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Australia’s ‘overly generous’ welfare in context

The government and its News Corp cheerleaders have called Australia’s welfare system “unsustainable”, “overly generous” and “sending Australia broke”. Crikey intern Jake Stevens asks: do the numbers stack up?

The government’s plan to cut welfare payments, as outlined in the federal budget, has attracted much gnashing of teeth from the Left. News Corp, on the other hand, says our welfare system is overrun by rorting and the cuts don’t run deep enough. But how does Australia’s social expenditure stack up against overseas examples?

News Corp columnist Simon Benson calls the current system ”overly generous, and in need of dramatic reform” in this morning’s Daily Telegraph. In much the same light, Tim Blair also pointed the finger at the record number of Australians on the disability pension, who he says are “sending Australia broke”.

Complex our welfare system may be, but the claims that we are overly generous with our expenditure are a little murkier.

Australia spends 19.5% of our GDP on social welfare, whereas some European countries like France and Belgium spend upwards of 30% of their GDP on the welfare system.

This contrasts with Social Services Minister Kevin Andrews’ claim that Australia’s welfare system is “not sustainable” when he demanded a review of our expenditure in February this year.

The unemployed have come in for a particular shellacking, but Australia ranks 25th of 30 countries in the Organisation for Economic Co-operation and Development with data available in terms of expenditure for unemployment.

bunch of slackers

Jan Libich, senior lecturer at La Trobe University’s School of Economics, says the Australian welfare system does not seem to be overly generous in comparison with that of other countries. “In international comparisons, Australia is doing well, better than most other countries. Our pension and healthcare systems are in a much better financial position than those of other nations.”

But Libich says the real problem with Australia’s welfare spending is the rate of increase. “It’s not so much where we are compared to other countries, it’s more about the trend we have seen over the past three decades,” he said.

If you look at social expenditure as a percentage of our GDP, our 19.5% figure compares favourably, but this is almost double our 1980 figure. And looking at the per person figure, social expenditure (at constant prices and purchasing power parity) has tripled in Australia between 1980 and 2013.

The largest slice of our welfare payments goes towards the age pension. According to OECD Pensions at a Glance 2013, Australia’s public spending on the age pension is much lower than pension spending in Europe.

Australia spends 3.5% of GDP on the age pension, while Italy spends 15%, France spends 14% and the United Kingdom spends 6%. While our figures look good on a global perspective, the nations we are comparing ourselves against are in a pretty bad shape themselves.

ageing generosity

Yes, we are better off than other countries, mainly because our superannuation system takes the pressure of the public purse, but given past trends, we should not be complacent about for the future. These long-term trends require long-term reforms to be able to ensure the sustainability of the system,” Libich said.

In addition to the reforms, saving could be achieved by eliminating so-called tax-churning, whereby the taxes collected fund the welfare given back to the same individuals. The government is essentially taking money with one hand and giving it back with the other.

Tax-churning is inefficient, as a non-negligible portion of the collected money is wasted on administration,” Libich said. “There seems to be a lot more redistributive mentality in politics these days — this is something that needs to be looked at if we are to raise the efficiency of the Australian welfare system.”

The rapid rate of increase in the welfare system is something Australian politicians will need to address in the future, but quick cuts and short-term fixes like we’ve seen in Europe are not the answer, says Libich.

They tend to be counter-productive as they reduce economic growth. Conceptual reforms that take into account the demographic trend towards an ageing population are the way forward.”

19
  • 1
    Saugoof
    Posted Friday, 30 May 2014 at 1:29 pm | Permalink

    I’d love to see some data on how the expenditure on those parts of welfare that are always highlighted as ‘sending us broke’ compares to welfare for the wealthy like negative gearing or super annuation tax breaks, etc.

  • 2
    paddy
    Posted Friday, 30 May 2014 at 2:09 pm | Permalink

    I was happily, albeit a little sceptically, reading this piece. When Bam!

    There seems to be a lot more redistributive mentality in politics these days — this is something that needs to be looked at if we are to raise the efficiency of the Australian welfare system.”

    That sort of hinted at where Libich’s agenda might be headed.

  • 3
    Luke Hellboy
    Posted Friday, 30 May 2014 at 4:54 pm | Permalink

    How much does superannuation and negative gearing welfare cost the budget? Not to mention the extra welfare given to ex-parliamentarians?

  • 4
    burninglog
    Posted Friday, 30 May 2014 at 5:59 pm | Permalink

    I must be going mad.

