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Why a nanny state can only rear socialism.

19 January 2013 4,088 views No Comment

Do Australians want to create wealth or simply redistribute what we already have, asks ROSS FITZGERALD

With a federal election to be held this year, Australians must give serious consideration to the impact of policies promoted by Labor and by the Coalition in terms of building greater resilience and self-reliance in our society.
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Australia has largely avoided the path taken by some European nations of a massive welfare state funded through high levels of taxation.

It is vital that as a nation we remain eternally vigilant against the false appeal of such systems.

This issue came to the fore in last year’s United States presidential election when Mitt Romney was secretly recorded at a fund-raising event telling supporters that “There are 47 per cent of the people who will vote for the president (Obama) no matter what … who are dependent upon government, who believe that they are victims. … These are people who pay no income tax. … and so my job is not to worry about those people. I’ll never convince them that they should take personal responsibility and care for their lives.

The comments were reported as a devastating gaffe that triggered a firestorm of criticism and dogged Romney for the remainder of his campaign.

While his remarks were politically damaging, it also meant that neither presidential contender was prepared to engage in a serious debate as to how the US planned to curtail rising levels of welfare dependency – particularly within the context of its ageing population.

Economist Nicholas Eberstadt’s book published last year titled ‘A Nation of Takers: America’s Entitlement Epidemic’ observed that “The United States is now on the verge of a symbolic threshold: the point at which more than half of all American households receive, and accept, transfer benefits from the government.”

Eberstadt also pointed out that welfare spending accounted for about 33 per cent of the US federal government budget in 1960, a figure that had doubled to about 66 per cent today.

In Australia the Howard government, partly through its focus on increasing employment opportunities, had some success in reversing the trend of increasing welfare payments.

The Australian Bureau of Statistics reports that 28.5 per cent of households were reliant on government pensions and allowances in 1995 but that had fallen to 23.2 per cent in 2007.

This year’s federal government budget of around $376 billion includes $131.7 billion on social security and welfare, or about 35 per cent of the total budget.

Moreover, that percentage is likely to increase significantly in coming years.

Initiatives such as the National Disability Insurance Scheme and the increasing demand for the aged pension due to population ageing will inevitably drive up this expenditure.

Minister Jenny Macklin’s recent claim that she could live on the dole sparked such a backlash that it virtually obliterated the Government’s announcement on changes to single parenting payments aimed at encouraging single parents back into work.

While there always seem to be good arguments for increasing welfare payments, relatively modest increases to the dole during times of low unemployment can balloon rapidly during the inevitable economic downturns of the future.

Senior Fellowq at the Sydney-based Centre for Independent Studies, Robert Carling, pointed out last year that “In democratic welfare states, the proportion of the electorate that attracts more in social benefits from government than it pays in tax has become so large that candidates who promise to curb the welfare state have a hard time winning elections.”

Carling also drew on data from the Australian Bureau of Statistics that showed 60% of households in this country received more in direct social benefits than they paid in taxes. Moreover he argues cogently that, in Australia, the welfare state has gone far beyond the concept of a ‘safety net.’ There is, Carling says, “ a large constituency whose direct financial interests are best served by the preservation or enhancement of social benefits, whether or not that is in their broader self-interest or the national interest.”

The danger is that the growth in welfare spending can always seem to be justified on compassionate grounds and any reductions are often as regarded as heartless. But at some point the system becomes unsustainable as it enters a spiral of ever-higher payments funded through higher taxes.

If unchecked, this could lead to a significant economic and social crisis that would impact more severely on larger numbers of people.

To avoid this slippery slope, one of the priorities for our government must be to provide a policy framework that supports greater levels of self-sufficiency.

After all that is what most Australians strive to personally achieve over their life – working and earning enough income so that they can have a reasonable standard of living, pay off debts and save enough money for retirement.

For many Australians, one of the key milestones in that journey is when the mortgage on the family home is finally paid off. This frees up additional funds and means that there is greater certainty about future accommodation.

