA or the other regulatory agencies, however, but rather work alongside them.

How would such a board work? Who should run it? What "community standards" should apply? Lumby and Crawford don't explain in too much detail, but perhaps this only underlines just how complex and thorny the issues really are. In today's world of Anonymous, FourSquare and Chatroulette, the sheer speed in which new content developments proceed shows the difficulty for anygovernment agency trying to get its head around the new world.

It's also worth thinking about how convergence will shape Australia's future arts and cultural policies. Historically, there has been almost no understanding among arts policy makers that the internet or broadcast media are even relevant to cultural policy — as the Australia Council's laughably late and ill-considered attempts to create an arts strategy "for a digital era" attest.

Lumby's and Crawford's paper shows what might be achieved if cultural policy was reconsidered in light of the rapid change sweeping the communications and media sector. But the very fact that the Convergence Review  and the National Cultural Policy are being pursued in parallel, with apparently little to do with each other, shows how tough it is to get governments to think outside of their existing silos.

Eva Cox | This Is Not Tough Love but Rampant Populism

Eva Cox accuses Julia Gillard of cracking down on the most vulnerable groups in this year's budget, discussing the government's plan to force teengage mothers into work or study in order to receive their pension payment.

Read Eva Cox's article published in the The Sydney Morning Herald here.

Jennifer Doggett | Why Private Health Insurance Rebate Is a "Policy Nightmare"

The private health insurance rebate is "industry welfare", writes Jennifer Doggett as she debunks the industry's claim that the rebate benefits  the overall health system.

Read Jennifer Doggett's article, originally published at Crikey, here.

The private health insurance industry argues in a new study that insurance subsidies for the rich benefit the health system overall by reducing pressure on the public sector.

Clearly, the industry is desperate to stave off moves to means-test the private health insurance (PHI) rebate, flagged for inclusion in next week's Federal Budget. The private insurers know that they won't get much sympathy from the electorate for the loss of tax payer subsidies for high income earners, who could easily afford to purchase PHI insurance outright if they found it useful. Therefore, they are heroically trying to convince us that we are all better off if the rich queue jump their way to health care at our expense.

Of course this is a nonsense. The same misguided logic could be used to support the purchase of helicopters for the wealthy in order to reduce congestion on the roads or to subsidise the purchase of waterfront mansions to free up the less attractive housing stock for the rest of us.

The PHI rebate is basically an industry welfare measure which props up the over-regulated, internally conflicted and phenomenally inefficient private health insurance industry at a cost of about $4.5 billion a year to the tax payer.

Most credible health economists (apart from those being paid by the PHI industry) agree that the rebate scheme is a policy nightmare. Study after study has found that it has virtually no impact on fund membership and that the funding spent on premium subsidies would deliver better health outcomes if used to directly fund health services.

The industry-commissioned study comes to a different conclusion by using a flawed methodology and making a number of incorrect assumptions.

For example, it conflates private health insurance with private health care and completely ignores the fact that many people choose to fund their own private health care directly.  In fact, direct consumer contributions for health care contribute than double that of PHI to the Australian health budget.  Yet the Deloitte study ignores the option that people will have to drop their PHI cover and pay directly for their care in the private sector.

Another major flaw with the study is that despite being presented as an economic analysis, it fails to consider any alternative uses for the resources currently going into the rebate. For example, it ignores the fact that the funds saved through means-testing the rebate could be used to reduce demand for public hospital care, thus reducing waiting times for treatment overall.

The reality is that PHI does little to take pressure off the public hospital system. It does nothing to address some of the most serious health inequities in our community, such as the health gap between Indigenous and non-Indigenous Australians and between those of us in cities and those who live in the bush. Furthermore, it contributes little to efforts to meet some of the most pressing challenges facing our health system – poor access to dental services and mental health care for many in the community and the prevention and ongoing management of chronic disease.

The research also ignores the impact of private sector demand on Australia's fixed medical and nursing workforce. One of the major constraints on the public sector is the lack of a sufficient workforce. If demand drops in the private sector, workforce availability will increase thus enabling the public sector to increase its output.

