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The dysfunctional Australian Welfare System needs to be scrapped

By Keith Thomas Davis  

Whether you are rich, or poor, the one thing you have in common here in Australia is the fact that you are a Welfare Recipient. The Australian welfare system is a prime example of where the bulk of the sovereign wealth of a nation is distributed to those who need it least, and denied to those who have a demonstrated need of requiring it the most.

The current debate about the raising of Newstart totally blindsides the much bigger conversation that is assiduously avoided by both of our major political parties, and by the bulk of Australians who are the recipients of government welfare largess.

This article has not been written to attract a quick ‘Click’. It has been written to start a very sharp conversation about how disadvantaged welfare recipients are treated in this country. It has been written to expose the inherent unfairness underwriting our system of welfare, and it proposes an alternative to a welfare system that damns and demonises and punishes those who are in no position to protect themselves.

Our current Welfare System is not fit for purpose. It favours the rich and the comfortably off with generous tax breaks and concessions and facilities such as negative gearing (yes, those are an absolute form of gifted welfare), and it punishes the poor and unemployed by keeping them well below the poverty line via the government’s purposefully engineered low level of the Newstart Allowance. We have a welfare system that systematically fails the very people it is supposedly there to support.

If you have never been unemployed or poor I can understand that you may well have the capacity to empathise with the plight of disadvantaged welfare recipients, but unless you have been unemployed or poor there is one thing you cannot possibly know from an experiential point of view.

To be continually demonised and judged by your own government and your own society, to hover on the point of starvation, to see the total weekly amount received under your Newstart falling dismally short of the average price asked for shelter in the rental market, to live your life ridden with anxiety and the fear of the withdrawal of your benefit, is but a small taste of what it feels like to be a welfare recipient in contemporary Australia.

I’m about to throw a lot of fiscal figures your way with sources listed at the end of the article. I don’t pretend for a second that they are all encompassing, they are a rough guide. If progressive or conservative think tank economists waste time picking apart the minutiae of the figures it will simply evidence that they are missing the sharper end of what the conversation is really all about.

Social security and welfare represent 35 per cent of the Australian Government’s expenses. The Government estimates that it will spend around $191.8 billion in 2019-20. This category of expenditure includes a broad range of payments and services including pensions and Newstart. 

Welfare Bill Total:  $191.8 billion.

Now we’ll look at the issue of tax breaks, a continual form of welfare largess that the government showers onto middle and high income earners. Prior and existing tax breaks and concessions cost the budget $135 billion each year. That figure is more than the four main welfare payments — the aged pension, family assistance payments, disability benefits and Newstart combined. Bear in mind also that the 2019 tax breaks are not included in that figure.

Welfare Bill Total: $326.8 billion

Negative gearing is a welfare gift. It costs the public purse approximately $11 billion a year.

Welfare Bill Total: $337.8 billion

The cost of administering the JobActive (old Job Network) Unemployment Industry organisations cannot be ignored. Those costs are aligned with welfare and come directly out of the budget. Running that punitive system costs $1.5 billion per year.

Welfare Bill total: $339.3 billion

The Coalition’s current round of tax cuts favour the well off and ignore the poor. The third tier tax breaks for high-income earners is projected to be more than $88 billion under the Coalition’s plan.

Welfare Bill Total: $427.3 billion. That is sufficient for the proposal that is about to be made in this article.

The following hits to the overall Australian ‘welfare’ budget have not been included:

There are a myriad number of commercial or not-for-profit Registered Training Organisations (RTOs) that raze the public purse by supplying training and skill courses to the unemployed. Some courses have value, some are woefully tick and flick sub-standard. Some of those RTOs are a little too closely associated with some JobActive providers. Some RTOs do a good job, some simply have an appalling and unprofessional level of training delivery. Either way, it costs the ‘welfare’ budget. Why TAFE is not universally utilised to provide quality training for the unemployed and disadvantaged remains beyond comprehension.

Much welfare largess is also doled out, albeit probably unwillingly, to large corporates national and international, who continue to manage to minimise tax, or pay no tax at all. Nor have all of the other welfare ‘concessions’ such as franking credits, family trusts, etc been explored. But surely we’ve now hit the point where an alternative to our current welfare system will not only be cheaper, but would probably also be better for the soul and the psyche of our nation.

