COVER STORY: News Weekly
Rudd Budget targets 'middle-class' welfare
, May 24, 2008
Treasurer Wayne Swan has embarked on a fundamental review of the welfare system in Australia.Wayne Swan's first Budget contained three central planks — fighting inflation, delivering on election commitments and rethinking the welfare system in Australia.
All are admirable goals, but two are contradictory and all are fraught with risk.
Mr Swan's first Budget was cautious, absent of any major surprises, but providing enough for the Opposition to label it "traditionally Labor" in that it went after the rich and contained a raft of raised taxes.
"This is a typical Labor high-taxing, high-spending Budget which targets people that it doesn't like," was Opposition leader Brendan Nelson's first take on the Budget.
In fact, Mr Swan's Budget was much more than that: it was a complex document with multiple aims and ambitions and a first step towards a fundamental rethink on how and where taxpayers' money should be spent.Taming inflation
The Treasurer's single benchmark for people to judge his first Budget — taming inflation — has left him vulnerable to the possibility, even likelihood, of failure should inflation not be "tamed" as predicted.
The Treasurer has declared that, as a result of his efforts, inflation will fall back to 3.25 per cent next year.
This is despite an expected massive windfall of cash into the country from exports and higher commodity prices over the coming 12 months, a drum-tight labour market and a huge injection of cash into peoples' pockets from the Budget itself.
Actual inflationary measures in the Budget included the July tax cuts, a one-off $500 cash payment to pensioners, higher direct and indirect taxes and the strong likelihood that health insurance premiums will rise as a result of the financial encouragement being offered to people to drop out of private hospital cover.
Mr Swan maintains that the $7 billion in tax cuts coming this year will be balanced by an equivalent $7 billion in government cutbacks.
Mr Swan's attack on so-called middle-class welfare in the Budget represents the beginning of a fundamental rethink on delivery of social security payments to families in Australia.
Watching from the sidelines for the past decade, including a six-year stint as Opposition spokesman on families and community services, Mr Swan understands the transfer payments system as well as anyone.
And, when he finally got his chance, he took the first step towards ending the "churning" of taxpayers' dollars, whereby workers have their pay packets taxed by the government and then reimbursed by the government in the form of family payments and other handouts.
The system was turned into an art form by the Howard Government which took it beyond its original purpose and turned it into a political mechanism which drew more and more people into the queue to line up for a government hand-out at Budget time.
Rather than make people more self-sufficient and independent — a most basic philosophy of the Liberal Party — the system has been distorted way beyond its intended goals.
The danger for Mr Swan is that, in cleaning up the system, he risks overlooking the all-important social policy which underpins the transfer system.
A new welfare line was marked out on Budget night at $150,000 for families, above which they will be denied social security payments such as the Family Tax Benefit B, spouse rebates, and the $5,000 Baby Bonus.
These payments were not designed to prop up the wealthy but to encourage families to have more children, and to give families the option of caring for children at home rather than using professional carers.
The Government has taken a stab that only a relatively few families will be affected by the changes — in fact only 3 per cent of families will be ineligible for the Family Tax Benefit Part B which applies only to a single-income earner on $150,000 and above.
Many more will be picked up by the means-testing of the Baby Bonus, which was designed by Peter Costello to encourage more women to consider having children.
And the threshold is to be frozen for three years, which means that thousands more families will be caught in the net each year thanks to bracket creep.Wholesale review
Mr Swan has flagged further reform of the transfer payment system in the form of a wholesale review of the tax/welfare mix, to be conducted by Treasury chief Dr Ken Henry.
But it would be a pity that, in seeking to achieve the goals of efficiency and better delivery of taxpayers' money, Mr Swan literally throws the baby out with the bathwater.