Poor are not carrying the budget

Bookmark and Share Economics & Deregulation | John Roskam
Australian Financial Review 23rd May, 2014

‘Poorest families pay most in the budget' was the headline in Thursday's Sydney Morning Herald. That headline exactly demonstrates why it will be so hard for Tony Abbott (or anyone else) to repair the federal budget.

Treasurer Joe Hockey was right to talk about the need to end the age of entitlement. The problem is, though, that two decades of prosperity have made the public accustomed to their entitlements and have made politicians accustomed to handing out those entitlements. It could be years before the expectations of the public catch up and correspond to fiscal reality. Based on the reaction to the budget so far, that transition could be quite traumatic.

Mr Hockey's first budget made only about a quarter of the changes necessary to secure the country's fiscal sustainability. Last week's budget was the start of a process that will continue for years.

The Herald's headline was to an article explaining how analysis from the National Centre for Social and Economic Modelling (NATSEM) at the University of Canberra showed "the poorest 20 per cent of Australian families will pay $1.1 billion more into government coffers than the richest households as a result of the budget, highlighting the huge inequity in the government's four-year blueprint for fiscal repair".

Included in the article were calculations of the budget impact on the benefits received and taxes paid by different income groups.

A working couple earning in total $60,000 a year with two children would by 2018 potentially see a reduction of 11 per cent in their disposable income. Meanwhile a similar couple earning $200,000 would be unaffected.

NATSEM's figures might be right, but it's quite wrong to, therefore, claim they prove the budget is inequitable.


There's a world of difference between the government giving you less of something that isn't yours to begin with, and the government taking something from you that is yours in the first place.

What NATSEM also showed is that the earning of $60,000 a year will get an additional $4736 in welfare benefits, taking their total disposable income to $64,736.

A couple earning $200,000 will pay $67,547 in tax, making their total disposable income $132,453.

The alleged inequity of the budget lies in the fact that the couple receiving more from the welfare system than it pays in taxes will have its benefits cut, while the couple paying the taxes that pay for those benefits won't be required to pay even higher taxes.

This is a complete perversion of any notion of equity. Somehow equity is now deemed only to apply to people receiving welfare paid for by the taxes imposed on others. No one talks about whether it's equitable for the government to take close to half of what some people earn.

The misconception about the meaning of equity is reflected in the comment in the Herald that "the poorest 20 per cent of Australian families will pay $1.1 billion more into government coffers than the richest household..."

Nothing could be further from the truth. The poor don't pay anything into government coffers.


If the government previously gave you $200 in welfare benefits and then because of budget cuts the government only gives you $150, you don't pay $50 difference to the government. All that's happened is that you've lost a benefit you once had.

As NATSEM's figures demonstrate, even after the inequity of this budget, in four years time a couple with two children that has zero earnings from employment will have a disposable income of $43,547 - all of which will be government welfare.

A couple with earnings of $40,000 will have a disposable income of $58,120, again the difference between their earnings and their income being the $18,120 they receive in welfare.

It's quite legitimate for the welfare lobby to argue about, for example, whether welfare payments are adequate and what should be required of recipients of welfare.

But the welfare lobby should be held to account for its claims that a reduction in welfare benefits is somehow a payment to the government.

The welfare lobby should also not be allowed to get away with demanding that the only way a reduction in welfare benefits can ever be equitable is if taxes go up at the same time.