Imagining Australia – Rethinking Social Policy

Today brings the sixth and final bunch of Imagining Australia ideas: focusing on inequality and social policy.

While Australia has long prided itself as a fair, just, and egalitarian nation, the reality is that our social fabric is not what it used to be. The gap between the rich and the poor is growing and the tapestry of identities that binds us together as a people is fraying at the edges.

Australia is losing touch with those very values that originally gave meaning to the country. We assert that the Australian ideals of egalitarianism, mateship, and the fair go should not now be discarded as the quaint characteristics of a distant era. We present proposals that we believe will assist in rejuvenating the Australian social fabric.

In the first section, we address the issue of equality, and recommend approaches to three major topics, namely, poverty and inequality; unemployment; and Indigenous social disadvantage.
– We emphasise the importance of conceptually distinguishing between poverty and inequality, and argue that inequality actually matters-despite the recent trend to claim otherwise.
– To reduce unemployment, we propose introducing an earned income tax credit to make work more attractive at the margin, and to be funded by rolling the GST forward.
– We propose a suite of policies to improve Indigenous social policy, including additional targeted health funding; giving Indigenous communities the power to tax alcohol; rewriting private prison contracts to focus on rehabilitation of Indigenous offenders; and providing market-based job training programs in entrepreneurship and innovation.

We also advocate a number of measures to improve opportunities for social mobility.
– We suggest reforms to the Australian education system, including improving teacher quality by boosting performance-based incentives; raising the school leaving age to seventeen; and recasting government funding to private schools.
– With respect to geographical pockets of poverty, we recommend trialling housing vouchers to assess whether moving from a high-poverty neighbourhood to a more affluent neighbourhood improves the lives of poor families.
– We also advocate reforms to guarantee the opportunities of older Australians, including introducing a default employee superannuation contribution.

To strengthen our communities, we suggest several policy proposals to assist in rebuilding declining stocks of social capital, and to further encourage communities to help address social problems.
– We propose making schools-especially primary schools-community focal points for civic engagement and to enhance the quality of interaction among community members.
– To increase volunteerism, we suggest a scheme called AustraliaCorps, which gives young Australians the chance to serve in disadvantaged communities in return for education credits.
– We also advocate reintroducing an inheritance tax, carefully designed to encourage increased philanthropic giving to community activities.

Finally, we propose a reformed role for government in the area of social policy with an emphasis on administrative efficiency.
– We advocate real tax reform by removing four types of middle-class welfare-negative gearing, the First Home Owner Grant, the Baby Bonus, and the present rebate on private health insurance-and in return reducing the marginal income tax rate.
– We also suggest an increased attention to policy evaluation and experimentation, so that new policies might be implemented more frequently, and ineffective policies discontinued.

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14 Responses to Imagining Australia – Rethinking Social Policy

  1. Kevin Cox says:

    Andrew good to see you suggesting AustraliaCorps with payments in education credits. This is easily implemented for low cost with tagged money.

    You might like to think of introducing the same idea for stay at home parents where the education credits they earn go to the children they are looking after?

    The same principle could be applied to other forms of volunteerism where the money goes to an organisation of choice for restricted purposes.

  2. Patrick says:

    – To reduce unemployment, we propose introducing an earned income tax credit to make work more attractive at the margin, and to be funded by rolling the GST forward.

    I agree entirely with this idea. I would also suggest as I think I have previously that you could achieve highly progressive taxation by increasing the GST in quite swingeing fashion (ie to 15%) if you coupled that with a means-tested progressive rebate.

    and providing market-based job training programs in entrepreneurship and innovation.

    I think Centrelink already provides something very like this. I personally doubt that it is something that the majority of ‘problem’ jobseekers urgently need.

    – With respect to geographical pockets of poverty, we recommend trialling housing vouchers to assess whether moving from a high-poverty neighbourhood to a more affluent neighbourhood improves the lives of poor families.

    interesting idea but this does sound very expensive!

    including introducing a default employee superannuation contribution.

    you mean above the mandatory one, of course.