Clearly, the Deloitte study cannot be seen as a serious piece of policy analysis. It does however provide an illuminating example of how creative the PHI industry can be when faced with the loss of government largesse on which it has come to depend.

If only the industry could be as innovative and pro-active when tacking some of the major health problems facing our community. This would be a much more effective way of convincing the electorate that it's worth the $4.5 billion a year it receives from the public purse.

Ben Eltham | Middle Class Welfare and Other Furphies

Swan and Gillard have pledged to cut the deficit. Will they cut spending or boost taxes to do so? Ben Eltham previews the 2011 federal budget.

Read Ben's article on why if Wayne Swan really wants to save some money, he should attack upper-class welfare, originally published at New Matilda, here .

For once, Julia Gillard today received some positive media coverage.

In an obviously tactical exercise in press gallery backgrounding, Michelle Grattan at The Age and Matthew Franklin at The Australian both wrote prominent stories today about the Prime Minister's pledge to extend family payments.

Labor's spin doctors must have been pleased with the The Australian's headline in particular. It doesn't get much better than "Battling parents to get extra cash", especially for a government trailing in the polls in the lead-up to what is widely expected to be an unpopular budget.

Wayne Swan's challenge in framing his fourth budget as Treasurer is his toughest since taking office. There is a disconnect between the rude health of Australia's economy and the sombre mood around the kitchen table in many Australian households.

The big picture numbers paint a picture the envy of the rest of the industrialised world. Unemployment is below 5 per cent, inflation below 3 per cent and mortgage interest rates are at manageable, if rising, levels. Record commodity prices are pumping giant profits into the coffers of Australian mining and resources companies, in the process pushing the Australian dollar above $US1.10. And the second resources boom party is just getting started: there are hundreds of billions of dollars of investments in the pipeline for huge resources projects in Queensland and Western Australia

But drill down from the big picture view and there are many pockets of weakness in the Australian economy.

Consumers have responded to the "new normal" post-GFC by choosing to put away their credit cards and pay down their debts instead. As a result there is considerable weakness across Australia's retail sector, as well as in areas like restaurants and other small businesses that rely on discretionary spending. The high dollar is hammering exporters, particularly manufactures with low profit margins. Rising utility bills and food and grocery prices haven't helped matters either, although the "cost of living pressures" that politicians routinely bleat about are in reality fairly mild.

And while the economy is growing, Australia's public finances still haven't returned to where they were before the collapse of Lehman Brothers. Although Labor's courageous and correct decision to embark on large Keynesian stimulus in 2008 kept the country out of recession, the combination of falling tax revenues and increased public spending left a medium-sized hole in the nation's finances. We have nothing like the problems faced by the US, UK or continental European economies, of course. Even so, a deficit is still a deficit, and that allows the Coalition to make specious but effective political arguments about the perils of public debt.

As a result, Swan starts his calculations for this year's budget in the red. The likely shortfall is anywhere between $35 and $50 billion, and the budget most likely won't get back into the black until 2012-13, when a rapidly growing economy starts to deliver increased tax revenues.

Some of Swan's difficulties are of his own making. Labor's obsession with holding government spending growth at 2 per cent and getting the budget back to surplus means some tough decisions will have to be made. It's a fairly simple equation: either taxes will have to rise — or cuts will have to be made. Labor is likely to come up with a little bit of both.

As we've seen in the carbon tax debate, increasing taxes is seldom popular, especially with a government as poor at communication as this one. But cutting government spending runs the risk of provoking a coordinated public backlash, as shown by the uproar over mooted cuts — cuts that were never even formally announced — to federal funding for medical research. In whichever direction Swan wields the scalpel, pain will be felt somewhere. Hence, Treasurers often resort to camouflage and sweeteners in form of small-scale but easily digestible announcements, such as a new hospital in a marginal seat or a cash bonus to pensioners. Julia Gillard's extension of family payments fits the pattern well.

