not knowing much about this, but having a decent experience with other tax systems, I can’t help but notice I pay far less tax in some places (HK, Singapore, Japan…) and far more in others (France, …), yet all of them have pretty decent essential services, and in none of them do I see people starving on the streets, people not having free schools to send their kids, people not getting health care etc. Thus when I think of middle class tax benefits, I don’t neccesarily think of health and education — in fact you can evidentally have low tax rates and still have a completely decent health and education system. I think of the million and one other little things and how they all add up. Thus whilst you can write a lot of “big ticket” (and scary sounding to many) items down in a list, I’d be interested to know how much you could save by deleting all of the other things first.

On this not (perhaps hypocritcally after that :), I have another item to add to the big ticket list.
- Add the value of people’s homes to social welfare payment cutoffs. If you can afford to have a million dollar house, I’m sure you can afford to pay for your unemployment/pension etc.

Marks was right back at post 8, when he/she asked

Would it be too much to ask for a fundamental rethink of the overall financial system, including Fed/State funding, tax and welfare, superannuation to really streamline, integrate and simplify it?

All this fiddling and tinkering and patching with little bits here and there is getting us nowhere [and, incidently, often does great harm to those citizens who can least endure it]. What is needed is a radical rethink of the whole business of raising and using revenue.

While I don’t have a problem at all with means-tested transfer payments, I would like to see some attention given to trying to co-ordinate means-testing in order to avoid unnecessary means test ‘stacking’. This might best be done by putting all transfer entitlements into a single family account and applying a single means test (sometimes known as the Keating/Lambert model). But to be fair that is far easier said than done.

And if you don’t want your EMTRs to be too iniquitous you would still need to set the withdrawal rate at no higher than 50 cents in the dollar, I would think. This would see larger families continuing to receive some assistance up to quite high incomes, but we should all be able to agree that an income of $100,000 is much lower for a family of six, say, than for a family of two or three.

True, if you’ve gotta save money then you can’t avoid hurting people and you prefer that not to be poor people. But just anathematising all payments and services that aren’t strictly limited to the poor as “middle class welfare” avoids the issues about the programs’ purposes and the tradeoffs betwen those purposes. As I’ve said elsewhere there are many cases where universal provision of a government service is much more efficient overall than strict user pays or tight means testing.

Does anyone really believe that if the subsidy was removed then Scotch would suddenly….what. Close down? What would happen??

The number of students would not budge. And the fees would also not change. My kids go to a big private school and the total numbers have been fixed for a long time. The k$4 per kids does not get given to me. It goes straight into the building fund. So the feds are subsidising better cricket fields for private schools.

Cutting the private school subsidies would both increase inflation (because they are free to put up prices to cover losses) and increase public expenditure, because a large proportion of current student would have to go back to state-funded government schools, where they would receive much large subsidies than they do now.

It is pretty bold to claim that a large proportion of current students would have to leave their private schools because of fee increases that you don’t even know will occur.

The fees at Scotch College (as an example) seem remarkably divorced from any
notion of increasing costs:

Between 2000 and 2004 Scotch received a 93% increase in funding from the Commonwealth. Over the same period its fees went up by 45% and the Consumer Price Index by only 7.5%.

More likely the increases in fees are directly related to the ability of the parents to pay due to windfall revenues from the Federal Government (Scotch transfers Federal Govt. payments into the fee accounts of their students, so to access these funds they had to increase fees).

While acknowledging these concerns, I am not sure where they take us. Rightly or wrongly (and I fear over-kill), the Rudd Government seems determined to deliver big spending cuts – whether it is done to increase the surplus and ease the pressure on monetary policy or in order to avoid raising taxes or to increase social investment. This, it seems, is not just a short term goal. The Government will start with the easy spending programs and will then go on to look at structural longer term saving options. All these options will have unwelcome side-effects. Is clawing back some middle class welfare worse than the alternatives?

Imagine 100 economists talking about the idea of “cutting middle class welfare”. It is much better to talk about the objectives we want to achieve. There are plenty of ideas but it is no point in having ideas unless you know what you want to do with them. What we want is agreement on what we want to achieve and what are our goals as a society. So I would add to Jack’s idea of working on ideals the idea of working on how to measure if we are achieving the ideals.

Athough a comprehensive attack on middle class welfare would unite Left and Right in a common cause, it aint going to happen

It aint gonna happen because it’s mostly a lousy idea. Australia has the most targeted welfare system in the world – go looking at the OECD Tax and Benefits publication if you don’t believe me. We also have one of the more progressive tax systems (though given that most real-life tax systems are not very progressive that’s not saying much).

Don’t be sucked in – some people on the right have a hidden agenda in all this. They don’t want to eliminate middle class welfare so much as all welfare (in the broad sense – including health and education). They calculate correctly that the severe incentive, horizontal equity and compliance problems inherent in any adequate but very tightly targeted system will undermine public support for that system.

