Welfare reform must cut handouts, boost aspiration

Welfare reform must cut handouts, boost aspiration


AS Scott Morrison sets about simplifying and reducing Australia’s vast welfare system he will need to use his powers of persuasion to take the public with him and to convince crossbench senators of the need for reform. For those accustomed to taxpayer-funded largesse baked into the system to stimulate demand during downturns and as electoral sweeteners during mining booms, the process will be unpopular. Reform is unavoidable, however, with the mid-year budget update showing the commonwealth headed for a $40.4 billion deficit and welfare spending set to rise this year by an unsustainable 6.1 per cent, well above the 3.6 per cent predicted in the May budget. Australia’s structural deficit and ageing population that will add to fiscal pressures make reform a necessity, not an option. On the positive side, effective reform would leave middle and upper-income PAYG taxpayers, who now shoulder a disproportionate share of the burden, with more of their own earnings in their pockets. Australia’s tax system is one of the world’s most progressive, with the 49 per cent top marginal tax rate one of the 10 highest in the world, in company with the Scandinavian countries, Belgium, Portugal and Japan. At the same time, almost half of Australia’s 12.2 million families and individual income earners contribute nothing to the public purse as any tax paid is offset by welfare churn.
If the Abbott government and Mr Morrison want to be seen to be fair, a good starting place would be anomalies in the superannuation rules that allow some multi-millionaires to access the aged pension and associated benefits. Currently, a couple with a $5 million home and $100,000 in cash is eligible for the pension, while another couple with a $400,000 home and $750,000 in shares and term deposits receives nothing. The National Commission of Audit recommended that from 2027, a portion of an applicant’s principal residence worth more than $750,000 be included in the assets test. The budget savings would be limited. Age pension payments to retirees with assets of more than $1m currently cost taxpayers about $2.5bn a year. But closing the loophole would signify the government was serious about returning the welfare system to its proper purpose — a safety net for those in real need.
While badly sold, the May budget was on the right track with the reforms it contained. Last month, the Senate finally passed changes to cut the means test for Family Tax Benefit B from $150,000 to $100,000 a year. Disability support pensioners will now be paid for four weeks in a year if they are overseas. Encouraging as many of Australia’s 830,454 DSP recipients as possible — equivalent to one in 14 of the workforce — into jobs will be one of Mr Morrison’s challenges. For the sake of the budget bottom line, the minister will need to negotiate patiently with the crossbench senators to achieve further reforms, as he did in securing the reintroduction of temporary protection visas. Agreements are needed on the two-year freeze on family payments, tighter rules for the dole, and changes to pension eligibility and indexation. New Health Minister Sussan Ley will be trying to win passage for cutting rebates for GP visits and saving $1.2bn from higher Pharmaceutical Benefits Scheme co-payments.
As well as being enlisted to repair the budget, Tony Abbott wants Mr Morrison to craft what the Prime Minister called a “holistic families package”, expected to be central to the government’s agenda for an election due in 2016. The blueprint for such an initiative should be the welfare review conducted by former Mission Australia head Patrick McClure. In June, the interim McClure report advocated a major restructure and simplification of the system, to be pared down from 20 different payments and 50 supplements to about four streams (covering working age, disability, age pension and child payments). Economies that are performing well, such as New Zealand and Britain, have enacted similar reforms. New Zealand has consolidated 11 welfare payments into five.
A system in which a family with two children earning $60,000 is so heavily subsidised through handouts that they pay no net tax is fundamentally flawed. So is a system in which a single parent, in an extreme case, can receive $54,000 a year through the parenting payment, family tax benefits, supplements, rent assistance and education allowances. The concept of asking a nation to live within its means is not new. Recalling the fiscal changes of the mid-1980s, Paul Keating told The Australian earlier this year: ‘‘We had to cut public spending across the board — social welfare, business welfare, everything.’’ By drafting Mr Morrison on to the government’s economic team, Mr Abbott has improved his chances of doing the same. Welfare and social security is Australia’s single largest category of public spending by far, accounting for 35 per cent of federal outlays. It will cost almost $150bn this year. While a welfare net should always protect the vulnerable, budget policy and national expectations must encourage self-reliance and aspiration.

http://www.theaustralian.com.au/opi...boost-aspiration/story-e6frg71x-1227164657002