Research Paper no. 31 2008–09
Money for nothing? Australia in the global middle class welfare
debate
Luke Buckmaster
Social Policy Section
12 May 2009
Contents
Executive Summary
- Middle class welfare has been a controversial issue in policy
debates in Australia in recent years
- This research paper seeks to contribute to understanding of key
issues in the debate about middle class welfare through an
examination of comparative research into different welfare
systems
- The research examined in the paper suggests that the issues
relating to middle class welfare are more complex than generally
suggested in the various debates on this topic in Australia and
overseas
- First, the paper finds that access by the middle class to the
Australian income support system is relatively low compared with
other countries. Nonetheless, there is significant use of welfare
benefits and services by the middle class
- Second, the paper argues that welfare systems that have high
levels of middle class involvement are associated with good
outcomes in areas such as redistribution, productivity and support
for welfare institutions. The paper also examines evidence on the
issue of social cohesion but the absence of comparative data makes
it difficult to draw firm conclusions.
- Further, targeting through means testing is not necessarily the
panacea that many suggest it to be (particularly, where it gives
rise to high effective marginal tax rates, poverty traps and other
unintended consequences)
- Importantly, arguments in favour of universal welfare
systems should not necessarily be seen as arguments for
middle class access to particular welfare programs indeed,
arguably, in some cases, middle class welfare might be said to
undermine key objectives of universal welfare systems
- Finally, the paper suggests that the global economic crisis is
likely to give rise to increasing debate about the fundamental
nature of the Australian welfare state in coming years and that
this will most likely involve significant discussion of issues
related to middle class welfare. These debates are more likely to
be productive if they take into consideration evidence from
comparative welfare studies, as well as the need for clarity about
the values and objectives underpinning particular
perspectives.
|
Introduction
The appropriate level of access by those on middle and high
incomes to welfare benefits and services (popularly known as middle
class welfare ) has been a controversial issue in policy debates in
recent years.[1] The
introduction of new means tests in the first Rudd Government Budget
and the expectation of further means testing in the second has led
to renewed debate about the pros and cons of universal versus
targeted access to benefits and the government s future intentions
in this policy area.
Debate about access to welfare by the non-poor can be
particularly emotive. The term middle class welfare, itself
generally used as a pejorative, is often described by critics in
terms such as shameless , outrageous and unjust . Defenders of
access to welfare programs by the non-poor can be similarly
emotive. For example, in criticising the Rudd Government s decision
to means test the Baby Bonus (a payment of $5000 to help with the
extra costs of a new baby or adopted child), the then Liberal Party
leader, Dr Brendan Nelson, made the following comments:
Every mother loves her baby. Every baby is
valued and Mr Rudd should value all babies equally. We should not
live in an Australia where Mr Rudd thinks that some babies are more
valuable than others and it s very important that the Government
make sure that families, men and women that are trying to raise
children in this country, continue to receive the support that they
have over the last decade of the Howard Government.[2]
In other instances, those speaking against non-poor access to
particular welfare programs have been criticised for practicing the
politics of envy .[3]
In addition, debates about middle class welfare can be
confusing. In part, this is because of the complex nature of the
subject matter. An additional factor may be that such debates
rarely fit neatly into a simple left/right dichotomy: supporters
and opponents of non-poor access to welfare exist across the
political spectrum. For example, in recent times, Liberal Party
frontbencher, Tony Abbott, and left-wing academic, Eva Cox, have
both argued for the benefits of universal welfare and against means
testing of particular benefits.[4] At the same time, members of the Rudd Government
and the right-wing Centre for Independent Studies have both
criticised middle class welfare (though, for different
reasons).[5] To
further complicate the picture, many who argue in favour of
universal access to public services such as health and education,
are also strong advocates of means testing of welfare benefits such
as the age pension.
As can be seen below, this is not a new debate. The question of
whether the non-poor should have access to welfare has been
contested for as long as governments have been involved in welfare
most recently, following the shift towards greater targeting of
welfare in many countries from around the 1970s.
This research paper seeks to contribute to understanding of key
issues in the debate about middle class welfare. The paper begins
by placing Australian middle class welfare in an international
context: how does the Australian way of welfare differ from that of
other countries? How do levels of middle class welfare in this
country compare with levels in other countries? How are these two
issues interconnected? The paper then turns to its most important
task: an examination of research related to the debate about middle
class welfare. The point of this is to discover whether this
research (much of it based on comparisons of different types of
welfare systems) can yield general principles that might inform the
Australian debate.