An alternative scenario to the current Australian Welfare System …

Australia has an estimated population of 25.20 million. Of that number, 15.7% are aged over 65, 65.5% are aged between 15-64 years and are deemed to be the working-age population, and the remainder are children under the age of 15 years.

Which means that Australia has 20,462,400 citizens above the age of 15 years.

It is important to note that the bulk of citizens aged 15-17 years old are not working, they are in high school. ABS figures show that the national number of full-time equivalent students in the last three years of high school totals out at 739,248 (excluding the NT & ACT because the numbers there are minimal).

That leaves us with a number of 19,723,152 Australian citizens who are the potential beneficiaries of a new way of distributing Australia’s sovereign wealth.

However, when is enough money to live on – enough money to live on? Many people, it could be argued, have sufficient weekly income to meet normal living expenses. The average Australian worker does not earn between $1,250-$1,499 per week. Here are some interesting statistics …

Number of workers who earn between $1250-1499 per week:  1,089,739

Number of workers who earn between $1500-1749 per week:  922,803

Number of workers who earn between $1750-1999 per week:  638,973

Number of workers who earn between $2000-2999 per week:  961,768

Number of workers who earn $3000 or more per week:             596,521

That totals out at 4,209,804 Australians who do not necessarily need the extra added income inflow of gifted welfare and tax concession dollars. The actual number is higher than that, but it is almost impossible to source numbers for those retirees who are independently wealthy over and above what would be considered to be normal levels.

That leaves 15,513,348 working-age or older Australians who earn less than $1250 per week.

Current unemployed welfare recipients are expected to survive on a Newstart rate (for singles) of $277.85 per week. If they are able to claim the maximum rental assistance rate of $68.60 per week then they have the total of $346.45 per week to try and survive on. Since the median rental rate in the cities is $465 per week, and in the regions is $378 per week, the assertion that welfare recipients are starving below the poverty line is a fact, a deed, and a brutal reality. It is beyond the level of a national shame, it is nothing short of unforgivable.

All of this shows that a Universal Basic Income (UBI) of $25,000 for all individual Australians who earn less than $1250 per week is a far better way of equitably distributing the sovereign wealth of this nation to the people who need it most.

The UBI would cost $387.8 billion. The current welfare bill in Australia is over $427.3 billion. The UBI will save the economy more than $39.5 billion per year. The tax breaks and concessions to people who don’t remotely need them must stop.

Any of the figures provided above can be challenged, I reiterate that they are but a guide, and alternative figures can be provided.

What cannot be challenged is the fact that our current welfare system is dysfunctional. What cannot be challenged is the fact that genuine welfare recipients who are in need of assistance to rise above the starvation levels of enforced poverty, are continually robbed of that chance by people who have no need to receive the level of welfare largess that they do via government provided tax breaks and concessions.

The current welfare system in Australia needs to be dismantled from the top down. Implementation of the UBI will eradicate poverty for the majority of poor and disadvantaged people in Australia. Implementation of the UBI will benefit the economy because all recipients of the UBI will gain spending power, something highly beloved by both politicians and economists.

The UBI will replace all current forms of pension. Will the UBI be tax-free? Yes. Will Rental Assistance still be available for UBI recipients? Yes. Will NDIS services still be available for those UBI recipients who need them? Yes.

What will cease to exist under the UBI? The JobActive network. Mandatory reporting for UBI recipients. Vote buying tax breaks. The Unemployment Industry as a whole. Negative gearing and other tax concessions. The demonising of the poor.

It is important to remember that the UBI Grant is based upon the circumstances of the individual. If you are single and earning under $1250 per week you receive the grant. If your partner earns over $3000 a week and you earn under $1250 per week, you get the grant, and they don’t.

The UBI will raise questions. What about youth who cannot live at home? Should UBI recipients, as a condition of grant receipt, be expected to volunteer to work 2 days per week in a local community organisation close to their place of residence? To anybody raising such matters my challenge to you is this – find a positive solution to your question under the umbrella of the UBI.

Implementation of the UBI is simply a fairer way to go.

The howling may well begin from those who stand to lose something that in all reasonableness they should never have been in receipt of in the first place. So be it. It is beyond time that a sharp conversation on the dysfunctional nature of the Australian welfare system was introduced into the national discourse.

