Irony or rank hypocrisy?

Is it just me or do other Troppo readers appreciate the irony (or rank hypocrisy depending on your level of cynicism) of the main exponents and proselytisers of fairness and equality in our society apparently applying a completely double standard, when it comes to their own remuneration and access to social security payments?

I speak of course of the religious and charitable organisations who have succeeded in getting the government to overturn what was, in fact, a perfectly justifiable (and dare I say, fair and equitable) policy decision – that employees of such organisations should have their income for social security purposes calculated in the same way as any other employee who receives an equivalent remuneration package.

Let’s just examine the numbers for a minute.  I’ve heard claims that workers could be worse off by up to $150 a fortnight, though the spokesman for Catholic Social Services made a more modest claim of $50 a week.  Well, $50 a week is $2,600 a year.  In order to lose that much Family Tax Benefit, you would need to have your income estimate increased by $13,000 a year.  Since that is just the value of what is added to account for the notional FBT that would otherwise be payable on the fringe benefits, we’re talking about a pretty serious level of salary sacrificing here.

The whole principle behind counting the value of employer-provided fringe benefits as part of a family’s assessable income, for whatever purpose, is to treat equally people who receive equivalent ‘real’ earnings through different combinations of cash and in-kind benefits.  In other words, where someone receives a significant proportion of their remuneration by having various bills paid on their behalf, their assessable income should be a reasonable approximation of how much gross income they would need to earn to pay those same bills out of their after-tax income, as most of us still do.  I think that most people would accept that as a fair principle, in general terms.

But not the welfare sector apparently – or at least, while it might be a fair thing for people who work for other kinds of employers, it is most unfair to apply the same kind of logic to people who, to quote Frank Quinlan,

are providing crucial services in the charitable sector, [many of whom] are committed to helping the public even though they could attract higher salaries in private industry or the public sector

In other words, because they are good people doing good work, it is only reasonable that they get a special deal.  Too bad about all the other poor low-income earners who aren’t able to get their employers to pay their rent, mortgage, transport, child care, meals, etc on their behalf so that they can understate their real income for the purpose of working out how much family benefits they should get.

I understand that welfare organisations have trouble recruiting staff because they traditionally pay low salaries and that this is at least in part because governments who fund many of the relevant services don’t want to pay more money to have them delivered.  But, it also seems clear from the furore that this issue has created that the sector has also become overly reliant on the use of salary packaging and the spin-off social security entitlements to maintain or improve the living standards of its workers. 

More work should have gone into devising an appropriate implementation strategy, to allow for adjustments by employers, employees and funding formulae.  But surely it is better in the long run for people who work in the welfare sector to be paid what they are actually worth and for governments to pay for the full cost of the services it is getting the welfare sector to deliver.  Delivering extra subsidies through the ‘back door’ of the social security system is not transparent policy solution, nor is it equitable.

The Government has not at this stage reversed the decision for good, but has referred it off to its special tax and benefits taskforce for further consideration.  I only hope that they don’t abandon it altogether, because of some kind of tacit conspiracy to pretend (a) that workers in the welfare sector are more poorly paid than they really are and (b) that government funded services are delivered more cheaply than they really are.

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Sinclair Davidson
13 years ago

I agree with the sentiment and the principle. People should not be able to salary sacrifice themselves in “poverty” and then claim welfare. That does undermne the whole idea of means testing.

The media coverage of this has been confusing. I get the impression that this is an unintended consequence of some other policy (clamping down on deadbeat dads) and people have only now realised the full extent of that policy. If that is the case, its not unreasonable to delay the full implementation to investigate what is actually happening.

derrida derider
derrida derider
13 years ago

More work should have gone into devising an appropriate implementation strategy, to allow for adjustments by employers, employees and funding formulae.
Sheesh, they’ve only known about it for 14 months, and the idea was canvassed with them well before that. And they reckon the public service is slow to move!

And it’s not as though they’ve closed down the lurk for these people completely – the fringe benefit tax exemption remains, and hence the income tax advantages over everyone else are still there.

Tony T
13 years ago

Rank irony.

Patrick
Patrick
13 years ago

My ‘contact’ at Catholic Social Services supports the change, btw.

Ken Parish
Admin
Ken Parish(@ken-parish)
13 years ago
Backroom Girl
Backroom Girl
13 years ago

Patrick – I’m sure than many of the workers on the ground probably have some qualms about the current situation, but may feel that they don’t have too much option but to go along.