The research examined in the paper suggests that the issues
relating to middle class welfare are more complex than generally
suggested in the various debates on this topic in Australia and
overseas. Broadly, it should be possible to determine whether
middle class access to the welfare state is a good or bad thing by
examining empirical evidence (where such evidence exists) about the
performance of various forms of welfare state against an agreed
series of indicators of success. While the range of such indicators
is potentially limitless, this paper, following an examination of
the relevant literature, has narrowed the field to five: technical
problems, redistribution, productivity, welfare politics and social
cohesion.
However, as shall be discussed, the existing empirical evidence
(which is often highly contested) can only take discussion of the
issue of middle class welfare so far before running into the even
more hotly contested terrain of objectives, ideologies, principles
and values. That is, questions about the desirability of middle
class welfare cannot be separated from questions about precisely
what we want the welfare state to do (and why).
At its broadest, this paper is concerned with the appropriate
scope of welfare arrangements. The term welfare has both a general
and a more specific meaning. The welfare policy area involves a
wide range of interrelated concepts and terms, whose meanings are
often assumed, rather than explained. This can have the effect of
confusing the issues to be discussed, particularly where, as often
happens, terms are used interchangeably.
At its broadest, welfare may refer to
well-being, happiness; health and prosperity (of a person or a
community et cetera) .[6] It may also refer to arrangements aimed at ensuring or
bringing about well-being. Thus, a useful definition of welfare is
that it is that which refers to the well-being of individuals or
groups and, by implication, those measures which can help to ensure
levels of well-being through provision of education, health
services, managed housing, and social security benefits .[7] The term welfare
state refers to arrangements where provision of such
measures is principally the responsibility of the state.
Specifically, it refers to those policy arrangements supporting the
substantial expansion of state responsibility for welfare in many
countries following World War II.
It should be noted that welfare need not necessarily
refer exclusively (if at all) to any particular measures such as
those in the definition above (education, health, social security
et cetera). If one agrees that welfare refers to measures
aimed at ensuring the well-being of citizens, then, arguably, it
could refer to a much larger range of categories, including the
provision of roads, police services, public transport, policies
aimed at addressing environmental degradation and so forth.
Further, economic and industrial relations polices are
intimately connected with welfare policy objectives (particularly,
as shall be discussed below, in Australia where, traditionally,
welfare objectives have also been pursued through alternative means
such as wage arbitration and employment policy).[8] Nevertheless, in the interests of
simplicity (and given the way the term is generally used), the
following discussion will assume that welfare mainly
refers to measures in the areas of social security (pensions,
unemployment benefits etc), and health, education and housing
services.
As shall be explained below, consistent with changing
conceptions of the role of government, over time the concept of
welfare has expanded to encompass not simply social amelioration
(more or less direct attempts to address social disadvantage and
inequality) but also attempts to address the causes of disadvantage
and inequality. Thus, the concept of welfare can include remedial,
preventative and developmental approaches.[9]
Means testing refers to a process used to
identify people with limited resources, usually involving an
assessment of the income and capital of a person or family. Means
tests are generally applied in order to determine eligibility for
welfare benefits or services. They are also used to determine
whether (or the extent to which) particular charges or fees will be
applied to particular individuals (for example, co-payments
associated with access to subsidised medicines).
Means tests are the primary method for determining eligibility
in selectivist welfare systems. Selective benefits
and services are those reserved for people defined within the
context of the policy as in need (usually financial need) .[10] Selectivism can be
contrasted with universalism, which refers to
services and benefits available to everyone as a right, or at least
to whole categories of people for example, the aged ) .[11] It is important to
recognise, though, that almost every welfare state arrangement
contains a combination of universalism and selectivism and
hence can be located on a spectrum between the two. The term,
encompassing, is used to describe welfare
approaches that combine universal access with earnings-related
benefits (that is, not only do the non-poor participate but this
participation is at a level intended to more or less replaces the
recipient s previous income).[12]
The term targeting is often used synonymously
with means testing or selectivism. However, it is also used to
refer to the broader range of efforts at selecting welfare
recipients, including categorisation according to particular areas
such as the disabled, the unemployed and so forth.
