Like what you've read?

On Line Opinion is the only Australian site where you get all sides of the story. We don't
charge, but we need your support. Here’s how you can help.

  • Advertise

    We have a monthly audience of 70,000 and advertising packages from $200 a month.

  • Volunteer

    We always need commissioning editors and sub-editors.

  • Contribute

    Got something to say? Submit an essay.


 The National Forum   Donate   Your Account   On Line Opinion   Forum   Blogs   Polling   About   
On Line Opinion logo ON LINE OPINION - Australia's e-journal of social and political debate

Subscribe!
Subscribe





On Line Opinion is a not-for-profit publication and relies on the generosity of its sponsors, editors and contributors. If you would like to help, contact us.
___________

Syndicate
RSS/XML


RSS 2.0

Self-sustaining leviathan

By Robert Carling - posted Tuesday, 23 October 2012


Has Australia's welfare state become so large that it can now sustain itself and grow through the ballot box? This is the key issue raised by recent controversies in the United States and the United Kingdom.

Mitt Romney, the Republican presidential hopeful, drew fire for his remarks about the 47% of US households that pay no federal income tax. Romney was factually correct (although many of the 47% do pay social security payroll tax, which is like an income tax), but his analysis was so clumsily expressed that his essential point was lost in the frenzied commentary that ensued. In democratic welfare states, the proportion of the electorate that attracts more in social benefits from government than it pays in tax has become so large that candidates who promise to curb the welfare state have a hard time winning elections.

The same issue has been raised in the United Kingdom, where a recent study by the Centre for Policy Studies revealed that 53.4% of households receive more in benefits than they pay in taxes, and that this proportion has been rising dramatically in recent decades.

Advertisement

Given these developments, it is instructive to consider how Australia compares in the welfare dependency stakes. Here, 26.4% of individual taxpayers (who are different from households) paid no net income tax in 2009–10. Twenty years ago, this proportion was only 14.3%, and it is likely to have risen further since 2009–10 in light of an increase in the effective tax-free threshold. (Whereas the bottom 47% of US households paid no income tax, the bottom 47% of Australian individual taxpayers accounted for 10% of total income tax paid, although much of this would have been offset by family tax benefits.)

But there is no reason to stop at income tax. People also pay GST and many other taxes. The Australian Bureau of Statistics (ABS) has compiled data on total taxes paid and total social benefits (cash and in kind) received by households in 2009–10 classified into five slices (quintiles) from bottom to top according to their private income. The first three quintiles (that is, 60% of households) each received more in direct social benefits than they paid in taxes. It is impossible to determine from the ABS data the exact income level at which households, on average, move from being net beneficiaries to net payers, but it is probably close to the median household private income (around $75,000 a year).

Whether households are aware of the balance between the taxes they pay and the benefits they receive is another matter. If we compare total benefits with income tax alone, which is the tax households are most aware of paying, then only the top 20% are left paying more than they collect in benefits.

It is hardly surprising or objectionable that the population is divided into net beneficiaries and net funders of the welfare state, but there is ample scope for argument about the coverage and size of welfare state benefits, where the dividing line should be drawn between net recipients and net payers, and the size of the burden that the net payers – whether the top 20%, 40%, 50% or whatever – can reasonably be expected to carry.

Some things are clear. The welfare state has gone far beyond a 'safety net' concept. There is a large constituency whose direct financial interests are best served by the preservation or enhancement of social benefits, whether or not that is in their broader self-interest or the national interest. And the top 40% of households are bearing the burden, paying 72% of the taxes and receiving 22% of the benefits.

  1. Pages:
  2. Page 1
  3. All


Discuss in our Forums

See what other readers are saying about this article!

Click here to read & post comments.

5 posts so far.

Share this:
bookmark with del.icio.us Del.icio.usdigg thisseed newsvineSeed Newsvinereddit this reddit thisStumbleUpon StumbleUponsubmit to propellerkwoff it

About the Author

Robert Carling is a Senior Fellow at The Centre for Independent Studies.

Other articles by this Author

All articles by Robert Carling

Creative Commons LicenseThis work is licensed under a Creative Commons License.

Article Tools
Comment 5 comments
Print Printable version
Subscribe Subscribe
Email Email a friend
Advertisement

About Us Search Discuss Feedback Legals Privacy