by Dr Tony Webb
To reduce the social costs of inequality requires reducing upper and upper-middle class welfare. Put another way it is time to call out the tax bludgers who do far more harm to society than those on ‘welfare’ support that they stigmatise with ‘dole bludger’ and similar labels.
Who is ‘bludging’ on the state?
Current debate is focussed mainly on the stage three tax cuts enacted by the former coalition government and due to come into effect in 2024. It is widely recognised that these tax cuts will almost exclusively benefit those with high and above average taxable incomes — a section of the population who have already benefited from a range of structural economic changes over the past four decades that have significantly increased inequalities in income and wealth. Those on average wages get little. Those on minimum wages get nothing!
On their own the tax cuts will cost the budget at least $40 billion a year — more than $300 billion over the coming decade. Of this the top 20% of income earners gain over $200bn, around 73% of the total; and half of the total handout will go to those earning over $180,000 a year. For comparison the total cost of all federal government welfare services is around $200 bn of which only around $12 bn is for those ‘on the dole’. Within these ‘unemployed’ workers it is estimated that less than 5% could be regarded as not job-seeking — preferring to live on meagre benefits of around $770 a fortnight rather than actively seek work and so costing the budget at best around $0.6bn (For a useful analysis, see Bongiorno, 2023).
Put simply the costs to the budget of this future income tax cut to those with already more than adequate income for a decent standard of living is three times greater than the total costs of support to all unemployed people and 60 times the costs of those who get labelled as ‘bludgers’ living on the cost-of-living-inadequate dole benefits.
A fair go? Impacts of inequality on the social fabric of democracy
In addition to the argument above about fairness there is an even stronger economic argument for revoking the proposed tax cuts. The tax income to be foregone is urgently needed to tackle years of neglect and deficits in financing of: public education and childcare, publicly funded health services, public housing, and aged care to name only a few such essential government services. The cuts will also limit ability of governments and the agencies providing these services to raise the inadequate low pay of those who work in these sectors — thus further entrenching the inequalities.
But the problem for our personal and social wellbeing from the high and rising level of inequality goes much deeper. The studies by Wilkinson and Pickett (2009) provide overwhelming evidence that unequal sharing of capitalism’s economic benefits is a primary cause of both adverse personal physical and mental health outcomes and a wide range of social health indicators. These negative outcomes pose significant additional costs to the community and, perhaps more importantly, affect the nation’s wellbeing.
Using widely available global data the studies show that the higher the level of inequality in any country the greater the level of such adverse measures as: dying early; general ill-health; rates of cancer, heart disease, diabetes and other specific illnesses; alcohol and drug use; lower education levels, early school leaving and teenage pregnancy; levels of crime and offending especially relating to violence and addictions; rates of incarceration and hence economic and social costs of keeping offenders in prisons; and a wide range of mental health concerns such as levels of stress, anxiety, and depression. In short, they show that inequality affects us as a society and a country. It alters how we think, feel and behave towards ourselves, others, and our environments in ways that have broad economic social and ecological consequences. To paraphrase the authors’ own words the studies show that in more equal societies almost all people, rich or poor, almost always do better!
Underpinning economics with some social values
When it comes to including elements of values in the social democratic agenda for managing the interfaces between government policies and market forces, as recently endorsed by federal treasurer Chalmers (see Treasurer’s Budget speech October 2022) there is clearly a need to shift the political-economic debate from the neoclassical emphasis on efficiency in use of resources, essentially one that prioritises value for money, to one that gives direction, whether by regulation or incentives, to policy objectives that seek to achieve desirable and publicly desired social outcomes — essentially one that prioritises values for money for both public and private investment (see Mazzucato, 2023).
As noted above with the Wilkinson and Pickett studies we are now able to show that a political economy based on values has measurable outcomes, positive or negative, in terms of human wellbeing. But, in developing the details for what this would look like in terms of government fiscal policy there has yet to be a broad public discussion about reducing the level of government subsidies given either directly or as tax-reduction benefits to the upper- and upper-middle-class taxpayers that are used to undermine, indeed increase the privatisation of what should be public services funded from the collective pool of funds raised through taxation. These benefits that have variously been described as ‘middle class welfare; subsidies to the rich, or handouts to ‘tax bludgers’ make a mockery of the neo-liberal claim for the benefits of deregulation, small government, privatisation of state-run services, trickle-down economics and reliance on market forces for economic efficiency. They also make a mockery of the idea that the unemployed and others receiving welfare payments are a burden on the state that requires oppressive, often punitive measures to ensure that recipients meet ‘mutual obligations’ as the price of receiving often small and inadequate ‘benefits’. The reality is that the neoliberal economic agenda requires maintaining a significant pool of such ‘unemployed’ people as a brake on employed workers demanding realistic wages to meet their living costs. Unemployment ‘benefits’ are in fact wages paid to those without a job to fulfil a necessary function within capitalist economies. A universal basic income paid to all workers — in or out of work — would be a way of recognising this.
