The Failed Estate: Us and Them

Written By: - Date published: 9:00 am, December 31st, 2017 - 20 comments
Categories: australian politics, benefits, Economy, International, tax, the praiseworthy and the pitiful, welfare, you couldn't make this shit up - Tags:

Reprinted with permission from the Failed Estate blog.

If you’re a government propagandist, the silly season always provides a happy hunting ground. Newsrooms are thinly staffed and there’s little beyond the holiday road toll and bushfires to fill the bulletin until the sports report kicks in.  This means the bar for ‘news’ is set abnormally low.

A perfect time, then, to flick the ‘Our-Welfare-Bill-is Out-of-Control’ switch. And so it was that in the cicada-punctuated slumber between Christmas and New Year that Murdoch’s Daily Telegraph, the preferred propaganda arm of the Turnbull government in manufacturing kick-down economics, proclaimed that Australians were being “forced” to work nearly three hours a week to pay the nation’s “runaway” welfare bill.  More than half our taxes, the tabloid hyperventilated, were being “sucked into” social security and health spending.

Naturally, the commercial television breakfast news shows (where perfectly coiffed, overpaid himbos and bimbos multi-skill by smiling, frowning and reading the autocue all at once) did a ritual rip-and-read straight out of the Telegraph, of course echoing the mildly outraged tone of ‘our money wasted on good-for-nothing layabouts’.

Now as a former economics journalist, I’m all for the commercial media giving more time to tough macro policy stories and less time to break-and-enters, car crashes out west and two-headed mongooses, but if they’re going to meekly regurgitate this bait-and-switch bullshit, do you think they could perform even a cursory journalistic check first?

Firstly, define your terms. What does it mean to say we are “forking out three hours” of our weekly wage on “welfare”? Is Australia’s welfare bill disproportionately bigger or growing faster than other those of other industrialised countries? What is included in this definition of welfare? Why is welfare always characterised as automatically wasteful? Why do we not hear about the billions of revenue foregone each year by providing tax breaks to the wealthy?

Australia has a progressive income tax system. That means the average tax rate, or the total amount of tax paid as a percentage of income, increases as each taxpayer’s income increases. So taxpayers on up to $18,200 per annum pay no income tax. They’re taxed 19 cents for each $1 over $18,200. This increases to 32.5 cents for each $1 over $37,000 and to 37 cents for each $1 over $87,000 and, finally, 45 cents for each $1 over $180,000.

The Terror’s story quotes Treasury as “revealing” that of the average taxable income of $58,000 a year, a total of $11,427 is paid to the taxman. Well, yes, that is the tax scale, including the Medicare levy of 2%. This is not news. The story then goes on to say that this means the average income earner is paying $83 a week for welfare, including $35 a week on aged pensions, $20 a week on family payments $17 a week on disability payments and $6.30 a week on the unemployed. Another $42 a week is spent on healthcare and $20 a week on defence. Again, so what? What do people think the tax system is for?

We pay tax to fund essential goods and services – for our defence, for our education system, for healthcare, to support our aged to ensure dignity in retirement, to look after the needs of the disabled and those who for no fault of their own cannot find work. Typically, people always complain about their tax “burden” but neither is the population ever likely to call for the elimination of services. In this case, the economically responsible thing for governments to do is to ensure they raise sufficient tax revenues to meet the services that a civilized democracy demands.  That they don’t is part of the magic pudding debt-and-deficit problem we’ve become depressingly accustomed to.

Again, none of this is newsworthy. The bigger questions are around whether Australia’s tax take is comparably more than those of other countries and is whether our social welfare bill is disproportionate in global terms. It would have taken a reporter of even modest ability about five minutes to answer those questions.

Australia’s overall government tax revenues this fiscal year are around 24% of GDP.  We do not have current year comparisons for other industrialised nations, but in 2014 Australia was one of only nine countries in the OECD (the world’s club of rich countries) with a revenue to GDP rate of below 30%. The others were Chile, Ireland, Korea, Latvia, Mexico, Switzerland, Turkey and the United States. (These numbers are sourced from the OECD paper ‘Revenue Statistics 2016′).

Neither is our social spending particularly high in global terms. In fact, on most measures, we are significantly below the average. In overall terms, our social spending in 2016 was just over 19% of GDP, below the OECD average of 21%. In fact, we are even below the USA on this measure, which comprises cash benefits for low-income households, the elderly, disabled, sick and unemployed.

