The two essays in this Occasional Paper take divergent approaches to the reform of the welfare state, while both focusing on the perennial hot button issue of socalled ‘middle class welfare’.
Simon Cowan argues that given the size of federal government payments to Australian families, the only way to shrink the size of government is to restore the role of welfare – transfer payments – to its original purpose of alleviating the poverty of those unfortunates most in need of government assistance. Barry Maley argues that family payments are a legitimate and socially important form of entitlement based on pure mathematics, if for no other reasons. Families raising children have more mouths to feed and deserve to have their incomes treated differently – more generously – than those who are not responsible for raising children. Both essays thus address the perennial debate about ‘vertical’ and ‘horizontal’ equity.
Cowan thinks that only by focusing on vertical equity – redistribution of income to the poorest groups – will we be able to cut tax and cut the size of government.Maley thinks that horizontal equity (and inequality) is as real as vertical, on top of which are the social arguments for financially supporting the families with children. The politics of welfare reform are difficult: most people are willing to support those who need help through no fault of their own; but they also resent loafers who bludge and rort the system. Targeting assistance to those in genuine need would be welcomed by hard-working taxpayers – if only the long history of the welfare state did not reveal that it creates perverse incentives and leads people to seek the maximum income for the least effort. Working families might therefore look twice at the idea that they should not get their taxes back to help support their own children, in order to plough even more money into welfare payments for the unemployed, disabled, and carers that are vulnerable to ‘gaming’ by recipients. By setting out both sides of the debate about welfare reform, this Occasional Paper will help policy makers and pundits think more clearly about the true purpose of welfare.