Tuesday, 7 May 2013

The Liberal stoush over middle class welfare and Abbott's maternity leave scheme

The Opposition leader, Tony Abbott's election campaign has been creating some tensions of late.

You might recall his comments which seemed to suggest that the Coalition might allow a free vote on same sex 'marriage' a few weeks ago; presumably in response to concern from his genuinely conservative base, he has since 'clarified' his views to attempt to rule out any softening of the position. That's good news.

And now there is another rebellion in the ranks brewing, this time over his extraordinarily generous paid maternity leave program, to be funded by a new tax on big business.

The Liberals extraordinary Mat Leave scheme

Mr Abbott's Maternity Leave proposal was always a strange beast for an allegedly conservative party to propose.

After vigorously opposing every new tax that Labor has implemented as an undesirable impost on business, it is to be funded by a 1.5% tax on Australia's largest companies.

And whereas Labor's version of the scheme provides support at the rate of the minimum wage, the Liberal version provides for full wages, even for high income earners.  It runs for longer too (26 weeks vs 18), so is considerably more expensive.

Indeed the scheme only became Liberal policy because Mr Abbott made a 'leader's call' back in 2010, and announced it without taking it to the party room first.

So it is surprising really, that has taken so long really for the voices within to become vocal about the need to dump the policy before the election.

Stay at home mothers?

Yesterday saw the first signs of the break in party discipline on this issue, with Liberal backbencher Alan Hawke speaking up.  And now he has a piece over at right-wing think tank the Institute of Public Affairs setting out his arguments which are basically that it would cost too much, would undermine the fiscal credibility of a Liberal Government, and isn't necessary.  Today other liberals have joined the chorus of dissenters.

Others are standing up too, with the Australian Family Association putting out a press release yesterday pointing out that the scheme discriminates against stay at home Mums.

The economics of the scheme

In reality though, it has to be said that Mr Abbott's scheme does actually make sense from a purely economic point of view.

Australia has long had one of the lower rates of female workforce participation, particularly full-time (as opposed to part-time), in the West, and the coming demographic crunch means that as a country we need to both encourage women to have more children, and at the same time ideally to increase the number of hours they work.

Labor's bare-bones scheme clearly will have some impact, but the hared reality is that the higher the 'opportunity cost' of stopping working to have children, the less likely people are to actually do it.  And in a society where many families' consumption aspirations are higher than can be funded by one income, Mr Abbott's scheme arguably just recognises reality.

There is another reason to encourage women to continue working to, even as they have children: in a world where divorce is easy and common, and the obligation to continue to support your first family is relatively weak, encouraging women to stay out of the workforce to bring up the children increases the risk they will end up in poverty.  Women are at disproportionate risk of poverty in Australia, with older women living by themselves particularly at risk because of a lack of accumulated superannuation and lower lifetime earnings due to time out of the workforce caring for children and parents.

Genuine change?

The obvious solution to these problems of course is not to paper over the cracks with a 'gold-plated' maternity leave scheme, but rather to address the underlying structural issues, viz no fault divorce and a child support formula that positively encourages 'second' families after separation and divorce.

We could also have a national conversation about consumerism and its evils, and how we might, as a society, set about winding back our lifestyles to a more sustainable level.

Don't expect the Liberals to take action on these fronts though: they were the ones who weakened Australia's Child Support Scheme in the first place to allow deadbeat Dad's to start a second biological family by reducing support for the one left behind.

And they are the ones who claim the billionaire beneficiaries of the mining industry should not have to share the loot they are currently garnering by the exploitation of a resource that belongs to all by paying actual taxes.  Nor did they tackle the family trusts and other means of tax avoidance that allows so many rich people to simply opt out of paying tax.

The Liberals are the ones hindering action to fix some of the most glaring inequities in our society, such as the crippling low level of unemployment benefits for the long-term unemployed and the huge amounts of money being wasted 'defending' Australia against refugees.

But don't expect a genuine policy debate on any of these issues in the lead up to the election...


Cardinal Pole said...

"it has to be said that Mr Abbott's scheme does actually make sense from a purely economic point of view."

From a moral point of view, however, it is highly objectionable. It is not the duty of other taxpayers to support a man's wife in the months after she gives birth (not to mention the rest of their married life)—it is her husband's duty; and so by exacting from others something which it is the duty of someone else to provide, when that someone else is perfectly capable of providing it, Mr. Abbott's scheme, as well as any other scheme of that sort, is a grave violation of commutative justice.

It also offends social justice, in two ways: Even if it weren't the case (which it is) that the husband ought to maintain his wife, still, as long as he can do so (which is the case with these schemes), there is a violation of subsidiarity, which requires that a higher level of society (in this case, the State) should not do for a lower level of society (here, the family, in the person of the husband and father) can do for itself. (And it can't be objected that, though the husband can do his duty, the State might be able to do it more efficiently, because we're talking about a mere transfer of funds, not a provision of goods or services; a dollar from the State is no better than a dollar from the husband.)

And the second way in which such schemes offend social justice is by violating distributive justice; not only should the State not be encouraging, by payments, married mothers to enter or remain in the paid workforce, but, on the contrary, it should be discouraging it, at least in effect, by taxing their earnings at the same rate as if the husband had earned them in addition to his own earnings.

"the coming demographic crunch means that as a country we need to both encourage women to have more children, and at the same time ideally to increase the number of hours they work."

