Welfare “fraud” in post-truth Australia

Given the ongoing saga around “Pension Farce” or “Pension Force”, where the Coalition government is turning Centerlink into a punitive debt collection agency while letting multinational corporates away with zero tax bills, I thought frequent MB contributor Philip Soos’ analysis of the attack on the cash economy…

by Philip Soos

The Coalition government recently announced a taskforce to investigate and recommend ways to deal with the so-called black economy. This primary revolves around business transactions conducted in cash to evade taxes. Other justifications concern the illicit drug trade and welfare fraud.

The plan is to clamp down on this aspect of the black economy to make it more difficult for workers, businesses and households to evade tax, boosting taxation revenue. It is estimated the black economy accounts for about 1.5% of GDP or $21bn.

There is also speculation that the $100-dollar bill may be removed from circulation.

The Coalition government’s explanations seem sensible, with the mass media generally supportive. Yet, there are robust arguments why the Australian public should oppose this move – mostly because the government is trying to deal with problems it created itself.

The drug trade in Australia is thriving and constitutes a considerable portion of the black economy. This illegal trade, however, only exists because the government criminalises it. The primary reason offered is that it prevents the production and consumption of dangerous substances for recreational purposes. It clearly does nothing of the sort.

By criminalising drugs, product is manufactured in unregulated and uncertain conditions, leading to vastly inferior quality relative to that in the legal and regulated pharmaceutical industry. Huge monopolistic profits are reaped by drug cartels and those in the supply chain, leading to a significant loss of taxable income. None of this would happen if the drug trade was legalised – and there is growing acceptance that it should be.

In short, the government cannot use the pretext of clamping down on an industry which is presently illegal by claiming the cash transactions facilitates the existence and growth of it when it is the government’s own criminalisation policy which brought it into existence. By legalising, billions of dollars of taxes could be raised through the GST, income tax and externality/sin taxes.

Another area of alleged concern is welfare fraud. Recipients of welfare payments can work in the black economy, making a modest income without reporting it. If this were properly reported, welfare payments would be reduced. Again, this is a problem government has itself created.

While the government and certain sections of the mass media pretend Australia has an out-of-control welfare system, the facts demonstrate Australia has some of the smallest welfare expenditures relative to GDP, easily the most well-targeted and has the highest “target-efficiency” (each dollar in spending reduces income inequality the most) in the OECD.

When those on Newstart allowance, disability support and age pensions earn even a small amount, ie $150 per week, they start to lose a significant proportion of their modest payments. In other words, welfare recipients (the poorest) endure the highest effective marginal tax rates in the country. Depending on the type of payment and earnings, these rates can range between 40% to over 100%.

So, despite the government’s incessant pressure for recipients to work, people either remain unemployed on welfare, or work and have their payments severely cut or ended. Recipients can escape this by working in the cash economy and not declaring their earnings.

There is a solution – simply allow recipients to earn a lot more before their payments get reduced. Many recipients would be more likely to declare their earnings, though whether this would lead to a net tax increase to the government is debatable. The point is, given Australia’s meagre and tight social welfare system, with many recipients living in income poverty, not declaring modest earnings is hardly a threat to the integrity of the taxation system.

Other problems abound if the government were to abolish high-denomination bank notes and restrict cash payments above a specified amount, such as $1,000.

One is privacy. By forcing the public to use electronic payments, their activities and whereabouts can be tracked. Given the growth of the surveillance state and intelligence-industrial complex, this is a real infringement upon freedom and privacy if the authorities access this bank data.

This policy is also designed to generate inefficiency by forcing dependence on the banking and financial system. Where previously transactions may have been efficiently conducted in cash, the public are forced to use electronic payments, inserting a third party into the transactions: banks – to their benefit.

Worse, this move against cash makes it easier for the RBA to implement negative interest rates in a significant economic downturn to bail out the banking system. It would become almost impossible for the public to take their savings and other liquid assets out of the banking system as cash to protect themselves from being charged for having savings.

Australia’s banks are the most profitable in the world, primarily from having lent an ungodly amount of mortgage debt to households. According to the latest data, Australia has the third most indebted household sector in the world, at 123% of GDP. Policy should not be rigged to make them even more profitable.

