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April 05th 2012 print

Peter Smith

Pruning the entitled

People in the middle have no entitlement to the goods of those at the top. Their job is to try to get to the top not to be subsidised. The entitled have to be severely pruned in number if those among us genuinely needing help are to be adequately helped.

Never has so much been confiscated from one group of people and handed over to another other than by force of arms. And no end is in sight. 

In the United Kingdom, it was estimated by Stuart Adam and Mike Brewer (“Observations”, Institute of Fiscal Studies, April 2010) that the top 20 per cent of taxpayers paid a net tax rate (tax less benefits) of 33 per cent of their gross income. The poorest 20 per cent received a net tax rebate (benefits less tax) of 32 per cent of their gross income. And this is taxpayers remember. It does not include those who pay no tax at all and live wholly off benefits. 

I haven’t seen exactly similar figures calculated for other countries but there is little doubt that the broad picture across Europe, in the United States, and in Australia would be much the same. For example, 70 per cent of US voters pay very little or no federal income tax. In Australia, Peter Saunders (Australia’s Welfare Habit, Centre for Independent Studies, 2004) reported that the number of workers supporting each person on welfare had declined from 22 to 5 in the space of 40 years. It would be surprising if this trend has not continued. And on the horizon are disability insurance, “denticare”, and probably yet more extensive childcare subsidies. 

What we have is a group of citizens who provide financial support to an increasing number of their fellows, a great many of them able-bodied, channelled through increasing numbers of expensive and unproductive government bureaucrats. The question is how this plays out in the media and in political commentary. Gratitude is certainly not part of the script. Nor is how we ever created enough wealth (through free market capitalism) to allow so many people to reap without sowing and so many people to administer the largesse.  

When you are on the left of the political spectrum, including Green earthians, there is a complete disconnection between wealth creation and its distribution. The script is that more must be done to help the poor and disadvantaged; that we need a disability welfare scheme (called insurance to make it sound commercial and feasible); and a dental scheme to take care of people’s teeth who can’t afford to take care of their own. And, that taking more from the rich will make it possible. Of course, unfortunately, it’s not just the left but (pretend) conservative parties that buy into this fanciful script. 

See people among the welfare lobby interviewed. They all urge that more should be done for disadvantaged people. Seldom do you detect any concern about whether what they personally cannot afford, can be afforded. The assumption is that the government can make it affordable at the stroke of a pen. We should feel sympathy for people who are genuinely disadvantaged; but sympathy doesn’t pay the bills and deliver practical help. 

How can ever more welfare be afforded? Tax the rich more, of course. Remove their unwarranted tax concessions for superannuation, and child-minding, and private hospital insurance, and the Medicare safety net, and whatever else. We get this constant stream of propaganda to the effect that tax concessions benefit the rich more than the poor. Yes, that’s right, because the rich pay much more in taxes in the first place. Ask someone with two kids and earning $100,000 a year, with a mortgage, to tell you exactly how much spare money he has to support someone else. Let me answer for him. Not much and not enough to meet the expectations being raised of people with disabilities or poor people with bad teeth when he is already subsidising services to middle income earners. 

Now tax concessions and welfare benefits have to be ring fenced and means tested; that is true. But, and it is a big but, that ring fencing and means-testing has to begin way down the income ladder, if we are not to run out of money and leave people in genuine need in desperate circumstances. People in the middle have no entitlement to the goods of those at the top. Their job is to try to get to the top not to be subsidised. 

The entitled have to be severely pruned in number if those among us genuinely needing help are to be adequately helped. For example, it is unconscionable and scandalous that carers of disabled family members live in the misery of poverty when working able-bodied people receive benefits and tax concessions. They don’t need them and shouldn’t be given them. 

In Australia, free market capitalism, freed of punishing environmental and workplace regulations, could create sufficient wealth to materially improve the plight of the genuinely poor and disadvantaged; provided it was not redistributed to those in no real need of it. Are there any votes in such a policy? I think there might be if a conservative political party and leadership with conviction could be found. 

Peter Smith’s book, Bad Economics, will be published soon by Connor Court. You can pre-order (post free) here…

Peter Smith, a frequent Quadrant Online contributor, is the author of Bad Economics