Individuals and couples who are mortgage free can obviously live on far lower and less reliable incomes than those encumbered by debt.

The Federal government provides a safety net for older Australians who for various reasons have not been able to save enough to support themselves.

The current maximum payment for the aged pension is $712 per fortnight for individuals or $1073.40 for couples.

For generations past this was often viewed as the only form of income available to older Australians and it was accepted that living on the pension meant a frugal existence in retirement.

Current and future generations have higher expectations for their retirement lifestyles.

For most Australians, the family home will be their largest investment, with superannuation the second largest.

Governments in Australia have played an important role in promoting superannuation, particularly since the Keating government’s visionary decision in 1992 to implement universal compulsory superannuation. The thinking behind this policy was to ensure that more Australians were able to provide for their own retirement – thereby reducing demand on the government for the aged pension.

The ageing of Australia’s population will place increasingly higher demands on government in coming decades as the percentage of older Australians increases as a proportion of the total population.

The Hawke, Keating and Howard Governments all sought to provide a policy environment that encouraged greater levels of self-reliance.

Although the Howard government had a mixed record on superannuation, in its latter years Treasurer Peter Costello introduced a number of reforms that provided significant taxation benefits to those who made additional contributions to their superannuation fund.

This was to encourage greater levels of saving among those approaching retirement age.

It should be safe to assume that Prime Minister Julia Gillard has been briefed on the implications of population ageing. Yet it is extremely disheartening to witness her government making decisions that actively discourage higher levels of saving.

The Gillard government’s record on numerous policy areas has been rightly criticized. Indeed it is hard to identify any area where her government has shone, either in policy design or implementation. From the chaos in its border policies to its ill-fated environmental policies, including the cash-for-clunkers scheme, to its erratic military procurement policies, the current federal government has failed on many fronts.

Sadly, one of its worst efforts has been in the changes to superannuation.

The Gillard government has reduced significantly the amount of money that can be invested in superannuation at lower rates of taxation and greatly increased the taxation penalties for exceeding its new low cap of $25,000 per year.

There have also been a number of policy changes to promote the role of Industry superannuation funds to the disadvantage of private sector funds.

Unions established industry super funds and union officials dominate their boards.

While this may strengthen the power and influence of the union movement, it reduces choice and competition and may lead to a significant number of Australians having lower retirement incomes than may otherwise be the case.

These changes to superannuation should attract far more scrutiny, not least because it is also an example of the PM’s policy instincts. The more the government seeks to intervene, regulate, restrict and interfere in people’s lives the less likely they are to take responsibility their actions. This government has re-embraced the Nanny State concept of taking away personal choice and decision-making.

While there has been considerable focus on Gillard’s less than stellar legal career at Slater and Gordon, we should not overlook the fact that the Prime Minister was once a leading member of the Socialist Forum, which at the time considered the Labor party as too right wing for its liking.

While a number of student politicians mature in their views, it is telling that Gillard’s university politics took her to the far left of the political spectrum.

Theoretically, the ultimate welfare state is a supposedly classless society where individuals do not own capital and the state provides equally for all its citizens.

The choice Australians must soon make is whether to embrace the creeping socialism in the form of Labor’s Nanny State or turn to the ideals of self-reliance and individual responsibility within a government framework that provides an appropriate safety net for those in genuine need.

This year Australians can expect Gillard to continue her campaign to divide the nation along class lines, with wealthier Australians demonized for not paying more tax. She will also seek to portray the Coalition as captives of corporate Australia and protectors of privilege.

This embodies the classic agenda of a primary commitment to redistribute rather than to create wealth. But it also represents a failed theory of a Nanny State that ultimately leads to social and economic collapse.

It is well and truly time to rebalance the national agenda away from such a discredited path.

Emeritus Professor of History and Politics at Griffith University, Ross Fitzgerald is the author of 35 books, most recently the political satire ‘Fools’ Paradise’.

The Daily Telegraph, January 19, 2013, pp106-107