The memes are out in force again, I see. Given the breadth of issues journalists cover and the speed at which they must work, one can’t blame them for swallowing the odd line set for the unwary.

On Wednesday, Christian Kerr fell for what he himself called an “old chestnut” — why the hell are we paying public servants to take money away from people in tax and hand it back to them in welfare?

I’ll tell you why – because, like all other countries our tax system raises revenue according to individual earnings, but family payments are designed to assist according to household rather than individual needs.

That difference underscores an under-appreciated gem of Australian public policy.

As in other countries, our social security system is messy. But when it comes to what matters – getting the best social results for the least cost – well, the cliché “world’s best practice” doesn’t begin to describe it.

Our system provides European-style protection for the least well off and for low and middle income children at near American-style revenue cost. It’s nearly three times as targeted as the next best system – New Zealand’s. Even poverty traps have been tackled here better than most other countries.

 

Progressivity of transfers, around 2000*

* Ratio of dollars to poor households per dollar to rich households. Source: Whiteford, OECD, 2005.

Of course some “churn” reflects increasing politically targeted middle class welfare and to that extent Kerr’s comments hit home.

But Australia gets the stellar results it does precisely because of the way the tax system raises money and the way the payments system then recirculates it according to household need.

The real question is the administrative efficiency of both systems acting together not the magnitude of “churn”. Indeed, if we called family payments “tax credits” – as some other countries with less efficient systems do – measured tax churn would plummet.

Of course nothing real would have changed. But the “tax churning” meme could be laid to rest. Then we could move on – and get churned up about something more worthwhile.

Peter Fray

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