



Hockey's welfare claim confused and ultimately flawed


It's the best-remembered phrase of the budget - and it wasn't even in the budget.

''The average working Australian, be they a cleaner, a plumber or a teacher, is working over one month full time each year just to pay for the welfare of another Australian,'' Treasurer Joe Hockey told the Sydney Institute last week.

But the calculation is flawed, marred by two mistakes that partly cancel each other out.

The budget papers put this year's social security and welfare bill at $140.6 billion. Of this, about $36 billion goes to families with children, $26 billion to help people with disabilities, and $10 billion to the unemployed and the sick. About $2 billion goes to help indigenous Australians.

The total does indeed come to almost $6000 per head, but only if all Australians are counted, including those who are too young and too old to work. Limiting the population to workers, the welfare burden per worker is about $13,400, which is way more than one month's tax.

The latest Tax Office figures show 12.7 million individuals paid $144.8 billion in net tax in 2011-12, producing an average tax bill of $11,400 each. Updated, that would now be about $12,200, which causes a problem.

The welfare burden per worker is greater than the entire year's tax collected per worker. In the Treasurer's language, the average working Australian needs to work a bit more than 13 months a year to pay for the welfare of others, which means something is wrong.

What is wrong is the assumption that individual tax is the government's only source of income. This year the government expects to take in $363.5 billion from all sources. Only $164 billion will come from individual tax. Among its other revenue sources are company tax, petrol, alcohol and tobacco excises, superannuation and fringe benefits taxes, plus the petroleum and minerals resource rent taxes.

So where did the Treasurer get his figure? His office says he calculated the welfare bill at $6000 a head, calculated average monthly income at about ''$4800 to $6500 per person'' and drew his conclusions from that.

This would be correct if the average tax rate was 100 per cent, but it's closer to 20 per cent, meaning the average individual taxpayer would need to work for much longer than one month to pay the welfare bill. Except the average worker doesn't need to work that much longer because workers aren't the government's only source of revenue. Two mistaken assumptions have partly cancelled each other out.

Expect more of this. Accompanying this year's tax returns will be a ''concise one-page personalised and itemised receipt''. It will show ''in dollar terms, how much of a person's tax bill was spent on each budget area''.

An initiative of the treasurer, it also has the potential to be misleading. Debt will be displayed as a total, rather than an amount per person, and it will be displayed as gross debt rather than net debt. Net debt per person is about $9800; per taxpayer it's about $17,200.

Peter Martin is economics editor of The Age.

Twitter: @1petermartin 


  • Put another way, the tax each person pays to support a welfare recipient is zero as the revenue comes from other sources. Welfare expenditure is decreasing each year and Australia is in the bottom five of OECD countries for tax per GDP. Can someone tell me when spinning the truth becomes an actual lie??

    Danny DK
    Date and time
    June 20, 2014, 7:00AM
    • Danny, welfare spending ids decreasing, ummm please look at the facts on the Govt.s website. You will find that it has been increasing. FACTs.

      Date and time
      June 20, 2014, 8:12AM
    • It is decreasing as a percentage of GDP which is the true measure of the burden on the economy. Please analyse the facts instead of selectively quoting them.

      Date and time
      June 20, 2014, 8:40AM
    • Kingston dude. You obviously don't read the papers. A Melbourne academic released a report the other day showing that reliance on welfare is declining and significantly. Like his Coalition colleagues Hockey never lets the truth get in the way of an argument. The reality is that Australia compared with other countries spends a low percentage of GDP on welfare and it's declining. The truth doesn't fit Coalition ideology that anyone on welfare is to blame for their own situation and must be vilified.

      Reality Check
      Date and time
      June 20, 2014, 8:51AM
    • @kingstondude, because politicians and the government have never manipulated facts to put on a website.

      I'd be interested to know how the welfare spending is rising in comparison with population growth.

      Date and time
      June 20, 2014, 8:56AM
    • Welfare expenditure is increasing massively.
      Suggest you take a look at the budget papers before spouting off.

      Freddie Frog
      Date and time
      June 20, 2014, 9:03AM
    • "...Welfare expenditure is decreasing each year".
      @Danny, by everyone's account, it is *increasing*. Who is doing the lying now?

      The Other Guy
      Date and time
      June 20, 2014, 9:29AM
    • Kingstondude,
      it's increasing in nominal terms but decreasing in real terms or with reference to GDP growth.
      Do you understand those principles of "nominal" and "real". i.e. A $ now with 10% inflation is $1.10 next year but still only $1 in real terms?
      $1 now with GDP rising 3% and inflation at 2% means that the $1.02 next year is actually comparably less as measured against GDP growth in nominal terms.

      Date and time
      June 20, 2014, 9:35AM
    • @Kingstondude, you are mistaken. Whilst welfare expenditure is increasing, it is decreasing as a percentage of GDP (which is the only metric that matters).

      Date and time
      June 20, 2014, 9:42AM
    • Oh, KD! Facts? Facts from this governments?? Please dude, it's surely too early for that kind of absurdist humour! Abbott, Hockey & Co wouldn't know a fact if it smacked them in the forehead, and even if a fact ever did have the temerity to raise its head near this government it'd be accused of being some 'plant' from anti-LNP forces.
      This government is quite clearly ill served by facts of any description. Since the election we have seen facts tortured, twisted and outright massacred and no call to reason or sanity has been headed. If facts wer respected by this government we wouldn't have to suffer the majority of its decisions or pronouncements thus far, for they would be seen as as contrary to fact, notwithstanding being ideologically sound for the purposes of the IPA.

      Date and time
      June 20, 2014, 9:53AM

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