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May 15th 2014 print

Peter Smith

A Means Test Beats Being Mean

Whatever sum is raised by visiting distress on the elderly and poor, rest assured it will not be much. A smarter, better and more politically astute policy would be to help those who need it and lack the means to pay

oldiesLet’s be clear. Transfer payments orchestrated over many decades by the political class in conspiracy with special interests, and underpinned by the insecure child in all of us, have created a dependency mentality which is beyond substantial retracement. A social world has been created strong enough to withstand any tilts by those who yearn for self-reliant living. The big game is irretrievably lost. Only mitigation remains possible.

It isn’t defeatism to concede this; it is realism. And in realism lies the only hope. You can stand at the sea’s edge and hope to push it back or you can get busy building dykes.

Building dykes is hard work. So you also better make sure they’re well positioned and on high enough ground, otherwise they’ll be washed away and you with them; and that tends to rather dampen (forgive the pun) enthusiasm for building more.

Joe Hockey is realistic despite his rhetorical flourishes about ending the age of entitlement. He knows that’s not possible. How do we know he knows? We know it because he rationalises his peripheral cuts to entitlements as being necessary to protect entitlements in the future – QED.

Mr Hockey announced a number of measures in the budget to hold back the entitlement tide a little and perhaps retrieve a bit of ground. Unfortunately, some of them are very badly directed and, really, that is inexcusable and might well cost the government the next election.

The best way to tackle entitlement spending is by means testing. This shouldn’t be too hard for a conservative to understand. Safety nets are for the poor. The rich don’t need them and shouldn’t have them.

When you have the NDIS to pay for, any criticism of means testing Family Tax Benefit Part B, for example, would soon run out of puff. Means testing, particularly combined with some associated pause in indexation, is the key. What isn’t the key is having people pay $7 dollars to see a doctor.

One woman in a bulk-billing surgery was interviewed by the ABC. She said that free medical attention was a ‘right’ not a ‘privilege’. She undoubtedly would be willing to pay for a cup of coffee and not think that a right. It is annoying, I know, but, that is the embedded culture within which we live. Work with it or be on the outer and powerless.

Poor people overwhelming use bulk-billing doctors. Rich people steer clear of them. Exactly what is the political and economic gain of imposing an annoying, revenue-trivial, inconvenient payment on those visiting a bulk-billing doctor and on the office staff of those doctors, who have to collect and account for it? I, for one, don’t get it.

We only need one case of someone on welfare being unable to afford to visit her doctor with her sick child; and who, as a claimed result, became a lot sicker or, God forbid, dies, to pull the whole thing down.

Why not also attack pensioners and lose all credibility? How stupid can you get? Aargh! It is crazy to try to force those in physically arduous jobs to work on until they’re seventy, even in the unlikely event someone will employ them.

If the government thought sixty-seven was too young then why not go one year more to sixty-eight by, say, 2045 (not 2035, which too close for comfort for many people). Don’t get hairy-chested with pensioners. Stick to the well-off.

Then to top it all, we have that ‘brilliant’ idea, thought up by those without a calculator, to index the aged pension by the CPI instead of by average earnings. This will simply produce impoverishment. It is not tenable.

Over the past 20 years or so real wages in Australia have increased by approximately 1.5% a year. If this were to continue, in twenty years those earning $100 real dollars now will be earning $135 real dollars then. Pensioners’ incomes would have fallen against prevailing community standards by around 25%. Hands up for that one!

The only feasible and compassionate way to tackle the rising pension bill is through superannuation policy and by encouraging a business culture which is a lot more supportive of employing older people. And you also better grow the economy by lowering business taxes and regulations to help pay the bill. What you can’t get away with is lowering pensions. Does anybody in the Liberal and National parties get that?

Neither the Medicare co-payment nor the CPI indexing of pensions will get into law. But lots of political capital will have been thrown away by the government. If you want to build sustainable dykes to stem entitlement flooding then means testing is the way to go. Most everything else is counterproductive.

Peter Smith



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