John Howard yesterday claimed that Australia was no longer a Welfare State. He is either lying or deluded.
Under Howard and the Liberals we have the largest Welfare State in Australia’s history. As we have pointed out previously, Howard has increased tax by 34% per person (adjusted for inflation). And this excludes the GST. So Howard’s Liberals are definitely a high taxing government. But they are also a big welfare government.
Adjusted for inflation, welfare spending has gone from $75.7 billion in 1996/97 to an estimated $96.5 billion in 2007/08. Next year it is projected to top $100 billion. That is $100,000,000,000 of taxpayers money going to welfare.
Real welfare spending per person has increased by over 10% under Howard, from about $4100 per person to nearly $4600 per person. Howard and the Liberals have unambiguously increased the size of the Welfare State. There is absolutely no excuse for this reckless spending, as unemployment has gone down.
In Australia today, unemployment is low and wages are high. Welfare spending should be going down. In this environment, it is a disgrace that the Liberal (sic) government has allowed tax and welfare to keep going up. If tax and spending are measures of how capitalist or socialist our government is, then this is the most socialist government in Australia’s history and certianly more socialist than Hawke, Keating or even Whitlam.
Under Whitlam, tax per person was about $7000. Under Howard, tax per person is well over $10,000. People who believe in low tax have ebeen utterly betrayed by the Liberals.
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All the numbers cited above are real (ie adjusted for inflation). Data taken from government sources www.budget.gov.au, www.abs.gov.au and www.rba.gov.au.
November 9, 2007 at 3:31 pm |
[...] John Howard said Australia is no longer a welfare state. Today John Humphreys lays out the actual truth of the matter: Under Howard and the Liberals we have the largest Welfare State in Australia’s history. As we [...]
November 9, 2007 at 3:39 pm |
Does welfare include health in these cases or only social security, and is that including aged pensions?
November 9, 2007 at 3:54 pm |
It doesn’t inlude health. The federal government spends another $43 billion on health (which is supposed to be a State issue).
They also spent $17.8 billion on education (another State responsibility), $19.9 billion on Defence, $3b on houseing, $3b on recreation, $5.4 on energy, $2.8 on agriculture and $4.5b on transport & communications. A total of $234.6b on all federal government spending.
The numbers I quoted are for “social security & welfare”, which does include the aged pension.
November 9, 2007 at 4:06 pm |
Even those Whitlam numbers are in real terms? That’s an eye-opener.
The biggest problem is the welfare going to taxpaying “working families”.
Premise 1: Welfare should only go to those who are in need.
Premise 2: Tax should not be paid by those in need.
Conclusion: Those on welfare should not be taxed; those paying tax should not receive welfare.
The reason our tax/ welfare policy is so good is because it removes the overlap between tax and welfare. It gives help to the truly needy, including the “working poor”. It minimises churning and takes money from those that can afford it, to help those that need it. That should be the point of a welfare system- not to take money from a family, then give it back to that same family with 20% lost to public service wages and with “terms and conditions” attached.
November 9, 2007 at 4:07 pm |
Interesting. Despite the obvious cutbacks available in some areas, the funding for the aged pension will no doubt have to increase before it starts going down again due to the ageing population, right?
I asked about health also because it’s pretty much the same type of thing, but with health I think we will start seeing a general trend away from young people and others who have a life of taxpaying ahead of them continuing to support an ever ageing population. I don’t think the same thing will happen for the pension. Although the amount of money given to pensioners doesn’t necessarily have to increase any faster than inflation (contrary to what happens now every budget and especially every election year), the sheer number of people entering the system will no doubt increase.
November 9, 2007 at 4:26 pm |
Shem… all the numbers are adjusted for inflation. In nominal terms, tax per person in 1975 was about $1400. When we adjust for inflation and put it into 2007 dollars it is about $7200.
At the end of the Fraser/Howard years (1983), real tax per person had got up to $7500. Hawke was the only person to keep it stable, and then it increased again under Keating to $8500 per person by 1996. By 2004 it was up to $10,500 per person.
November 10, 2007 at 4:36 pm |
“The reason our tax/ welfare policy is so good is because it removes the overlap between tax and welfare. It gives help to the truly needy, including the “working poor”. It minimises churning and takes money from those that can afford it, to help those that need it. That should be the point of a welfare system- not to take money from a family, then give it back to that same family with 20% lost to public service wages and with “terms and conditions” attached.”
It is certainly true that Australia is among the world’s best when it comes to minimizing fiscal churning. Tanzi and Schuknecht (2000) found it to have the lowest amount of churning among a sample of around a dozen OECD nations, which I suppose is a “good” thing. Good in terms of finding a particular means to an arbitrarily chosen end, but would one say that the end chosen is good? In other words, if we as a society have decided to spend an ungodly amount of money on redistributive policies, then it is certainly a good thing to avoid fiscal churning…but do we really want to spend an ungodly amount of money on redistribution?
November 10, 2007 at 4:40 pm |
Matt — Shem was talking about LDP policy, not Australia’s current system. Whether high or low by OECD standards, the current approach with $90 billion of churning is far too much and should be reformed. Under the LDP’s 30/30 system, welfare churning would be zero.
November 10, 2007 at 5:50 pm |
Ah…I was unfamiliar with the 30/30 system, which is why I misunderstood Shem. Still, the 30/30 seems like a rather confiscatory tax regime to me. A quick back-of-the-envelope calculation (using numbers I grabbed quickly from the ABS website, assuming roughly 10m workers and $600b in personal, pre-tax incomes) shows that the 30/30 plan would still raise $9000 per worker for the government from income taxes alone, and that is assuming that everybody earns over $30,000 per year. Inequality will push the government’s take up even more. If, say, 25% of the working population earns precisely $20,000 per year, it jumps to $11,250 per worker per year. If you generalize those numbers to all taxes, it still implies a large federal government on the scale of 10-15% of GDP. Surely there is more fat to trim than that!
November 10, 2007 at 6:31 pm |
It is true that 30/30 still raises a lot of income tax and we would certainly want to lower it further over time. But 30/30 represents significant reform in the right direction and is consistent with our philosophy of moderate libertarianism.
Australia doesn’t currently have a registered radical libertarian political party. A few people have tried to form one, but I don’t think they got more than 10 members.