Last month I suggested that John Howard was a conservative social democrat, redistributing income as a conventional social democrat would, but giving it a conservative twist by targeting families.
An interesting presentation by Ann Harding of NATSEM at today’s Melbourne Institute/The Australian conference spells out the distributional consequences of all the extra spending.
For a single and childless person earning between $1,000 and $1,250 a week, changes in the tax and welfare systems since 1996-97 leave them 4% better off in real terms. But a couple with one earner and two children on the same income is 15% better off from tax and welfare changes, and a couple of two earners and two children is 19% better off.
These figures ignore changes in private income – they are the effects of changes in government policy alone. If increases in private earnings are included, a single adult is 15% better off and and a couple with children is 29% better off. This suggests that the market alone has not changed household relativities much, but government policy has had a big effect.
Harding also finds that when we look at equivalised household income (ie, allowing for the number of people in the household) over the last decade households in the top 20% of the income distribution have had % increases in their income that are slightly below the average, though still a good improvement – 24%. The biggest winners have been those in the middle two income deciles on 32% and 29%. Decile 2 did the worst, on 14%. Harding says this group contains a lot of old-age pensioners without private resources, so they have not directly benefited from the rise in market income or the added concessions for ‘self-funded’ retirees.
Overall, though, it supports my argument that while Howard only occasionally talks like a social democrat, he has consistently behaved like one.
Andrew Norton 
I am at the same meeting and I saw you were on the list of attendees but didn’t spot you – if you recognise me please grab me.
These results of Ann Harding are more or less what Patricia Apps said quite a while ago.
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Fair point Andrew: The large relative gains achieved (15 to 20%) by relatively low income couples with young children is one of Howard
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Fred – I think we are here dealing with varieties of social democracy, not social democracy/something else. As you know, Australian social democracy has always been quite different from European social democracy, particularly on the issue of targeting. In this respect, by spreading income support into most households Howard has moved Australia closer to the European model, though still preserving some of the language of need (implausibly so for upper-income households, but using the rhetoric anyway) and reducing benefits as income rises. Labor’s social democracy was also biased toward families, just not on the same scale.
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The point that is missed when looking at these percentage changes is the base position from which they are measured. Single income couples with kids look good because they have come from an absolutely shithouse base. The percentages on their own (as in the report) are somewhat misleading as a result.
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I’ve always thought Howard owed more to Calwell than Menzies: the grating voice, the parochial outlook with the occasional faux pas on racial policy, the self-satisfied barrister from across the Murray as deputy …
Calwell would have. And the veterans and widows, too.
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Andrew,
Calwell has had a unfair pres regarding race.
When he said one white is better than a wong he was replying to an interjection by a liberal whose surname was White!
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I agree with Fred that this doesn’t necessarily make the government “social democratic”. The sorts of outcomes seen here could as easily apply in countries like Austria, Luxembourg and even France – they are more “conservative family welfarist” if there is such a regime. If you were a social democrat of the Nordic type, the money would be going on child care and parental leave.
Also like Spog I think it is fair to point out that the interpretation of percentage changes depends on your starting point. It would be interesting to do a much longer time series, or splice these results together with some earlier studies of this sort. My memory is that the high point of assistance for families in the middle of the income distribution was around 1974-75 when child tax rebates were increased and then replaced by family allowances (but this also followed a long period of decline from the 1950s in the value of tax deductions for children). This was followed by a fairly long period of assistance trending downwards because it was not indexed and inflation was high. After 1983 and particularly 1987 Labor started putting a lot more money into the system but particularly for low income families. Later Labor indexed the payments for everyone, but I think that middle income families would still have been getting less in real terms for children than at the 1974-75 highpoint. The big thing about the changes under Howard is that they started to make bigger increases in family payments for single income families with children at the same time as tax cuts, whereas the main trend after 1975 had been to make tax cuts (offsetting fiscal drag of course) without particularly helping families all that much. So I suspect that a lot of this largesse is about returning assistance to where it was in the mid-1970s (and the 1950s before that). To determine what is the “right” level of assistance for families is a different question.
