No. 148

AUSTRALIA: IN TIME, AN UNSUSTAINABLE EUROPEAN-STYLE WELFARE STATE?

 

STONE the crows! When will a politician promise to abolish death and taxes? Sometime between now and the election is the Crows’ guess.

 

Sure, both sides are announcing how responsible they are. Last Wednesday, the Prime Minister promised “substantial new structural savings that will maintain the sustainability of the Budget and make room for key Labor priorities”. For precedents of parsimony she pointed to:

 

The dependent spouse tax offset, the tax breaks for golden handshakes, tax concessions on super for high income earners, the millionaires’ dental scheme and fringe benefits loopholes for executives living away from home all gone. … The private health insurance rebate is means-tested: something many said could never be achieved.[i][ii]

 

Which, to use the technical tax term, amounts to sod-all compared to the 50 per cent of Commonwealth spending consumed by health and welfare[iii]. It was also a bit rich of Julia Gillard to claim means testing the health insurance rebate as a victory for equity, given that singles earning less than princely $84,000 who do not have private health cover pay a one per cent tax surcharge.

The Opposition Leader Tony Abbott is also talking about saving to spend. While he commits to abolishing the existing one–off payment to parents with children. [iv] But the plan for six months maternity leave, on full pay, is still on the books.

 

None of which amounts to a hill of beans in terms of balancing the budget while introducing new policies, let alone funding ever-expanding demands for health and welfare outlays.

 

There are three million voters aged 65 and over and 20 electorates where retirement-age Australians accounted for 25 per cent or more of the population in 2009.[v] And this means that the 2013 election could be decided in a swag of seats where healthcare is a major issue, what with the way people over 65 consume four times the healthcare of everybody else.[vi]

 

And with 75 per cent of people over 65 receiving a full or part pension by mid century (so much for super), savings on welfare will not happen. [vii]

 

So if health and pensions are off the agenda where are the saves? Nowhere, really. Sure the next treasurer can sing a Springtseen swan-song and soak the rich. The problem is there are not that many people to soak and they are already paying a whack.

 

As Adam Creighton demonstrates, the top 3 per cent of taxpayers produce 26 per cent of the tax-take. Equally alarming for anybody concerned about the tax base, 80 per cent of all PAYE taxpayers are net creditors to the Commonwealth receiving more in welfare than they pay in tax. [viii]

 

Certainly there are revenue streams Canberra does not draw on. The capital gains exemption for the family home will cost Treasury $16.5bn this financial year. [ix]

 

But if you think there is buckleys of a government being game to upset baby boomers by taxing the windfall gain from selling their dead parents’ house, it compares well to none – which is the chance of Treasury ever being allowed to pick up $3bn by imposing GST on health spending.[x]

 

So what’s a treasurer do? It looks like tax the grey geese who can produce most feathers for least hiss.

 

Budget speculation started early (but then again so did the election campaign) last week with the Fin running hard Friday and Saturday on government plans to slug higher-income earners’ super. [xi]

 

If this is so, the political distraction will come from the Opposition plan to reduce the tax concession for low-income earners investing in superannuation – which provides a 15 per cent tax break on super contributions by people earning up to $37,000.

 

The Libs are long committed to abolishing the concession as it is funded from the resources tax, which they intend to end. [xii] Even so, Treasurer Swan will extract several Springsteen speeches comparing his plan to punish plutocrats with the Liberal policy of slugging the poor.

 

There is certainly a case for considering the cost of super, which Treasury estimates will cost $17bn this year and grow rapidly over the next 20 years. [xiii]

 

The problem is that continual changes to the super rules make it harder for the more affluent to fund their retirements. And inflated expectations of life in retirement are the most efficient ways to ensure the relatively well off arrange their affairs to access public pensions and health care cover.

 

There is no denying that expectations of what super can secure will erode. According to ASIC, a couple who can manage on $55,000 a year need $716,000 in super.[xiv] To which the Crows reply, just how many people have the better part of three quarters of a million dollars in super and, of those, who can manage on just a grand a week?  The answer to the first question is alarming – the average man aged between 58-62 has $200,000 in super while women have half that.[xv] The answer to the second needs no research – nobody wants.

 

Which gets us back to the core budget problem – older Australians who think they are entitled to live, if not forever then for as long as improving technology can keep them breathing – and all at somebody else’s expense.

 

If nobody is prepared to be the tax paying somebody, is there anything to distinguish us from the unsustainable European welfare states?

 

That’s a rhetorical question.

 

ENDNOTES

 



[i] Prime Minister, “Address to the National Press Club,” January 30 @ www.pm.gov.au/press-office/address-national-press-club recovered on February 2

[ii] Private Health Insurance Ombudsman, “Australian Government private health insurance rebate,” July 1 2012 @ www.privatehealth.gov.au/healthinsurance/incentivessurcharges/insurancerebate.htm recovered on February 2

[iii] Department of Finance, Budget Papers 2102-13 Statement One, Number Six, www.google.com.au/search?hl=en&gbv=2&q=budget+2012+social+welfare&revid=1878143778&sa=X&ei=KsgNUdCKGcm4iQet9YG4Cg&ved=0CBMQ1QIoAA recovered on February 2

[iv] Tony Abbott, “Address to the National Press Club, Canberra,” January 31 @ www.liberal.org.au/latest-news/2013/01/31/tony-abbott-address-national-press-club-canberra recovered on February 2

[v] Parliament of Australia, “Population change in electoral divisions,” @ http://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/pubs/BN/2011-2012/PopulationChange2008-09#_Toc301431456 recovered on February 2

[vi] Department of Health and Ageing, “A healthier future for all Australians,” June 2009 @ http://www.yourhealth.gov.au/internet/yourhealth/publishing.nsf/Content/nhhrc-report-toc~nhhrc-report-ch1~nhhrc-report-ch1.4#.UQudP0aL6HJ recovered on February 2

[vii]  Jeff Harmer, Pension Review Report, February 2009 @ www.fahcsia.gov.au/sites/default/files/documents/05_2012/pensionreviewreport.pdf,

33 recovered on February 3

[viii] Adam Creighton, “Rich are paying their fair share, and then some,” The Australian, February 2

[x] Tax expenditures statement, op cit, 7

[xi] Jennifer Hewitt, “Super move part of Labor’s big sell,” Australian Financial Review, January 31, Laura Tingle, “Super class war hits investors,” AFR February 2,

[xii] Australian Taxation Office, “Low income superannuation contribution,” August 3 2012, @ www.ato.gov.au/content/00245688.htm recovered on February 2, Tony Abbott, Q&A Session, National Press Club, January 31 @ www.tonyabbott.com.au/LatestNews/InterviewTranscripts/tabid/85/articleType/ArticleView/articleId/9052/QA-Session-National-Press-Club-of-Australia-Canberra.aspx recovered on February 2

[xiii] Tax expenditures statement, op cit 7

[xiv] Australian Securities and Investments Commission, “How much is enough,” May 23 2012, @ www.moneysmart.gov.au/superannuation-and-retirement/how-super-works/super-contributions/how-much-is-enough recovered on February 2

[xv] Australian Centre for Financial Studies, “Superannuation over the past decade: individual experiences,” March 2012 @ www.aist.asn.au/media/129863/2012.03.23%20research%20superannuationver%20the%20past%20decade.pdf recovered on February 2

'2012