firing up the chainsaw on middle class welfare

Trudy Givens and family meet the president

Listen to my chat with Ross Greenwood on 2GB about middle class welfare here.

Two weeks ago, Trudy Givens, a 45-year-old Bureau of Prisons employee from Portage, Wisconsin – population 10,000 – shook hands with Barack Obama in the Oval Office.

“It was very exciting,” she told her local rag, the Portage Daily Register. Givens beat 18,000 other federal employees who submitted ideas for the President’s 2010 SAVE Award, an annual competition to identify ways to cut government bureaucracy and make savings. Her proposal – to email rather than post hard copies of a government report – will save an estimated $US4 million a year.
Across the Atlantic, the Conservative coalition of the British Prime Minister, David Cameron, has also called for ideas on how to save money and cut debt. More than 100,000 ideas were posted by public servants and citizens on a dedicated “spending challenge” website. Dozens of the proposals will be adopted, mostly ones to do with cutting paper bureaucracy, while others, such as sterilising single mothers, have been politely put in the bin.
A wave of penny pinching is sweeping the globe. The ascendancy of conservative and liberal elements in Britain and the US is behind efforts in those countries to reduce government spending. Julia Gillard’s government is also intent on finding savings to get the budget back into surplus as promised. Two-thirds of the government’s spending on rebuilding infrastructure after the floods will be funded by budget savings. Budget cuts have bipartisan support, with Tony Abbott this week outlining another $2 billion in cuts and deferrals he would use instead of a levy to fund the rest of the rebuilding.
The fervour with which the US and Britain have embraced budget cuts is questionable, given the still fragile nature of economic recovery and high unemployment in those countries.
But austerity measures in Australia make sense. Even before the floods and cyclone Yasi made necessary a fresh wave of rebuilding, Australia was in midst of a massive boom in private investment to capitalise on sky-high commodity prices.
The problem is there is only so much capacity in the economy – only so many workers, trucks and factories. So any resource the government employs is a resource that cannot be used by a private player. Government spending is in effect bidding against the private sector for scarce resources, which pushes up prices. Inflation alarms bells are ringing at the Reserve Bank.
Assuming the mining boom continues, it is entirely appropriate – necessary even – for the government to look for ways to reduce its contribution to “aggregate demand”, the total demand for goods and services.
The government has made a good start, announcing $3.8 billion in spending cuts and deferrals, on ad hoc climate programs and assistance for the car industry. But it is time for a wider debate about what else can be cut. Australians have already shown an amazing capacity to get het up about perceived government waste, particularly stimulus spending on schools. Amazing because only 3 per cent of schools lodged complaints about their projects and amazing because the point of the exercise was always about creating jobs for construction workers, not improving school facilities. Schools essentially played hosts to massive “make work” schemes, and hey, they got a new library for their inconvenience.
So forget school halls. It is time to get worked up about really wasteful government spending, starting with payments to families and individuals who can fend for themselves.
A unique opportunity has opened up to make lasting budget cuts that will help us not only to manage inflation pressures during the mining boom but set the budget on a more sustainable path to deal with the pressures of an ageing population.
By far the biggest expense the government incurs is social security and welfare. This accounts for $115 billion out of total estimated spending of $355 billion this year. The next biggest items are health ($57 billion), education ($33 billion) and defence ($21 billion).
The family tax benefit system alone pays out $18 billion a year, including to some families on incomes as high as $150,000. But it is not only direct payments that give an unnecessary boost to the well off. An estimated $27 billion in tax concessions are granted every year on superannuation, which give the biggest benefit to those with high taxable incomes.
And while we’re at it, how about the $7000 grant for first home buyers which, because it does not increase the supply of homes but boosts the price baby boomers will pocket on the sale of their home?
In the end, the question of where to cut goes to the heart of political philosophy. The global push for cuts has been led by conservative or liberal forces which believe in a limited role for government. But it is entirely possible for social democrats to abhor waste and want to cut spending too.
Liberals should despise middle-class welfare because it impinges on their sense of pride and ability to look after themselves. Social democrats should know the money could be better spent helping someone worse off.
The present system, where revenue is raised and returned to middle-income families, should appal everyone. Gillard has already unsheathed the carving knifes. It’s time to fire up the chainsaw on wasteful middle-class welfare.

View original column, with 250+ comments, at smh.com.au here.

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2 Responses to firing up the chainsaw on middle class welfare

  1. senexx says:

    With 12.5% Underemployed, Austerity measures in Australia are unjustified. Now if we had full employment as defined by the post-war years to stagflation then that comment would have some merit. The one resource that isn’t scarce is idle labour and to keep them idle to maintain a certain level of inflation is not only a tragedy but a travesty since the NAIRU is constantly being redefined proves in itself it is a myth.

    Now don’t get me wrong, anything that is unproductive should be cut, but thinks that increase productivity should not be and things that may increase productivity should not be either. If we can keep productivity increasing, we can keep inflation stable since inflation is the continuous rise in the price leve in each period that you observe it.

    So yes cut Middle Class Welfare (whatever Middle Class is) but let’s not go into job destroying austerity.

  2. wtf says:

    The ascendancy of conservative and liberal elements in Britain and the US is behind efforts in those countries to reduce government spending

    To reduce government in general, I think, not just spending. “Big Society” is a very thinly veiled “small government”.

    I agree with senexx; with 12.5%-15% of people unemployed or underemployed (depending on which figures you use), austerity would not seem appropriate. A tax on the white-hot mining sector might be, however.

    I do, though, agree with your sentiments about giving welfare to those who don’t need it.

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