A couple of things are of particular interest. As I read slide 8, tax and welfare changes mean that a sole parent with two children at $0 of private income i.e. completely dependent on welafre is about 15% better-off than in 1996, so the label on the slide is misleading. Sole parents earning around $250 a week of private income would be slightly worse-off than corresponding families in 1996 – although of course if a sole parent moved from complete welfare dependence to $250 a week private income they would make themselves better-off by close to $180 a week- which is the point of the government’s welfare changes.
The other interesting slide is no 11. I would tend to put less weight on the bottom decile since this is where most of the people with “unusually” low incomes are (alhough some of this group are of course the poorest). But for the rest you get fairly large gains favouring the middle of the distribution. This appears to be in marked contrast with what has happened in the US, where the reports I have seen suggest that the vast majority of the income gains over the past 5 years have been concentrated right at the top of the distribution (although I think that the US doesn’t adjust their figures for household size)
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BBEP, there’s more to Calwell’s reputation than one off-hand remark. His pursuit of non-Caucasian non-Australians who had married Australians was shameful, as outlined in Klaus Neumann’s contribution to this book and in the many examples of Australian servicemen in postwar Japan who married local women and sought to bring their wives back to Australia. The best you can say of Calwell is that he was a man of his time.
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Andrew,
go and ask any veteran of an RSL what the atttiude of Australians was to japs!
even in the 70’s the RSL still took a dim view of them.
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My posts here dealt with Arthur Calwell, once a potential leader of a social-democratic government in Australia, in line with the central topic of the thread.
Nonetheless, if you want to talk about prejudice BBEP then let’s do that. The RSL did lobby government on behalf of Australian servicemen who had married Japanese women and who wanted to bring them to Australia. Leaders of the RSL such as William Keys played an enormous role in overcoming Australian prejudice to building postwar economic relationships with Japan, particularly the 1957 Australia-Japan trade agreement that was a key measure in underwriting this country’s (well, both countries’) postwar prosperity. The work of Weary Dunlop and even Tom Uren in dispelling the popular bitterness built up by propaganda and experience ought not be underestimated. Could I also direct you to the extended poem By the walls of old Kyoto by the Australian poet Douglas Stewart.
My experience of RSL prejudice toward things Japanese goes back to about 1978, when my mother parked the family Toyota outside an RSL in rural NSW and the one-armed doorman came out and started to tell us blood-curdling stories about atrocities about Kokoda and the Burma Railway, only to be distracted by a bearded dude on a Kawasaki motorbike pulling up behind us. When I read the sory of Horatius on the bridge years later I was reminded of this guy.
None of this, however, need distract us from the family-oriented social-democrat agenda of Arthur Calwell and its apparent revival by, of all people, John Howard.
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Fred Argy’s assertion that “the large relative gains achieved (15 to 20%) by relatively low income couples with young children is one of Howard
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It would be easier to support Fred Argy’s claims were there more efficient mechanisms to enable taxpayers with families to keep their own money rather than submit it to the government and have it processed and then returned with much political fanfare.
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Tom N’s comment reflects one of the great “un-had” debates in Australia, and one that would probably be interesting to see.
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I’ll accept Spog’s invitation:
1. It is true that people (mostly) choose to have children, and vice versa, many of the people who don’t have children have chosen not to.
2. It is possible to analyse the processes of having and raising children as if children were similar to consumer durables.
But –
3. Children are people, and have an existence entirely separate from their parents. Any analysis that treats children entirely as an argument in their parents’ utility function misses this point.
4. While at a point in time most people may not have children, over the course of their lifetime nearly everyone will have children. While the percentage of women who have ever had children has declined over the past 30 years (from close to 90% to 70-75% as I recall, but please correct me if I’m wrong), the majority of people will have children.
5. More generally, there is one universal fact of human existence (to date) – everyone who is now an adult was once a child. So all living adults brought up in Australia have already benefited from family assistance, health care, the education system etc. From this perpective what would be horizontally inequitable is if the system was “shut down” by people who had already benefited as children themselves. However, if there are large swings across time in the effective level of assistance, this too could be unfair.
