The proposed changes to tax on superannuation for people with over $2 million has prompted a flurry of comment on the need to cut back on 'middle class welfare'. The impression is created that the truly needy will miss out on much needed extra cash as politicians pander to middle class voters who decide elections.
Such an impression is almost entirely false.
In terms of where tax dollars are allocated, Australia has very definitely concentrated on providing lower class welfare. For 30 years it has had the lowest level of middle class welfare of any developed economy. According to the Organisation for Economic Cooperation and Development (OECD) only 15 per cent of government transfers go to the top half of the population. The average for OECD countries is 45 per cent.
More than two fifths of redistributed tax benefits go to the bottom 20 per cent of the population; only 3 per cent goes to the top 20 per cent. In America, the corresponding figure is 16 per cent.
As Peter Whiteford, professor of the Crawford School of Public Policy observes, the much criticised expansion of 'middle class welfare' under the Howard Government only increased the average real welfare payments for the richest 20 per cent of working age Australians by around $1.60 per week.
Over the same period, the real earnings of this group went up by more than $500 per week, a rise which received a favourable tax effect. Real taxes went up, but not in proportion to the income rise.
'The expansion of middle class welfare on average gave the richest 20 per cent less than $2 per week, changes in tax scales gave them 30 times as much,' commented Whiteford.
Yet Australia does not spend as much as most OECD countries on cash benefits: unemployment benefits, family benefits, disability benefits and other benefits. The OECD average for such benefits is 22 per cent of total income, but it is only 14 per cent in Australia (in America it is only 9 per cent).
Australia targets low income households much more tightly however, to the extent that the OECD reckons Australia's redistributive policies are more efficient than elsewhere. A 2011 OECD report said income inequality in Australia has fallen quite sharply since 2000, and is now similar to that of the OECD average for the first time.
About 5 per cent of household disposable income is redistributed to low income households in Australia, compared with only