In summation: The sovereign wealth of this nation is continually wasted because it has always, devoid of any sense of mutual obligation, been handed across to those who don’t need it, and it has been continually denied to those who do.

Sources and Quotes

$191.8 billion:

Social security and welfare represent 35 per cent of the Australian Government’s expenses. The Government estimates that it will spend around $191.8 billion in 2019-20. This category of expenditure includes a broad range of payments and services including:

  • most income support payments such as pensions and allowances (for example, Newstart)
  • family payments such as Family Tax Benefit
  • paid parental leave pay
  • child care fee assistance payments
  • funding for aged care services
  • funding for disability services and
  • payments and services for veterans and their dependents.

Public debate over the cost of welfare often focuses only on cash payments to working age people such as unemployment benefits and the Disability Support Pension (DSP) but these payments only represent around 17 per cent of welfare expenditure as presented in the budget. (Parliament of Australia: Michael Klapdor and Don Arthur, Social Policy)

$135 billion

Anglicare commissioned Per Capita to crunch the numbers on how much tax concessions cost the budget relative to welfare. They found that major tax concessions totalling $135 billion per year were costing the budget more than the four main welfare payments — the aged pension, family assistance payments, disability benefits and Newstart combined. They used Treasury data, as well as various ABS figures and the University of Melbourne’s HILDA survey. (ABC News March 2018) 

$11 billion:

Head of the Grattan think tank John Daley says Australia’s version of negative gearing, along with the capital gains tax discount, costs the public purse $11 billion a year. (news.com.au 2016) 

$1.5 billion

The Jobactive system costs the Australian public more than $6bn over four years. It needs to provide value for money,” said Terri Butler, the shadow spokeswoman for employment services ($6bn /4 = $1.5bn) (The Guardian Jan 2019)

$88 billion:

The third tier tax breaks for high-income earners is projected to be more than $88 billion under the Coalition’s plan (figures from The Guardian May 2019)

25.2 million population figures:

As of this year, 2019, Australia has an estimated population of 25.20 million. (World Population Review) Of that 25.20 million: 15.7% are aged over 65, 65.5% are aged 15-64 years and are deemed to be the working-age population, and 18.8 % of the overall population are children. (Australian Bureau of Statistics)

739,248 full-time equivalent students:

Schools, Australia, 2018. Table 43a – Full-Time equivalent students, States and Territories. (Australian Bureau of Statistics)

Individual incomes over $1,250 per week:

Source: Australian Bureau of Statistics, Census of Population and Housing 2016. Compiled and presented in profile.id by .id, the population experts.

Median rent price of $436 per week:

(corelogic.com.au/news/rents-across-australia-rise-over-first-quarter-2019)

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15 comments

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  1. Keitha Granville

    Great talking point. I agree with everything you have proposed.

    But since the 1% control the wealth and the government and the businesses – we have Buckleys of getting it through.

  2. Janette Taylor

    This actually sums up the problem accurately. 62, female, unemployed, all my savings went waiting for benefits to come through.

  3. Keith Thomas Davis

    I hope the article starts a conversation.

    Once you write an article … you then think about the million other facets of the issue that you wish you had included. One question that arises for me is: how do you claw back the already granted tax concessions? Not easily, it would be difficult. However, years ago many people said that it would be too difficult to get to the moon. It was difficult … but we got to the moon.

    But the thing about a conversation is that once you have had your say, the next step is to stand back and listen …

  4. Michael Taylor

    Well researched and well argued, Keith.

  5. New England Cocky

    It is interesting to see that the economic principles first identified by R Ambrose Raven in 2013 on “The Conversation” remain in tact and inflated by the last six years of Liarbral Notional$ misgovernment.

    But then as one Nat$ pre-poll booth volunteer stated before the election, “The COALition are such good financial managers” ….. and I finished his statement with “because they only doubled the national debt in three years”.

  6. Kaye Lee

    If you need more money for the idea, we could get a few billion a year from cutting out fossil fuel subsidies. Oh, and there is the $400 billion that the government wants to spend on obsolete weapons over the next twenty years. And our offshore gulags.

    Getting rid of tax concessions is very hard as you say. It’s best to grandfather changes or make them gradually so people have time to reorganise their affairs.

