Fr Bruce Duncan CSsR

71885208_539c051bffTravelling around rural and coastal towns, you cannot fail to notice the number of shops that have closed or are empty. Despite the overall good economic figures for Australia, many businesses are struggling. In addition, some of our major industries, including car manufacturing and refineries, are moving offshore, resulting in big job losses, and hitting towns like Geelong very hard.

Minister for Social Services Kevin Andrews is introducing a review of income transfers, particularly to the unemployed and those on disability benefits. He has said that aged pensions will not be touched, though this is where most of the problem lies.

The age pension costs Australia $36 billion a year, a third of total welfare spending, with Family Payments costing $26 billion. In the last ten years, the cost of the age pension has increased by nearly $13 billion, but only $5 billion of this was due to aging of the population. The rest of it resulted from generous changes to entitlements and eligibility.

The then shadow treasurer Joe Hockey on 17 April 2012 told the Institute of Economic Affairs in London that “all developed countries are now facing the end of the era of universal entitlement”. He continued, “Addressing the ongoing fiscal crises will involve the winding back of universal access to payments and entitlements from the state.” What might this mean?

The cost of various entitlements varied from $15 billion for the Disability Support Pension, $8 billion for Newstart, and $5 billion for Parenting Payments. Yet, rather than causing a blow-out in the budget, as a proportion of the overall economy, these payments have actually decreased over the last ten years.

One would welcome a review of the Newstart benefit of $36 a day for a single person aged 22 to 65 ($250.50 a week), which is only 45% of the after-tax minimum wage and $130 below the poverty line. Compare this with the aged pension rate at $53 day. The Newstart payment is unconscionably low. Even the Business Council of Australia supports an increase in the Newstart allowance by $50 a week in the view of welfare advocates. Newstart is very important in helping tide people over while searching for jobs, and is already tightly targeted.

7718201004_2545ed7646The numbers of unemployed have been trending up from a low in July 2011 of 4.9% to 5.8% in December 2013, numbering 716,000 people. In December full-time jobs decreased by 31,600, though this was partially compensated by an increase of part-time employment of 9000.

This unexpected jump in unemployment may be partly explained by the Government from January 2013 moving 75,000 people off Parenting Payments to Newstart when a child reaches six years of age (for a couple) or eight years of age (for a single parent).

Quite properly, the Government needs to work towards a balanced budget after the deficit spending that protected Australia during the worst of the Global Financial Crisis. But, as is evident from the European experience, austerity budgets and drastic cuts to spending only drive economies down further. As J M Keynes argued powerfully in The Great Depression, governments must stimulate and manage the economy in the interests of the whole people, especially the unemployed.

Had the Howard Government not been so generous with its tax cuts to upper and middle income groups, there would today be no budget deficit. The problem for later federal governments was how to restore adequate tax income against the populist mantra of ‘no new taxes’.

In large part, the answer lies in restoring increased equity to the tax system, especially by eliminating overly generous income transfers via tax concessions to upper income groups. For instance, government doles out largesse to affluent groups through tax concessions on superannuation, negative gearing on house investments, and tax deductions of billions of dollars a year to the mining industry for fuel, along with tax loopholes like family trusts, mortgage offset accounts, and other devices.

In large part, the answer lies in restoring increased equity to the tax system, especially by eliminating overly generous income transfers via tax concessions to upper income groups.

Governments all over the world, including in Australia, are now making serious efforts to curtail transfer pricing by major transnationals, depriving countries of billions of dollars of tax by moving profits to pop up in low-taxed countries like Ireland. Google made profits of £900 million in the UK in 2012, but paid only £11.6 million in corporate tax. Google is not alone in such massive tax evasion.

The budget problems of the Federal Government are not caused by Newstart or disability pensions, which have been declining as a proportion of economic activity. The problems largely derive from inadequate tax revenue.

Photo flikr rogiro
Photo flikr KellyShort6

Originally published in February 4, 2014

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