Ken – I must admit I wondered about that too (unless of course he’s Patrick’s CSS contact?) It’s kind of put me off wanting to be that particular kind of policy wonk, though.

Sinclair Davidson
13 years ago

BG – the welfare system is full of inconsistencies. I don’t think the policy is unreasonable and if it’s as you and DD suggest then it looks like Mr Swan has been spooked into a policy backflip.

GJ
GJ
13 years ago

An interesting post!
But what is perhaps more interesting (and more worrying) is what it suggests (re-enforces?) about the Rudd government’s commitment to good policy so early in its term.
Another example of being far too quick in reacting to even a modicum of grapeshot!!

Backroom Girl
Backroom Girl
13 years ago

Sinclair – the main reason for so many inconsistencies in the welfare system is knee-jerk reactions like this from politicians. Actually, I suspect the real unintended consequence is the extent to which the welfare industry took up the salary packaging option with such a vengeance. I’m sure that when the original rules about how fringe benefits were to be included in assessable income were devised, salary sacrifice was still something indulged in only by the well-to-do. No-one would have worried too much about the fact that the rules favoured people in the welfare sector, because they were not doing it at that stage, and in any case people like that don’t ‘take advantage’, do they? So much for that theory.

I agree with you, GJ, that it is possibly not a good omen for the future. One can only hope that the people on the relevant taskforce do their job properly and moreover that the government heeds their advice.

Michael Kalecki
Michael Kalecki
13 years ago

this is tax avoidance.

Apparently we should be up in arms when the rich do this but when low income earners do it and ensure taxpayers top up the income we should say it is okay.

Backroom Girl
Backroom Girl
13 years ago

Michael – it’s not tax avoidance, it’s just taking full advantage of tax and social security provisions.

I don’t think I suggested anywhere that it’s OK if the rich do it, but it’s not as if they can anyway (at least not through this particular mechanism). In any case, this is not an argument about poor versus rich but about whether one group of low-middle income earners should get preferential access to social security payments over other people with exactly the same real level of income.

Do you not have a problem with the welfare sector effectively saying ‘Do as I say, not as I do’?

Michael Kalecki
Michael Kalecki
13 years ago

They are paying less tax and getting more FTB than they are entitled to.

Tax avoidance isn’t illegal. tax evasion is

Sinclair Davidson
13 years ago

I don’t know that its fair to say people shouldn’t take advantage of quirks in the system. People organise their affairs within the letter of the law and its up to government to change the law if they think the law is badly formulated. As had happened here. I take the point on backflips – this does strike me as being a sensible policy.

Picking up on Homer’s point (tax avoidance is not illegal nor immoral Homer), I was very surprised at how aggressive Australians were on maximising fringe benefits in order to reduce personal income tax. Is this due to FBT being paid by the employer and not the employee? (In South Africa FB were paid by the employee and income would be grossed up and then taxed accordingly. It was a nice exam problem and it always worked out that it paid the employee to take a FB due to differences in book value and market value. But I had never heard of anyone deliberately buying FN from their employer to reduce their tax burden and if anyone did do it, it wasn’t widely discussed).

Backroom Girl
Backroom Girl
13 years ago

They are paying less tax and getting more FTB than they are entitled to.

They are doing neither – as I said I don’t have that much of a problem with people taking advantage of what is available to them to maximise their standard of living. The people I have a problem with are the Church and welfare spokespeople who apparently feel that it is fair and reasonable that their employees (not all of whom are low-paid) should be treated differently (ie better) than other employees (including many who are equally low-paid). They are the ones who need to justify their right to occupy the moral high ground.

Backroom Girl
Backroom Girl
13 years ago

An even more cynical view is that the church and welfare heirarchies just want to protect their right to pay their employees less than they are really worth and rely on taxpayers to help pick up the tab – something that I am fairly sure they would have a lot of problems with private sector employers doing.

Patrick
Patrick
13 years ago

Don’s paid too much to care, personally :)

(and he is not my ‘contact’, I don’t think I’ve ever met any troppodillian)

Francis Xavier Holden
13 years ago

homer – most people seem to not be objecting to the FBT rort exemption as such but objecting to the special treatment given to grossing up for Centrelink purposes.

I haven’t heard from the Hillsong shysters on this one. I’ll bet they are hoping it’s one fight the satanic catholics win for them.