6. People who choose not to have children benefit from other people’s decision to have children. It is not simply that other people’s children will pay taxes to pay pensions for the childless, they will also pay taxes that support the health care system, that keep the roads maintained, to pay for the police etc. They are also necessary to drive buses, be nurses in nursing homes, stack supermarket shelves, serve on checkouts, grow food, build houses etc etc. If other people do not have children, then eventually societies disappear. It is of course possible to use immigration to replace the population instead or for people to migrate overseas in retirement to benefit from foreigners’ decisions to have children, but this is highly unlikely to be feasible if everone decided not to have children (and probably not very popular.)
My conclusion is that redistribution to families is not unfair and is also not regressive – but this does not mean that precisely what is done now is the right approach.
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HAVING THEIR KIDS AND EATING OUT TOO!
I submit that Peter’s key arguments are wrong or misleading for the following reasons.
3. The argument is about whether parents or childless/childfree people should pay for the upbringing of children. For this purpose, the fact that children have a “unique existence” is not relevant.
4. The fact that the majority may at some stage have children is not an argument for the minority to cross-subsidise them. The majority of people have homes and drive cars: does this mean that homeless or carless people should cross-subsidise them? No.
5. The fact that today’s adults were once children is beside the point. The issue is who should have paid for their upbringing: their parents or childless/childfree people at the time?
6. Peter asserts that childless and childfree people get benefits from other people’s children. It is debatable as to whether childless people contribute more or less over their lifetime than parents, given the massive subsidies and tax adavantages parents receive and the fact that many parents exit the workforce. Further, Peter’s argument ignores the question of optimal population size and alternative, and potentially much lower cost, sources of marginal supply – namely, immigration.
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Peter’s argument (3) is right – it’s an argument for the state working to increase children’s welfare. Just think of the alternative – if a poor mother has a kid then the innocent kid suffers for her poverty, as well as the mother. While you might believe that we should withhold assistance from the mother because “she brought it on herself” this is hardly fair to the kid, who had no say in the matter. But of course this is an argument for targeted rather than universal family payments.
Tom’s response to (5) is the one that’s beside the point. You might argue that previous generations *should* have left your parents to bear the whole cost of your upbringing, but the fact is they didn’t. So Peter’s point about an implicit intergenerational contract stands.
As for (6), Tom, I hope you’ve got lots of super. Mind you super is just another way of establishing a claim on the fruits of a future generation’s labour, just like future taxes. If this generation is small then you will have much less to claim (orthodox Solow-Swan growth theory relates the long-run rate of return on capital to population growth – with no labour force growth Marx’s “declining rate of profit” mechanism eventually takes hold) .
So even if you think you are providing for your own old age, you are in fact depending on other peoples’ fertility – and that’s without taking account of the tax subsidies to retirees that other people’s children will pay for.
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At best, DD, your defence of Peter’s 3rd argument provides a justification for subsidies only to that proportion of families in which parents, though unable to afford to properly bring up additional children, would proceed to reproduce anyway.
Re: 5, it can be argued that the main effects of the subsidies received by my parents in the past were that (a) they did not need to dissave as much to have their children (and, thus, are now more able to live it up in their retirement); and (b) they could ‘afford’ have more children. Absent government assistance and my parents would still have provided my siblings and me with a simlar standard of living to the one we had (though they might have had fewer of us)*. On the other hand, my parents’ lifetime standard of living did increase as a result of the subsidies. For this and other reasons, I reject the notion that today’s former children ‘owe’ a debt for the parental subsidies of the past.
Re: 6, yes, I have made provision for old age and will be happy to pay whatever the market demands for the services of today’s young Australians, should I use them, at that time. However, DD, it is pertinent to note that there are alternative sources of future supply – including though migration and trade. If there were (valid) concerns about a shortage of future supply in Australia, then the cost-effectiveness of inducing further domestic reproduction through higher parental subsidies would need to be compared the the cost-effectiveness of securing additional supply via these other sources. That said, I doubt that underpopulation is likely to be a concern for the foreseeable future; in fact, quite the contrary.
______
* The welfare effects of less children is a complex area beyond the scope of this debate. Suffice it to say that I believe that I could mount a robust case that those effects could well have been strongly positive.
