Family tax benefits who?

If you had an unexpected windfall of $10,000, what would you do with it? Give half away to family and friends? Get your teeth fixed? Take a community college course? Put some aside for a rainy day?

What if you had that kind of money to play with every year? The question is worth thinking about, because in round figures the Commonwealth Government spends $220 billion - or $10,000 a year for every man, woman and child in Australia.

Here’s how Mr Costello spent your $10,000 last year:

Table 1. Calculated from Federal Government Budget Outcomes papers 2006-7 and the ABS 2007 Yearbook based on a per-capita spend of $10,000.

See what a good neighbour you are? You did give away nearly half your windfall in the form of social security payments. Now before you spit your chips at all that welfare money, please contain your outrage for a few paragraphs when we take a closer look. Anyway, you’ll be glad to see that those parasites in “The Yarts” only got $114 of your hard-earned, and they had to share that with sportspeople anyway.

How closely does Mr Costello’s ladder of budget opportunity in Table 1 reflect your own personal survival priorities? Overall, it’s interesting to note that this list is a reasonable approximation of Maslow’s hierarchy of needs - welfare/survival first, followed by health and security, education, industry, then helping others and finally the pursuit of happiness and philosophical navel-gazing. Even though you might wish to question the specific amounts involved, if you were a contestant on The Price Is Right and had to guess the order of these items, you’d probably come pretty close to winning the car.

Also, you longhairs at the back waving the health and education placards, just settle down for a minute. Thanks to the GST and stamp duties there was an extra $3,000 per person spent by the state governments, and most of that went to public schools, public hospitals, roads and police, plus about $3.50 and a donut for public transport. So put your banners down and come back to this discussion about Commonwealth expenditure.

One big hitch is the $960 that’s lost in financial munging. That’s partly the impost of running a modern economy and being forced to run complex financial instruments and fiscal risk-management policies, as well as a tangible measure of the “dead hand” of bureaucracy at work. It’s an unwelcome intrusion into our windfall, but it’s hard to eliminate without losing the whole shebang.

OK, so what’s the problem?

The problem is that government spending (i.e. taxation) remains at a stubbornly high level as a percentage of GDP, yet there is also unprecedented cost-shifting to the private sector to pay for health and education.

To better understand whether your $10,000 was well spent by Mr Costello, think about the times in recent years when you’ve had to pay out of your own pocket for things you thought would be covered by taxes.

Effectively, many of us are paying for things three times over - once when we pay tax, again when we pay health insurance premiums or school fees, and a third time when we still have to cough up to pay for the things the insurer or the school doesn't cover.

But isn't paying for things once enough? Surely $10,000 a year for every man, woman and child can purchase a public education system to which we're happy to send our children, and a public health system that can keep us in reasonable fettle?

Well, they probably could, but to understand why they don’t, we need to take a closer look at that largest of budget items - the $4,205 of your windfall spent on welfare and social security:
 

Table 2. Calculated from 2006-7 Budget Outcomes papers showing $92 billion spent on welfare and social security.

From the above table, you can see that all the usual targets for welfare cuts (the dole, Indigenous programs, student allowances) are already cut to the bone - there simply isn’t much there to be saved.

So unless you’re willing to kick your grandmother, some war veterans or disabled people out on the streets, there’s really only one big-ticket item left. It’s that one-quarter of payments that face no asset-test - Family Tax Benefits, Child Care and Baby Bonuses. Considering that families in stately homes on annual incomes of over $100,000 can receive Family Tax Benefits, and low-income families have a separate Parenting Payment to help them out, the label “middle-class welfare” is apt. The total amount soaked up is $21 billion.

That $21 billion rides a wasteful merry-go-round out of and back into the pockets of middle-class families who don't need a handout in the first place, but could certainly be paying less tax.

That $21 billion is as much as Medicare and the PBS put together. If it were spent on healthcare instead of consumption, you’d never need to pay health insurance again.

That $21 billion is part of the reason why you’ve been paying more and more tax, and getting fewer and fewer services.

Consider these two alternative proposals:

1. leave the $21 billion in taxpayers’ pockets in the first place. They’ll need it for all the health insurance premiums and school fees of the user-pays system;
2. keep taxing the $21 billion, but reallocate the expenditure to capital works and essential services, so that Australians can enjoy the high standard of infrastructure, health and public education they deserve.

Surely these are both better options for taxpayers than the status quo?