Sinclair Davidson
13 years ago

LOL – BG that’s probably too cynical.

Niall*
13 years ago

It’s working the system, which as Kerry Packer opined, everyone should be doing or be classified as having rocks for brains

P
P
13 years ago

I thought it was the case that people working in the non-government community services were generally paid below what people doing similar jobs in government and industry would normally get. The use of Fringe Benefits was a way of improving the workers remuneration to be closer to par. Generally religious workers are not well paid either. Although there are exceptions.

Michael Kalecki
Michael Kalecki
13 years ago

both are at fault.

both Employers and employees seems to think it is their right to allow taxpayers to receive their total income rather than just the employer.

As I said previously if people criticise ‘rich ‘people for doing so ‘poor’ people can be criticised just as much.

backroom girl
backroom girl
13 years ago

I thought it was the case that people working in the non-government community services were generally paid below what people doing similar jobs in government and industry would normally get.

But surely the point is that if people are receiving a very substantial proportion of their remuneration free of tax, they aren’t quite as low-paid as they appear to be (to the tune of $15-20,000 apparently, if the quoted figures for typical losses are anything to go by).

It seems to me (with my cynical hat on – sorry Sinclair) that there really is a kind of covert conspiracy going on here where everyone wins (except the taxpayer). The Government gets to underfund services, the employers get to reduce their wages bill, the employees get family benefits that a person earning an equivalent income elsewhere wouldn’t get and everyone gets to maintain the fiction that people in the welfare sector are self-sacrificing individuals who work for love rather than money. The point is we don’t really know what their real incomes are because they are receiving so much of it through salary sacrifice.

Sinclair Davidson
13 years ago

Don’t be sorry on my account. ‘Everybody’ except the taxpayer gets something is an argument I’m very sympathetic to.

The real argument here is what I alluded to in the beginning. I thought this was an unintended consequence of some other policy – but it seems to have been deliberate. This is a welfare rort. Nobody I’ve spoken to (today) thinks that this (individuals salary sacrificing themselves into poverty and then claiming welfare) is appropriate.

Alex Schlotzer
13 years ago

It really is gross distortion of justice.

Mark Picton
Mark Picton
13 years ago

1. Bad policy is no easier to unwind than any other sort. The longer it’s been in, the more any rort will be thought of as legitimate.

2. One person’s rort is another’s income. Saying that this (or the capital gains tax concession or negative gearing or the lack of sensible water pricing or whatever) is a rort doesn’t avoid the fact that previous governments have encouraged people to take advantage of it and that those people will be worse off if it’s taken away.

3. A piecemeal approach to abolition of tax expenditures isn’t going to work. It will be unfair and politically hugely costly. A systemic approach based on broadening the base and lowering the rate is the way to go. The new government is presumably not figuring out _what_ to do – since the Draft White Paper, the unimplemented non-indirect tax part of the ANTS package and other Australian inquiries have recommended variations on this theme – but rather _how_ to get it done.

4. Nothing the current government has shown so far suggests that they understand how big this task is or that they have what it takes to carry it through, particularly given how many other large things they have on their agenda. On the other hand, maybe they’re getting all their ducks in a row before showing much at all.

observa
observa
13 years ago

Just another nail in the coffin of income taxation generally. Tax minimisation, avoidance and evasion are all bodies in that coffin largely related to the problem of defining and identifying income per tax period, usually for progressive taxation purposes. This is purely an example of tax minimisation (ie strictly legal under proclaimed tax law)for the purposes of social security clawback maximisation. Avoidance usually refers to non-arms length manouverings to minimise tax in concocted schemes for the purpose (think bottom of the harbour). The ATO try to catch this greyer area with a catch-all ‘non-arms length’ definitional no no (Section 262 I think) Evasion is strictly non- disclosure and hiding of income (black economy, offshore tax havens and the like). Neat labels for what is really a jerky sort of continuous spectrum describing an ongoing battle between the taxable and the taxer, with huge resourcing and brainpower financed by the marginal attraction of an extra dollar of taxable income being harder to attain than saving the tax on the last dollar.

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[…] Backroom Girl calls a spade a spade and looks at how the numbers stack up to allow welfare workers to receive a bigger personal slice of the government welfare pie. As she infers this is indeed rank hypocrisy. […]

Mangoman
13 years ago

An interesting post and discussion. A point that doesn’t appear to have been canvassed comes out of my experience working in government at times in areas that provided funds to the non-government sector. Typically, the cost of provision of a service is pretty carefully assessed with salary and on costs often comprising the major component. Amounts paid out are normally provided in bulk allowing the recipient organisation to manage its owns affairs to achieve the outcomes required.

