Scott Morrison faces tough job stopping the welfare
THE government’s new Social Services Minister, Scott Morrison, is likely to find stopping the welfare considerably more difficult than stopping the boats.
By sheer dollars spent, social security — mainly cash payments for the aged, disabled, parents, unemployed and indigenous Australians — will amount to $149.9 billion this year, or a little more than 35 per cent of federal spending, according to the latest budget update.
That equates to almost $6400 a person or about 25 per cent more than the New Zealand government spends per person (converting to a common currency).
It seems likely Australia spends more than is necessary. Indeed, New Zealand, a country with a similar quality of life to Australia, doesn’t have states; NSW alone spends a further $5.4bn a year on social security and welfare, or another $730 per resident.
More worrying than the aggregate, though, is the growth rate.
Population ageing and the National Disability Insurance Scheme, in particular, are conspiring to make social security and welfare the fastest growing public expense.
Back in May the total was projected to rise, in real terms, by almost $12bn across the next three years, which is about four times as much as federal health costs. But even that was too optimistic.
The latest budget update, a mere seven months later, has scaled up the growth by $13bn across the next three financial years.
By 2018 total social security and welfare spending will rise to $171.6bn, 14.5 per cent higher than this year and 36 per cent of total.
In short, reining in welfare spending has to be part of any attempt to repair the budget.
But it will be very difficult politically: taking away benefits promised in the future, let alone reducing current payments, elicits shrill complaints.
The government’s plan to index the age pension to prices rather than wages from 2017, among its largest mooted savings, has foundered in the Senate.
In any case it would do little to limit the number of recipients. If the government needs to find other or additional savings, “upper-class welfare” is a politically astute place to start.
Outgoing social services minister Kevin Andrews has already made some progress — restricting Family Tax Benefit Part B and the Commonwealth Seniors Health Card, for instance. And state governments have sensibly gutted the first-homebuyer grants so they apply only to new homes.
But torrents of welfare — let alone tax exemptions and offsets — are still directed to Australians who don’t need it.
The National Centre for Social and Economic Modelling (NATSEM) calculates that households with net assets greater than $1 million will receive, this financial year, cash welfare of almost $5.7bn.
More scandalously, more than $500m of that will go to households with net assets above $2m and $134m to those with net assets above $3m.
That so much support flows to households that clearly do not need it stems mainly from the exclusion of the principal residence, the largest source of wealth for most people, from the age pension means test.
Its cost is scheduled to rise from $42bn to $75bn a year by 2024, when still more than 80 per cent of retirees will receive at least a part-pension.
It wasn’t always so: for the first four years of the age pension from 1908, the value of the family home was included. Indeed, an early 20th-century Victorian parliamentarian remarked that the age pension was “for people who have discharged their obligations as citizens and now find themselves unable to obtain a livelihood” — a far cry from reality today.
“There is little doubt that considerable savings can be made on the aged pension via a more equitable means testing arrangement,” says Ben Phillips, a senior researcher at NATSEM.
The National Commission of Audit suggested the value of homes of more than $750,000 could be part of a revamped means test.
The median dwelling price in Australia was $562,000 and $705,000 in Sydney in November, so such a measure would exclude the vast majority of retirees. Yet the government was quick to dismiss the idea.
“The current system encourages families to invest heavily in their own home to maximise their aged pension, which acts as a disincentive for pensioners to downsize to what may be more appropriate housing,” says Phillips.
“Some argue that such income testing would disadvantage ‘asset rich, income poor’ households but financial products are available, such as reverse mortgages that allow homeowners to draw down on the value of their home over a period of time,” he adds.
This is the crucial point: no cash-poor retirees need move from their home; rather, the equity can be drawn down to finance their lifestyle with a commensurate encumbrance on their estate.
The principle that rich people shouldn’t have access to welfare is a far more important one than changing the method of indexation. It would be better than poorer people having slightly higher pensions than rich people
Projected to grow 25 per cent to $8bn across the next three years, federal spending on childcare is another area where benefits could be distributed more tightly.
About 750,000 families receive both of the two existing payments — the childcare benefit and childcare rebate.
The first is not linked to whether a parent is working but is means tested. The second, a maximum payment of $7500 a year per child, is conditional on work but isn’t means tested.
More than 220,000 families receive only the childcare rebate, which implies their incomes are above about $149,600 for one child, $155,000 for two and (somewhat bizarrely) $175,040 for three.
Meanwhile, another 97,000 families receive only the childcare benefit which, because it is rare for the benefit payment to cover the full cost of childcare, suggests they are ineligible for the rebate and therefore not working.
Reflecting the society security system’s fetish for income over assets, childcare payments also ignore the value of households’ assets.
Sensible people may debate whether working parents are entitled to some form of publicly subsidised childcare. But why should taxpayers fund childcare for a family where at least one parent isn’t working?
Rather than advocating cutting unemployment benefits for the under-30s for a relatively meagre saving, which is sapping the government’s political capital, it could save more serious dollars by better means testing the age pension and childcare payments.
Morrison’s task also extends to reducing the system’s complexity. The federal Department of Human Services administers 34 welfare payments and another 38 ‘‘supplements’’ with various asset and income tests and eligibility requirements.
Including Centrelink, the department has more than 30,000 staff.
The biggest pressure on social security spending will be the NDIS. It’s a sad reflection on democratic processes that the seriously disabled have been among the last group in society to obtain adequate support from the society security system.
The budget projects spending on the NDIS will jump 160 per cent to $11.6bn across the year to 2018, as the scheme nears full capacity. The total cost will grow to more than $26bn by 2024, according to the Parliamentary Budget Office, more than the federal government will spend on schools or public hospitals.
And that will be on top $25.8bn that will be spent on the disability support pension.
