Opinion & Commentary
System not in the finest health
As the welfare-to-work proposals are made public, Peter Saunders looks at the question of self-funding.
The mass welfare state came into existence in the 20th century to provide ordinary people with resources they could not afford to buy for themselves health care, education, income insurance at times of sickness, unemployment and old age. But as capitalism has delivered economic growth, so increasing numbers of people have found they can now buy many of these things for themselves.
There are plenty of examples. Take private schooling. Nearly three in 10 primary school students, and almost four in 10 of those at secondary level, now attend non-government schools, and their numbers are rising rapidly. The federal government helps out by subsidising fees, but most parents pay more in taxes for the state schools they are not using than they receive back in fee subsidies.
Or take health insurance. Around 40 per cent of the population has private health insurance cover. Two-thirds of households own or are buying their own housing; only 5 per cent are renting from the state. And every worker today has a personal superannuation fund that will reduce or eliminate reliance on the government age pension when they retire.
What stops people from taking even more responsibility for their own welfare are the high taxes they have to pay to fund the services the government is providing. Many more of us could afford private alternatives to government health, education or income insurance if only we were allowed to keep more of the money we earn.
This is richly ironic, because the reason taxes are so high is that the welfare state costs so much (it soaks up more than two-thirds of all federal and state tax revenues). The welfare state was meant to help people get access to services they cannot afford, but it now erodes their ability to finance their own needs. Where it once enhanced our lives, it now prevents us from exercising our own choices by driving up the tax burden.
It would be a lot more efficient to let us buy the services we want rather than relying on politicians to give us what they think we need.
A move to self-funding would also help reduce the mounting pressure on government age pension and health budgets caused by the ageing population. In the next half-century, personal superannuation accounts will keep Australian government spending on retirement pensions well below spiralling European levels. Introduction of medical savings accounts could similarly reduce mounting pressure on government health budgets in the future.
The main arguments for greater use of self-funding are not economic, however, but social.
When people use their own money to provide for themselves and their dependents, they develop a sense of autonomy, self-worth and personal responsibility which is denied when money is taken from them in taxes and then returned as government benefits and services.
Because it does not trust us to determine things for ourselves, the welfare state infantilises us, encouraging us to look to government all the time to solve our problems.
Although academics assure us that the welfare state promotes social harmony, crime and conflict have escalated as social expenditure has risen. Social cohesion is built from the bottom up, by allowing people to exercise responsibility for their own lives, not by governments taking responsibilities away from us.
The knowledge that the government will pick us up if we behave foolishly has enabled foolish and irresponsible behaviour to go unchecked and eroded the social fabric.
A continuing move away from state provision towards greater self-funding is probably inevitable. As real incomes rise, so more people will vote with their feet. The key question for 21st century social policy is whether to hinder or help this trend.
Defenders of the present system want those who escape to the private sector to be locked back into state dependency by raising their taxes, thereby forcing them to accept a common set of state services. A more sensible alternative would be to let the existing system wind down, and to redirect resources into boosting the purchasing power of those who are now unable to afford self-funded alternatives.
The mass welfare state served us well in the past, but it is less and less relevant to current conditions. We should not let emotional commitments to an old system cloud our search for better alternatives.
Professor Peter Saunders is social research director at The Centre for Independent Studies. This is based on his paper "Six Arguments in Favour of Self-Funding" of July 14.
