Have the haves had it too good?

Michelle Grattan
May 9, 2008

Labor's push for a debate on government benefits carries risks, but the Opposition is also walking a fine political line

SUDDENLY the baby bonus has become the symbol of a much wider debate about who should be dipping into the taxpayers' purse — or, to put it more crudely, having their snouts in the trough. The prospect that this currently universal payment, due to rise to $5000 on July 1, will be means tested has reopened the broad question of "middle-class welfare" and other government benefits for the well off.

We can't be sure what the budget will do on Tuesday, but we do know the Government wants the issues aired. It is challenging what it sees as the Howard era's culture of the handout. Labor is after better "targeting" to save money and redirect priorities.

Treasurer Wayne Swan says we need a debate about who receives government money and on what terms and conditions, because "some people at the top end of the income distribution have done extremely well in recent times" from a combination of income growth, tax relief and transfer payments.

He's referring to a Treasury analysis showing that since 1996 families with an earner in the top 3% of taxpayers have had an 85% increase in their disposable incomes; this is about 1.7 times that for families with an average income earner.

There are lots of good arguments for means testing, but it is a politically fraught path too. Critics can always mount special cases against means testing particular measures. And, when means tests are applied, where they cut in will be inevitably controversial and sometimes arbitrary. It's the old political maxim — taking away something is hard. That doesn't mean a government should not do it, but it does need protective armour; that's why it is easier for a new administration to be tough than after its political shine has dimmed.

At present the wealthy can get not just the baby bonus but also, for instance, family tax benefit B for stay-at-home mothers (which the Government has announced it will means test for families on $250,000 plus), the dependent spouse tax offset, the $7000 first-home owners grant, the private health insurance rebate and the child-care rebate.

While some are trying to cut back open-slather government largesse there is another push to extend it. In the current debate about maternity leave, the ACTU advocates a government-funded non-means tested (but taxed) benefit.

Paul Kerin, professorial fellow at the Melbourne Business School, would means test all government benefits and concessions, to move from "the entitlement mentality" to what he calls a "compassionate value-for-money" system. "If you don't means test, you have to tax more," he says. And the cost of doing this is not simply the direct amount. He says every dollar of tax costs the community another 35 cents. This includes about 5 cents for administration and some 30 cents for the cost of the distortion of people's decisions on work, saving and consumption.

Kerin questions the non-means tested nature of the child-care rebate (which is being increased from July 1). He says if this is to encourage people back to work, the economic evidence suggests that those who respond most readily to such incentives are lower income earners, thus reinforcing the case for means testing.

On the other hand, one can see the child-care rebate in a different category from, say, the dependent spouse tax offset, because for a working mother, child care is a cost of earning income.

Opposition families spokesman Tony Abbott distinguishes between "needs" based benefits — paid to people because their income is inadequate and which it is appropriate to means test — and those he says should be "universal entitlements". The baby bonus is paid "to all mothers by virtue of being mothers to provide recognition of the costs of motherhood and the value of it to the society". He applies the same argument to the first-home owners grant. "If you want something to happen", whether it's achieving higher fertility or more home ownership, the relevant payment should be universal, he maintains.

The Coalition, usually preoccupied with economic management, is sounding counter-intuitive in the run up to this budget, claiming there is no economic reason for cuts, and criticising in anticipation a restriction on eligibility for the baby bonus. Opposition Leader Brendan Nelson found himself a figure of ridicule after his emotional outburst last week, when he declared: "Every mother loves her baby. Every baby is valued and Mr Rudd should value all babies equally. We should not live in an Australia where Mr Rudd thinks that some babies are more valuable than others …"

Malcolm Turnbull on Wednesday sounded convoluted on the subject. Arguing that one reason for the baby bonus is that it sends a message that "children are a social good", he said this had been very successful. "We've seen our birth rate increase. People aren't having babies in order to get the baby bonus. But … John Howard and Peter Costello and the whole team were able to make people feel better about children. That's why you're seeing a baby boom around Australia — or it's one of the reasons …" The Liberals' problem is that some of their own constituency don't buy their argument. In its budget submission, the Business Council of Australia concluded that "churning money from middle and upper-income households back to those same households is a costly exercise with highly questionable benefits".

If there is means testing in the budget, the Opposition finds itself in a difficult position. Sticking with its current populist don't-disturb-any-benefits line will invite criticism and could lock it into stances it will regret when it comes to drawing up its future policies.

There are undoubted risks for the Rudd Government in any assault on what wealthier people get from government, but the politics has also become complicated for the Opposition.

Michelle Grattan is politics editor.

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