To reduce the deficit, try means testing

Short of a financial crisis that prompts Australians to reconsider their addiction to “free money”, the problem is not going away. A politically palatable means of winding back welfare needs to be found.

The answer might be means testing. Voters already accept, at least in principle, that welfare should be based on need. What is required is a consistent, transparent, convincing approach, with no exceptions or carveouts.

Currently, means testing is none of those. Some benefits are strictly means tested, some are generously means tested, and some are not means tested at all.

Eligibility for the age and disability support pensions, for example, is determined by income from all sources plus assets (investments, vehicles, superannuation balances, but not including the family home).

Eligibility for the Commonwealth Seniors Health Card is subject only to taxable income. Neither non-taxable income such as superannuation, nor assets, are considered.

Eligibility for the standard Child Care Subsidy tapers according to income but does not cut out until family income reaches $538,520 per year. There is no assets test.

And the NDIS, the most expensive and widely rorted program of all, has no means test whatsoever. Personal income, employment status, family wealth, bank savings and assets have zero impact on either eligibility or the amount of funding received.

What’s needed is a sound definition of need; plenty of prosperous people refuse to accept that they are wealthy, many feel entitled to benefits on the grounds that they pay a lot of tax, and many feel entitled on the grounds that others in a similar situation claim them.

Clearly, any government seeking to bring welfare spending under control will need to deal with such attitudes, cautiously and incrementally.

One argument for comprehensive means testing is generational equity. Australia faces unprecedented demographic pressures, primarily driven by a shrinking ratio of working-age taxpayers to retirees. Allowing the wealthy to access public funds means placing burdens on younger generations of taxpayers. Even omitting the family home from the age pension assets test, for example, means pensions are partially funded by the taxes of those who cannot afford to buy a home at all.

Providing childcare subsidies to high-income households reduces the pool of funds available to lower-income families which face genuine barriers to workforce participation. Proper means-testing of childcare support would allow the government to invest in fully subsidised care for disadvantaged families, where the evidence shows childcare is worthwhile and makes a difference.

True fairness, something most Australians rate highly, does not mean treating everyone identically regardless of their wealth; rather, it means distributing public resources progressively so that those with the least receive the most assistance.