For several years, The Australian has run a campaign against the so-called ‘blowout’ in welfare spending, backing claims made by the Coalition that nearly half of the population receives more in welfare than they pay in tax.
Today, David Uren reports that the “welfare tide” is turning, with the percentage of Australians who pay more in tax than they receive in welfare payments tipped to rise to 59.2% by 2020, thanks to a lack of recent tax cuts and the current Coalition government’s clampdown on welfare payments:
A 30-year decline in the share of the population paying more in tax than they receive in benefits has been reversed as the government tightens control on welfare and the low paid miss out on tax cuts.
The number of net taxpayers will rise further over the next four years as the government relies on bracket creep and higher personal incomes to return the budget to surplus by 2020-21, according to modelling prepared for The Australian by the Australian National University’s Centre for Social Research and Methods.
In the late 1980s, two-thirds of households paid more in tax than they received in benefits, but this had been whittled back to a low of just 54.8 per cent by 2009.
However, the number of net taxpayers had risen again to 56 per cent by 2013, based on the Australian Bureau of Statistics survey of household incomes. Modelling by the ANU shows the number of net taxpayers rose a further 1.4 percentage points to 57.4 per cent by the current financial year and will reach 59.2 per cent by 2020.
ANU researcher Ben Phillips said there was another 3 per cent of households neither paying tax nor receiving benefits — predominantly self-funded retirees. That leaves about 41 per cent of households drawing more in benefits than they pay in tax…
There’s a few issues with this analysis.
First, the ANU appears to have taken the Budget’s wages growth forecasts at face value. But as any economist worth their salt will tell you, the forecast of a wages explosion is highly delusional (forecast shown in green below), which means that assumed bracket creep and personal income tax receipts are very likely to undershoot.
The bigger issue is that the claimed ‘blowout’ in welfare spending is largely a ruse.
Last year’s HILDA survey showed that welfare reliance for those at working age age has actually fallen materially over the past 15 years:
Whereas analysis from the Parliamentary Library and data from NATSEM drew similar conclusions (see here).
The truth of the matter is that the increase in welfare expenditure is largely due to population ageing, which has driven large increases in Aged Pension payments:
Disability payments associated with the NDIS will also drive growth in welfare payments going forward:
According to the ANU’s Peter Whiteford:
“With the exception of the year immediately before the global financial crisis, data for 2016 shows we’re currently at the lowest rate of receipt of income support in the last 20 years. Overall, at 30 June 2016 27.5% of the adult population were receiving an income support payment…
Since the 1990s, overall rates of receipt for the adult population have fallen from 34.1 per cent in 1996, while rates for the working age population have fallen from 24.9% to 16% and for the population aged 65 and over from 84.2 % to 76.1%…
Overall, it is difficult to reach the conclusion that the share of the population receiving social security payments has been increasing significantly, or that spending has been growing at an unsustainable rate relative to the size of the economy. The future ageing of the population will put pressure on social spending and the NDIS will need to be paid for, but these are largely predictable and not the result of a “welfare blow-out”.
Exactly. The whole welfare debate is largely a red herring, especially when targeted at the working-aged population, where welfare dependency has been falling.