Andy Blunden September 2004

Kicking Australia’s welfare recipients

Australia’s Welfare Habit and how to kick it, Peter Saunders, Duffy & Snellgrove 2004.

Thank goodness in a time when academics still think that they can insulate themselves from the demands of the market, that there is an institution which can provide you with whatever opinion you are willing to pay for, and scientific arguments to back it up.

Such an institution is the Centre for Independent Studies. Thanks to the generous stipend provided by his benefactors, a soldier of fortune like Peter Saunders, who could not hold down a job in one of the taxpayer-funded Universities, can offer this fearless advice on Australia’s welfare habit.

While gutless politicians buckle under the pressure of public opinion and are too cowardly to challenge the boundaries of ethical public debate, Peter Saunders is prepared to use facts both boldly and creatively.

The sarcastic tone of this introduction is intended to give the reader a measure of the quality of argument in Peter Saunder’s book. It is more a handbook for the populist head-kicker than a serious scientific study.

Saunders makes no mention of the decline in the corporate sector’s share in the government’s tax revenue from about 35% in the 1950s to around 25% today, but in general he is not averse to mentioning countervailing facts; it is intriguing actually to observe how he manipulates facts and uses populist double-speak to turn the world on its head.

The interests of the poor are represented as the ideology and opinions of those who deal with the poor and speak for them in public policy debate, variously called the “public policy establishment,” “academics,” the “welfare lobby,” etc. The interests of capital are represented as the “deeply held values of the Australian public” and so forth — determined by opinion pollsters. Politicians meanwhile are “weak-kneed” and “gutless,” cowed by fear of the voters and the power of the “welfare lobby,” all the more so when there is compulsory voting!

Whilst “adamant welfare pressure groups” believe “that ‘social justice’ is best served by taking money away from people who have earned it to redirect to those who have not,” 78% of taxpayers believe that people should work for a living and 96% of people believe that sanctions should be imposed on people who defraud the system.

Sometimes it is quite amusing to see how Saunders deals with unhelpful facts; for example, his rationalisation for a ratio of seven job seekers for every vacancy not being a cause for unemployment is a real joy to read. He is also quite unembarrassed about using one and the same fact for opposite purposes in different chapters of the book — after pointing out what a large proportion of the population experience unemployment at some time in their life, and only a tiny minority are “habitually” unemployed, for the purpose of showing that there isn’t really a serious objective problem here, he then uses the exact same observation to prove how a selected policy was successful in reducing dependency.

Saunders is also very happy to use changes in the economy very selectively to prove points about public policy. Everything about today is measured relative to the lowest level of unemployment experienced in 200 years of Australian life in 1965, to show how welfare spending has created welfare need; but when it comes to the Keynesian policies on which the prosperity of 1965 was based — “we should learn from our mistakes.” He wants the social policies of 1929 with the economic climate of 1965.

Saunders seems to have two overriding concerns: to reduce taxes and to free up the supply of cheap labour. He recognises that public opinion is supportive of public education, Medicare, public unemployment insurance and industrial awards (enterprise bargaining never gets a mention, the myth of “rigid” awards being meticulously maintained), but there are some openings in the public consciousness in terms of single mothers and the indigent unemployed through which Saunders hopes to undermine the entire system.

His proposals are nothing new:

“time limits on unemployment payments, a work expectation for single parents with school-age children, tighter access rules for the disability pension, financial penalties for those who abuse the welfare system, reduced taxation to encourage more people to work, a freer labour market to stimulate more jobs for lesser-skilled workers, and support and encouragement for more people to save and to insure for their foreseeable future needs. The problem is, who will put these proposals into practice?” [p. 185]

And Saunders has a pretty clear idea about the answer to this last question:

“Mark Latham too is one of the welfare heretics ... A reforming Labor government would also be ideally placed to neutralise or marginalise the conservative forces in the social policy establishment, for those who sought to cling to the old high expenditure, bureaucratic, redistributionist welfare model would have nowhere else politically to go.” [p. 192-3]

The welfare system of a society is an expression of that society’s dominant ethic, but it is a mistake to believe that real relations of domination and exclusion in society can actually be overcome by any amount of allowances, tax-breaks and pensions. Nevertheless, welfare/tax systems are a part of the whole system of rule, contribute to the outcomes and moderate the side-effects of patterns of domination.

There is just one of Saunders’ many proposals on which I would like to focus. He says that according to the welfare system, the subsistence level is about $12.5k p.a. for an individual, $20k for a couple plus $3k for a dependent child. And yet in Australia, people start paying tax after $6k p.a.. Not only is this unnecessary ‘churning’ — with people paying tax only to have it paid back in welfare, it also creates the ‘poverty trap’ of prohibitively high effective marginal tax rates. Although not mentioned by Saunders, it also forces corporations employing labour at subsistence-levels and below to pay for income tax, and in competition with the ‘cash economy’ where such niceties are avoided.

Saunders’ proposal is to extend the zero-rated tax threshold to these subsistence levels, with people not paying tax until they have reached a subsistence level of income. This policy implies non-means-tested child allowances/tax credits, thus removing the stigma of welfare from child payments and eliminating the poverty trap wherein people lose in benefits what they gain in wages, when they get work.

I actually support this proposal. It is outrageous that people earning under $200 per week pay income tax (let alone GST)! But “income tax” is itself, not exactly a fraud, but still a kind of fiction; it is actually paid only by those who have secured a share of the social surplus, such as employers; it is passed through the pay packet as a kind of charade to create the impression of employees participating in the tax system.

Saunders’ ‘subsistence principle’ benefits corporate employers at the end of the day, since it facilitates the exploitation of cheap labour, but it is more truthful and the poor would be better off without income tax.

The universal character of the child allowance/tax credit is also to be welcomed; like universal public health and public education, child support would cease to be perceived as ‘welfare’ and stigmatised, and the rich would be as motivated to support it as the poor. The poverty trap created by means-tested child benefits only institutionalises the poverty trap inherent in a society based on the exploitation of wage labour. It helps no-one to build the poverty trap into the tax and welfare system.

However, all universal benefits have the danger of underwriting exploitation. For example, raising young children is always going to be a struggle in a society which supports the raising of children through a tax credit, rather than all the cultural and social practices needed to support those raising children.

While defending the interests of the poor and excluded from the populist attacks of Saunders and his kind, and keeping in place whatever bandaids we have, it must be recognised that welfare does not cure subordination, but simply changes its form. Welfare benefits may give people excluded from the economy an alternative to crime and imprisonment, but it can do little to re-integrate them or help them to overcome subordination.

Long-term exclusion and intergenerational poverty are real problems. They can only be solved by going to the relations which generate these problems, not by any system of transfer payments and allowances.

When we say that a society’s welfare system is an expression of its ethics, this is exhibited in Singapore’s system, of which Saunders is so enamoured, of not “taxing” the poor, but simply deducting a sum of money from their wages and paying into a “Central Provident Fund.” The CPF is of course an accounting fiction no different from a tax. Superannuation pays the same role in Australia, as would Mark Latham’s “welfare saving accounts” — ideological constructs designed for the purpose of social control.

Saunders, however, is utterly in rapture of all these kind of accounting fictions, which succeed in institutionalising stigma and prejudice as well as inequality, but do nothing to overcome subordination.