When politicians say they want to "help families", it is difficult to object. After all, families are the single most important institution in the community, and when families fail it is the community that picks up the financial and social costs. The federal budget has further increased welfare to families with children and so far there appear to be few objections.
The fact that welfare is now being handed out to middle-class families who once upon a time would neither have wanted nor accepted such assistance has passed without much comment. In recent decades there has been a significant shift in our attitudes to welfare spending.
Previously, welfare was tightly targeted at the alleviation of poverty for the most disadvantaged. Any additional government funding for welfare would have been devoted to the poorest -- to raising the "safety net".
However, now we have a situation where the extra revenue that the Government receives from the booming economy is being passed on as welfare to those who are relatively high on the income scale. The middle class feels it has contributed a disproportionate amount to the Government's coffers and it has no qualms about receiving a hand-out in return. Indeed, it has almost come to expect it.
Families on incomes of $50,000 are now eligible for some part of the family tax benefit. Obviously families on $50,000 are not as well off as those on $100,000, but they are in a better position than those on $30,000. While the budget did contain measures aimed at improving the condition of the low-paid with, for example, from July next year those with annual earnings of $25,000 being eligible for the full rate of the low-income tax offset, it is the middle class that is the big winner from the budget. The 2007 federal election will be decided, as are most elections, by the middle-class voters in the marginal seats.
Whether the middle class should receive welfare payments is not just an argument about economic efficiency. It is expensive and wasteful for government to collect taxes then hand those taxes straight back to taxpayers as welfare. There is the larger issue of the extent to which it is fair that taxpayers on low incomes should contribute to the financial benefits received by those on middle incomes.
A few weeks ago Prime Minister John Howard mounted a strong defence of the Coalition's welfare policies. He made no apology for the Government's strategy of directing financial support to middle-income families with children, and he resisted calls to scrap measures such as the "baby bonus" that were paid to families regardless of their wealth.
The Prime Minister made the point that raising children is for the benefit of the community and that it was reasonable for the community to contribute to the costs of bringing up children. This is all true.
In a world of unlimited funding, we may wish to support all families with children, regardless of the wealth of the family. But in reality, the question we face is different.
Despite what some people might think, government funds are limited and it is a matter of determining what is the best use of the finances that are available. A baby bonus of $4000 paid to a family with an annual income of $100,000 has nowhere the same effect as it does for a family on an income one-quarter of that. The equation could be taken further. The benefits to the community of making a payment of $8000 to a family on $25,000 outweigh the costs of not making a payment of $4000 to a family on $100,000.
The justification for the present system of family payments is that Australia needs to boost its declining birthrate, and the best way of reversing this trend is by providing monetary encouragement, especially to the middle class, to have more babies. And much of the burden of paying for this falls on unmarried singles without children who are now positively discriminated against by the tax system.
Forcing single people without children to fund couples with children could in the long term actually reduce the birthrate further. This is because a person's decision to have children is determined not only by expectations about their future income. An individual's current financial status can be just as important a factor when they choose whether to form a family, and it is singles and couples without children who have received the least from recent budgets.
When combined with other aspects such as the increase in housing unaffordability caused by state governments refusing to release land for building, it is no surprise that an increasing number are delaying or postponing indefinitely the decision to have children.
Helping families is a worthwhile objective. But there's no easy way of doing it.
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