In and out of health
When it comes to tax bludging we might start with welfare payments in the public health sector, particularly the primary health care services provided by general practice doctors, mental health and allied health service providers through the federally funded Medicare service rebating system. These services are chronically underfunded to the point where it is increasingly difficult to find bulk-billing services. Gap fees paid by patients over and above the rebate they can receive from Medicare for a consultation are now comparable to the rebate itself and access to timely and affordable primary health care is less and less available to many. This shortfall, only partly redressed in the recent budget increase in bulk-billing supplements for some patients, puts increased pressure on the joint federal-state funded hospital emergency services — already under stress before and more so as a result of the recent COVID 19 pandemic — and increases overall costs from delays in providing early diagnosis and treatment for a wide range of health conditions. While measures to better integrate the primary health care GP and allied services and revising the state-federal hospital funding arrangements are needed, and long overdue, the reality is that more government funding is needed to tackle the root of the problem — insufficient income for those who work in the system — that will attract both new workers and the disillusioned and burnt-out workers who have left the system.
However, government policies currently provide tax-reducing incentives to those with surplus income to invest in private health insurance. The 30% rebate on this insurance costs the budget around $3 billion annually — almost half (48%) of Australia’s health care costs. This subsidised private health cover gives: privileged access to both private and, it should be noted, public health services; shorter waiting times for elective surgery; choice of treatment providers, etc. Despite these subsidies for private health-cover patients have the option of falling back on the public service if the procedure would incur costs above what their health insurer will cover.
The choice of paying privately for health care and insuring against such costs is a fundamental democratic right. The right to have this choice systematically subsidised, in ways that were chosen as part of a neo-liberal political-economic agenda to undermine the values that underpin the necessary and widely supported universally available and collectively funded health system is not. Social-democratic (let alone democratic socialist) values for money in health requires that such subsidisation of private health insurance and other subsidies to private health services is reduced if not completely eliminated and the funds redirected to ensuring we have a genuinely universal and free public health system. Any system that erodes health equality simultaneously decreases the funding pool available for universal healthcare, encourages private healthcare among the wealthy and, by increasing inequality, erodes public health in the first place.
Education has similar subsidies for private schooling that undermine the provision of funds for public schools. A number of private providers now receive state funding equivalent to and sometimes greater per student than many public schools — schools which inevitably have a greater proportion of students with special needs that require more attention and hence special funding. Again, the right of parents to choose to send their children to a private school is not in dispute. The right of such schools to claim state funding is open to challenge and change. Many private schools have assets and endowment income as well as parental fees that support their teacher salaries and running costs. While some costs to the state from private provision will be reduced, the level of state funding to offset such costs needs to be re-negotiated, significantly reduced, and redirected so that we have more equitable and needs-based provision of education services.
Both ends of life-care
A similar shift from community-service provision to individualised and privatised provision can be seen in child-care and aged care services. Both of which are in short supply, underfunded and have some of the lowest pay rates despite being among the highest-valued services in the country. A shift of government financing is needed that prioritises the community and state-owned and run services and those structured on a not-for-profit basis over those which are privately run for profit. It also needs to direct funding to these public-service providers rather than subsidising individuals to cover fees for these services.
The compulsory superannuation savings system was introduced to boost retirement incomes and to some extent offset the costs of state-provided age-pensions. In part it was a response to concerns over anticipated rising costs due to more older people living longer and possibly requiring additional health care in old age, while the proportion of the working age population contributing to state funds for pensions was projected to decrease. The evidence shows that private and for-profit superannuation funds deliver significantly less benefits than not for profit funds — to the extent that considering intervention to wind up the former is now warranted. But of greater concern is that the tax benefits to those with surplus income and hence able to park significant annual income and wealth in these, often self-administered, schemes is now resulting in costs to government in reduced taxation revenue on a par with the costs of providing state pensions.
For the rich, superannuation has become a tax-reduced subsidy for wealth to be passed on as inheritance — perpetuating and increasing the already obscene level of wealth inequality. The recent budget decision to cap tax-free contributions to superannuation accounts already holding $3 million or more is a first small step towards what needs to be a radical overhaul of the superannuation and the related pension and taxation systems. We urgently need to ensure all citizens have an ‘adequate sufficiency’ of inflation-proofed income in retirement funded by the combination of accumulated personal superannuation and/or state age pensions but close off the income tax avoidance and low taxed wealth being hoarded in these schemes by the wealthy.
