Is ‘middle class welfare’ a problem?

We will find out quickly enough where the Treasurer wants to find the extra money to reduce the size of the deficit, and a highly-tipped candidate is ‘middle class welfare’, given the Treasurer’s recent interest in people earning a lot of money in superannuation. I’m not conscious of receiving any such benefit myself, and that made me wonder exactly what the middle class is thought to be these days, and what, if anything, is done for it.

In the 1960s and 1970s, when I was working in the survey research field, about half of those we interviewed placed themselves in the middle class, most of the rest in the in the working class or the ‘lower’ class, about one per cent called themselves upper class, and the remainder said there was no such thing as ‘class’, or that they didn’t know. Today the term seems to be used for the middle 60 per cent of income-earners, with the 20 per cents on either side being thought of, loosely, as the rich and the poor.

From a Treasurer’s point of view it is important that we all make a real effort to prepare for our retirement, and thereby avoid adding to the number of old-age pensioners. Treasurers do that by providing incentives and rules. The Keating push for universal superannuation should be seen in that context, which was aided in those days by the spectre of a small body of real workers having to support a large body of those who had left the workforce. The steady growth of the population has made that fear less pressing. Built into it all is the assumption that a spread of incomes is natural, and that it should be preserved in retirement.

Is that peculiar to Australia? Apparently not. We are, if anything, unusual in OECD countries for the extent to which our system concentrates on what you might call ‘lower class welfare’, and for the past thirty years we seem to have had the lowest level of middle-class welfare in any developed economy, with only 15 per cent of transfer payment going to the top half of the population. The OECD average is 45 per cent. We target the needy in a much more direct way than is common elsewhere, and our system is therefore more redistributive than the rest of the OECD.

Of course, transfer payments are only part of the story, and are not nearly as important, in terms of income, as tax arrangements, which in Australia have over time been made slightly more favourable to the better-off, which increases their discretionary income. One estimate of the effect of the supposed Howard Government pandering to the middle class was that it represented an increase of less than $2 a week to the top 20 per cent of income-earners, while the growth in real incomes plus more favourable tax scales gave them thirty times as much.

So forced saving through superannuation is a strategy through which the government does its best to reduce the pressure on transfers, especially old-age pensions, and in our case it has been spectacularly successful, because our superannuation pool is now running at $1.3 trillion, and is the fourth-largest accumulation of that type of capital in the world. Of course its size now has real effects on the ways in which companies are run, since super funds are on the whole risk-averse, but that is another story.

One likely area for the Treasurer’s scrutiny will be Family Tax benefits.  Family Tax Benefits may seem to be a form of middle-class welfare, at least in part. Family Tax Benefit Part A is paid for each child, the amount determined by a family’s circumstances. Families on less than about $48,000 receive full benefits, which drop on a sliding scale  to nil at about $200,000. Depending on its income and the number of children, a family can receive between $54 and $200 per fortnight per child, plus a supplementary payment. Family Tax Benefit Part B is for families (single parent or couple) whose primary earner has an adjusted taxable income of $150,000 or less per year. Here the payment varies between $100 and $144 per fortnight, plus a supplementary payment. Australia’s Family Tax Benefits will cost about $20 billion in 2012-13, and that is a lot of money.

But again, it is likely that this system too is targeted at the needy. Yes, you could decide that a family earning $150,000 a year is hardly needy, but dropping the threshold won’t save much money, unless it’s dropped a long way. Paying for the Gonski reforms is going to take a lot more than any savings here, not to mention the NDIS, and not to mention the $12 billion hole in the budget (likely to be a little higher, in my opinion).

All in all, despite some clamour from the right, I doubt that middle-class welfare is either the menace that some think it to be, or that there are going to be real savings in reducing it. Our Prime Minister has told us that we shall all have to accept some additional burden, and the NDIS levy is likely only to be the first step. We middle class will do our bit! We’ll have to.



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