(You can catch up with Part I here.)

One thing that’s become obvious as I’ve read through the CIS’s corporatist manifesto is that their TARGET30 campaign is very much a moral crusade with two goals. First, to reduce the burden (of taxation) on future generations. Second, to eradicate the pernicious vice of welfare dependency which deforms the character just as surely as habitual masturbation saps your manly vigour leading to unmanly weakness, blindness and insanity:

Before the state created a right to unemployment benefits, for example, people saved or insured through friendly societies and trade unions to ensure an income if they lost their job. Nowadays, few bother. Before Medicare, families insured themselves so they could buy treatment if they fell ill, and charitable foundations raised money to build and run hospitals. But now that the state provides health care, individuals are less inclined to insure themselves. When government takes over such functions, therefore, the market shrivels, philanthropy dwindles, and self-reliance is replaced by state dependency. (TARGET30—Towards Smaller Government and Future Prosperity by Simon Cowan (with contributions from Robert Carling and Peter Saunders (and Andrew Baker, Jennifer Buckingham, Stephen Kirchner, Peter Kurti, and Jeremy Sammut)))

…Tax-welfare churn leads to economic costs—for example, administration and compliance costs, a higher tax burden, and higher effective marginal tax rates (EMTRs) and non-economic costs including increased welfare dependency, government paternalism and patronage…(TARGET30—Tax-Welfare Churn and the Australian Welfare State by Andrew Baker)

Generally, when someone makes a moral pronouncement like ‘People should be more self reliant.’ the phrase ‘like me’ is crammed in at the end between the last word of the sentence and the full stop. Rarely does such a sentence end with an implied ‘well, not me of course, I’m a special case with a special exemption’ – it’s much harder to cram into that tiny space. But that’s a subject best left for another post.

The inclusion of Peter Saunders in TARGET30’s cabal sorry cadre sorry collective sorry committee sorry group of co-authors, suggests that his ideas provide the main moral impetus of the campaign. Especially given that the CIS is spruiking a new book by Saunders Re-moralising the Welfare State. Since Saunders has frequently argued in the past that the Welfare State has no moral basis or justification – usually quite badly – I think it’s a safe bet that every ‘remoralising’ measure he proposes works towards its destruction.

Andrew Baker’s policy paper on ‘tax-welfare churn’ continues to prosecute the case for cutting back welfare spending with the twin goals of eliminating the economic efficiency that results when governments take money from individuals with the hand of the taxation system then return it with the hand of the welfare system. While it looks like old wine in a new bottle the wine has been fortified by extending the definition of welfare; government welfare now includes welfare in kind as well as money welfare. The two major forms of welfare-in-kind Baker identifies are health care – government subsidised visits to the GP or hospital treatments – and education, both secondary and tertiary:

…the median Australian household ¹ receives more in benefits each week ($103 in welfare payments and $359 in welfare-in-kind) than it pays in total taxes each week ($348). Family Tax Benefits account for more than a third of the cash transfers ($36 per week), and the Age Pension accounts for more than 20% of these receipts ($24 per week). Of the $359 of welfare-in-kind, $166 is in the form of health care benefits such as hospital stays or GP visits, and $147 is for education benefits ($107 on school education and $32 on tertiary education). The remainder comes from child care assistance and other social security and welfare supports. (Baker op cit)

Baker’s inclusion of education in Australian households’ (and by conflation Australian families‘) welfare take is interesting; it extends his attack beyond the institutions of the socialist or social democratic welfare state to the liberal democratic state from which it evolved – or devolved, if you so prefer. He brings public education, as a feature of modern Australian society into the scope of his attack without any regard for its history before the emergence of the welfare state. But that too, is a subject best left for another post.

For now, let’s just note that if the $147 Baker’s median household receives in education spending is deducted from its welfare benefits it now receives only $305 total benefit – less than it pays in tax.

