John Murphy’s An Unlikely Survival: The politics of welfare in Australia since 1950 continues an historical analysis of welfare policy in Australia he began with A Decent Provision: Australian Welfare Policy, 1870 to 1949, which I reviewed on the GoodReads site.

While I do not always completely agree with Murphy’s analysis, his latest book is a very readable narrative history of the Australian welfare state, supplemented with impressive data research and reporting.

The text below is my notes on points of particular interest to me rather than a comprehensive review.

Why did centre-right parties abandon a social insurance welfare model?

An Unlikely Survival attempts some explanation of an intriguing path not taken by centre-right politics in Australia. Up to the early 1950s – although never unaminously – centre-right parties supported a contributory social insurance model of the welfare state. Contributory social insurance is common in other countries.

Under these models, employers and employees pay into funds that later deliver benefits. Benefits can be linked to past contributions. A key reason for centre-right support of contributory social insurance was dislike of tax financed and means-tested benefits, especially for the elderly. This dislike flowed from a belief that means tests penalise people who save to meet their own needs, and rewards those who had not with a pension. It is a moral argument with a prudential angle.

The Lyons United Australia Party (a Liberal predecessor party) government legislated a contributory social insurance scheme in 1938, covering old age, health benefits, disability, and widowhood. But it was abandoned before it began, causing Robert Menzies to resign from the Cabinet in protest. As Liberal leader at the 1946 and 1949 elections Menzies promised to bring in such a scheme. But despite Menzies being prime minister from 1949 until 1966 it never happened.

Initially the Menzies government explored such a system, but by 1952 the issue was reduced to the old age pension means test. One obstacle was the high cost of abolishing the means test for current pensioners. Murphy also points to the path dependency problem created by Labor’s 1940s expansion of the welfare state on a means-tested basis. Reforming existing welfare benefits and introducing new benefits were different political tasks. On the other hand, Labor had already made one vital step towards a contributory welfare system, bringing working class people into the income tax system. As Paul Tilley’s history of Australian tax shows, before WW2 the tax-free threshold for Commonwealth income tax was well above average weekly earnings.

This choice of a contributory versus a tax-financed welfare system intrigues me, as centre-right politics at the time were centrally concerned with preventing Australia from becoming socialist. Intrusive means testing requires the kind of bureaucratic intervention that the centre-right opposed in the economy. In 1952 Athol Townley, the minister for social services, criticised the means test, which he said ‘involves an obnoxious investigation into the affairs of individuals’. While whether or not there should be an age pension means test was an issue up until the 1980s, generally centre-right politicians have strongly supported these ‘obnoxious investigations’ into benefits eligibility.

The tax deduction welfare state

Continue reading “Australia’s evolving welfare state – notes on An Unlikely Survival: The politics of welfare in Australia since 1950” →

As the media is reporting, the High Court has today ruled in favour of Symone Anstis in her claim to deduct from her taxable income expenses incurred in maintaining eligibility for Youth Allowance.

We have discussed this issue before.

My view on the substantive policy issues remains unchanged. The legal principle established by this case, that welfare recipients can claim as deductions expenses incurred to maintain their eligibility for their welfare payment, should be overturned by statute.

Ms Anstis claimed computer depreciation, textbooks, a student administration fee, and supplies for children taught during her teaching rounds. What claims would be allowed to maintain continuing unemployability or disability?

The expense to government of this decision may not be massive. Under the low-income tax offset many if not most welfare recipients won’t pay tax anyway. But the principle of no tax deductions for welfare eligibility should be established in law.

—
12/11: The Australian is reporting that

The decision …. overturns a long-standing ATO policy that self-education expenses to obtain a first qualification are not tax deductible…

This is incorrect. The deductions are not for self-education as such; they are for maintaining YA eligibility. People who don’t get YA can’t claim deductions.

Yet more handouts to families, this time to fund school uniforms, are another sure sign that an election is about to be called.

But as we have seen before, such is the sense of entitlement built up by the welfare state that people with no real need complain when they miss out:

Ms Pilgrim, whose two daughters, aged 13 and 16, attend Our Lady of Mercy College in Parramatta, will not qualify for the tax break because she and her husband earn a combined income of more than $100,000.

”It cheeses me off a bit,” she said. ”It’s a great help for families on Family Tax Benefit A, but for middle-income earners like me, we miss out.”

Of course my heart bleeds for the problems of ‘middle’ (actually, fairly high) income earners.