OECD Chart: Social spending, Public, % of GDP, 2016

It is true that Australia’s social security and welfare portfolio is the single biggest item in overall government outlays at 35%. If you add in health expenditure, our total expenditure in this area is just over 50%. But is this unusual in global terms? No. According to the OECD database, the proportion of government spending on social welfare and health in 2013 ranged from as high as 58.2% in Spain to 29.4% in Korea. Most countries were grouped between 48% and 54%.

The other point here is that within our social welfare budget the single biggest item is the age pension, representing $64 billion this fiscal year or more than a third of the overall social security and welfare expenses. The second biggest and fastest growing component is spending related to the national disability support scheme. Contrary to tabloid hysteria about dole bludgers, spending on the unemployed and sick is budgeted at just over $10 billion this year or about 6% of our overall spending on social welfare. (See Table 9 from 2017/18 Budget below).

Is our spending on unemployment benefits unusually high? Again, no. The chart below compares overall spending on unemployment benefits in OECD countries as a proportion of GDP. At 0.6%, we’re below the average.

OECD Chart: Public unemployment spending, Total, % of GDP, 2013

So to conclude, Australia is not a particularly highly taxed country, in income terms. Our social welfare budget is average or below-average depending on the component measure. The call on taxpayers to fund our not particularly generous social safety net is not especially onerous.

And, of course, none of this takes into account the significant tax expenditures (exemptions, deductions, credits etc;) that overwhelmingly go to the already wealthy. According to an earlier leak by Treasury (which funnily enough the ‘we’re-for-the-battlers’ crew at the Telegraph totally ignored) these tax expenditures (including negative gearing, capital gains tax concessions and superannuation ‘incentives’) amount to about $150 billion a year or virtually the same size as the total social welfare budget. And keep in mind that about a third of companies pay no tax at all.

Which all tends to beg the question of whose interests are being served with this silly season beat-up. Perhaps this is coming from a  government that is attempting to drum up the case for corporate tax cuts in a race to the bottom with the Trump-led USA? More importantly, what does it say about the Fourth Estate in this country that such a transparent scare story (aimed at creating an Us versus Them climate to sow division) can so easily be planted in the public domain with no journalist remotely challenging it?

Checking this stuff, not meekly re-running the government’s self-serving line and providing context for people are really what journalists are paid to do. The consequences of them not, of just providing manufactured outrage for ratings points, don’t really bear thinking about. This worries me. It should worry you too.

The New Zealand equivalent figures are 19.7% for social spending, above Australia’s rate (19.1%) but below the OECD average (21%) and 0.4% for public unemployment spending which is below the Australian figure of 0.6% and the OECD average of 0.9%.

20 comments on “The Failed Estate: Us and Them ”

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  1. Philg 1
    31 December 2017 at 9:45 am

    The Ozzy media is more corporate biased/crap, than NZ, though we are catching up. They have bigger, wealthier interests to represent. Ozzie’s know their ‘pollies’ are bent that way. It partially explains why Hansen’s One Nation gets support. There is a hard underbelly in Oz.

  2. Carolyn_Nth 2
    31 December 2017 at 10:07 am

    Very well said, and well researched piece. The anti-welfare spin from too many in the mainstream media is contributing to the destruction of too many people’s lives.

    Interesting to read the author’s bio (exPat Kiwi, worked in MSM internationally, now residing in Oz, having rejected the current state of the media, and writes critically about it.

    Since 2006, Jim has worked as a corporate communications adviser in the financial services industry, where he writes and presents on investment, media and communications issues.

    Also from the Failed Estate blog’s About page:

    Of course, there is still good, public-minded journalism being done, but this is often despite rather than because of the institutions that fund it. Indeed, more journalists now work outside the media than within it, often plying their trade in public relations, corporate communications or consulting.

    I am one of them, having left the media to work in financial services in 2006. The common view of we refugees from those still in journalism is to say we have sold out to “the dark side”. But that notion is getting harder to defend when you consider how ready some journalists are to spin lines that suit proprietors’ commercial and ideological interests.

  3. Carolyn_Nth 3
    31 December 2017 at 10:15 am

    But some journalists do report on the destructive impacts of the neo-con bennie-bashing, even though they are in a minority and don’t support the dominant ethos.