Housing — as homes for people
It is now recognised that the system of capital gains taxing and ‘negative gearing’ of housing investment for renting is widely used by many with surplus wealth and income as another ‘legitimate’ tax avoidance measure. Such measures might be justifiable if they were effective in delivering sufficient affordable rental accommodation for those unable to compete in the home-ownership housing market — one that has gone through quite exceptional increases in house values, again benefiting mainly those with existing wealth or higher incomes. The reality is that both home ownership (usually via mortgage repayments to banks and other lenders which for many is much like paying rent to the bank for decades before being able to claim one owns even part of it) and secure, affordable home rentals are beyond the reach of too many. For many, private renting causes financial stress where it takes over a third of their income. ‘Public’ housing is very limited in Australia. Rather than being an option for ‘working’ people is largely restricted to and has the added stigma of being for people on ‘welfare’. A values-based government should be restructuring the supports for both public and private housing to ensure ‘homes for all’. In this it needs to redirect existing tax benefit subsidies for both home ownership and ‘investment’ properties into schemes that finance genuinely ‘affordable’ housing investment. The priority here needs to be funding for both social-enterprise ‘not for profit’ housing associations, cooperative housing schemes, and direct state and/or local council owned housing — with perhaps some joint shared state-family equity arrangements where people progressively purchase their home as part of paying rent.
Progressive political economics
There are other measures that governments can and should take which reduce wealth-welfare under capitalism. The massive investments in people represented by the job-keeper and job-seeker payments that kept the economy going into recession during the height of the COVID pandemic have shown that old-style ‘Keynesian’ economics has value. A step further would be to embrace elements of Modern Monetary Theory which would permit any country with a sovereign currency to put money into the economy — subject only to external exchange pressures rising from excessive inflation — to meet a range of social needs and use taxation to direct spending in socially valued directions rather than the current helter-skelter profiting from greed wherever possible.
A universal basic income (UBI) guaranteed to each person provided on a regular basis direct from the state would be a short-cut to achieving a number of these values-based objectives. It would provide a floor for all that would go a long way to ending poverty. It would eliminate much of the cost of managing the current means-tested and often punitive systems for distribution of welfare payments. A single universal system would be cheaper to run. The savings would contribute to providing the UBI at an appropriate level. Progressive taxation for all personal income above the basic level would do much, alongside the reduction or elimination of the upper-class welfare identified above, to pay for the UBI and reduce the level of inequality. Above all, such a UBI would embody social values around human rights and dignity that tinkering with wage-based taxation alone cannot achieve.
Tackling the intergenerational inequalities from inherited wealth also needs attention — in a way that respects working families’ efforts to pass on hard earned saving to their children and dependants but closes off the more obscene wealth transfers that perpetuate privilege in a small number of families who exert undue influence over the democratic processes we rely on for a humane society.
All of the arguments for change on the personal taxation side of the equation take on even greater urgency in the field of corporate taxation. The reality is that major corporations pay little if any tax despite large profits from Australian consumer spending, exploitation of Australian resources, and significant spending on ‘political donations’ to spread their influence on measures that might impact their vested interests. Reform of the taxation systems here and in other developed countries, and international protection that can and should be offered to the less developed, is much needed so that tax is paid where corporate income is earned and non-renewable resources are extracted. And in a world facing unprecedented environmental challenges, there have to be measures that internalise the costs of damage to environments — social and economic as well as ecological — as part of a values-based public-private democratically run economy.
And — to tackle to issue raised at the start — while the stage three tax cuts for the wealthy are reprehensible and need to be scrapped, if our government finds the argument about honouring its election promises overwhelming then perhaps it might consider an alternative. The argument is made that reducing personal taxation puts money into the economy and tax cuts are needed for this. Well, if so how about governments honour the promise at the level of aiming for the economic stimulus as the desired effect but deliver it in a way that would actually be more effective and fairer. Rather than the $40 plus billion as a handout to the wealthy — where much of it wouldn’t see the light of day as consumer spending or productive investment — how about government give the same amount as a tax cut by raising the threshold level at which personal income taxation starts — thereby giving the same amount to everyone — equally! More of it would be spent in stimulating the economy, reducing household debt (and costs associated with this), family savings that would lead to finance sector having more for investment etc. Of course, those tax bludgers with vested interests in upper class welfare capitalism would scream. I’d be happy to see them argue for their interests over those of the rest of us — and I’m pretty certain who would win that argument.
Bongiorno, P (2023) Cruel stereotypes won’t help a broken jobs market. The New Daily, May 16, 2023. https://thenewdaily.com.au/news/politics/australian-politics/2023/05/16/paul-bongiorno-albanese-dutton-jobs/
Wilkinson, R. & Pickett, K. (2009) The Spirit Level: Why Equality is Better for Everyone. Penguin, Alan Lane. London.
Mazzucato, M. (2023) Institute for Innovation and Public Purpose, University College, London https://www.ucl.ac.uk/bartlett/public-purpose/ucl-institute-innovation-and-public-purpose
Quiggan, J. (2020) Trickle-down theory continues to feed the rich. Independent Australia, 7 May 2020
About the author
A long-time community and environmental activist, Tony has worked on housing, unemployment, worker cooperatives, anti-nuclear, radiation and health, food policy, and energy/climate issues in the UK USA Canada and Australia. Along the way he picked up an MSc in Energy Resources Management and a PhD in Humanities. He is now living in NE Melbourne working on a Joint Fabian/LEAN project and coordinating development of men’s emotional health and wellbeing through the Men’s Sheds network.