Opinion & Commentary
Working to beat the poverty trap
Two misconceptions continually cloud debates about poverty in Australia. One is that poverty is widespread and getting worse. The other is that the best way to tackle poverty is by increasing taxes and redistributing people’s incomes.
Both of these claims are wrong and they hinder the clear thinking that is needed if we are to get people out of poverty and break the cycle of ever-increasing tax and welfare spending that we have locked ourselves into.
Recent estimates claim that between 8 per cent and more than 40 per cent of the population is ‘poor’. But even the most modest of these estimates is hopelessly exaggerated.
The exaggeration stems partly from the use of badly flawed statistics on how much the lowest income groups receive. Even the Australian Bureau of Statistics now admits its statistics on the bottom 10 per cent of reported incomes are wrong and it has warned researchers not to use them. Poverty estimates have for years been based on data that we now know are invalid.
Exaggeration also arises when researchers fail to take account of how people’s incomes vary over time. It is tempting to assume that the people found under the poverty line in one survey are much the same group as those who fall under it in another, but we now know that there is a remarkable degree of movement across any ‘poverty line’ you care to draw, and that long-term, sustained poverty is the exception more than the norm.
People’s incomes and living standards fluctuate as they go through life. Many of us experience periods of financial hardship at one time or another – as students, when we start a family, when we are between jobs – but most of us come out the other side. Many of those identified by surveys as ‘poor’ are passing through a temporary income dip. Left to their own devices (and aided, perhaps, by a reduction in the taxes they have to pay) most will be fine – they certainly do not need the radical policies that anti-poverty campaigners keep urging us to adopt.
Campaigners who claim that large numbers of people are poor often argue that the solution lies in a redistribution of incomes. Give those who are poor a slice of other people’s money by increasing taxes and stoking up government spending and poverty disappears. But although this may appear an ‘obvious’ solution, it is actually counter-productive. What is more, it clearly has not worked.
Australia has been following a redistribution strategy for more than forty years. Welfare spending has multiplied five-fold since the 1960s, and reliance on welfare support as the sole or principal source of income has increased from 3 to 14 per cent of working-age adults. If giving people money were the solution, poverty should have disappeared long ago, yet the number of people claiming income support has been growing, not shrinking.
Some social policy professionals would have us carry on down this path, but all that we have achieved is that we have taxed ever more households into dependency on welfare. Increased welfare spending has meant higher taxes on those who are employed, which has reduced incentives and rewards for those in work while increasing the attractiveness and feasibility of life without a wage for those on welfare.
The alternative to chasing our own tails in this way is to promote self-help by insisting that able-bodied people of working age take employment. This is what the Americans have done with remarkable success. Once they are working, we might also encourage or require people to save a portion of their earnings to help flatten out the income dips when they come along.
Virtually everybody agrees that the principal cause of poverty today is worklessness. It follows that any drive to tackle poverty and to enhance the self-reliance of households should involve getting those who are capable of working into jobs.
A self-help strategy based on work rather than welfare has two key advantages over the failed redistribution strategy. First, it solves the problems of the poor without confiscating other people’s money in the process (a ‘fair go’ surely requires that those who work hard to achieve self-reliance should not see the fruits of their labour syphoned off by ever-increasing taxes). Secondly, it promotes the virtues of independence and self-reliance.
The Senate recently announced an inquiry into poverty. This is the opportunity for us to clear up the confusion about the numbers of people in poverty, but even more important, it is our chance to put behind us the futility of a redistribution strategy that has bedevilled policy in this area for far too long.
Peter Saunders is Director of Social Policy Programmes at The Centre for Independent Studies. Poverty in Australia: Beyond the Rhetoric by Peter Saunders and Kayoko Tsumori is published by the Centre for Independent Studies (www.cis.org.au).
