Ideas@TheCentre
Timid cuts to middle class welfare
The CIS has been saying it for months, and the budget has finally confirmed it: The National Disability Insurance Scheme (NDIS), now known as DisabilityCare, will cost $22.2 billion a year when it is fully operational.
In order to pay for the scheme, the CIS has long argued that the government should look to cut middle class welfare payments, in particular Family Tax Benefit (FTB) Part B, the Schoolkids Bonus, and means test subsidies like the Child Care Rebate.
Instead, what we got in the budget was a new tax and a lot of tinkering with the current system of FTB which will result in billions in savings but without any serious reforms to cutting benefits like the age or disability pensions.
The centrepiece of the welfare savings measures is the abolition of the Baby Bonus, which will be replaced by an increase in FTB for a net saving of $1 billion over four years.
Bigger savings come from the decision not to spread the benefits of the (mining) boom through an increase in FTB Part A for a savings of $2.5 billion over four years. Given that the mining tax has failed to generate predicted revenue and that this spending measure hasn’t yet been implemented, this savings measure is politically sensible and safe.
The government will also continue the FTB indexation freeze for another three years for a saving of $1.2 billion. This is a politically timid way of reducing the real value of welfare payments, and as wages increase, some people will either stop receiving welfare payments or choose to reduce the hours they work.
Further tinkering with FTB eligibility and income reconciliation periods will see savings from FTB and Child Care Assistance worth $640 million over five years.
Despite the welcome reduction in middle class welfare which will see little expenditure growth on family payments over the coming years, Commonwealth expenditure on social security and welfare is growing in real terms by 6.7% from 2013-14 to 2016-17.
While DisabilityCare is driving some of this growth, increased spending on the elderly is also a significant factor which has been left largely untouched by the budget. Spending on the age pension will increase in real terms by 5.7% from 2012-13 to 2013-14, and by 12.5% from 2013-14 to 2016-17, mainly due to increases in the eligible population.
In summary, the government has achieved its objective of outlining the funding for DisabilityCare – through a combination of tax increases and some fairly timid cuts to middle class welfare – but disappointingly, without any serious reforms aimed at the age or disability pensions.
Andrew Baker is a Policy Analyst at The Centre for Independent Studies and author of Tax-welfare churn and the Australian Welfare State.