Universality and selectivity are related to the concepts
institutional welfare and residual welfare. Institutional
welfare refers to systems in which risks (e.g.
unemployment, ill health) are accepted as social costs. As a
result, in institutional systems welfare is provided for the
population as a whole as a right of citizenship, rather than just
for the poor or needy. On the other hand, residual
welfare refers to systems where welfare functions as a
safety net for those defined as in need where other institutions
such as the market or family have failed. The key difference
between institutionalism/residualism and universalism/selectivism
is that the former are principles, while the latter are
methods.[13]
In discussing welfare arrangements it is also important to
understand the difference between contributory and non-contributory
models of welfare. Contributory models are those
that require some level of financial contribution by members as a
condition of access to welfare benefits (e.g. social insurance for
income support for the elderly). In such systems, benefits may
either be related to level of contribution over time or at a flat
rate based on some assessment of basic needs. On the other hand,
non-contributory models are those that provide
access to welfare benefits drawn from public funding, rather than
through individual contributions to an insurance pool (such as the
aged pension in Australia and New Zealand).
Just as important as clarifying the variety of interrelated
concepts and terms in the welfare policy area is the need to
provide some explanation of the different kinds of welfare state
arrangements. This is necessary because welfare policy debates,
including the debate about middle class involvement, frequently
invoke international evidence and examples. However, such
comparisons can lead to confusion without a proper appreciation of
the range of similarities and differences between different kinds
of welfare states.
An important contrast between welfare states relates to their
different objectives, particularly in the type of redistribution
pursued. The type of redistribution probably most familiar to
Australians is what has been called the Robin Hood
objective: taking from the rich to give to the poor.[14] This objective tends
to be associated most strongly with selective approaches to welfare
on the grounds that it allows expenditure to be concentrated on
those most in need (though, as discussed below, this assumption is
contested by proponents of universal welfare).
The primary objective of most welfare states, however, is what
has been called the piggy bank objective.[15] This refers to the
objective of providing income maintenance aimed at addressing
adverse life contingencies (for example, unemployment, disability,
sickness). It also refers to redistribution across the life-cycle,
either to periods when individuals have greater needs (for example,
when there are children), or would otherwise have lower incomes
(such as in retirement) .[16] The idea is that individuals, either through taxation
or participation in social insurance, effectively save throughout
their lives in order to ensure they are protected against the
various risks to their incomes that occur throughout the life
course.
It is important to note that all welfare states involve some
combination of Robin Hood and piggy bank objectives, with the
overall mix differing considerably between countries.[17] For example, according
to one estimate, in Australia around 38 per cent of lifetime
benefits received by individuals were paid for by taxes paid at
another stage in their lifecycle, while 62 per cent involved
redistribution from rich to poor. At the same time, the situation
in the United Kingdom was reversed, with only 38 per cent of
benefits representing redistribution between rich and poor.[18]
Perhaps the most widely accepted attempt to classify welfare
states is Gosta Esping-Anderson s three worlds typology.[19] The three worlds
approach examines specific programmes in particular countries in
order to evaluate the extent to which a given welfare state can be
considered to secure the livelihood of welfare recipients
independently of the market. From this, Esping-Anderson classifies
welfare states (or welfare regimes , as he prefers to call them) as
either Liberal , Conservative or Social Democratic .
Liberal welfare regimes are essentially those
in which, for example, private sources of income replacement,
private expenditure on health and means tested social security
benefits are most prevalent. Welfare arrangements in these
countries are selectivist and residual. Benefits are supposed to go
to the poor and only the poor; and they are supposed to be
sufficient only to cover bare subsistence needs .[20]
Broadly, the emphasis of Liberal welfare regimes is on economic
growth poverty and other forms of disadvantage are targeted in a
way that infringes only minimally on the market.[21] Liberal regimes are particularly
concerned to avoid creating disincentives to participate in the
labour market. According to Esping-Anderson, the Liberal world of
welfare includes such countries as Australia, the United States,
the United Kingdom, New Zealand, Canada and Ireland.