The announcement regarding family payments plays into a developing controversy about the size and scale of Australia's so-called "middle class welfare" provisions.

Open the Australian Financial Review on any given day recently, and you're likely to see an article attacking government payments such as Family Tax Benefit A and B, which provide cash payments to families raising children. Running at more than $17 billion in annual expenditure, Family Tax Benefits are undoubtedly a drain on the budget. And because families can earn up to $150,000 and still receive payments, Family Tax Benefit is often seen as giving money to those who don't deserve it.

In fact, like everything in politics, the phrase "middle class welfare" is itself misleading. The Australian welfare state is among the most targeted in the western world, with steep cut-offs for many entitlements. It's a measure of the "downward envy" of voters that the issue is even a live one.

If you're on the dole, for instance, your allowance starts cutting out after you earn only $62 extra in a fortnight. By the time you earn more than $250 in a fortnight, your dole gets reduced at a rate of 60 per cent. That's a marginal tax rate 15 cents in the dollar higher than the rate paid by millionaires, who pay the top rate of 45 per cent on annual income over $180,000.

Just who is the middle class, anyway? Class in Australia can be judged in many ways, including what school you went to, where you live and what job you work in (or don't work in). But if we limit our discussion to income data, we can make some educated guesses at quantifying a middle-class income.

The gold standard data here comes from Australian Bureau of Statistics' Survey of Income and Housing, which gathers detailed information about the income distribution of Australians. In 2007-08, the 90th percentile for gross income in 2007-08 was about $166,000, or $3192 a week. That means you can be earning more than 90 per cent of the population and still not paying the top marginal tax rate in this country.

A better measure of the middle class would be the median gross income figure, which in 2007-08 was $1285 a week or $66,820. And this is indeed the sort of wage that many people considered middle-class actually make: teachers, nurses, emergency service workers and mid-level office workers.

How much "welfare" do people like this receive? The answer is: not very much. According to this Parliamentary Library research paper by Luke Buckmaster, the truth is that Australia's welfare payment are extremely well targeted and quite stingy. "The highly selective nature of Australia's income support arrangements means that it traditionally has less middle class welfare than virtually all other developed countries, including other low-spending countries such as the USA and Japan" Buckmaster writes.

In all probability, Swan's budget next Tuesday night will contain a lot of "shaving". This is where the government tightens the eligibility of payments or reduces cut-off thresholds in order to save billions in small increments. We shouldn't expect too many big picture attacks on government spending.

That's not to say there aren't cuts to make. There certainly is plenty of fat in the federal budget, if Wayne Swan rally wants to swing the axe. Defence spending, for instance, continues to outpace inflation, driven by the inexorable rise in expensive military hardware and the cost of fighting a war in far-off Afghanistan.

Australia's so-called tax expenditures are another growing problem. The value of tax breaks and direct expenditures related to fuel excise and the use of a work car for business is around $10 billion a year, according to Treasury's tax expendituresstatement, despite the obvious conflict between these tax exemptions and the government's stated target of reducing greenhouse gas emissions.

But the real biggies are related to housing and superannuation. The Treasury estimates the cost of the capital gains tax exemption for the family house will cost the government a whopping $23.5 billion next year. That's more than the total outlay for Newstart and the disability pension combined.

The cost of superannuation tax concessions will be $30 billion next year. Superannuation tax breaks are among the most regressive of any in the government's tax and transfer system. This is because they overwhelming benefit the rich and super rich. The way the concession works is to ensure that super contributions are taxed at 15 per cent. For a low-income earner earning less than $37,000, this means that they receive no concession at all. In contrast, a multi-millionaire like Macquarie Bank's Nicholas Moore gets taxed at 45 per cent. This means that the government is effectively giving him a tax break of 30 cents in the dollar on his undoubtedly generous superannuation earnings. Because of this, most of the value of superannuation tax breaks will go to high earners — in particular, the super-rich.

