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It’s not austerity to only pay welfare to the needy

By David Leyonhjelm - posted Friday, 14 May 2021

In the BC period (ie before Covid), one of the main obstacles to the government repaying the national debt was its reluctance to tackle middle class welfare. This is welfare provided to people who are neither poor nor needy.

As we enter the PC (post Covid) period, now with enormous debt due to the support measures implemented to counteract the impact of Covid control, the question is - if middle class welfare is not finally tackled now, then when? And if the answer is never, will we ever begin to repay the debt?

Debt repayment requires a budget surplus. That is, the government needs to spend less than it collects. However, the Treasurer says he will not begin to repair the budget until unemployment is “comfortably below 6 percent”, and recent comments suggest this might have changed to less than 5 percent. In other words, the debt looks set to increase for a while.


Many people, not all of whom have a vested interest in continuing government support, are warning the government not to withdraw support too quickly. Some of these warnings are legitimate; several important sectors of the economy have been devastated through no fault of their own. Temporary support will allow them to bounce back quickly once the government opens the borders. But it is equally legitimate to ask whether anything can be done now that will slow the increase in the debt.

On that, the problem of middle-class welfare offers a conspicuous opportunity.  Millions of people, many of them prosperous and entirely capable of supporting themselves, are receiving a government handout. The money for this is borrowed, with the interest cost and principal repayments (if there are any) funded by taxes. Furthermore, many of those paying the taxes will never be as prosperous as the recipients.

This is not about support for the truly poor and needy – nobody wants to see people starving or children missing out on health care or an education through no fault of their own. Nor is it about Disability Support Pensioners who are not disabled and people on Newstart who refuse to work, although they should always be of concern. With so many job vacancies due to the absence of temporary immigrants, there is absolutely no reason the government should go easy on them.

Rather, it is about welfare being paid to people who have good jobs and zero need for assistance. Winding it back, saving billions of dollars, is not austerity. Indeed, along with demands to ‘tax the rich’, it could be positioned as ‘stop subsidising the rich’.

A prime example of middle-class welfare is the childcare subsidy. Thecase for this might be arguable for people on modest incomes who are better off returning to work rather than remaining at home to care for their children. If most of their wages are consumed by childcare costs, which are massively inflated due to red tape, there is no incentive to return.

However, the subsidy continues all the way up to an income of $353,680 (a limit I forced on the government when I was in the Senate), and now the government plans to raise the income limit to $530,000 while Labor’s policy is to remove it entirely.


What is the point of giving taxpayers’ money to those with such high incomes?  Does the government seriously believe they will only return to work because of a childcare subsidy worth a few thousand dollars a year?

Another is Family Tax Benefits. A family withthree teenage children can receive this until their income reaches a healthy $184,000. There is no assets test, which means a family with a level of assets most Australian households could never reach will receive the money. 

Yet another is student loans. All Australians, regardless of their household income or assets, have access to loans for higher education. No interest is charged on the loan and the value of the debt is simply indexed to the CPI. Again, students with high household net assets or significant income are receiving this subsidy.

And then there’s the aged pension. Pension eligibility is not influenced by the value of the family home, which has led to the crazy situation where people living in multi-million-dollar homes are receiving pensions funded by the taxes of people who can never afford to own a home. The same is true of some disabled people; their principal residence is also exempt from the assets test for the disability support pension.

Stopping the misuse of taxpayers’ money is not austerity, it is responsible. If ever there was a time to do it, it is now. And if ever there was a misuse that demanded action, it is middle class welfare.

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The article was first published in the Australian Financial Review.

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About the Author

David Leyonhjelm is a former Senator for the Liberal Democrats.

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