I question whether you've thought this through fully. You're saying, rightly, that we need to encourage women to have more children. But that itself entails more real work; it's just that it isn't assigned a nominal dollar value, and so what you're saying is that women today should be doubly punished for the failings of previous generations. The fairer solution—the more distributively just solution—would be to encourage women to have more children, and men to increase the number of hours they work (in the paid workforce). Unfortunately, our insufficiently family-unit-based tax system gives an incentive against that. But I'm assuming here that the sole reason why you want to encourage more paid work is to generate additional tax revenue with which to fund pensions. Is my assumption correct?

I do, however, agree with your proposed solutions in the first two paragraphs under the sub-heading "Genuine change?", but I would add to them the need to move to family unit taxation, at least in effect.

Reginaldvs Cantvar

Kate Edwards said...

Yes indeed, Cardinal. I'd begun to wonder if, despite the high number of google hits, anyone Catholic was actually reading this blog, and hence whether I should even bother continuing to dangle these issues out there.

I totally agree that distributive justice principles should come into play here, viz middle class welfare is a bad thing; I find it difficult indeed to understand why so-called conservative parties are so attached to it. Over the last year, for example, the liberals have rabbited on about the need for smaller government - and yet consistently opposed every attempt to means test Government subsidies for things like medical insurance. Similarly in the US, 'Tea Partyites'seems similalry to want to subsidise those who least need help, while denying to those who really need it. I can't see how this approach the least bit consistent with Catholic Social Teaching.

And I agree too that subsidiarity probably means government should keep out altogether in an area like this, and find other ways of influencing decisions. Family unit taxation might well be one of those means, though it has its own problems.

In reality though every part of our system is currently set up to have the opposite effect. The decision to require age and disability pensioner (and unemployed) spouses to apply for these payments in their own right, rather than as spouses for example, taken some twenty odds years ago undermined the whole concept of the family unit and all to encourage women back in the workforce where they really didn't want to be.

And in fact if you look at the (paid) workforce participation statistics in Australia, we currently have the bizarre phenomenon of many blue collar men continuing to retire early (ie typically around 55, not 65), despite the fact that their life expectancy is now in the late 70s or beyond. While women are increasingly forced back into the workforce relatively late in life, and then have to continue working well into their 60s and even beyond because they have little if any accumulated superannuation.

And of course we have a system that is entirely unfunded so unless we continue to import a huge labour force through immigration, which causes its own funding pressures in the need for infrastructure etc and is surely unsustainable at current rates both ecologically and socially, we will not be able to support current levels of economic growth and fund our old age and other support systems...

Kate Edwards said...

PS I'd also note that family unit taxation is just a disguised subsidy, a family payment delivered through the tax system rather than in the form of a cash grant. That doesn't mean it mightn't be a better way of delivering the right incentive messages though.

Cardinal Pole said...

Thanks for those responses, Terra. I don't have time to add anything further at the moment, but, when I'm back on Monday night (God willing), I might address some of the points you've raised in those comments, in particular, the one in your second comment, where you deal with the meaning of family payments.

Cardinal Pole said...

Since I mostly agree with what you've written in those comments, I'll just deal with one point, the point where you write that "family unit taxation is just a disguised subsidy, a family payment delivered through the tax system rather than in the form of a cash grant." I don't think it's correct to say that family unit taxation is a kind of subsidy, certainly not in the strict sense, since it is not a matter of industry policy and doesn't (directly) influence market activity, but neither is it a subsidy in a looser sense of the word, since the very nature of things requires the government to treat the family as a unit, if distributive justice is to be observed. Just as we don't think of progressive taxation as a disguised subsidy of earners of relatively low incomes, since distributive justice requires that, all else equal, a person with a higher income should pay more in tax not just absolutely, but also as a proportion of his or her income, compared to someone on a lower income, so should, all else equal, a man with a family to support pay less tax than one who doesn't. Your mistake here might be the one identified by Mrs. Shanahan, in her column in last Saturday's issue of The Weekend Australian, as the error of thinking that "benefits meant to compensate families for an individualist tax regime are middle-class welfare".

Kate Edwards said...

But Cardinal, a progressive tax system absolutely is a disguised subsidy to lower income earners!

I'm speaking technically, strictly as an economist here. It is one thing to argue that it is a perfectly justified subsidy, in accordance with distributive justice principles - I agree. Quite another to say it has no impacts. An economist would argue that the number of hours you work (and whether you work at all) is affected to some degree by how much you net from each extra hour of work. Tax rates impact on that. It doesn't matter, at least in principle, whether that net return happens through a cash payment or tax rates. Indeed, that is why the budget is set to lower the 'Effective Marginal Tax Rate' for the unemployed, to allow them to earn more money before they lose their benefit altogether.

Ms Shanahan's article doesn't go into the reasons that women in some countries work full time rather than part time - but they do have to do with the suite of tax and other supports.

Similar principles apply to industry subsidies - they can be delivered as cash grants or tax concessions.

Should our tax and other systems be designed around purely individualistic principles? Of course not. Tax systems like any other form of government intervention are not morally neutral.

Cardinal Pole said...

"An economist would argue that the number of hours you work (and whether you work at all) is affected to some degree by how much you net from each extra hour of work."

Yes (that's what I was thinking of when I wrote, in my first comment here, that "Unfortunately, our insufficiently family-unit-based tax system gives an incentive against [husbands rather than wives doing additional hours of paid work]"), and so I was indeed wrong to imply, in my third comment, that progressive taxation does not influence market activity.

(Sorry to take so long to get back to you. I would like to continue this discussion, but it's probably been too long since the original post was published, though I, for one, look forward to discussing these matters in the future if you blog about them again.)