Means testing covers up Labor gutlessness on taxing the rich

People on $150 000 a year or even above should get the same welfare entitlements as people on lower incomes. But the debate on the $150 000 a year ceiling on eligibility for the deduction for a tax payer with a dependent wife and child(ren) is complicated by the fact that it is not actually about a benefit but a tax deduction.

Tax deductions always favour the better off because they reduce tax on the portion of income in the higher tax bracket. More on that later.

Universal benefits are traditionally a labour or socialist policy. “Our means-tested welfare system is an inheritance from the Menzies era. The Whitlam government introduced universal health benefits in the shape of Medibank and began phasing in a non-means-tested age pension.” (Ross Gittins Tough love or kindness – a taxing dilemma)

Means testing is primarily used against benefit recipients living precariously on the edge of employment and poverty, to try to force them into employment regardless of the lack of decent work. This is to get rid of what some economists and politicians call “disincentives” to work. (e.g Tax reform to make work pay)

Poorer people, and some people who may MOST need benefits are more likely to miss out on account of the challenges of applying for means-tested benefits.

And there is a huge complex effort involved in administering means tests (and tax deductions).

If the income tax system was a lot more progressive and people on really high incomes paid a lot more tax, then there would be no problem in them getting back some of that in the form of welfare. (Also seriously progressive income tax would curb those obscenely high corporate salaries). If tax deductions and rebates were removed for many items, such as childcare, dependents spouses, family tax benefits, etc and instead a universal allowance were paid at levels that were beneficial to average wage earners, then these would not disproportionately benefit people in the top marginal tax bracket.

The bogey of “middle-class welfare” has populist appeal and gives an impression that Labor is reversing a Howard measure, but Labor’s decision not to introduce indexation of the $150 000 income ceiling on one tax deduction is not redistribution from the wealthiest to the least well-off. Howard’s middle class welfare was a combination of tax deductions and benefit payments, with an aim to promote the “stay at home mum”. It is understandable that many women welcomed any relief from the pressure for two parents to have jobs, given the effective increase in working hours. However, these family tax benefits should be abolished altogether, and replaced by paid parental leave, publicly funded child care provision and universal child benefits. A shorter working week would also help with child raising and life in general.

Tax rebates and deductions promote inequality, are complicated to apply for and make more bureaucracy, and are not a good way to support the majority of people, who cannot afford to wait a year to receive rebates. When tax discounts are used to help with the costs of child care and child-rearing this tends to increase the income of highest income earner (usually the father), reduce the economic independence of the mother, and discriminate against households that do not conform to the traditional 2 parent family ideal.

“We can take our welfare system in whatever direction we choose, mean or generous. But the more generous we make it, the more tax we’ll end up having to pay.” says Ross Gittins, referring to means testing as “mean” and universal benefits as “generous”.

Labor policy should be for a much more progressive income tax system (with a huge scaling back in deductions), universal benefits and proper funding for public goods such as child care, health, education and public transport. Means testing is not a redistributive measure, it actually most penalises less well off people. Labor should end the trend begun for Labor by Hawke and Keating to means test as if that is fair, but really to cover up for being too gutless to tax the wealthy.

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