    I just get the impression, the Abbott government is implementing a form of Thatcherism & News Ltd is cheering them onto to victory.

    No one in the press mentions this, so I must be going mad

  • 5
    CML
    Posted Friday, 30 May 2014 at 6:00 pm | Permalink

    Sorry to ask, Paddy, but does that mean that Libich thinks everyone should keep the money they have, untaxed, and those who don’t have any money, too bad? Or have I got this wrong?

    Serious inquiry. Thanks.

  • 6
    The Old Bill
    Posted Friday, 30 May 2014 at 10:25 pm | Permalink

    It’s the rate of increase apparently, rather than our actual expenditure that is causing problems. Bollocks.
    It is the fact that the latest budget give cuts to business and cheap tax rates on super to drop our national tax income, whilst cutting education and welfare funding. We are fast becoming another USA, where in most states bar New York, the rich get educated and the rest lose any chance of a job. In the next 5 to 10 years the US will lose 47% of unskilled jobs. We will lose 40%. Even the mines are now starting to use robotic equipment including self propelled trucks and equipment. After 6 months without any income under our new dole scheme, will our unemployed miners just lie down and die with their families? No.
    We will just end up with whole families in prison so that they can eat. You can’t send your kids to a privatised education on no income for 6 months.

  • 7
    Bart
    Posted Saturday, 31 May 2014 at 7:38 am | Permalink

    the superannuation system might take the pressure off the public purse at sometime in the future, maybe. At the present time overly generous super contributions tax breaks are one of the biggest pressures on the public purse! This article needed closer scrutiny by Crikey.

  • 8
    AllanW
    Posted Saturday, 31 May 2014 at 9:28 am | Permalink

    How come the first graph depicting the spending on unemployment doesn’t include the countries most “like” Australia’s social welfare system, ie NZ and UK.
    Secondly the second graph depicting spending on age pensions is merely showing the effects of inflation and has nothing to do with a net effect of an increase in actual spending.

  • 9
    Michael Packman
    Posted Saturday, 31 May 2014 at 9:54 am | Permalink

    In other words don’t do what the adults are trying to do now cos you’ll damage the economy, cause unnecessary pain and drive a bigger wedge through our society. Let’s look instead at tax avoidance shall we. Those who can afford to pay a fair share but don’t.

  • 10
    Matthew Willis
    Posted Saturday, 31 May 2014 at 11:59 am | Permalink

    AllanW,

    How come the first graph depicting the spending on unemployment doesn’t include the countries most “like” Australia’s social welfare system, ie NZ and UK.
    Secondly the second graph depicting spending on age pensions is merely showing the effects of inflation and has nothing to do with a net effect of an increase in actual spending.

    After clicking on the links, I found that the UK and NZ also spend 0.5% of their output on unemployment benefits. The OECD average is 1.1%.

    With regards to the aged pension graph, there’s a note to the right of the last bar that reads ‘per head at current prices at PPPs in AUD’ which means that they’re adjusted for inflation.

  • 11
    ZA
    Posted Sunday, 1 June 2014 at 12:01 am | Permalink

    I am not really confident that the ‘superannuation system takes the pressure of the public purse’. That is given the fees they charge and poor performance of the financial services sector, requiring Government bailouts particularly in response of market crashes, and protection in being forced to ‘invest’ with them. I think Sovereign Funds like that of Norway and Singapore do better. Also, there is arguably better use of money for investment in Education, Infrastructure and enhancing the real economy of small to medium business and community that ought to be done.

  • 12
    AR
    Posted Sunday, 1 June 2014 at 8:34 am | Permalink

    Not sure when ‘intern’ became a euphemism for “learning (nor not) to write grammatical English” y’no kinda ting, verbs, subject/object stuff.
    Try parsing Jake -“claims … are a little murkier” no, it is not the ‘claims’ that are murky (they are as clear, and seemingly eternal) as vomit on cold concrete) but evidence of their veracity, as shown on Cobba’s bar chart though admittedly from that fortress of Leftists, the OECD which I note is from their 2009 stats, presumably garnered somewhat earlier - imagine what it would look like in 2014 with all but (one or two countries’[one of which started with ‘A’.. can’t recall the name ..Armenia, Albania…?] GDP having fallen down a hole & welfare increased as a result). The claim by Libich that super takes pressure from our OAP costs is only 100% incorrect - super is presently a minor component which, contrary to his opinion, will become far more relevant in the future given PJK’s compulsory legislation - as noted by Bart above.
    As for corporate welfare… jeez