Conservative welfare regimes have contributory
social insurance as their cornerstone. The level of benefits
received is directly related to the level of contributions paid
into the insurance pool. For example, insurance benefits received
by those unable to work are a direct function, and a large
fraction, of what the person used to earn when they were in
work.[22]
Conservative welfare regimes therefore provide stability to the
earner s income stream and, more broadly, the existing social
order. This has been referred to as the St Matthew approach to
welfare: to those who have, more shall be given.[23]
For Esping-Anderson, Conservative regimes are barely more
egalitarian than Liberal ones because the state s emphasis on
upholding status differences means that its redistributive impact
is negligible .[24]
Conservative regimes are also characterised by the principle of
subsidiarity meaning that benefits are available only when family
resources are exhausted.[25] This promotes dependence on the traditional family. The
Conservative world includes nations such as Austria, France,
Germany and Italy.
Finally, the Social Democratic world is
characterised by universal benefits and a high degree of benefit
equality.[26]
Rather than simply addressing minimal needs (as is the case with
Liberal regimes), Social Democratic regimes seek an equality of the
highest standards .[27] All enjoy essentially the same rights in that, for
example, all social strata are incorporated under the same
universal social insurance scheme. While benefits in Social
Democratic regimes are high compared with other regimes, they are
also graduated according to accustomed earnings. According to
Esping-Anderson, this combination of universal participation and
comparatively high benefits promotes an essentially universal
solidarity in favour of the welfare state .[28]
Social Democratic regimes also seek full employment both in
order to provide the income necessary to finance their generous
redistribution schemes and because the right to employment is
regarded as equal in status to the right to income protection. In
contrast to Conservative regimes, the Social Democratic world of
welfare seeks to enable individual independence from the
traditional family through, for example, direct payments to
children, and taking direct responsibility for caring for children,
the aged and the helpless.[29] The Social Democratic world includes the Netherlands,
Denmark, Norway and Sweden.
While, for Esping-Anderson, Australia belongs to the Liberal
world, there is an argument that this does not adequately capture
the unique nature of Australia s welfare arrangements. According to
one analysis, rather than the Liberal world, Australia, in fact,
has traditionally belonged to a fourth Radical
world of welfare (which also includes New Zealand).[30] This Radical world is
based on the principles of what Castles calls the wage earner s
welfare state in which social amelioration Australian-style has
traditionally been pursued via regulation of the wage relationship
(through compulsory conciliation and arbitration of industrial
disputes).[31] This
has elsewhere been referred to as the Australian way of welfare or
social protection by other means .[32]
While critics have suggested a range of problems with the idea
of a fourth, radical world (including its continued relevance as a
category given changes to industrial relations in Australia since
the early 1990s), Castles argument does much to highlight both the
unique nature of Australia s arrangements when compared with others
overseas and the complexity of international comparisons of welfare
states in general.
Australia is unique among Western countries for the extent to
which its social welfare programs are means tested. Income support
is extended across a range of categories, including the old, people
with a disability, the unemployed and people caring for children.
This support is provided on a flat rate basis and funded from
general taxation, rather than from contributions from workers. The
Australian system of income support differs from those in most
other welfare states in that it is not based around social
insurance, whereby, for example, the old, unemployed and sick are
protected by earnings related income replacement schemes.