    – To increase volunteerism, we suggest a scheme called AustraliaCorps, which gives young Australians the chance to serve in disadvantaged communities in return for education credits.

    there is already pretty impressive volunteerism of our best and brightest (literally) as part of some Aus Aid or something project. That could just be extended to include volunteering within Australia.

    – We also advocate reintroducing an inheritance tax, carefully designed to encourage increased philanthropic giving to community activities.

    I smell a tax rort coming on. This should be entirely spent to fund income tax cuts in the first year (ie the net revenue will be in the following years, assuming it works).

    – We advocate real tax reform by removing four types of middle-class welfare-negative gearing,

    How do you propose to do this? This is a fundamental part of our tax system and I cannot think of a sensible way to excise it.

  3. backroom girl says:

    “To reduce unemployment, we propose introducing an earned income tax credit to make work more attractive”

    Patrick and Andrew

    I presume you realise that we already have two low income tax credits – one (the Low Income Tax Offset) in the tax system and the other (Family Tax Benefit) which can be claimed in either the tax system or through Centrelink. As far as I know, both are considerably more generous than comparable benefits through the US EITC (the LITO will go up to $1,200 in the 2008-09 tax year, increasing the effective tax threshold to $14,000).

    Do you really think that we need something else on top of these?

  4. Fred Argy says:

    Andrew, like BG, I have often wondered what would be the purpose of an earned income tax credit in Australia.

    In the USA, it serves three purposes: (a) to give workers a greater incentive to work (b) to ease the pain of low wages and (c) to enable employers to recruit marginal workers at downwardly flexible wages.

    The way you write it up, you seem to see an EITC in Australia as intended solely to increase work incentives. But, given Australia’s tough work tests, there is little opportunity for NEWSTART allowance recipients to bludge. The lack of work incentive is not very relevant to them. It is very relevant to those who are largely exempt from these tests – the secondary or fringe workers like single parents and disability payment recipients. But like BG, I believe tax offsets are largely dealing with this problem.

    We do not have a flexible wage system in Australia (and never likely to have one, given the reaction to WorkChoices) – so giving workers EITC’s will do nothing to make employment of low-productivity workers less costly to business. This is why I have advocated a different kind of wage subsidy – one payable to employers of stubborn unemployed or under-employed or discouraged workers to enable them to employ low-ability, low-productivity workers. This is controversial too but at least it has a rationale – to better integrate fringe workers into the workforce.

  5. Patrick says:

    My main interest is on an unearned GST-credit so that GST could be substantially raised but effectively removed from lower- and non- income earners, with the proceeds funding lower income taxes (which are far more susceptible to avoidance than GST and also far more distortionary).

    Fred, I like your proposal as well. I think (as you obviously do) that it probably goes further towards tackling the roots of the problem as opposed to pruning the tree.

    BG, if we were to go with an EITC I would suggest expanding the LITO at the expense of FTB. The LITO could, for example, take into account family in determining the thresholds and phase-out rates.

  6. backroom girl says:

    Alternatively you could expand FTB downwards and open it up to people without kids 🙂

    The one big difference between the LITO and FTB at the moment (aside from thresholds and phase out rates) is that LITO, like the income tax system as a whole, is based on the income of the individual whereas FTB is based on the income of the family. Although we already have a number of tax provisions based on the family unit (eg Medicare levy thresholds), I would generally favour keeping them out of the income tax system, since I prefer to keep that individual-based as much as possible. But then I don’t have a strong preference for tax provisions over income transfers, which I acknowledge some people do.

  7. Peter Whiteford says:

    I’ve said this before (but may be not here)

    Look at the country files at http://www.oecd.org/document/0/0,3343,en_2649_34819_34053248_1_1_1_1,00.html

    When you compare across countries, EMTRS in Australia for people (even with children) who move from non-employment to part-time jobs (say 1/3 of the average wage) are among the lowest in the OECD. The only countries with lower EMTRS are those that give much lower assistance (or none at all). This is because most other countries have 100% withdrawal rates on social assistance.

    However, EMTRs in moving from part-time work to low paid full-time work are above average in Australia (say from 1/3 to 2/3 of the average wage). The reason for this is that in other countries assistance has been fully extinguished, while in Australia it is still being phased out, because Australia has relatively low overall withdrawal rates (so the effects operate over a longer income range).

