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"...public opinion deserves to be respected as well as despised" G.W.F. Hegel, 'Philosophy of Right'

the politics of the welfare state « Previous | |Next »
June 20, 2013

In the second part of his interview on The Conversation Ken Henry raises the issue of the Intergenerational Reports in the context of raising the GST.

The Grattan Institute's Budget Pressures on Australian Governments confirms what Henry says about the federal government and the states and territories could face a combined annual deficit. So we have the imperative of making fiscal responsibility at the heart of public policy.

Henry says:

Every one of those intergenerational reports pointed to the impact on budget, well it was the commonwealth budget but the state budgets are effected as well, the impact of population aging. And what those reports identified was an emerging funding gap over a 40-year period of close to more than five percentage points of gross domestic product. At the moment I think we’ve got a revenue to GDP share at the commonwealth level in Australia, I think it’s 22.5%, something of that order.

Just in order to address the budgetary impacts of an aging population, unless we can find some other way of supporting the aging population, for example, a way of growing the economy faster so we don’t have to increase tax rates in order to get more revenue, we’ve just got a bigger tax base because the economy is growing faster due to productivity reforms and through reforms to participation.

Henry adds:

If we can do that, great, but if we can’t do that then we know and these Intergenerational reports have been saying it for more than 10 years now, we’re going to have to find another five percentage points of GDP in the form of government revenue. We’re going to have to lift average tax rates by five percentage points, now which tax bases would you be targeting if that was your job?

Another scenario not canvassed in the interview is to change the welfare state. This is surprising given the Coalition's approach to short-term austerity to ensure deficit reduction.

Peter Whiteford points out that:

Overall, the Australian welfare state performs two main functions – redistribution between rich and poor (the Robin Hood function) and insurance and consumption smoothing (the “piggy‐bank” function). In Australia we tend to focus on the idea that the welfare state should mainly be about redistribution to the poor, which is why we focus so much on concerns about middle-class welfare.

The standard way of reigning in the costs of the welfare state in Australia is increased mean testing to tighten up the eligibility for benefits thereby doing away with universalism.

Another way is to a step back towards a “contributory principle”—the notion that the benefits you get are at least partly related to what you pay whilst protecting the people who are really in need—not least those who may never be able to “contribute.” This way involves a welfare system where contribution played at least a slightly larger part than it does now.

This introduces for a centre-left government with a tight fiscal mandate the dilemma between bolstering the contributory principle of the welfare state and the role of the welfare state as a vehicle of redistribution.

| Posted by Gary Sauer-Thompson at 11:47 PM |