  • 13
    beachcomber
    Posted Sunday, 1 June 2014 at 12:10 pm | Permalink

    It’s a mistake to think facts play any role in Abbott’s decision making process.
    They were sprung doubling the number of GP visits to create a “medicare emergency” but continue to use the 11 visits per annually when it is actually under 6.
    Same with Climate Change, same with the economy.
    Now with unemployment and pensions.
    Abbott is an extreme right wing ideologue. He is driven by paranoia, bigotry and greed.
    He got to be PM by lying, and expects to remain PM by lying.
    The graphs are great. But don’t expect reality to influence Abbott.

  • 14
    Suzanne Blake
    Posted Sunday, 1 June 2014 at 8:03 pm | Permalink

    Explain this

    Friday May 30, 2014

    An analysis by Joe Hockey’s office has found some single parents are currently receiving $55,000 a year in tax-free benefits.

    In other words, 3 taxpayers on average salaries pay $17,000 each a year in tax to cover the entitlements of one single parent.

    The analysis by the Treasurer’s office was prompted by a complaint to Joe Hockey about the Budget from a single mother.

    Following the complaint, staff investigated what benefits the woman was currently entitled to.

    And it turns out she qualifies for $54,417 in Government payments

    The woman would get:

    $18,192 Single Parenting Payment
    $305 Clean Energy Supplement
    $8,979 Family Tax Benefit Part A
    $175 Clean Energy Family Tax Benefit A supplement
    $3,818 Family Tax Benefit Part B
    $69 Clean Energy Family Tax Benefit B supplement
    $3,818 Rent Assistance
    $161 Pharmaceutical Allowance
    $1,453 Family Tax Benefit Part A supplement
    $354 Family Tax Benefit Part B supplement
    $1,622 Pensioner Education Supplement
    $214 Income Support Bonus
    $157 Telephone Allowance
    $15,120 Jobs Education Training Child Care Fee Assistance

    *Figures on page 1 of May 30, 2014 The Australian newspaper

  • 15
    AR
    Posted Monday, 2 June 2014 at 9:23 am | Permalink

    ORAC - so you’ve finally outed yourself as a paid Menzies House astroturfer (or Blot in a skirt - not sure which is worse)! He feverishly tried to read out that shamalysis on his execrable excuse for a show on the GinaNetwork yesterday.
    Even Abbott was embarrassed, as you should be (in your former claim to be a “foresnic accountant”), because that list, given a careful scrut falls apart as the greatest wodge is availble to even such as yourself.

  • 16
    Saugoof
    Posted Monday, 2 June 2014 at 12:13 pm | Permalink

    Suzanne Blake #14
    An analysis by Joe Hockey’s office has found” - that they can use a single case that is miles away from the norm and misrepresent it to make a point.

  • 17
    CML
    Posted Monday, 2 June 2014 at 5:48 pm | Permalink

    SB - NATSEM commented on the figures you have reproduced from the Ltd News trash.
    It seems this well known and respected social research outfit surveyed some 44,000 single parent household incomes, and found 8, that’s EIGHT OUT OF 144,000, who had combined taxpayer funded incomes above $50,000. The list of items necessary to gain that kind of money was very long and involved.
    You need lots of children in a set age group, be in full-time education, use childcare, be renting a property, etc. etc., and it goes on and on. VERY few people would ever qualify.
    Usual cr+p from the Oz, making it appear that this is the norm rather than a very small number of special cases.

  • 18
    The Old Bill
    Posted Monday, 2 June 2014 at 7:19 pm | Permalink

    Gosh Suzanne, where have you been hiding? Good to see you back.
    As a full time employed taxpayer earning less than $50,000 I would be happy for the single parent mentioned to take advantage of everything you list. If they did, he / she would soon become a well qualified and tax paying member of our community. Only trouble is, the only parents single or otherwise in full time study that I know personally don’t seem to be able to access everything you mention, namely child care assistance. Phone assistance and income support bonuses seem to not be applicable to them either.
    Maybe you should read more widely than The Australian? It’s not as good as it used to be.

  • 19
    Brangwyn
    Posted Tuesday, 3 June 2014 at 8:02 am | Permalink

    Abbot could make significant savings if he demanded the UK pay pension increases to UK citizens who moved here and are now retired. It was star struck Menzies who agreed to pay these increases, absolutely ridiculous.

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