|Squashing Welfare Fraud|
Liberal heavyweight Amanda (starve-them-back-to-work) Vanstone has started
momentum on welfare
reform. While the goals are as confused as the approach, some of what she has
been saying makes sense.
- Simplifying the current system, by replacing 15 different payments currently, with one base rate.
- Removal of 'poverty traps' in which people get little (or in some cases
negative) extra income from moving from welfare to useful employment.
- Elimination of payments which discourage people from finding partners.
Unfortunately the proposal also contains the usual government idiocies.
- Paying people rent relief. Apparently the taxpayer will still be obliged
to pay more to someone who chooses to live on Sydney's north shore than someone
who chooses to live in the western suburbs.
- A participation payment for education. Apparently someone who studies
Philosophy or Womens
Studies is meeting their 'mutual obligation' requirements,
and is doing the taxpayer a
- A participation payment for job seeking. Apparently someone who seeks to
improve their standard of living by earning more money is meeting their 'mutual
Much of the problem with these three is the cost of compliance enforcement.
An army of public
servants will have to be employed to check whether people are actually
paying as much rent as they say, whether people are actually studying, or
whether they are actually seriously looking for a job.
There is also a move to get people into low income employment, and let them
continue to collect some welfare. Needless to say, the objection has been raised
that this will create a class of 'working poor', presumably by people who think
that creating 'working poor' is worse than perpetuating 'unworking poor'.
However on balance this has to be a step in the right direction. The whole
welfare/incentive issue rests on the principle of Marginal Net Income
(sometimes expressed Effective Marginal Tax Rate). This is the amount of money
that someone gets to keep when they earn an extra dollar. Rich people pay 49.5
cents on the dollar in tax, so their Marginal Net Income is 51.5
percent. People think that Marginal Net Income goes down as people make more
money, because of the 'progressive tax rate'. But people on welfare lose
welfare as they earn more money - they lose unemployment benefits, child
allowances, rent subsidies and a plethora of other payments from the
In some cases their Marginal Net Income is as low as 20 percent, creating
a poverty trap, where it is just not worth someone's while to earn more, so
they stay on poverty indefinitely.
Far from being 'progressive', the effective tax rates are actually
regressive, particularly when 'sin taxes' (taxes on gambling, alcohol and cigarettes) are taken into
At least the government is aware of the
poverty traps, and seems genuine about removing the worst of them, but they are
still determined to continually tinker with the Marginal Net Incomes for each
sector of the population. This is quite a logical thing to do - by creating a plethora of tax
brackets the Liberal
Party can effectively target sections of the population for pork-barreling in the
lead up to the next election.
Changing position suddenly is something Amanda (pushing-her-weight-around)
Vanstone will find quite challenging, but she will still have an army of public
servants to help her do it.