Finally, just because labour income tax and GST revenues may be lessened by the cash economy is not an argument to criminalise it. Instead, it is a sound reason to shift our pathologically insane 419 tax and tax-like fees off economically useful activity and onto areas which do not result in deadweight losses and cannot be hidden – such as the land and mineral markets.

The leakages into the cash economy pale in comparison to the deliberate siphoning into the two largest tax havens in Australia: residential property and superannuation. The IMF demonstrated Australia has the largest tax expenditures in the OECD relative to GDP.

This move against the black economy and cash is ultimately a pretext to oppress the poor, welfare recipients, savers and the prudent to benefit the government’s campaign contributors: the banking and financial system, for both immediate and more long-term goals. It should be resisted.

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  1. DodgydamoMEMBER

    From my experience the people who work at Centrelink are incapable of transcribing a bank account number correctly; how they could possibly administer such a complex and opaque web of qualifying financial and other personal information and resultant payments without consistently cocking it up is inconceivable. This now also includes the new punitive collections regime…

    • The latest cockup is payments to those aged pensioners who were lucky enough to improve their pension payments on the 1st January 2017. Centrelink brought forward the payment due on the 2nd January to the 29th December and paid at the old rate. This was not to save money, cough …. cough, but to provide a better service to clients during the holiday break ……… whaaaat!
      If they think the aged are too stupid to realise Centrelink saw an opportunity to pull a fast one then the world is flat! It’s not the front staff at fault (if you can find any staff to deal with) but the fat cats sitting in their air conditioned offices working out ways to skin the welfare cat. Starting with that imposter with the Nordic surname this bunch need to be cleaned out and sent to Manus as security staff which is more their style. Simple Simon could join them as tour guide!

  2. Nice to see this article get a run here considering the previous MB (or perhaps LvO only) stance that $50 and $100 note should be demonetised. Philip raises many of the same points that were addressed in the comments by MB readers under these earlier articles e.g.

    – Legalising drug trade is a better option to try and reduce criminal activity
    – Pushing for electronic transactions infringes on freedom and privacy
    – Restricting large notes/cash forces dependence on Australian banks

    I don’t agree with the solution proposed by Soos though:

    “..allow recipients to earn a lot more before their payments get reduced. Many recipients would be more likely to declare their earnings..”

    I see tradies earning far more than the median wage and still doing ‘cashies’ so I don’t think the argument that allowing those in poverty to earn more before benefits are cut is likely to result in a reduction in fraud.

    • I see tradies earning far more than the median wage and still doing ‘cashies’ so I don’t think the argument that allowing those in poverty to earn more before benefits are cut is likely to result in a reduction in fraud.

      Indeed. It’s the same broken logic that argues we should reduce tax rates so people are less inclined to engage in tax evasionminimisation.

      Greed is nearly always the root problem. Enough is never enough.

      • Some gaming of the system is “built in.” Policing it costs more than living with it. Tradies and the odd cash job are an example. Tradies working FIFO for example also keep a box full of tool receipts. This means they may have bought $5k worth of tax deductible tools for the year, but claim $10k. If the ATO wants substantiation, they just borrow a receipt off someone else for the tools they claimed. Easy!

    • The solution is to have a massive tax on tap water, sugar, coal, and have a $25k per year rebate/UBI for the poor.

      A tap water tax is akin to a land tax – for people are not going to order water trucks. And even if they do, the government can catch them.

      What is easier to hide, a water tanker truck or a $20 note?

      • genius! i like it. ahh but then the city’s plumbing would be ruined by siphoning within a week.

      • Plenty of Aussies (myself included) have rainwater tanks. I think there’d be an increase in tank ownership if the public got a whiff of something as harebrained as massive tax on mains water connection.

      • There already is a tax on water supply – it is called a service or connection charge. Ditto with gas and electricity. Farmers now pay for water in their own storage dams in some places and don’t be suprised if, in due course, domestic rain water tanks are also taxed in some capacity e.g. a “licence”. All those tank buyers who registered their tanks in Victoria in order to claim a government rebate are now on a data base. Just give it time, and when state govt. revenues from stamp duty reduce after the property turn down their thoughts will turn to other revenue streams.