    The ridiculous part that gets very little mention is that people who earn their income through their labour have no such tax concessions. Those who sit back and let their investments deliver their income only have to pay tax on half what they make through capital gains. Tax offsets like the low income or seniors and pensioners are just that – non-refundable offsets against any tax that may be payable. The franking credit tax offset has morphed into a gift which results in companies and individuals paying no tax on that money.

    Why are investors treated so much more favourably than those whose labour actually creates their wealth?

  7. Terence Mills

    When the government announced their Treasury Laws Amendment (Tax Relief So Working Australians Keep More Of Their Money) Bill 2019 it was implied by various coalition members of our parliament that they were collecting too much tax and needed to return that over collection to the punters So Working Australians Keep More Of Their Money.

    It is worth remembering that Treasury estimates of the original plan, passed by the Parliament last year, will cost the budget $144 billion over a decade, while the extra measures announced in this year’s budget and recently passed will slice a further $158 billion from revenue by 2029-30.

    Much of this occurs after July 1, 2024, when the 37 per cent tax bracket is abolished, leaving all income between $45,001 and $200,000 taxed at 30 cents in the dollar.

    Simply lowering the 32.5 per cent tax rate to 30 per cent will cost the Government $95 billion in lost revenue between 2024-25 and 2029-30.

    Labor voted this all through so I suppose, when the proverbial hits the fan : it’s Labor’s fault because they are poor economic managers. In the meantime expect Frydenberg to start saying that our economy is facing unexpected severe head-winds due to factors beyond our control and we need to cut spending and introduce austerity measures as we are not collecting sufficient tax to spend on infrastructure, welfare, health or education.

    It’s a variation on the pea & thimble trick

  8. Spindoctor

    How does the public force our politicians to introduce this living wage, when the vested interests sucking on the taxpayer dollar won’t give up that largesses without a fight. We just witnessed that with the LNP election win, even though the nation is poorer as a result? The Murdoch rags, shock jocks, LNP, IPA, Gina, would go ballistic.. what level of public action will force a result?

  9. Patricia

    What about adding in the $9 BILLION corporate welfare that is paid to private health insurers, that all taxpayers contribute to, but which only those who can afford to pay private health insurance premiums get the benefit.

    There is no way that either the LNP or the ALP will ever bring in UBI. It goes against everything that their corporate masters want even though it would inject billions into the economy, much of the benefit of which would go to their corporate masters.

    The LNP, ALP, Greens and corporate Australia have such a limited view. None of them are really interested in doing what is right for the country or its people. They seem only to be interested in what they can get and how they can stay in their jobs.

    Someone needs to remind all politicians that they are servants of the public, contrary to what they believe. We could do that at the ballot box but the majority of voters are idiots who have no idea what is going on and constantly and consistently vote against their own best interests.

    We need another Gough Whitlam, without the disfunction. Someone who can see the benefit outweighs any negative argument that can be made. Someone who can get a majority in the lower and upper houses so that something positive can be done for us all.

    The fact that independents (ha, ha, ha, ha, ha,) will grandstand to get minor useless concessions to vote to pass poor, badly written and useless (except for the 10% who benefit) legislation shows that not only is the social security system (I absolutely hate the word welfare, the US has made it one of the dirty words in our lexicon) broken but so is the parliamentary system and representative democracy.

    When more and more of the peoples freedoms are being removed and more and more people are being forced into abject poverty while politicians, big businesses and corporations are reaping the benefits in higher salaries and higher profits there is no way that anyone can say that the system under which we are living is in any way fair or reasonable.

    Corporate Australia will not see or acknowledge the changes that would benefit them because of their blinkered view that they have to a bigger and bigger profit each year. They will not see that either their business or life is made up of one year increments but that it is made up of the future and making provision for the future not only makes a better future but makes a better present.

  10. Florence Howarth

    I have been a supporter of GMI or its many variations for decades. Over time the reasoning for such a claim has become more probable, sensible.

  11. Keith Thomas Davis

    There have been some interesting comments on facebook! The conversation has started … which was one of the very hopes behind the article.

    As we know from the fragility of witness statements in legal trials, it is amazing how two people can view the same event yet come up with two very widely different interpretations of what they thought they actually saw.

