Opinion & Commentary
NDIS highlights welfare waste
The recent passage of the National Disability Insurance Scheme legislation, which will provide disability care and support to about 441,000 people at an annual cost of $22 billion a year, highlights everything that has been wrong with Australia's welfare state for 100 or so years.
Every year, about 65 per cent of total government expenditure ($316bn) is spent on the welfare state -- on health, education, social security and welfare payments -- and more than five million people receive income support from the government.
Despite this exorbitant spending, funding for some of the most vulnerable Australians -- people with disability -- has been completely inadequate and has led to unanimous support for doubling present disability expenditure to pay for the NDIS scheme (now referred to as DisabilityCare).
What on earth has government been doing with our tax dollars, given that such genuinely needy people require a multi-billion-dollar increase in government support?
Tax-welfare churn is the answer. It accounts for about half of all welfare state spending, or $158bn a year, and is the absurd process by which governments tax citizens, only to return those taxes in the form of welfare payments and free or subsidised education and health services.
Sometimes churn happens instantaneously: when taxes are paid with wages, they are returned via a Centrelink cheque the next day. At other times, government is acting as a piggy bank, holding on to the money we earn while working, only to return it to us when we are not working, via pensions and healthcare.
So instead of providing adequate supports for people with a severe disability, government has been giving people who are not poor income support payments such as Family Tax Benefit Part B, which is payable to families making $150,000 a year.
The government also pays the age pension to people living in multi-million-dollar mansions because the value of the family home is not included in the means test. These people have enough assets to pay themselves an income when they retire.
The growth in the welfare state continues. The combination of increased spending on pensions and healthcare for an ageing population and declining government revenues from a shrinking workforce will lead to government spending exceeding 50 per cent of gross domestic product by 2050. Much of this will go to people who are not poor.
In an effort to stop this trend and change the direction of government spending, the Centre for Independent Studies launched the TARGET30 campaign with the aim of reducing government spending from 35 per cent of GDP to less than 30 per cent within 10 years. To reach this target, we must tackle the ever-growing welfare state. Abolishing FTB Part B for a saving of $4.5bn a year would be a good start. Abolishing the Schoolkids Bonus would provide an additional saving of $1.2bn a year.
Some of the greatest gains could be made by reforming Australia's system of retirement savings so more people spend more of their own money on their retirement, rather than relying on the pension.
To do this, the government should raise and align the age pension and preservation ages (the age at which you can access your superannuation) and link increases in pension eligibility to increases in life expectancy.
On top of these reforms, introducing a requirement to use superannuation savings to purchase an annuity (which would provide a regular income in lieu of the pension while retired) would also reduce expenditure.
The disability support pension also needs to be reformed to ensure we derive maximum economic benefits from the NDIS. Introducing activity testing and participation requirements for people on a DSP with a partial capacity to work would do this.
Extending means-testing arrangements to payments and subsidies that are not already means-tested would also reduce tax-welfare churn and expenditure. Payments such as the $115 a fortnight Carer Allowance and the annual $7500 rebate for out-of-pocket childcare expenses fall under this category.
The establishment of the NDIS highlights the waste and extravagant spending through tax-welfare churn in Australia in the past century. Australians should have been getting the services and supports the NDIS will provide for decades. Instead, we got the Schoolkids Bonus.
It is time to end the churn and return the savings to taxpayers through tax cuts so that ordinary Australians can better afford to look after their welfare and the state can focus on helping those who cannot help themselves.
Andrew Baker is a policy analyst at The Centre for Independent Studies and author of TARGET30: Tax-Welfare Churn and the Australian Welfare State, released today.