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We’re not disagreeing much about the first point – that’s what I meant by “targeted family payments”. We can, of course, argue about the importance of incentive effects of such targeting (on both propensity to earn money and propensity to have kids) – but they’re primarily empiric issues rather than principle ones.
On the second, the fact is your father paid a lot less income tax than he would have if you hadn’t been around.
On the last point, migration and overseas investment just establish a claim on other country’s children rather than this country’s. Look ahead – most of the world is undergoing demographic transition. True, it will be a long time before we have to worry about underpopulation. But it will be a considerably shorter time before the rate of return on overseas invested capital, or the supply of young migrant families, falls. Especially as all those other old developed countries will be in the same boat as us and competing with us on both fronts (ie finding profitable investments and getting suitable migrants).
Not to mention that a claim on our own children may have less chance of being repudiated than a claim on other country’s children (they may see those repatriated profits and debt repayment as Leninist imperialism rather than your just desserts for past foregone consumption).
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I don’t see the relevance of how much tax our parents paid. But in any case, public entitlement spending (on families with children or otherwise) before the 1970s was miniscule compared to now.
Family spending is mainly about wealth transfers and politics than the economics of children because the transfers involved only affect decisions to have children on the (very fine) margin. I agree with Tom N that the goods and services I need to pay for when I retire is a private matter – if no one has children and wages go up because labour is scarce, that’s something I just have to deal with. And I should be able to save more now to deal with this eventuality if taxes were reduced due to reduced transfers to families.
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Rajat,
The point is that you and Tom N are looking solely at your current situation and ignoring the fact that you have already been a beneficiary of taxpayer support when you were a child. Public spending on families with children before the 1970s may have been much lower than now, but tax allowances for families were not, (nor was education spending as a percentage of GDP) so in terms of the relative disposable incomes of people with and without children, the situation was much more like it is now than you acknowledge, although as I pointed out in my first post, there have been fluctuations.
The idea that the goods and services needed when people retire is purely a private matter ignores the point that Derrida Derrider makes – money is not a resource – it is a call on resources. You need other people to produce the goods and services you will need when you retire. Robinson Crusoe could have had a treasure chest on his island fill to the brim with gold and gems, but he would not have been able to retire. The truth remains that other people’s decision to have children is still a benefit to childless people.
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Peter, I acknowledged that if fewer people have kids, that could lead to higher real wages in the long term as labour becomes relatively more scarce that it would otherwise have become. But is subsidising people to have children the most efficient way to keep real wages down in the future? Given that India and Africa are (still) producing plenty of babies, it may be cheaper to simply ship them in to clean our bedpans in 20-40 years.
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MAKE LOVE, NOT BABIES: A BRIEF REJOINDER TO PETER
Peter said “The point is that you and Tom N are looking solely at your current situation and ignoring the fact that you have already been a beneficiary of taxpayer support when you were a child.”
I did not ignore this “fact” at all (see my earlier response to DD). However, as I pointed out, absent the subsidies my parents received, I would still have enjoyed a similar standard of living when growing up to the one I received. In my view, the main impact of those subsidies was to require my parents to dissave less during my childhood, thereby providing them with a higher life-time standard of living – at the expense of their childless peers. On that basis, my parents – not me – were the prime beneficiaries of those subsidies. (Of course, the subsidies may also have induced a higher level of reproduction than would otherwise have occurred, although the effects of this on welfare are debatable.)
Peter also said: “The truth remains that other people
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Tom, I’m just trying to outbreed the fundies, I’m sorry my kids are such a burden. I’ll try to make them tread a little more lightly upon your earth.
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Rajat Sood wrote:
“Given that India and Africa are (still) producing plenty of babies, it may be cheaper to simply ship them in to clean our bedpans in 20-40 years.”
Sorry Rajat, no offence meant, but the simplest, cheapest and most rational approach from a monetarist point of view is to let you die in your bed. Why on earth the Indians and Africans would want to come to Australia to clean bedpans when they could be manning the sex and drug fuelled call centres of our banking, finance and insurance industries is beyond me. I know which job I’d rather have.
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