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More on the Budget

May 13, 2011

An observation on how Wayne Swan’s budget attacks middle-class welfare was made on ABC Radio National this morning by a spokesperson for the free market think tank, the Centre for Independent Studies. This is how the argument runs. Howard’s concessions for well-off families – a mere two percent of them – distorted the whole budgetary process. People continued to face higher than necessary income tax rates. The government extracted the money. The government then “churned” the money, returning it to support policies John Howard liked (stay at home mums was the main example). This policy of taxing and redistributing implies the government can make the best decision about how to spend your money. And it requires large numbers of public servants to oversee the exercise.

Better to lower the rate for all and allow people to choose how they want to spend it.

Australia has had more flexible, robust budgets because we have had means-tested welfare. In most of Europe welfare payments are made on a universalist basis – no means-testing. That is the main explanation for the higher personal income tax rates you see in France, Germany and Scandinavia where ordinary income-earners are yielding over 50 percent of what they make to the government. Again, only two per cent of families fall into the category that is going to have their benefits, not abolished, but subject to the rate of indexation being frozen.

By opposing it Tony Abbot is signalling what is for him a characteristic lack of interest in economic reform. By the way, his budget reply speech had to be lower on economic content than that of any opposition leader in memory. I agree with him that it’s impossible for an opposition leader to bring down an alternative budget in 48 hours. But some attention to deficits, tax rates, social security and interest rates – rather than a re-run of his election speeches – would have been indicative of a bit more gravity.

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