If you’re a government propagandist, the silly season always provides a happy hunting ground. Newsrooms are thinly staffed and there’s little beyond the holiday road toll and bushfires to fill the bulletin until the sports report kicks in.  This means the bar for ‘news’ is set abnormally low. A perfect time, then, to flick the ‘Our-Welfare-Bill-is Out-of-Control’ switch.

And so it was that in the cicada-punctuated slumber between Christmas and New Year that Murdoch’s Daily Telegraph, the preferred propaganda arm of the Turnbull government in manufacturing kick-down economics, proclaimed that Australians were being “forced” to work nearly three hours a week to pay the nation’s “runaway” welfare bill.  More than half our taxes, the tabloid hyperventilated, were being “sucked into” social security and health spending.

Naturally, the commercial television breakfast news shows (where perfectly coiffed, overpaid himbos and bimbos multi-skill by smiling, frowning and reading the autocue all at once) did a ritual rip-and-read straight out of the Telegraph, of course echoing the mildly outraged tone of ‘our money wasted on good-for-nothing layabouts’.

Now as a former economics journalist, I’m all for the commercial media giving more time to tough macro policy stories and less time to break-and-enters, car crashes out west and two-headed mongooses, but if they’re going to meekly regurgitate this bait-and-switch bullshit, do you think they could perform even a cursory journalistic check first?

Firstly, define your terms. What does it mean to say we are “forking out three hours” of our weekly wage on “welfare”? Is Australia’s welfare bill disproportionately bigger or growing faster than those of other industrialised countries? What is included in this definition of welfare? Why is welfare always characterised as automatically wasteful? Why do we not hear about the billions of revenue foregone each year by providing tax breaks to the wealthy?

Australia has a progressive income tax system. That means the average tax rate, or the total amount of tax paid as a percentage of income, increases as each taxpayer’s income increases. So taxpayers on up to $18,200 per annum pay no income tax. They’re taxed 19 cents for each $1 over $18,200. This increases to 32.5 cents for each $1 over $37,000 and to 37 cents for each $1 over $87,000 and, finally, 45 cents for each $1 over $180,000. (Edit: These numbers do not include the Medicare levy of 2%)

The Terror’s story quotes Treasury as “revealing” that of the average taxable income of $58,000 a year, a total of $11,427 is paid to the taxman. Well, yes, that is the tax scale, including the Medicare levy of 2%. This is not news. The story then goes on to say that this means the average income earner is paying $83 a week for welfare, including $35 a week on aged pensions, $20 a week on family payments $17 a week on disability payments and $6.30 a week on the unemployed. Another $42 a week is spent on healthcare and $20 a week on defence. Again, so what? What do people think the tax system is for?

We pay tax to fund essential goods and services – for our defence, for our education system, for healthcare, to support our aged to ensure dignity in retirement, to look after the needs of the disabled and those who for no fault of their own cannot find work. Typically, people always complain about their tax “burden” but neither is the population ever likely to call for the elimination of services. In this case, the economically responsible thing for governments to do is to ensure they raise sufficient tax revenues to meet the services that a civilized democracy demands.  That they don’t is part of the magic pudding debt-and-deficit problem we’ve become depressingly accustomed to.

Again, none of this is newsworthy. The bigger questions are around whether Australia’s tax take is comparably more than those of other countries and is whether our social welfare bill is disproportionate in global terms. It would have taken a reporter of even modest ability about five minutes to answer those questions. 

Australia’s overall government tax revenues this fiscal year are around 24% of GDP.  We do not have current year comparisons for other industrialised nations, but in 2014 Australia was one of only nine countries in the OECD (the world’s club of rich countries) with a revenue to GDP rate of below 30%. The others were Chile, Ireland, Korea, Latvia, Mexico, Switzerland, Turkey and the United States. (These numbers are sourced from the OECD paper ‘Revenue Statistics 2016′).

Neither is our social spending particularly high in global terms. In fact, on most measures, we are significantly below the average. In overall terms, our social spending in 2016 was just over 19% of GDP, below the OECD average of 21%. In fact, we are even below the USA on this measure, which comprises cash benefits for low-income households, the elderly, disabled, sick and unemployed.

It is true that Australia’s social security and welfare portfolio is the single biggest item in overall government outlays at 35%. If you add in health expenditure, our total expenditure in this area is just over 50%. But is this unusual in global terms? No. According to the OECD database, the proportion of government spending on social welfare and health in 2013 ranged from as high as 58.2% in Spain to 29.4% in Korea. Most countries were grouped between 48% and 54%.

The other point here is that within our social welfare budget the single biggest item is the age pension, representing $64 billion this fiscal year or more than a third of the overall social security and welfare expenses. The second biggest and fastest growing component is spending related to the national disability support scheme. Contrary to tabloid hysteria about dole bludgers, spending on the unemployed and sick is budgeted at just over $10 billion this year or about 6% of our overall spending on social welfare. (See Table 9 from 2017/18 Budget below).

 

Is our spending on unemployment benefits unusually high? Again, no. The chart below compares overall spending on unemployment benefits in OECD countries as a proportion of GDP. At 0.6%, we’re below the average.

