The Guardian 28 May, 2008
Budget 2008-09:
"From welfare state to asset state":
A rollback of government
Anna Pha
Pensioners took to the streets last week to protest against a budget which gave them a one-off handout of peanuts and no real increase in their below-subsistence fortnightly pension. They were not the only group to have their hopes and expectations dashed — carers, people with disabilities, the homeless, and a range of other groups were just as disappointed and angry.
It is not as if there is not enough money to spare a few million or even a few billion dollars to ease the suffering and hardships that these groups endure. After all, the government managed to find $41 billion to put in three new funds for education, health and infrastructure.
If fears that a few extra dollars in the pockets of the most disadvantaged in the community would fuel inflation were genuine, then there are many other areas where spending could have been cut without hurting people. For starters, military spending is set to increase by at least three percent per annum to fund criminal wars in Afghanistan and Iraq, and Australia’s role as the US’s deputy sheriff in the region.
The new funds and changes to welfare and other social expenditure are laying the foundations for radical changes in the future to both the role of government and funding of social and other public services. When Treasurer Wayne Swan said the budget "assumes the biggest transformation of the role and responsibilities of the federal government, in the pattern of our federation, for well over sixty years", he was deadly serious. In the 2008-09 budget, he said, "We set aside the resources to implement those plans."
The nature of this transformation will become much clearer following the Taxation Review which was announced with the budget. This has a very broad brief to look far beyond taxation into areas such as spending on social services, including the funding of education and health.
The extensive welfare systems that were built up following the Great Depression and Second World War in Australia and other industrialised nations have come under considerable attack and erosion in recent decades. The economic conservatives (previously known as economic rationalists or neo-liberals) have waged a persistent ideological campaign to undermine the philosophical underpinning of universal coverage and the funding of social security through a centralised, progressive taxation system. The role of the state is being rolled back and replaced by the private sector and "self-provision".
There are a number of important trends that began several decades ago with the shift by successive governments from Keynesian economics to economic rationalism. The following are some of these trends with a few examples from the budget:
Transfer of government funding from public to private sector — 25 years ago federal government funding to state schools was larger than to private (independent- church) schools. This has been gradually reversed — the 2008-09 budget allocates twice as many dollars to the private system which has only one third of the student population!
Government "incentives" to use private services — deliberate, chronic under-funding of public hospitals has driven many people into private health coverage through fear of spending years in severe pain or even dying on a waiting list for public hospital treatment.
User pays instead of "free", government funded services — the introduction of university and TAFE fees and gradual lifting of restrictions on fees charged.
From not-for-profit to for-profit services — this shift is most apparent in childcare and health, but also is emerging in education with private universities and private training colleges.
Greater reliance on dog-eat-dog market forces — this is through such means as privatisation and deregulation.
From universal access to access based on ability to pay — fees, the prospect of a huge debt and lack of income is preventing many prospective students from further studies.
Use of loans — HECS-HELP loans for university students instead of free places funded through taxation by government.
Sharper targeting of government assistance through means testing — the baby bonus will be added to the list of means tested entitlements.
Opting out of tax payments exemption for Medicare tax surcharge of one percent if private health insurance has been taken out (threshold at which this applies has been raised in the 2008-09 budget)
Tax rebates replacing use of direct government subsidies — fees or other expenses are paid in full and then an application can be made for a rebate through the taxation system. The new refund on non-fee education expenses of 50 percent (with a cap) is based on this approach, as is subsidised child care through fee refunds of 50 percent (also capped and means tested).
Underlying all of these trends is a shift in responsibility for the well being of society from the state to individual self-reliance and privatisation and a tightening of who can receive services or benefits from the state. In particular, health, education and other public services are being commodified, commercialised and privatised.
Personal future funds
Using unsubstantiated claims that "we can no longer afford the welfare state", the economic conservatives promote "self-reliance" and "self-provision". They point to an ageing population to try to justify cuts and funding shortfalls in health, pensions, aged care, etc. They argue that the state should butt out and leave it to the private sector.
This approach has been imposed on workers in the area of retirement income. The 1970s’ policy of phasing in universal aged pension coverage for retirees over a certain age and a centrally funded age pension through the taxation system has been replaced by compulsory superannuation and stringent means and assets testing.
Superannuation is based on special savings accounts or investments which become accessible on retirement. Income on these investments carries a concessional taxation rate of 15 percent and is tax-free when paid as superannuation to the retiree.
The previous government’s incentives for workers to pour more money into superannuation are largely maintained. The government is set to spend more on tax incentives (tax exemptions, tax deductions, concessional tax rates, etc) for superannuation than it will spend on the age pension! This legacy from the Howard-Costello era is set to continue. The estimated amount involved for 2008-09 is $27.466 billion on superannuation as against $26.668 billion on the age pension.
One of the aims of this new approach to the provision of welfare — self-provision — is to wind back the age pension and have government completely withdraw from any direct role. It is a cruel twist that sees billions of dollars of pension money being drawn into the very scheme that is designed to replace the age pension — private, individual, superannuation coverage.
The use of specific purpose personal savings accounts along similar lines to superannuation funds could provide the basis for people to opt out of the "welfare state" and fund their own education, health, sickness and unemployment. This approach has been trialled in the US and Britain.
Such accounts would carry tax concessions and possibly top-up payments from government such as are now available to low income earners who make personal contributions to their superannuation funds. The new first home savings accounts are run along similar lines.
With the use of personal savings accounts the centralised funding of social services from government revenue could be rolled back and a residual safety net and other assistance provided from the future funds. The long-term aim is to substantially reduce or even eliminate income tax and rely solely on indirect taxes such as the GST. This would give Australia the "international competitiveness" that foreign and local business organisations are demanding.
These sorts of questions are being debated in economic circles, including amongst Labor Party figures and no doubt the Taxation Review will go some way in working out the next steps.
The privatisation of social services offers big business and financial institutions new opportunities for investment and profit-generation. Special use personal future funds also provide the banks and insurance companies with new sources of long-term capital for investment, in much the same way as superannuation funds have. In theory the future funds would provide even the poor with the means to purchase private services, or so their proponents claim.
For the people, the destruction of the "welfare state", the winding back of the income tax system and gambling of their future security on share, futures, currency and other markets in the casino economy presents a bleak future. What we don’t know yet is how far down this track PM Kevin Rudd and Swan plan to take us and the extent of any safety-net.