Soft power, hard decisions

The role of government in smoothing fluctuations over the life-cycle was minimal 50 years ago. It is now central. Where once we had child endowment and the aged pension, we now have an extraordinary array of schemes and arrangements to limit the economic effects of child-rearing, studying and ageing - and the fluctuations in our economic circumstances driven by life-cycle events.

Since 1969-70, the proportion of the federal budget devoted to social welfare and health insurance has risen from under 20 per cent to over 50 per cent. These days, the government isn’t just an item in the family budget, it’s running it.

This ever-more complex financial relationship between individual families and the state raises significant issues of individual responsibility and public sector efficiency. We’re living much longer, requiring more skills for employment, and in the case of women, participating in formal employment much more. The complex mess that we have created to respond to these pressures is crying out for sweeping reform.

In 2003-04, Family Tax Benefit B - which gives extra assistance to single parent families and families with one main income where one parent chooses to stay at home to balance some paid work with caring for their children - was paid to 38,500 families earning over $100,000 a year, and 76 families earning over $1 million a year.

By 2006-07, single-income families renting with two kids in childcare, and earning $60,000 a year, will pay no net income tax. The combined effect of Family Tax Benefits, childcare assistance and rent allowance will cancel out the tax payable.

This is an extraordinary level of direct government intervention in the financial circumstances of middle-income families. Governments are taxing families, then returning the money with strings attached, creating complex relational and financial effects along the way.

Comprehensive reform of this complicated web of financial relationships is required, and it must be built on relational as well as financial considerations.

While the state is intruding more and more into the financial lives of ordinary families, it is retreating from its previous role of providing direct support to people with serious disadvantages.

Many government bodies used to provide basic jobs for disadvantaged workers with intellectual, literacy or alcohol problems. Deregulation, privatisation and technological change have wiped out this role, depriving many disadvantaged workers of the only reasonable job opportunity they’re ever likely to get. Deregulating product markets makes this unavoidable, but little has been done to compensate for it.

The role of government is shifting to less tangible, more complex interventions, and away from building, owning and running things. The state’s role in promoting and enabling learning is becoming paramount.

Its role in enabling individuals and families to manage the ups and downs of the life cycle is increasingly prominent. Its role in the economy involves less reliance on ownership, less intervention to favour particular producers, and less focus on building things. The use of soft power to change behaviour by exhortation is beginning to emerge.

Most of these changes are happening in spite of the Howard Government, not because of it. It has poured money into dubious regional grants while allowing Australia to become the only country in the developed world where public expenditure on education and training is declining.