    This recent article in the UK Independent on an increase in attempted suicides by disability claimants since the introduction of fit-to-work assessments.

    And these assessments were the result of the UK Labour Government policies in 2008.

    The assessment process was introduced in 2008 when the Labour government began to phase out incapacity benefit (IB) and replace it with employment and support allowance (ESA). It has come under intense criticisms for failing some of the most vulnerable people in society in recent years.

    However, Corbyn’s Labour would phase the assessments out if in government:

    Marsha de Cordova MP, shadow minister for disabled people, said the figures were a “truly damning indictment of the Government’s social security policies, and show they are unfit for purpose”.

    She continued: “The Government need to wake up and act fast. It is unacceptable that disabled people are made to suffer like this.

    “Labour would scrap the WCA, end the punitive sanctions regime and change the culture of the social security system, from one that demonises people not in work to one that is supportive and enabling.”

  4. red-blooded 4
    31 December 2017 at 10:17 am

    A great rebuttal of what seems to have been a cynical beat-up in a slow news time. Thanks for adding on the comparable NZ figures.

  5. eco maori 5
    31 December 2017 at 2:47 pm

    The usual using propergander to put a vile on the 99% so the 1% can steal more the neo liberals use this trick the world over get everyone worked up and behind the scenes they are charging our laws so they don’t have to pay there fair share of taxes. What ancient asss go retire these dum ass ways we’ve had enough of that bullshit it time to let the new generation rule humanely an environmently sustainably
    Ana to kai

  6. Unicus 6
    1 January 2018 at 8:23 am

    Add this to the priority list of New Year resolutions

    INITIATE A NATION WIDE CAMPAIGN TO EXPEL FORIGN OWNED MEDIA MONOPOLIES FROM NEW ZEALAND –

  7. alwyn 7
    1 January 2018 at 7:01 pm

    The author of the quoted piece doesn’t appear to disagree with the quoted figures about the amount a tax-payer will spend on benefits. Instead he turns it into a question about whether it differs from the average of OECD countries.

    Well so what if it is? Is their any evidence that the average OECD expenditure is somehow the “right” amount?
    I have seen quite a lot of work in Economic Journals that tries to determine the “right” amount of things like taxes. Nothing simply says that if you take the average of any particular group of countries it is somehow the optimum value.
    Should we take an approach, as he seems to be suggesting, that says that if you differ from the average for the OECD you are doing things wrongly?

    I suppose we could then argue that New Zealand must double the amount spent on defence. At he moment we spend far less a proportion of our GDP than does the average OECD country. We must, by your quoted journalist’s logic, double our defence budget. At least I assume we do. I really can’t be bothered working it out as the whole argument has no logical basis.

    We should also cut our Parliament down to about 20 MPs. After we have far more MPs per million people than is the OECD average. Get rid of 100 MPs. We will then be in line with the OECD average and that must be “right”.

    • Tricledrown 7.1
      1 January 2018 at 9:42 pm

      Alwyn the Neo con BS artist we have one of the cheapest run parliament’s in the world and on other countries our size we have the lowest number of MPs per capita.
      Australia has more than double the cost and representation.
      Alwyn just spreading BS and lies.

      • alwyn 7.1.1
        1 January 2018 at 10:26 pm

        The whole argument of the published piece was that the OECD averages were the correct ones.
        I never claimed that the number of MPs we had was “wrong”. I was merely arguing that if we are to take the claims about comparisons of Australia with the OECD somehow proving that Australia’s numbers were correct we should also accept that comparing New Zealand with the OECD averages would have to show that our numbers were wrong.
        I think that the idea that an OECD average is the perfect result is rubbish, and the journalist making the comparisons is a fool.

        You say that Australia has “more than double the cost and representation.”.
        So it does. It also has about FIVE times the population so it has less MPs and a lower cost per person in the country. Is that better, or not?

    • Tricledrown 7.2
      1 January 2018 at 9:44 pm

      Alwyn you really just want a fascist dictatorship.
      1 representative.

      • alwyn 7.2.1
        1 January 2018 at 10:27 pm

        “just want a fascist dictatorship”
        Don’t be so bloody stupid.
        Godwin’s law at work. You lose.