So to conclude, Australia is not a particularly highly taxed country, in income terms. Our social welfare budget is average or below-average depending on the component measure. The call on taxpayers to fund our not particularly generous social safety net is not especially onerous.

And, of course, none of this takes into account the significant tax expenditures (exemptions, deductions, credits etc;) that overwhelmingly go to the already wealthy. According to an earlier leak by Treasury (which funnily enough the ‘we’re-for-the-battlers’ crew at the Telegraph totally ignored) these tax expenditures (including negative gearing, capital gains tax concessions and superannuation ‘incentives’) amount to about $150 billion a year or virtually the same size as the total social welfare budget. And keep in mind that about a third of companies pay no tax at all.

Which all tends to beg the question of whose interests are being served with this silly season beat-up. Perhaps this is coming from a  government that is attempting to drum up the case for corporate tax cuts in a race to the bottom with the Trump-led USA? More importantly, what does it say about the Fourth Estate in this country that such a transparent scare story (aimed at creating an Us versus Them climate to sow division) can so easily be planted in the public domain with no journalist remotely challenging it?

Checking this stuff, not meekly re-running the government’s self-serving line and providing context for people are really what journalists are paid to do. The consequences of them not, of just providing manufactured outrage for ratings points, don’t really bear thinking about. This worries me. It should worry you too.

Other recommended analysis: 

Michael West: ‘Treasury Hides Corporate Welfare 


22 Comments

Barbara · December 29, 2017 at 6:58 pm

Thanking you!

Graham Ludlam · December 29, 2017 at 8:55 pm

Much appreciated this being pointed out.
The MSM in this country is a disgrace and the sooner they go bust
the better. Now Murdoch has polluted the ABC, proper analysis
of any policy from these economic vandals is ignored

Ambi · December 29, 2017 at 10:06 pm

Very interesting, as usual.
How tiresome this style of reporting must be for someone with your background!!

I recall a campaign by “The Australian” – was it in the late 70s? for lower income taxes… it lasted ages ….. and yet the Asprey Report to the Labor Govt around the end of 1974, asserted that people in the lowest income range were paying higher total taxes than huge numbers of Australians on much higher incomes. The graph of total tax (as a percentage of income) versus income, started high then dropped to a trough, then rose again at higher incomes. Like a shallow bowl seen side-on.

Why was it so?
1. Well, high excise on ciggies and beer, meant that poorer folk paid a larger percentage of their income just on those. (The Democrats said the GST would be “regressive”, for similar reasons.)
2. Also, a sizeable number of low income people were widows on pensions paid partly out of company profits which were taxed. The analysis of the widows’ total tax included the company tax.

That was 1974/5.
Now?

Well, 2. was dealt with by Treasurer Keating, with “dividend imputation”, sometimes known as ‘the abolition of double taxation’.

As to 1., most likely spending on ciggies and beer is now a much lower proportion of most person’s spending. But we would need a survey of current spending patterns, by income groups, and the taxes paid on various classes of goods and services, to get an accurate view. And that would deal in “average spending” figures.

A good topic for a serious journalist??

These days there seems to be much more publicly available economic and financial modelling, isn’t there? But is it covered seriously only in the Fin Review?

John Herring · December 30, 2017 at 9:26 am

Once again a reputable economist points out the truth about welfare and health spending v wealthy tax breaks and corporate tax avoidance.

Lets move to a corporate tax rate payable on turnover not profit, our current system allows profit to be moved offshore to tax havens eliminating any corporate tax payable.

Its time wealthy people and corporations were put on a tighter lead to make them socially responsible.

Ashley Felderhof · December 30, 2017 at 9:52 am

Perspicacious as usual, particularly liked representation of “perfectly coiffed himbos and bimbos”; please note 2nd chart (unemployment) is just a repeat of first Social Security chart

    jim.parker.coogee@gmail.com · December 30, 2017 at 10:32 am

    Thanks. Should have seen that. Have fixed.

Ross · December 30, 2017 at 10:25 am

Not to quibble but the federal government does not use tax income to fund anything. All federal government spending is new money created out of thin air at the Reserve Bank (with parliaments OK).
In fact taxes destroy that created money. If you think about it, without tax the economy would be swimming in the AUD created out of nothing and the currency would be worth nothing.
Despite what politicians might say the federal government is the sole sovereign issuer of the Australian dollar, it can fund anything it wants to and does not need taxes to do it.

    jim.parker.coogee@gmail.com · December 30, 2017 at 10:34 am

    Yes, but if we go down that route we get into the whole debate about the nature of fiat currencies. Separate topic.

    John Herring · December 30, 2017 at 10:34 am

    And end up like Zimbabwe where inflation runs into the outer limits as that is what Mugabe did for 3.5 decades.

Ray Simon · December 30, 2017 at 10:49 am

I’m very worried. Journalists aren’t doing their job , just parroting govt. propaganda at behest of conservative MSM owners and bosses.

Heather · December 30, 2017 at 10:58 am

Oh wow! Thank you for some expert clarity. PS perfectly happy to have always paid my $83 worth of assistance to others.

