Sunday, January 26, 2014

Why protecting the pension is a political con job

You'll only make it in politics if you are willing to be completely shameless.

On Tuesday Social Services Minister Kevin Andrews flagged a major review into Australia's welfare system.  One in five Australians now receives income support payments — 5 million people.  That's a lot, and the Coalition believes it is too many.  The budget has to be balanced.  We don't want to become like Europe.

So far, so good.  Yet 2.3 million of those people — nearly half, and the largest cohort — are on the age pension.  And Kevin Andrews has specifically quarantined the age pension from his review.  So, it isn't quite the major budget-repairing review it sounds like.

Bill Shorten confidently insists that ''the Abbott government is proposing to reduce the rate of increase of the age pension''.  (Never say Shorten isn't trying his little heart out.)

This comically absurd little spat over the pension reveals a lot about Australia's welfare system and the political system in which it operates.

The list of beneficiaries and the conditions placed on those benefits are not organised by any noble principle of need or fairness or morality, but calculations — often highly crude ones — about voting blocs.  Of course it is all dressed up in the language of social justice.

Despite being the largest beneficiaries of the welfare system, pensioners are a protected species.  Remember there's no guarantee a review would recommend a cut to any particular welfare entitlement, nor any guarantee the government would follow through if it did.  No, the pension is too sacred to even be studied.

Australians like to say they're concerned about middle-class welfare.  Defenders of the status quo argue our rate of middle-class welfare is relatively low by international standards.

But this week's little pension quarrel reveals something more fundamental — the modern welfare state is, itself, a project designed to benefit the middle class above all others.

Middle-class welfare isn't a bug or aberration.  It's the defining characteristic of any democratic welfare state.

This observation is known as Directors' Law — named after economist Aaron Director, who argued that redistribution policies in a democracy will benefit the largest voting blocs.  Invariably this is the middle class.  The primary function of a welfare state isn't to keep people out of poverty.  It's to transfer money to the powerful middle class.

Sometimes the system taxes the middle class to provide benefits to that very same middle class.  Such ''churn'' is a political confidence trick that relies on citizens' ignorance of their true tax burden.

You'd be hard pressed to find a philosopher, economist, sociologist or political theorist who could support such a distorting, wasteful, politically motivated transfer system on principle.  But that's what we have.  All the big political flashpoints of Australia's welfare policy — baby bonuses, family tax payments, parental leave — are disproportionately generous to the middle class.

Nor is the age pension solely to protect the poor.  Eighty per cent of people above pension age receive a part or full pension.  By excluding the family home from its income test, the pension protects elderly home owners from having to use the savings they've accumulated in their house to fund their retirement.  And, a bonus:  it protects the inheritance of their children.  No wonder it's popular.

Welfare is a political compact.  Sociologist Gosta Esping-Andersen famously distinguished three models of welfare state capitalism:  liberal, corporatist-statist, and social democratic.

Liberal welfare regimes view income support as a safety net.  Think the United States, where welfare is an emergency, often short-term measure.  The corporatist-statist regimes (found in Germany, France and Italy) uphold traditional class divisions.  Scandinavian countries have a social democratic regime where welfare is less about poverty and more about citizenship.  All classes get something.

Usually Australia is grouped in the liberal camp.  This reflects our English political origins, with a focus on individual rights rather than collective belonging.  And welfare for the rich seems to offend the antipodean sense of the fair go.

That's the theory anyway.

The Abbott government seems intent on destroying the last vestiges of what makes our system liberal.

There's something deeply alien — well, Scandinavian — about the Coalition's paid parental leave scheme.  The government will pay as much as $75,000 to new mothers for 26 weeks, according to their previous income, not their need.

The Coalition insists the parental leave scheme isn't welfare, it's a workplace entitlement.  Nonsense.  But the philosophy behind this talking point is deeply illiberal.  It suggests the state is as responsible for providing your income as your employer is.

Even more symbolic:  just two days after Kevin Andrews announced the welfare review, he also announced the government would give young couples $200 for marriage counselling.  The average Australian wedding costs upwards of $35,000.  Yet the party of free markets and individual responsibility feels the need to chip in another few hundred dollars.

Of course, a review into Newstart and the Disability Support Pension is a good thing.  The latter has grown rapidly in recent decades.  The chief executive of Mission Australia has said hundreds of thousands of disability support recipients should be helped into work.  The social and psychological benefits of employment are unarguable.  This is more than enough justification for an inquiry.

Nevertheless, any serious review of Australia's welfare system must be a review of the entire system.  Even the popular bits.

Joe Hockey has been unable to commit to returning the budget back to surplus until 2023.  But if the government can't slay — or at least scrutinise — some sacred cows, this deadline looks far too optimistic.

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