    Some people see the UBI as a right wing neoliberal ideological plot designed to keep the peasants serfing, others see the UBI as a socialist plot designed to de-construct society as we know it and re-distribute wealth downwards. Whatever it is, the UBI is neither of those things.

    For me the UBI notion appears to have underlying social justice principles, and that’s either an opinion or a bias coming out of my own personal experiences, or out of my years working in the Unemployment Industry where I saw on a daily basis the soul destroying nature of make-work programs that do keep people in serfdom, or simply out of my hope that the punitive treatment of welfare recipients can be stopped.

  12. Darren Doody

    Here are a couple of issues I have with this article:

    What exactly are the ‘tax concessions’ that total $135 billion? Does it include things like ‘tools of trade’? A tradesman, for instance, must buy many tools (most often not supplied by their employer), while an office worker has no such expense. These extra costs are not reflected in wages. Perhaps the $135 billion does not include such things, but we have no way of knowing from this article. I suspect there may be many other similar tax ‘deductions’ included in that figure.

    While I certainly consider Capital Gains Tax discount to be ‘welfare’, I don’t see where Negative Gearing is. But as it’s such a small number (relatively), we can let that slide.

    It’s not just the Job Active Network that can be eliminated. Most of Centrelink can go too.

    A bit of a nit pick, but it’s not a UBI unless it is UNIVERSAL.

    The biggest issue with the proposal however, is the cut over. Someone earning just under the cut-off at $1,249/wk ($64,948/yr) will be topped up with $480.77/wk ($25,000/yr) but someone earning $1/wk ($52/yr) more will not and will therefore be $24,948/yr worse off than someone who is being paid less than they are. In fact, with your UBI, the person on $1,249/wk will have more income than anyone earning between $1,250 and $1,729 per week (possibly even higher in disposable income terms depending on actual tax rates and brackets).

    Proposed change:

    Make the UBI truly universal. Pay it to everyone over the age of 18 (any younger may encourage some not to complete high school). Those in the 15-17 age group can apply for it, for those unable to remain at home etc. Adjust the income tax brackets to delete the tax-free threshold. Income tax is to be payable from $1, while the UBI itself is tax free. This way the person on $1,249/wk does not have more money in their pocket than those on $1,250-$1,729/wk.

    This proposal also simplifies the system greatly and reduces cost of monitoring as there is no income test.

    It does cost more however, as it is now paid to everyone, but much could be recouped with further tweaks to the income tax system as those at the top don’t need it.

  13. Jennifer Meyer-Smith

    Well done, Keith.

    AUS needs people like you with brave, big ideas looking for solutions for the good of grassroots people, who are struggling in a contemptuous economic system built to keep them poor.

    Your brave ideas are perfectly possible based on the arguments you provide and especially as Australia has its own sovereign currency and the government is in control of the macro-economy and can provide the funding to equip everyone who needs it, with a decent universal basic income. (Despite what the experts say, I can see how the UBI and MMT are a perfect fit together.)

  14. Keith Thomas Davis

    Hi Darren Doody. Thanks for becoming part of the conversation and your input widens the scope of that conversation. The point of the article was to challenge current thinking, and to start a conversation around welfare issues that would hopefully cut through the myriad number of ‘worthy’ issues that vie for attention at the national level.

    I have no objection whatsoever to the UBI becoming truly Universal if a way can be worked out to make it affordable. I started off with the premise that there is only so much money available and therefore it made sense to direct it first to those who need it the most.

    What has been most interesting about various reactions to the article on FB etc is how polarised the view of the UBI is on ideological/political grounds. I was quite surprised by that because, as someone who has been a welfare recipient, a worker in the Unemployment Industry, and now as an old-age pensioner, I live at the welfare coal-face, and I have little time available to spare for the academic argie-bargers or class-warfare types. We need practical on-ground solutions in the welfare sphere.

    I appreciate the fact that you are contesting the figures, all figures are contestable, and that contesting becomes part of the larger conversation about the dysfunctional nature of our current welfare system, and what practical solutions there may be to that. If enough people, like you, throw on the thinking cap and start working towards a solution that will work then we’ll all end up far better off.

  15. Karl Young

    The Job Active or Job Network system has been totally useless since it’s inception.It should be scrapped and run by caring government representatives like the old CES was.And these constant name changes are destabilization re, Job Network to Job Active etc.

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