    • Nic the NZer 7.3
      2 January 2018 at 11:36 am

      “Instead he turns it into a question about whether it differs from the average of OECD countries.
      Well so what if it is? Is their any evidence that the average OECD expenditure is somehow the “right” amount?”

      Are you saying there can be “right” answer to the political question of how much a country ought to spend on health, social security and welfare? Surely the onus is on the side suggesting payments are too high to supply an argument (for the existing political choice) for what the right amount is.

      Apart from this the “Murdoch” piece is patent nonsense. Australians don’t spend 3 hours a week on average working for the welfare sector so its purely a political question about who is paid what, when and wherefore in Australia. Again this is a political choice as it causes no real resource constraints for the country.

      • alwyn 7.3.1
        2 January 2018 at 12:18 pm

        “Are you saying there can be “right” answer”. I hope so. If there isn’t we are simply going to have policy set by idiots who cast spells and look at the entrails of chickens to come up with their “policies”. We should do it because “I SAY SO” would be the order of the day.

        There have been quite a number of Economists who have attempted to find whether there is some preferred amount.
        Generally they have tried to find whether there is some maximum percentage of GDP that can be spent by the state, or percentage taken in tax without having any effect on the growth rate of the economy.
        Nobody, to my knowledge, has come up with any rigorous answers.
        There are obvious ones. If the State takes the lot production falls. As the old joke about Soviet Russia said “the workers pretended to work and the State pretended to pay them”.
        However any studies that purport to find that at more than a particular percentage, production or growth tends to drop has been shown to have flaws in the methodology.

        You do realise, of course, that their really are upper limits? An acquaintance of mine, about 30 years ago, demonstrated that if you were to treat kidney disease to the maximal amount possible with that era’s medical possibilities it would consume the whole of New Zealand’s then health budget. The whole lot just to look after kidney disease.
        You wouldn’t come close to complete health care if you spent the entire GDP of the country. Not even close I would think.
        You do have to set rules on such things and not do everything possible. You can’t just say that “a life is infinitely valuable” or other such trite nonsense. That is why they call Economics the dismal science.

        You also propose
        “Surely the onus is on the side suggesting payments are too high to supply an argument (for the existing political choice) for what the right amount is”

        Do you also hold the view that those who want to spend more should have to prove why it should be increased and that those who want to keep it at the same level should have to prove that the current level is correct? Did you examine certain parties policies before the last election to find such evidence? If you did so did you find that the policy simply said “We will spend more on health, or whatever” without any evidence at all on why that would be a good thing?

        • Nic the NZer 7.3.1.1
          2 January 2018 at 2:17 pm

          Thanks for providing considerable argument to the effect that economics is extremely commonly politics masquerading as science (and typically strongly ideologically biased). But as you say “Nobody, to my knowledge, has come up with any rigorous answers.”, probably because there are none to be had. The question is largely a political one, there is scant evidence to be had (for spending too much) on health anywhere on the globe, in any country.

          However since the last few decades (and the previous political term specifically) have been biased towards rationing of social welfare budgets and health budgets there is an obvious political case for more spending in both these areas. In fact once the polity has absorbed the fact that the ‘fiscal responsibility’ argument is a bunch of hooey which economics can not produce any tangible scientific evidence for (or against) then the political case becomes even more more clear I would think.

          While nobody is proposing that all work in NZ be dedicated to health care, in fact such is the state of mainstream economic thought that it can’t even reject an economy based on a single good. In fact the ideal theoretical model economy has only one good, so I don’t really see why this good should not be health care.

          (Note, of course you will realize 100% of GDP being spent on x means x is the only good purchased, give or take some imports).

          • alwyn 7.3.1.1.1
            2 January 2018 at 3:09 pm

            ” it can’t even reject an economy based on a single good”‘.

            That statement, and the one that follows it is a complete misunderstanding of what Economics is about. At its most basic level Economics is the analysis of choice and the implications of making choices. There is no meaning in saying there is only a single good. Even if a small scale economy only manufactured a single good there would still be the choice of an alternative. Make the good or enjoy some leisure.

            What Economics does is to try and make people understand what is the effect of their choice. If you choose to make something you are ALWAYS choosing not to make something else.
            If we decided to put more into health care, say by training and employing more medical staff and building more shiny new hospitals we will have to give up alternatives. We could, for example have trained builders and plumbers and we could have built more houses. Should we have lots of hospitals but have people living without any shelter outside the hospital?