Some organisations want to do more with the funds they recieve than simply deliver the service that the government – whether it be Federal, state or local – is seeking. They may, in effect, cross subsidise another service that they believe is necessary or they may see a greater need in another area of their organisation. Workers get a lower salary than might have been assessed as ‘reasonable’ by the government agency but they are compensated by the tax system or through access to benefits. The organisation gets to spread the funds it can obtain across other activities.

So it is not necessarily the case that governments are underfunding services. It is often the case that non-government organisations will use every dollar they can possibly find to do the things that they see as important.

Whether or not this is an acceptable situation depends on your point of view. I would prefer to see transparency in the system and am not convinced at all that funds for services should be shuffled off to subsidise other unrelated activities.

Yobbo
Yobbo
13 years ago

For once I agree with Niall (and Kerry Packer).

If you want to give more of your income to the poor, there are better ways to do it than buying paying more tax so the govt can give it to Toyota.

If you are paying $0.01 more tax than you have to you have rocks in your head.

backroom girl
backroom girl
13 years ago

Mangoman – I have no doubt you are right that non-government service providers attempt to spread their government funding as far as possible, including into areas that they have not specifically been funded for. But that is their free choice, as are the choices of people who work in the welfare industry.

I suspect that funding formulas (and methods of adjusting for inflation) may make it a bit more difficult for those service providers to pay proper market-determined salaries to their workers (always assuming that they believe in such a concept of course). The gist of most of the pronouncements in the media over the past week was that employers in the sector really couldn’t pay higher salaries and therefore needed to be able to offer lots of concessionally-treated fringe benefits and the attendant privileged access to family assistance payments in order to attract workers.

But you know, I’ve met a lot of people from the welfare sector over the years and as far as I can tell they manage to lead fairly comfortable middle-class lives. So either the ones I know are exceptions to the general rule, or the salaries in the sector aren’t really as close to the breadline as they like to make out.

Yobbo – not sure whether you are in the right thread here, but the discussion isn’t actually about paying tax or not, but about the hypocrisy of the welfare industry. It’s not the working the system that I object to, but the fact that the self-appointed arbiters of moral values are apparently wholeheartedly in favour of one group of employees (theirs) getting more out of the system than other people.

backroom girl
backroom girl
13 years ago

The latest news is that the Greens think the government has not gone far enough in just backing down over this issue – they want the rort increased even further. I despair

Yobbo
Yobbo
13 years ago

Its not the working the system that I object to, but the fact that the self-appointed arbiters of moral values are apparently wholeheartedly in favour of one group of employees (theirs) getting more out of the system than other people.

No I fullly understand that’s the point of the post. I replied to the meta-discussion in the comments instead because I fail to see what’s surprising about the point you are making and don’t see why it needs discussion.

The news about the greens is even less surprising given that they are mostly populated by members of various not-for-profit lobby groups disguised as charities.

skepticlawyer
13 years ago

BG, I’m not sure you’ll ever be able to persuade the Greens – or anyone who sees money and exchange in moral, rather than economic terms – that this kind of thing is hypocrisy of the first water. These are people who genuinely believe there’s an objective scale of values according to which people should be paid. More importantly, they’re convinced they know what it is – it’s the dream of central planners everywhere, alas.

Ken Parish
Admin
Ken Parish(@ken-parish)
13 years ago

I’m not so worried by the Greens as by the reaction of the Rudd government to even a faint whiff of grapeshot from even a small and relatively powerless lobby group like the welfare industry, which had no logic or principle on its side whatever in this instance. If Kevy can’t muster the backbone for decent, coherent policy so early in his first time of office, we have Buckley’s chance further down the track as his shiny newness tarnishes and the opinion polls return to a more normal gap (as they inevitably will even with the egregious Nelson as Opposition Leader).

In particular, IMO the chances of getting a coherent, effective carbon emissions permit system are almost zero, irrespective of what Garnaut recommends. What we’ll get is lots of spin, high flown bullshit rhetoric and meaningless to marginally useful stunts like low energy light globes and subsidising Toyota to build hybrid cars here. The next house I buy is going to be on higher ground in a cooler climate that will become more pleasant and temperate as the world inexorably warms. The only hope is a lucky breathing space if the next sunspot cycle is attenuated.