Consequently, Australian welfare benefits are generally lower than
in other welfare states.[33]
In addition to means tested income support, as noted above,
Australia also has a non-means tested national health insurance
scheme, Medicare. The principal components of Medicare are free or
subsidised treatment by practitioners such as doctors, free
treatment as a public (Medicare) patient in a public hospital, and
free or subsidised access to prescription medicines under the
Pharmaceutical Benefits Scheme (PBS).[34] Australia also provides a range of
incentives for people to take out private health insurance,
including a substantial, non-means tested rebate for the cost of
premiums (35 per cent for those aged over 65, 40 per cent for over
70s, and 30 per cent for all others).[35]
The highly selective nature of Australia s income support
arrangements means that it traditionally has less middle class
welfare than virtually all other developed countries, including
other low-spending countries such as the USA and Japan.[36] This is illustrated by
the low share of direct social security transfers in Australia
going to the richest households. For example, a 2000 Organisation
for Economic Cooperation and Development (OECD) study found direct
transfers to the richest 30 per cent of households of workforce age
in Australia to be 6.5 per cent, the lowest of 21 OECD countries
studied, substantially lower than most other countries.[37]
While, overall, access by the middle class to the Australian
income support system has been lower than other countries, it is
also fair to say that there is some significant use of welfare
benefits and services by the non-poor. While the majority of
pensioners have low incomes (over half have less than $20 a week of
private income), around 5 per cent have private incomes of over
$400 a week.[38]
According to the Rudd Government s 2008 Pension review (known as
the Harmer review) background paper:
Those income support recipients who do have
significant levels of private income are able to achieve living
standards well above the base rate of pension. While rewarding
people who have private income is important to the way the income
support system operates it also results in considerable variations
in the living standards of recipients of transfer payments.[39]
The Harmer review background paper notes that the slow
withdrawal rate of the Age Pension as private income increases
means there is a small but significant group of people receiving
Age Pension who have household income over one-and-a-half times the
Age Pension rate and some four per cent receive incomes more than
double the Age Pension rate .[40] Further, it suggests that the proportion of age
pensioners with significant levels of private income is expected to
grow in the future as the Superannuation Guarantee matures
.[41]
As is the case with income, Australia s income support
arrangements allow some recipients to have substantial private
wealth or live in households with others who have considerable
assets. Pensioners can receive some pension even with assessable
assets up to around $1 000 000. Again, while most
pensioners do not have substantial savings or other assets, 5 per
cent have assessable assets over $250 000.[42] According to the Harmer paper,
more than 20 per cent of households relying on the Age Pension and
related payments had net assets of over half a million dollars, as
do almost 15 per cent of those with Carer Payment as their main
source of income and around 10 per cent of those with Disability
Support Pension as their main source of income .[43]
There is very little evidence available on the extent of use of
Medicare and government-funded private health incentives by the
non-poor. What evidence there is suggests that, as might be
expected of non-means tested programmes, there is substantial use
by the non-poor. Indeed, there is even evidence to suggest that, in
some instances, poorer Australians are particularly disadvantaged
in comparison to those who are better off in accessing Medicare and
government private health incentives. For example, there is
evidence that:
- the level of bulk-billed GP services through Medicare (that is,
those that do not attract a patient co-payment) is higher in
wealthier electorates (though the relationship is complex and
probably explained by region as much as by income)[44]
- the benefits from the private health insurance rebate are
concentrated in the wealthiest households. More than half goes to
the top 20 per cent of taxpayers and nearly three-quarters goes to
the top 40 per cent[45]
- the Medicare Safety Net, introduced in March 2004 to provide
financial relief for people facing high out-of-pocket costs for
out-of-hospital medical services, provides significantly higher
benefits in electorates with relatively high median family income
and lower health care needs[46]
- Aboriginal and Torres Strait Islander people have low levels of
access to, and use of, health services such as Medicare, the
Pharmaceutical Benefits Scheme (PBS) and private GPs. Combined
expenditure on Medicare and the PBS contributed 6.6 per cent of
total health expenditure on Indigenous people in 2001 02, compared
with 23 per cent for non-Indigenous people.[47]
In summary, while there is very little data available, it is
likely that there is substantial use by the non-poor of Australia s
national health insurance programme, Medicare, and the government s
private health insurance incentives.[48]
From the 1980s, there was increased support for means testing
among policy makers and international institutions such as the
International Monetary Fund and the World Bank. For example, the
World Bank argued that a comprehensive approach to poverty
reduction calls for a program of well-targeted transfers and safety
nets .[49] This
shift in thinking occurred concurrently with (indeed, some argue,
as a result of) what is known as the fiscal crisis of the state
that is, the emergence of a structural gap in advanced capitalist
societies between state revenues and expenses from around the
1970s.[50] There
has been a strong emphasis on means testing in international policy
debates since this time.[51]
There were indications throughout the 1960s and 1970s of the
possibility of a move towards greater institutionalism/universalism
in Australia for example, Labor s efforts to introduce
Medibank/Medicare and bipartisan support for a universal aged
pension up until the late 1970s. However, the Australian welfare
state turned in the direction of strengthened means testing under
the Hawke-Keating Labor governments for example, new means tests
were introduced for the age pension and family payments.
Subsequently, in less financially stringent circumstances, the
Howard Government then both relaxed a number of existing means
tests and introduced a series of new non-means tested initiatives,
including Family Tax Benefit Part B, the Baby Bonus, the private
health insurance rebate and the First Home Owners Grant Scheme.
