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Misplaced entitlement and middle-class welfare, The Drum Unleashed, 20 February 2012

by David Hetherington, Executive Director

The Drum Unleashed, 20 February 2012

Nobody expects consistency in politics any more. Points of principle hold little sway in the face of focus group research and angry talkback callers.

Under this pressure, and against their founding values, Labor shies away from pokies reform and the Coalition supports subsidies for car makers.

This is nothing new but it's surprising when think tanks, the self-appointed champions of these values in our public debate, change their tune. This week's debate over means-testing of the private health insurance rebate offers an unusual illustration.

The Centre for Independent Studies, a free market think tank, has argued for many years against the expansion of middle-class welfare under governments of both persuasions. The decision to means-test the rebate for singles earning above $83,000 and families above $166,000 is nothing if not a rollback of middle-class welfare. Health is the fastest growing item of government expenditure and any measure that sensibly relieves it should be warmly welcomed by critics of big government.

Yet in a piece last week, Robert Carling of the CIS argued that the rebate should not be rolled back, describing it as a "gutless approach" to cutting spending and arguing it reflected the Government's obsession with redistribution away from the wealthy. Carling believes that since the rebate is not income support but an incentive subsidy, it should be made available to all or none, although curiously he doesn't claim it should be abolished.

Given the CIS's longstanding opposition to middle-class welfare, I was bemused by this position. I looked at another high-profile free market think tank, the Institute of Public Affairs, to see what they were saying. Despite the heat and light around the debate this week, the IPA's website says nothing about the issue. Last May, the IPA's Chris Berg cautiously welcomed Labor's means-testing of family payments but on the latest welfare rollback, the IPA is silent.

What prompts some of Australia's loudest critics of middle-class welfare to oppose a clear rollback in the case of the CIS, and to run dead on the issue in the case of the IPA? One possibility is that it advances the interests of their natural political bedfellows in the Coalition. But this seems unlikely, given that both outfits were vocal opponents of middle-class welfare under the Howard government as well as the Rudd/Gillard ones.

A more intriguing idea is that these thinkers, along with many households out there in the community, believe that families earning over $166,000 are not truly wealthy and so it is unfair to remove this benefit that's enjoyed by others in our society.

One household that feels this way is the Richards family of Adelaide, featured in last Friday's Australian. The household earns $258,000 a year and Kylie Richards believes the means-testing is "ridiculous", claiming "the better we do, the more the government takes". Setting aside the fact that this last notion is a feature of almost all tax systems, Ms Richards clearly feels it unreasonable that the subsidy is removed at these income levels. Yet in terms of income, the Richards are in the top 3 per cent of all households according to ABS figures for 2009-10.

This perception on the part of high-earning households that they deserve subsidies just as much as poorer ones is one of the most powerful drivers behind the spread of middle-class welfare. When Labor means-tested family benefits last year, professional acquaintances complained noisily about the move, despite the fact that some earn comfortably more than the Richards. In their cases, "upper-class welfare" may be a more apt description of the benefits in question.

Of course, you can't say this in polite company without being accused of class warfare. But we need to tackle this sense of misplaced entitlement in the community if we are ever to get on top of our squeezed public finances.