Michael Kalecki
Michael Kalecki
13 years ago

Given the Minster has given a number of speeches showing how petrol MUST be in such a scheme ( which means petrol rising some 26 c a litre) that can’t be right but I could be wong

Ken Parish
Admin
Ken Parish(@ken-parish)
13 years ago

I’ll believe it when I see it. There would be plenty of ways to notionally include petrol in an emissions scheme in such a way as to avoid or minimise any sort term price impact, which of course by definition minimises any effect on people’s choices and behaviour. Why do you think they started referring to Garnaut as a mere policy “input”. I hope I’m wrong, but frankly I’ll be surprised if I am.

Michael Kalecki
Michael Kalecki
13 years ago

Well I can’t se how Wong can give a speech now stating how petrol must be in an emmision trading scheme and then run away from the whole lot later.

I see it rather Kev 24/7 still thinks he is Opposition Leader.

Bill Cushing
Bill Cushing
13 years ago

There has been a ‘hidden’ subsidy to the charitable sector going on for years via fringe benefits.

In public hospitals, too.

Well known to Treasury/Finance bureaucrats.

Looks like someone decided to pull the plug. And someone else a bit further up the line didn’t read their briefing papers thoroughly.

Dear me.

The rest is a beat up.

johng
johng
13 years ago

Some respondents are getting confused. The issue backroomgirl is discussing is not whether there should be a fbt exemption for the charitable sector employees. The issue at stake is what level of income should be assumed with regard to entitlement for family tax benefits.

Do you assume the employee’s income for the purpose of how much family tax benefit you pay is their taxable income, or do you assume it is the real value of their package once the ftb exemption is taken into account? All equity principles say it should be the latter, which is what the proposed change was going to achieve. It is amazing that Jenny Macklin has fallen for this one, as she knows the technicalities of this issue from her previous life when she worked for Brian Howe.

JJ
JJ
13 years ago

The issue here is how the “real value” of FBs is calculated for lower paid employees working for charitable institutions and PBIs. Yes, they can salary package up to $16050 of their pretax income and thus avoid paying tax on that amount. In reality though, the tax they are “avoiding” paying is 30c in the dollar at the most, with a proportion possibly at 15c in the dollar. The grossed up value of the FB, however, is $30000, which is way higher than the tax saving achieved for someone in a lower income bracket.

As it stands currently, a person’s income for Family Tax and Childcare Benefit payments is taxable income + ungrossed FBs. So an employee who earns $40000 prior to salary packaging has an assessable income of $40000 for the purposes of FTB and CCB entitlements. I personally don’t see an issue with that. Yes they get a tax saving, but that is one of the benefits on offer for working in a low-paid sector. If the grossed up figure was counted as assessable income for FTB and CCB (as it is for calculating HECS/HELP repayments, CS, and medicare levy), an employee who earns $40000 p.a. and salary packages $16050 would have an assessable income of $53950. This is far beyond what they have saved in tax, and not equitable, IMO. Well done to the Govt for picking this up.

Backroom Girl
Backroom Girl
13 years ago

JJ – you may well be right that the standard formula for ‘grossing up’ fringe benefits disadvantages low-paid employees (not necessarily just in the welfare sector, of course). But in the general scheme of things, that should just mean that fringe benefits will be less attractive to such employees and they can make their own decisions about whether to take them up or not. Presumably the standard formula for grossing-up reflects an expectaton that most people likely to go this route are high-paid (as they were in the past) and is also easier to administer.

But seeing as how low-paid (and high-paid, by the way, of which I’m sure there are some) people in the welfare sector currently don’t have to gross up the value of their fringe benefits at all, they are getting an unfair benefit relative to other employees on similar wage levels. And the current high level of take-up of fringe benefits in the sector is a reflection that people understandably respond to the incentive this creates.

I wouldn’t have minded so much if the spokespeople for the sector had simply argued for a change in the grossing-up formula to reflect the levels of tax individual employees pay, but the fact is they didn’t – they argued instead, at least by implication, that the current unfairness is perfectly reasonable.

Backroom Girl
Backroom Girl
13 years ago

And JJ, I think you know that I was not arguing about the tax saving that people might get by taking up fringe benefits, I was complaining about the attitude that working in the welfare industry should entitle you to preferential access to social security payments.