John Woods · December 30, 2017 at 1:16 pm

Can you please tell me how our tax system compares to HK? curious to hear your views

    jim.parker.coogee@gmail.com · December 30, 2017 at 3:52 pm

    I’m no expert. I do know they have very low income tax rates, about 15% for individuals and a little higher than that for businesses. Many low income earners pay no tax at all because of generous deductions. There’s also no GST or capital gains tax. But then the HK government has a significant source of revenue in its land bank. I’m wary of self-serving claims by the Australian business lobby that if we don’t slash our corporate tax rates business investment will dry up, as that’s based on the assumption that comparative tax rates are the main impetus in a company’s decision to invest in one country over another. Australia offers many other advantages like a stable political system (relatively speaking), rule of law, educated population, great lifestyle, English speaking and proximity to the world’s fastest growing economies. If we get stuck in a race to the bottom, our ability to fund the services that a civilized democracy expects will be severely compromised. And the evidence I’ve seen suggests that claims of a growth dividend from lower corporate taxes are over-blown. So you end up with what JK Galbraith famously described as private wealth alongside public squalor – boarded-up or broken down public schools, long-waiting lines for decrepit public hospitals, rising rates of crime and homelessness, and a festering chronically unemployed under-class. Not my idea of a great place to live.

Mark Kinnear · December 30, 2017 at 9:05 pm

The govt creates unemployment …
1) How many of the indigenous people were “unemployed” before the monetary system came along ? … Answer 0%
2) The govt has policy called NAIRU (non accelerating inflation rate of unemployment) … It means that the govt spends only enough to keep 5% unemployed.
So the govt is whinging about the problem that they have caused and are continuing to cause.

Its just class warfare, trying to turn the middle class against the poor.
ie “Look middle class see how much those poor people are costed you ?”
Then the middle class demands cuts and the govt pretends its not them doing the cuts.

    Ambi · December 31, 2017 at 3:50 pm

    Mark Kinnear

    The aspect of the old Asprey Report that really horrified me, was that folk in the “long-suffering middle class” were actually paying the LOWEST percentage of theur incomes in taxation. Lower than the poor and very poor.

    Of course that was more than 40 years ago. Consumption patterns have changed a lot, income tax rates are different, GST has replaced a tangle of sales taxes and other imposts.

    But the middle class probably still has a pretty easy ride…. I’m happy to be corrected if someone can do so.

    Remember the audience member on Q&A? Panellist said to him, “You probably don’t pay any tax!”

    As if Income Tax were the only tax in Australia!!!

Bilko · December 31, 2017 at 1:55 pm

Could someone please provide a listing of the distribution of rebate monies to the mining industry, diesel fuel rebate to the farming industry and any other beneficeries, cost of ex-politians travel etc , gold card recipients benefits, revenue to the buildings industry Ie loss of revenue on empty units lost to local councils, and the other housing fiddle (name fails me at the moment). My estimate it would exceed the “Terrowgraph chart by a few billion” and many other rebates I have failed to list. Not to mention the Goverment on politically based Royal Commissons, a Plebocite no one wanted search for missing foreign aircraft whose own countries did not bother to instigate the list goes on. I should just wait for the next election when our murdock inspired media wakes up and tries to inform us of what is going on because they do not do that between elections unless Labor are in power then it is all untruthys/halftruths or just lies. Amen

Ambi · December 31, 2017 at 3:59 pm

Bilko

I remember you from TV!
🙂

The other “housing fiddle” you mentioned may be ‘negative gearing’ of rental property income.

The landlord/owner can claim interest payments on a lian for the property as a deduction against rental income. If that deduction (plus repair costs, gardening etc.) exceeds the rent, property is ‘negatively geared’ and that helps to reduce the owner’s income tax.

Greatest benefit goes to owners who are on the highest income tax rate. No limit on how many negatively geared houses or apartments the owner can claim on.

In effect, other taxpayers are subsidising any future capital gain the property might make.

A fiddle to make Nero blush.

    Bilko · January 1, 2018 at 2:42 am

    i was younger then ambi

    Ambi
    i also fogot the lost revenue from big business what a bloody fiasco the country is in all our taxpayers fault

Ambi · December 31, 2017 at 4:04 pm

interest payments on a LOAN for the property…

John Catster · January 3, 2018 at 1:43 pm

Excellent, well presented article. Only problem is that even if the hack journos on MSM could produce something like this ( a balanced article ) do you think the drongos that watch free to air aussie breakfast TV would listen to it. MSM is the way it is in this country because that’s what the target market want. We are like America’s younger dumber little brother.

John mills · January 4, 2018 at 10:11 am

Can anybody workout,if we did away with payroll tax, increase GST to say 17/18% so buyer pays. How much would we save on smaller tax office work force. I would image less pollies need as well, Increase in public spending due to no payroll tax, how much would this pump back into the ecomomy, which would create more jobs. Less crime less police needed. Am I way off and just dreaming or would it work. If it did think Australia would be a better place, wealth shared and not just the greedy getting the most all the time.

Helen · January 4, 2018 at 11:47 am

Mr Denmore it’s a pleasure to see you reviving your blog in time for 2018. The new year is looking up already!

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