Middle Class Welfare: Not Happy Julia

Perhaps families earning $150,000 a year are “rich”. Perhaps they’re not.
But it’s intuitively obvious they shouldn’t receive welfare.
That’s because, deep down, we’re all small-l liberals. Welfare should be a safety net, not a web in which everybody is tangled.
The Gillard government’s reductions in family payments announced as part of last week’s federal budget are modest but welcome.
The income test on some payments will be frozen until 2014, as will the size of payments. Inflation will slowly erode eligibility and value. The teacup storm about cost of living pressures and what constitutes rich was inevitable.
But the thing is, direct welfare going to middle income earners in Australia is actually quite low, at least compared to the rest of the world. Our benefits are relatively well means-tested. The Rudd and Gillard governments have made them even more so – a much needed corrective to the Howard years.
Commentators rightly condemn the non-means tested benefits which remain. The tax-welfare churn is extremely inefficient.
But subsidising the middle class isn’t a strange perversion of the welfare state. It’s a key characteristic.
For decades we’ve been told we should emulate the big social democratic welfare states – it’d be the only progressive thing to do. Yet their full cradle-to-grave social support offers far more for middle earners than Australia does.
The prototypical Scandinavian welfare models were built on the concept of universalism. Everybody gets something. Their political support relies on that universalism. Middle income earners approve of those welfare states because they’re the beneficiaries.
Indeed, the Swedish economist Andreas Bergh has argued that redistribution of income from rich to poor is a relatively minor feature of the Scandinavian model – the whole system is structured to service the comfortable middle.
So if it is intuitively obvious to Australians that the middle class shouldn’t receive income support, that’s because we find the social democratic model of the welfare state objectionable.
The Australian conception of the proper role of welfare is a liberal one. Income support should be only given to those who need it – to those whose only alternative to Centrelink is poverty. Not to those who, facing money pressures, could reduce consumption or live in a smaller house or trade in a new car.
Even mainstream Australian social democrats argue against the social democratic model of the welfare state.
In the Weekend Australian, Tim Soutphommasane (of the progressive think tank Per Capita) said “Any fair and efficient system of welfare … should be guided by a principle of need.”
The past decade and a half has seen government extend its generosity to middle income earners, breaking the liberal compact.
Unfortunately the Gillard government hasn’t pitched its temporary freeze on family payments as a principled shift in welfare policy. In fact, quite the opposite: it has stubbornly insisted families deserve whatever they can get.
As Wayne Swan said late last month: “Australians who work hard, who get up every day, send their kids to school, come home, cook the tea, get up and do it again, whether they’re running a small business or working for wages, are deserving of some support for their children when they’re performing that vital role of bringing up the next generation of young Australians.”
This makes welfare less about need, and more like a reward given by the government for being responsible and virtuous. So it’s no surprise that there’s outcry when the government reduces that reward. After all, families haven’t stopped working hard – why is the government suddenly being so miserly?
The Howard government wrapped its middle income support in different rhetoric. For John Howard, middle class welfare was a deliberate program to achieve a specific social goal. Each side favours income support for “working families”, it’s just that they put the emphasis on different words.
Speaking to the conservative think tank the American Enterprise Institute after he left office, the former Prime Minister argued that:
“We should maintain a cultural bias in favour of traditional families … The taxation system should generously recognise the cost of raising children. This is not middle class welfare. It is merely a taxation system with some semblance of social vision.”
For Labor, middle class welfare is a reward. For the Coalition, it’s an incentive.
Howard was a conservative social democrat. Sure, sometimes he looked like a proponent of small government. More often (much more often) he did not.
The Liberal Prime Minister had a distinct pro-family, pro-procreation philosophy which, in his view, supported the expansion of family payments. For Howard, income testing those payments would be contrary to the purpose of the policy, and at odds with the philosophy. You might not agree with that philosophy of government – free marketeers shouldn’t, and didn’t – but it was a coherent one, and one which he often articulated.
By contrast, Labor appears to share Howard’s policy preferences, yet it cannot explain why.
Nevertheless, the end result of both approaches has been the development of a middle class entitlement culture – a culture that’s long been endemic in larger universal welfare states, and now seems to be growing in Australia.