Baker’s source for his ‘statistical analysis’*

*: those scare quotes are a sop to the sensitivities of statistically literate readers who might, by the end of this post, vehemently object to my application of the phrase ‘statistical analysis’ to whatever the hell it is that Baker has actually produced.

is the ABS publication Government Benefits, Taxes, and Household Income, Australia 2009–10 (ABS Cat. No. 6537). His description of the median household precedes this table of personal incomes and welfare received by quintiles of the population:

The explanatory notes for ABS Cat. No. 6537 include the following explanation of ‘equivalised income’:

Equivalised income

43. Much of the analysis in this study uses equivalised income rather than gross or disposable income since it enables comparison of the relative economic well-being of households of different size and composition. Equivalised household income is calculated by adjusting household income by the application of an equivalence scale. This adjustment reflects the requirement for a larger household to have a higher level of income to achieve the same standard of living as a smaller household. Where income is negative, it is set to zero equivalised income.

44. When household income is adjusted according to an equivalence scale, the equivalised income can be viewed as an indicator of the economic resources available to a standardised household. For a lone person household, it is equal to income received. For a household comprising more than one person, equivalised income is an indicator of the household income that would be required by a lone person household in order to enjoy the same level of economic wellbeing as the household in question. (emphasis added)

45. The equivalence scale has been used to adjust private, disposable and final income for differing household sizes and composition…

To base an argument on the notion of the ‘median household’ – as if it were real and not a statistical abstraction – ought to be error enough for anyone. Not Baker – he compounds that error by ignoring, in his exposition of the ‘median household’s’ finances, the extra layer of abstraction that’s imposed by ‘equivalising’ household incomes in the manner described above. Each equivalised household consists, essentially, of one person. Bearing that in mind, let’s take a look at composition of the social benefits in cash that these single person households receive:

So the single person in each of the equivalised households of the third quintile receives, in addition to his or her private income: $24 a week from the Age pension, $8 a week from the Disability support pension, $6 a week in DVA pension, $36 a week in Family tax benefit, parenting payment of $4 a week and $11 a week in either student allowances or Newstart. If such a person actually existed it might be a scandal to society – it might also be cause to wonder why anyone would go to the trouble to set up so many bogus identities for such petty returns.

There is, of course, a much more reasonable way to interpret these figures. The lowest quintile consists of households ranging from those with no personal income to the highest income for the quintile: the top income of the 20^th percentile (P20). According to table 1 of the ABS Excel file, the highest personal income for P20 is $284. The average weekly values of the various forms of income support received by the lowest quintile reflect the mix of households it includes and the mix of income sources. While this point seems bleeding obvious to me it seems it wasn’t so bleeding obvious to Baker.

It’s also worth taking a closer look at the ABS listing of social transfers in kind (Baker’s ‘welfare in kind’) in more detail:

The low averages for education in the lowest quintile are consistent with the notion that this quintile contains a lot of Aged pensioners, and others, who are already at least School educated. Other than that, the figures for education suggest very little.

The figures for Health Benefits tell an interesting story: households in the lowest quintile of are the biggest users of publicly provided acute care, community health services and pharmaceuticals but the lowest users of the Private Health Insurance Rebate (PHIR). Also, while usage of publicly provided health services decreases as income increases, the opposite is true for the PHIR.

Baker canvasses a number of possible reforms to reduce the problem of ‘tax-welfare churn’ including:

• The creation of a ‘Personal Future Fund’ (PFF) for every Australian to –
  allow people to accumulate funds they could draw upon to fund their own unemployment benefits, health care, education or homeownership. The expenditure savings that PFFs create would be returned to families and individuals by increasing the tax-free threshold to the point where people are earning enough to cover their living costs. This would eliminate the need for government aid, simultaneous churn, and welfare dependency;
• Replacing unemployment benefits with either a PFF or income contingent loans –
  As part of his PFF proposal, Saunders proposed scrapping the Newstart and Youth allowances so individuals could fund their own unemployment benefits for up to six months before moving on to Work for the Dole programs until they find employment.
  A possible alternative to using PFF-style savings accounts is to enhance existing welfare arrangements for the unemployed and students with income contingent loans. Instead of providing the unemployed with an income support payment, they could be given an income contingent loan, which they will be required to repay once they return to the workforce;
• Superannuation reform –
  aimed at addressing lifetime churn—abolishing taxes on superannuation contributions and requiring retirees to convert some of their superannuation into an annuity when they retire. By reforming superannuation to help ensure retirees live off their own superannuation for longer, retirement savings would be increased and the government’s future pension liabilities would be reduced;
• Refundable tax vouchers for education –
  One way to reduce taxpayer expenditure on school education is by using a refundable tax credit, ideally in the form of a voucher.56 Instead of paying taxes and receiving a publicly funded school place, parents of school-aged children could spend their own money on providing for their child’s education at the school of their choice and then receive a reduced tax bill to the same value in return;
• Means testing government subsidies for aged care in accordance with reccommendations of the Productivity Commission and the adoption of another Productivity Commission reccommendation –
  The Productivity Commission also recommended establishing an ‘Australian Age Pensioners Savings Account’ scheme that would allow age pensioners to deposit some or all of the proceeds of the sale of their principal home into the account, while maintaining their eligibility for the pension. These funds could then be used to help cover the costs of their care;

Baker consistently justifies these measures on two grounds – they reduce ‘tax-welfare churn’ and foster self reliance. In some cases, such as the suggestion that unemployment benefits be replaced by a loans scheme, they merely replace one form of churn with another. ‘Tax-welfare churn’ merely reverses direction and becomes ‘welfare-tax churn’; I see no good reason to suppose that the latter will cost any less than the former.

Neither will these reforms make Australians more self- reliant. We can see this from the existing example of superannuation; most Australians rely, in one way or another, on financial corporations to manage their superannuation. Few have the knowledge, skills and resources to manage their own superannuation funds. The same will most likely happen with ‘PFFs’, Pensioners Savings Accounts, annuities and whatever forms of personal insurance might be advocated as replacements for government spending on education, health and welfare. Australians might end up paying the government less in tax but they’ll be paying more to private corporations for various forms of insurance and other benefits.

If the TARGET30 campaign succeeds it will merely replace state dependency and welfare dependency with another form of dependency: dependency on the corporations that will provide the management services for those Personal Future Funds, private health insurers and whoever takes control of public schools once government has been chased out of the field. This realisation of just who the ‘self-reliant’ citizens of Australia would actually be beholden to crystallised for me after I read the following letter – probably a tongue-in-cheek provocation – published in The Age on Tursday, May 2:

Being a Quadraplegic, I have some idea of the daunting costs involved in providing disabled people with a chance of life. But we should be winding the welfare state back, not cranking it up. Disability insurance is a terrific idea, but it should be run by private companies in the same way life insurance is.

When parents decide to have a child, they will insure the newcomer, in the same way they insure their new house or car. Companies will require tests and provide premium discounts for precautionary measures that will reduce tragic births, disabling diseases and accidents. A culture that encourages people to insure themselves and their children against disability will drastically reduce the numbers who have to rely on charity or welfare.

John Dawson, Chelsea

This is the future the TARGET30 campaign offers ordinary Australians – a future where a multitude of insurance premiums replaces tax collection. Where your personal well-being in times of unemployment and your access to medical treatment depends on corporations whose only responsibility is to increase their profits. Corporations whose limited obligations to you are spelt out in an incomprehensible, self-serving contract which you won’t be able to challenge through a court of law – or more likely a dispute mediation corporation – unless you can afford personal litigation insurance. Assuming of course, that your litigation insurance policy covers you for taking legal action as a plaintiff and not merely for the risk of being the defendant in a civil matter.

And there you have the reason that this series carries the overall title ‘The Corporatist Manifesto’.

• Update (May 14, 2013): today, I received some information about ABS Cat. No . 6537 in answer to an e-mail enquiry I sent on Friday. The private income listed for each quintile in Baker’s table is the mean equivalised private income for the quintile not the median value for the quintile. The median equivalised private household income was actually $790 (top income of the 50^th percentile). Score another – easily avoidable – error to Baker.

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