EVEN THE RICH NEED A HELPING HANDOUT

MIDDLE-CLASS welfare has become a term of abuse, at least to people who read The Australian's editorials. A recent one castigated the Rudd Government for forgetting what it described as "the war cries of Opposition about ridding Australia of the middle-class welfare of the Howard era". Almost by definition, anything described as middle-class welfare is redundant and should be eliminated. The trouble with such tagging, though, is that benefits that seem superfluous to The Australian look quite different to recipients on modest incomes with few choices. As well, many government payments support social goals such as higher female participation in the workforce or fertility rates. Although paid through Centrelink, these are better described as universal entitlements than welfare. Government payments can have several purposes. Pensions, for instance, and the Family Tax Benefit are income support. Medicare payments give everyone access to affordable, high-quality health care. Senior bonuses and superannuation incentives are designed to encourage people providing for their own retirement. A family on $30,000 a year is needier than one on $50,000 a year in otherwise identical circumstances, but that doesn't necessarily mean the former deserves government support and the latter does not. Indeed, tough means tests withdrawing income support from middle-income families magnify the effect of tax to produce incentive-sapping poverty traps. It's easy enough to rail against benefits, such as a childcare rebate or Family Tax Benefit Part B, being paid to millionaires or their spouses. These benefits, though, aren't income supplements so much as a recognition of the costs associated with being a parent. Of course, low-income working mums deserve greater government support, and receive it, but aren't all working women entitled to some support with child care? Low-income families deserve greater government support and receive it, but don't all families deserve some official acknowledgment of the cost of rearing children? The essential test of a welfare system is whether it helps to build a fair society. Taken as a whole, do government payments ensure that no one misses out on the chance of a reasonable life? Under the Howard government, cash benefits were steadily adjusted to ensure that, as far as a welfare system could deliver, everyone shared in the prosperity of the era, low-income earners had more incentive to get ahead and there was more encouragement for self-reliance in health care and retirement. Government benefits were increased, especially for families with children; taper rates were reduced so that more families benefited; and budget surpluses funded one-off payments for especially needy groups such as carers and pensioners. What's remarkable is that, in a time of rapid economic growth, not only did the poor as well as the rich get richer but the gap between rich and poor did not widen. During the Howard era, government policy seems to have enriched the worse off as fast as economic success enriched the better off. In July last year, the authoritative and independent National Centre for Social and Economic Modelling (NATSEM) found that, throughout the life of the Howard government, the greatest percentage increases in disposable income accrued to single aged pensioners and single-income couples with two children earning $500 a week. It's true that almost one million people (up from about a half million in 1996) faced effective marginal tax rates over 50 per cent but these were much further up the income scale, where financial incentives are less important to people's work culture. NATSEM found that, from 1995 to 2004, the percentage increase in real equivalent household income ranged from 24.9 per cent for the lowest income quintile to 19.3per cent for the highest. NATSEM concluded that the "overall impact of the Australian welfare state is highly redistributive; more redistributive, for example, than the UK system, with the top 40 per cent of households being net payers and the bottom 40 per cent receiving substantially more in benefits than they pay intaxes". The question for the critics of so-called middle-class welfare is which specific benefit would they withdraw: the deferred pension plan that encourages people to stay in the workforce; the senior health card that goes to middle income, self-funded retirees; the lower taper rates that reduce low-income earners' disincentive to work; the mega-surplus bonuses to carers, pensioners and seniors; or the baby bonus that seems to be associated with a significant increase in the fertility rate? Reducing tax is important, that's why the Howard government delivered the biggest tax cuts and reductions in tax rates in Australian history, but so is preserving the social fabric. Incoming Labor ministers have changed from theoretical critics to practical supporters of middle-class welfare because it wouldn't be fair to remove it. Tony Abbott

Source: THE AUSTRALIAN