            Economics does not try and tell you what you should choose. It does try and tell you what the effects of your choices will be. It also tries to provide tools to evaluate the choices and to show what the explicit, and implicit trade-offs are.

            When you make the statement
            “there is an obvious political case for more spending in both these areas”
            you have clearly made your choice. Have you considered what you will give up and what the benefits of your choice compared to other choices is really going to be?
            Should we spend more on health than on education, for example? If you say yes I expect there to be some evidence for the benefits of your choice over the losses by not doing an alternative. Can you provide that evidence or is your feeling simply the product of a feeling in your bones?

            • Nic the NZer 7.3.1.1.1.1
              2 January 2018 at 4:13 pm

              You can claim economics to be ‘value free’ all you like, it is no such thing. and frankly the mainstream version is also completely insufficient for the purpose of explaining what the alternatives and consequences of a decision are likely to be.

              If we are to discuss these matters transparently it is important to recognize they are political choices (rather than pulling to wool over the eyes of the general public and stifling their input into the debate).

            • Nic the NZer 7.3.1.1.1.2
              3 January 2018 at 11:26 am

              ” it can’t even reject an economy based on a single good”‘ – Nic

              “That statement, and the one that follows it is a complete misunderstanding of what Economics is about” – Alwyn

              In brief this highlights why mainstream economics should have no influence on any of our political decisions. You claim its about choices but the models and their mathematics work out nicely only when there is only one good, typically assumptions are made that the real world functions as if there is only one good just to draw the straight forward conclusions (but this assumption is clearly patently absurd). When there is more than one good then mathematically supply and demand do not to balance out nicely in equilibrium and so your modeling of an equilibrium state is not a model of the state of the economy (equilibrium models can only model things in or around equilibrium).

              Simply put the economic models which to some extent do influence our political decisions have no bearing what-so-ever on the actual economy!

              From what I have observed policy economists have realized they frequently have nothing tangible to offer and have fallen back into claiming they are actually in the story telling business. From memory most stories appear in the fiction section of the library.

  8. greywarshark 8
    1 January 2018 at 7:11 pm

    A much needed analysis. Australia used to have legislation that divided the media and you couldn’t own more than one company in one division of the three pillars I think it was called. I think they were still reducing that recently. Here are some links with correct info.

    The latest:
    http://www.abc.net.au/news/2017-09-14/media-law-changes-bill-passes-senate/8946864

    The Government secured the support of the Nick Xenophon Team and One Nation to pass the bill.
    It scraps restrictions such as the “two out of three” rule, which stops companies owning newspaper, radio and television stations in the same city.

    The changes will also abolish the “reach rule”, which prevented a single TV broadcaster from reaching more than 75 per cent of the population.

    Multinational Enterprise and Public Policy: A Study of the …
    https://books.google.co.nz/books?isbn=1781959706
    A. E. Safarian – 1993 – ‎Political Science
    One ironic example is the experience of Rupert Murdoch, who owns major media interests in Australia, the United States and the United Kingdom, among other places. It has been reported that he changed his citizenship in order to comply with US ownership laws so as to acquire a number of us television stations.

    Big talk for the public impression
    Media Ownership Regulation in Australia – Parliament of Australia
    https://www.aph.gov.au/About_Parliament/Parliamentary…/mediaregulation
    support competition policy; discourage concentration of media ownership in local markets; enhance public access to a diversity of viewpoints, sources of news, information and commentary. Further changes to cross-media regulation were contained in the Broadcasting (Ownership and Control) Act 1988. This Act extended …

    • alwyn 8.1
      1 January 2018 at 8:19 pm

      “The changes will also abolish the “reach rule”, which prevented a single TV broadcaster from reaching more than 75 per cent of the population”

      Out of curiosity did that rule apply to the ABC, or were they treated differently?

  9. Tricledrown 9
    1 January 2018 at 9:52 pm

    Alwyn Australia has had more private media outlets than NZ.
    Their size allows for more competition .
    The socold free market has limitations like in the 1930’s when the market collapsed businesses had to be Nationalized to keep business infrastucture in place.
    To allow the market’s to function.
    When competition fails monopolies or complete destruction occured smart govts intervene.
    Dumb govts do nothing.