Forget middle-class welfare. It's the upper-class welfare that really costs taxpayers. If Wayne Swan really wants to save some money, he should attack upper-class welfare instead.

 

 

Ben Spies-Butcher | The Party of Workers

Who are the hardest working voters? Despite Gillard's claims, it turns out Greens voters are more likely to be in paid work than other voters, writes Ben Spies-Butcher

Read Ben's article on the demographic and political transformation that is being driven by women leaving the confines of the home, originally published in New Matilda, here.

How the tide has turned. After some brief discussion of work life balance, consumerism and the rise of sea changers, Julia Gillard has brought us back to work. Long, hard work. Gillard has sought to distinguish Labor through the values of work — particularly from the party's new coalition partner, the Greens.

This certainly plays to popular stereotypes, but not to reality. According to the last twoelection surveys Greens voters are more likely to be in paid work — and have less free time — than the voters of any other party.

Surely not, I hear you cry. How can a party born of hippies possibly be home to so many workers? The answer is that workers themselves have been changing — and those changes are bringing workers closer to the values of the Greens.

This challenges traditional understandings of work. Greens voters are generally younger, and they tend to have more progressive social values. Listening to much of the political debate you might think this made Greens voters less likely to be workers. But in fact, it is precisely these groups who are most likely to work.

Popular conceptions of young people as carefree and irresponsible hide the reality that most young people need to work. Our social security system makes it increasingly hard not to work, as benefit levels fall and work tests increase. The only group really spared from this is older people, who qualify for the aged pension. More than two-thirds of those over 65 have government benefits as their main source of income, and this group has the lowest participation rate of those old enough to work.

We don't tend to think of this group in discussions about work because most of us accept that older people should not be forced to work. They are the "deserving poor" and so are entitled to a bit of peace in retirement. That's fair enough too. But in political terms, it means the Greens base is in the workforce, while the electoral surveys show that the older parties (especially the Nationals) are, perhaps appropriately, home to retirees.

Listening to talk back radio we might also think that most workers had relatively conservative social values, something said to distinguish them from "progressive elites". But not only are progressive values are associated with youth, they are also associated with more equal gender roles. Consistent with this, women who vote Green are the more likely to be in fulltime paid work than their sisters who vote for other parties. It is rising female participation that is at the heart of the growing number of workers in Australia and around the world.

This is also reflected in the Greens recent successes. The electorate of Melbourne is home to more working women than any other federal seat, and Balmain is home to more working women than any other state seat. Indeed, both seats have extremely high participation rates — both because the women in these seats tend to work, and because they are home to relatively few retirees.

It highlights an important trend in politics. The rise of the Greens reflects a profound demographic and political transformation that is being driven by women leaving the confines of the home. Women now outnumber men at universities — and these women are transforming politics.

My colleague Shaun Wilson has found that the traditional dominance of the right in Australia has faded. Where once Australians were consistently more likely to identify as right of centre rather than left of centre, the numbers are now relatively equal. The biggest shift has come from tertiary educated women, who are now a solidly centre-left constituency.

Critics often deride the Greens as middle-class basket weavers because Greens voters tend to have higher incomes. That is true, but it reflects factors that you would think leaders like Abbott and Gillard would respect. Higher incomes are the result of more Greens working (with lots of double-income households) and of high levels of education. It is actually because Greens voters work that they earn more.

Once you account for these labour market factors you find that, on average, Greens voters actually earn less than other voters with similar demographics. That reflects the dominance of Greens voters in the public sector and caring professions (again partly the result of strong support amongst educated, working women).

This is not to suggest that the Greens have a monopoly on workers. Indeed in raw numbers both Labor and the Liberals have more workers voting for them. And Labor's connection to the union movement creates an important link to workers. But it does suggest we are engaged in an entirely phony debate.

With more women and white collar workers, the values of work are increasingly the values of work/life balance, strong public services, control over work and environmental sustainability. As the major parties battle to make us work harder and longer, remember they are appealing as much to those who used to work, but no longer do, as they are to the generation who actually is working now.