    So for me the question is how to improve incentives for people to move from part-time to full-time jobs, and thus I think that there may be an argument for considering support that assists full-time work, but obviously you would want to integrate it with family payments and the LITO (and work out what could be done for people without children)

  8. Peter Whiteford says:

    It could be argued that existing rent assistance (RA) is already like a housing voucher – the money is income-related, but you only get it if you are actually paying private rents above a certain level, and you only get a percentage of your rent paid up to a ceiling. (Public housing is obviously different.)

    So it is unclear to me precisely what is being proposed – is this an experiment where some current recipients are can have much higher assistance if they move up the housing ladder, o they simply receive much higher levls of assistance in terms of the proportion of rent covered?

  9. backroom girl says:

    Peter – I think the purpose behind these vouchers is to actually get people to move out of bad neighbourhoods into good ones – they don’t get the money unless they move. I believe that this has been tried in various places in the US, primarily to get families to move out of the worst black housing ghettos into the suburbs, where presumably their kids will get a better start in life. I think that the results were generally positive, but I can’t really remember. It was pretty expensive though on a per household basis.

  10. Mike Pepperday says:

    I guess lots of these ideas are good and I am sure the motive behind them (and the criticisms) are honourable. BUT…

    It is so top-down. It is what is best for them. Zoo keepers would have a similar discussion. Yes, these ideas for economic equality would increase people’s opportunities to control their lives. But what of political equality? In Australia this has slipped from nearly everyone’s grasp.

    The country is run by two tight little power corporations. That it goes as well as it does is due to the two being in competition with each other. But they are not representative of the people and they do not want members.

    Different thread, I suppose, but I had a similar whinge there. The debate is just not framed in terms of people having a more equal say in running things.

  11. Andrew Leigh says:

    BG, thanks for intuiting our meaning on housing vouchers. Yes, we had a Moving to Opportunity-type randomised trial in mind (vouchers for people in high-poverty neighbourhoods that are only usable to pay rent in lower-poverty areas). My most recent summary of MTO findings here.

    As to EITCs, the LITO is much less generous than the UK EITC (paying up to A$8000) or the US EITC (paying up to A$6000). My current preference is still the five economists’ proposal, as fleshed out in Simon Lambert’s 2000 paper: a minimum wage freeze, but with low income earners compensated through an EITC whose parameters broadly follow the eligibility rules for FTB-A. Call it Accord Mark VIII, if you will.

  12. Patrick says:

    On that basis would there be any reason to keep the minimum wage? Why not a N(egative)-EITC?

    Presumably to save the government being ripped off, but presumably people will prefer higher nominal wage jobs even if there is no real difference?

    If nothing else it would be a great experiment for you to write about 🙂

  13. backroom girl says:

    Andrew, but it is necessary to compare (LITO+FTB) here with EITC in the US, or for that matter with the UK Working Tax Credit (or whatever it is called now). Correct me if I am wrong, but I didn’t think that people without children in the US were eligible for anything like $6000 – that is for people with two or more children?

    In 2008-09 low income single-earner families with two children in Australia will be eligible for up to $1,200 in LITO plus FTBA of around $10,000, plus FTBB of around $3,700 if the youngest child is under 5 or $2,700 if the youngest child is older. That makes around $15,000 all up, give or take depending on the age of the children.

    The full LITO will be available to individuals with income up to $30,000 and part LITO up to an income of $60,000.

    Maximum FTBA will be available to families with an income below about $42,500, and (most of) it is withdrawn at the rate of 20 cents for each dollar earned above that threshold.

    It is also worth remembering that the five economists’ EITC proposal was hatched in a world before the previous government decided to spend billions of dollars making family assistance more generous and the value of the LITO was something like $150 a year.

  14. backroom girl says:

    Sorry, I forgot to mention that a single-earner family with an income low enough to qualify for the maximum LITO here would also be eligible for additional income support for the ‘dependent’ spouse by way of either Parenting Payment (partnered) or Newstart Allowance.

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