Given a halfway decent level of benefit, the laws of arithmetic dictate that you can provide decent incentives to avoid or get off the benefit, or you can minimise “middle class welfare”. But you can’t have it both ways.

I apologise.

I was not meaning to target you particularly, rather point out in these exercises that those in power (who have the real power of policy choice and application) make these decisions, and mostly those decisions do not impact their own constituency.

I thought I had qualified it enough by using the word ‘normally’, obviously I erred. I would only say that if one looks through the various journals and newspapers and industry/union press releases over the years and the recommendations of these sectional groups, you could see where my cynicism comes from.

It was not intended personally toward you, and again I apologise.

Your incidental comment is quite germane, since the cost of administration of schemes which take from one section of society to return benefits to that same section of society cannot be small.

I had the task of applying for an aged pension for a relative recently. There were four booklets of questions and about sixty pages. What a nightmare, and what a cost in terms of time for everyone concerned. If this is the pattern for all such things heaven help us.

By way of clarification, I am not necessarily suggesting that any of these programs be abolished outright. Most of them serve legitimate economic and social goals. But the goals need to be clearly defined and the programs better designed to achieve these goals. Churning (taxing and subsidising the same families) is wasteful unless we are achieving the intended change in incentives and behaviours.

For example, I get the health insurance rebate but if it were partly withdrawn I would not stop insuring privately so if the goal is to relieve the public hospital system, it is not being achieved in my case.

Similarly, one could question whether the present formula used to assist non-government schools is achieving its aims of facilitating freedom of choice and widening educational opportunities or whether these goals can be achieved more cost-effectively through other means.

Indcidentlly, I accept that sometimes means testing e.g. of family benefits creates so many administrative complexities and negative incentive effects that the game is not worth the candle.

Cutting the private health insurance rebate would also cause inflation, though there is a public policy case for doing it anyway, while cutting the private school subsidies would worsen educational outcomes as well as the other problems I mentioned.

There is merit in the rest of your list, though superannuation to some extent is just avoiding future welfare payments by saving now.

Capital Gains tax (preferential treatment, where the gains go mostly to better off);

This is probably the nastiest, most destructive form of tax ever conceived by our species. It’s a tax on capital and has the effect of transferring away from investment towards consumption. It’s not a very good way to increase living standards if youre after ways of raising productivity. A capital tax, which is what the CGT is, simply reduces the growth the capital to labor ratio. It’s the increase in that ratio that pushes up living standards. Increase it! It ought to be eliminated.

middle-class welfare programs in place. Here is a tentative list just off the top of my head:

private health rebate (not means tested);
federal government subsidies to private schools (not well targeted at socioeconomic disadvantage);
superannuation (more upper than middle class welfare);
Baby Bonus (not means tested);
Some of the Family and Child Care Benefits (ditto);
First Home Owners Grant (ditto);
Capital Gains tax (preferential treatment, where the gains go mostly to better off);

Fred not for nothing, but instead of referring to this as a middle welfare we should describe like it really is. The people paying the biggest share of taxes are those people you want to means test. In reality they are receiving tax relief as the total amount of tax they are paying is reduced.

Explain exactly why you want to remove these forms of tax relief when we have a surplus because I just don’t get what it is you’re trying to achieve here. The government is presently spending less than what it takes in. So why do you want to hit the people paying the biggest tax share when government finances are in such a good state. What youre really doing is raising taxes by stealth at a time when there is a surplus. Hate to think what you want to do if theres deficit.

You can’t really describe this form of tax relief as middle class welfare when groups below them are paying materially less in taxes.

Some are silly forms of tax relief that shoud go elsewhere, but certainly not to feed the government pacman machine. They have more than enough.

They’ll go for all the usual soft targets – the ones that can’t [or won't] cause a fuss. Centrelink, Veteran’s Affairs, the working poor, young families with huge debts, owner-operators, struggling carers, etc. They just can’t help themselves; regardless of which party is in government.

I may be a bit cynical, but it is rare to see people come up with lists that target their own interests.

Might I suggest that an initial cut to achieve budget outcomes will happen, and it is Liberal supporters who will feel the cuts. (As did Labor supporters since 1996). However, this is tinkering, since some future Govt will no doubt undo it in some way.

Would it be too much to ask for a fundamental rethink of the overall financial system, including Fed/State funding, tax and welfare, superannuation to really streamline, integrate and simplify it?

For example, integrate the super system into the tax system by not taxing contributions and earnings, but taxing all outgoings whatever at marginal rates. Then do similar exercises for the other rather complicated and opaque items in Fred’s List.

I’m not sure why it’s funny. To win the election they promised not to do these things – so they’re not doing them. Now at least. Lets hope they take a good look at them over time.

Otherwise I agree that middles class welfare should be abolished, it is pork barrelling of the worst kind, and the cost in churn ($1 in spending requires $1.40 in tax) is criminal. Howard was a master at bribing the electorate, I hope Rudd will be more restrained, but I won’t hold my breath.