“Australia’s welfare
state is out of control,” Labor backbencher Craig Emerson says in a paper to be
published today, according to the Sydney Morning Herald.

He asks: “How do we justify giving family
payments to millionaire couples so long as the mother agrees to stay at home
while poor single mothers are expected to work for as little as $3 an hour
after taking account of benefits lost, taxes paid, child care and travel and
work costs?”

According to Emerson, a former economics
adviser to Bob Hawke, the welfare bill has grown by half under the Howard
Government after adjusting for inflation. Welfare now accounts for $1 in $7 of
household income compared with $1 in $17 at the end of the Whitlam government.

He says government policy-makers and leaders
of his own party should reverse a recent explosion in welfare payments –
particularly through the family payments system – in a crackdown on welfare
that would lead to lower taxes.

“The Government continues to expand its
incentive-crushing income tax system to fund relentless increases in welfare
payments. High income tax rates are boosting the incentive to avoid and evade
tax… The income tax base is under siege from a government determined to offer
electoral favours to chosen constituencies.”

Mike Steketee offered a good brief on the
situation in The Weekend Australian. Federal Government assistance to families with children, he reported, will run at almost $27
billion this financial year. It is up 134% over the past 10 years.

That’s incredible
social engineering – incredible and inefficient, by the time the funds churn
through the system and are chipped away by administration costs.

In fact, we lose twice
from inefficiency. Our money is taken away from us and wasted by administration
– then our time gets wasted when we seek to claim it back.

“Pity poor Peter
Costello,” Steketee said. “In past years he has made a reasonable fist of the
Treasurer’s trick of lowering expectations in the lead-up to the budget and
then delivering some pleasant surprises, such as tax cuts. But this year, the
horse is not just out of the stable, it has bolted to the far end of the back

Steketee’s sympathetic to the Treasurer –
but lays out a challenge:

The real test of Costello’s leadership credentials will be the
extent to which he can withstand the pressure to cut the top rate and turn the
public debate around. You could follow most of the public discussion in recent
times without ever realising that last year’s budget included some of the
largest income-tax cuts any government has ever given to higher-income earners…

None of this means we should forget about tax reform. An even bigger
test of Costello’s leadership would be to cut the top tax rate and pay for it
by paring back concessions, particularly those which go mainly to higher-income
earners. This is what Malcolm Turnbull had the courage to advocate when he
first jumped on to the tax-cut cart last year but it is seldom mentioned in the
debate these days.

This so called broadening of the income-tax base would make it
harder to avoid tax in a system in which paying it is purely optional
for many
high earners because of the deductions available to them. The scope to
large rate cuts is vast through measures such as restricting the
growth in work-related deductions, cutting fringe-benefits concessions
for cars
and reducing the generosity of negative gearing or capital-gains tax
True, it requires political courage but Paul Keating proved it could be
when, as treasurer in the 1980s, he reduced the top income tax rate
from 60% to 49% and paid for it by new revenue-raising measures.
the top rate also would reduce the attraction of setting up companies
paying tax at 30% while deferring income tax…

Keating proved it could be done.” And with courage like that, he also proved he
had what it takes to be prime minister.