      • Jumping jack flash

        gballard, diabolical. I like your thinking.

        The possibilities to extract money are endless.

  3. Great article and agree with pretty much all of it. We should resist the bullshit, until they implement a land tax I’m not in favour of any changes to the cash economy.

  4. Personally I am in favour of the the changes to the Aged Pension. It is more equitable, and helps the lower end. The middle end is somewhat largely unchanged. The biggest impact is on those over $816,000 to $1.2m. People should be fine with that. Someone with assessable assets of $816,000, probably has $700k in super. Its intended purpose is to fund retirement, so it should rightly be drawn upon. Naturally once that kitty is say $400k in super the govt. is kicking in a good amount.

    That said this very strict enforcement of those currently receiving an Age Pension is modus operandi for the Coalition. They HATE POOR PEOPLE, FOR HAVING THE GALL TO BE POOR!

    + 1 to BB’s comments. Legalise drugs and use the windfall for education programs, anti-drug campaigns, counselling and rehab facilities and treat it as a health issue. It eliminates drug crime, with the stroke of a pen, without a significant uptick in drug use.

  5. If they take away the 100 dollar note that causes real problems for me. My regular escort, well she does not accept credit cards,

  6. http://www.watoday.com.au/national/morally-bankrupt-government-stalls-funding-for-lifesaving-cystic-fibrosis-drug-for-children-20170103-gtldv6.html
    There are about 30 children with the same cystic fibrosis gene in the age-bracket, who have families also awaiting the drug’s availability.

    But the Pharmaceutical Benefits Advisory Committee deferred the decision to make the drug available days before Christmas.

    Shameful behavior by everyone in this issue. Utterly shameful.
    I recall an article years ago that the US govt allowed pfizer to extend its patent duration on Viagra in return for the Pharma corp developing a version of the drug that could treat a rare childhood heart condition.
    Given that we are talking about 30 children surely both parties could come to terms of some kind where Pharma Corp in this case gets extension of their patent for this drug or another drug in return for supplying a drug labeled as essential, but not profitable. We are talking about people here. People and children that are suffering.
    Its disgusting.
    They should be made to meet the children and suffering people and be made to explain to them in person why they wont save their life, because they are all greedy uncaring assholes.

    • The only thing this Government regularly and consistently delivers are reasons to despise their existence.

      • Even more so when they excel at wasting our money as they propose to waste over $190Billion on useless weapons.

  7. Portugal’s had stunning success in decreasing drug-related crime by decriminalising drugs and putting resources into treatment for addicts. But nah, we won’t try anything like that. If what you’re doing doesn’t work, just do more of it!

    I’m totally against the elimination of cash, on privacy grounds for one thing, and it’s also a way of the government being able to have total control of your funds… scary thought.

  8. “This move against the black economy and cash is ultimately a pretext to oppress the poor, welfare recipients, savers and the prudent to benefit the government’s campaign contributors: the banking and financial system, for both immediate and more long-term goals. It should be resisted.”

    Excellent summary by Philip Soos — Thanks Chris for publishing : More please on same subject to counter stupid laws.

  9. Not a week goes by without a ‘ban on cash’ being discussed in some or other country across the globe. This isn’t coincidence. There is definitely co-ordination in play here. People should fear and resist this move at all costs. Those citizens that welcome the move need their heads read as it it not a situation that can be reversed that easily. Without cash citizens make themselves slaves of the State.

  10. Two thumbs up for this article. I more or less agree with all of it and I think it deserves wide circulation.

    The war on cash is an insane measure by increasingly desperate governments that are trying to find yet more ways to kick the can down the road – in doing so that make the eventual day of reckoning even worse for everybody.

    I think we’re also caught in the extremely difficult situation where it is political suicide to propose real fundamental reforms because they would have the prompt effect of reveal the true degree of bankruptcy/insolvency of the financial system and bring about a financial crisis (which we should have had ages ago if the profligate weren’t bailed out).