Some have also argued that middle class welfare was expanded
through Howard Government superannuation initiatives. For example,
under the Howard Government superannuation guarantee, income after
age 60 became tax free and does not need to be declared as extra
income for tax purposes. As columnist, Mike Steketee explains, that
means people enjoying $100 000 or $200 000 a year from
their super can be treated as low-income earners. They can qualify
for the Government s Low Income Tax Offset, the Senior Australians
Tax Offset and a higher threshold for the Medicare levy .[52]
Such developments under the Howard Government have been
criticised by some commentators as a shift in the philosophy that
welfare should be directed at those most in need (selectivism). The
former prime minister, John Howard, defended this shift on the
grounds that it was intended to support families in the choices
they wish to make and help families struggling with the challenges
of modern life .[53]
It has been common to interpret developments under the Howard
Government as reflecting political objectives that is, as one
commentator has expressed it, the temptations for office holders to
buy votes .[54] An
alternative explanation has focused on the ideological basis for
Howard Government welfare policies. That is, policies such as
increased spending on private schools and incentives to take out
private health insurance reflected Liberal Party policy priorities
such as choice , self-reliance and private (as opposed to public)
provision of services. Further, non-means tested expenditure in the
area of family payments has been said to reflect the longstanding
Liberal Party priority of supporting the traditional
family.[55]
Conservative commentator, Andrew Norton, has described the
phenomenon of substantial state expenditure in areas of welfare
policy consistent with right of centre ideological objectives as
big government conservatism .[56] Elsewhere, it has been described as conservative
welfarism .[57] It
could be argued that, using Esping-Anderson s three worlds typology
described above, the Howard Government sought to combine elements
of both the Liberal and Conservative welfare regimes. That is, a
combination of the Liberal regime emphasis on the free market with
the Conservative regime emphasis on supporting traditional social
institutions such as the family.
The move towards greater means testing under the Rudd Government
has led to conjecture about whether this is simply a response to
fiscal exigencies (most evident in the emergence of the global
financial crisis) or possibly an indication of a broader
philosophical turn towards greater targeting. This, in turn, has
led to debates about the pros and cons of middle class welfare and,
more generally, the pros and cons of different types of welfare
state arrangements. The remainder of this paper is devoted to an
examination of key aspects of such debates.
Middle class
welfare: for better or worse?
This section examines some of the main theoretical and empirical
arguments used in international debates about middle class welfare.
These arguments are organised according to five categories:
technical problems, redistribution, productivity, welfare politics
and social cohesion. As will be shown, arguments for and against
non-poor access are very similar to the arguments for either
selective or universal/encompassing approaches to welfare.
One of the main objections made against efforts to restrict the
middle class from the welfare state relates to a range of technical
problems associated with the process and impact of means testing.
Common objections along these lines include:
- processes for testing entitlement tend to be intrusive and
stigmatising (though, as discussed above, this is widely thought to
be less of a problem in Australia than in other countries where
means testing is less prevalent)
- difficulties associated with establishing boundaries of
exclusion and entitlement for example, the poverty trap that
emerges from high effective marginal tax rates[58]
- the possibility of low-uptake of welfare programs arising from
barriers to access such as administrative complexity and
intrusiveness
- perverse incentives such as penalising those who have made
private or independent provision, and
- the administrative costs associated with means tested
programs.
While, as noted, some of these are likely to be less of a
problem in some settings than in others, there appears to be
general acknowledgement among social policy scholars and economists
that such problems pose genuine challenges for policy makers. Thus,
any potential gains associated with means testing (such as being
better able to target the poor for assistance) can be undermined by
one or more of the potential problems outlined above.
For example, according to economist, Amartya Sen:
targeted support can also affect
people s economic behaviour. For example, the prospect of losing
the support if one were to earn too much can be a deterrent for
economic activities. It would be natural to suspect that there
would be some significant distorting shifts if the
qualification for the support is based on a variable (income) that
is freely adjustable through changing one s economic behaviour. The
social costs of behavioural shifts must include, among
other things, the loss of the fruits of economic activities
foregone.[59]
As noted above, in addition to the potential cost to the economy
overall, means testing also potentially leads to poverty traps
whereby people make the decision to remain with the devil they know
(however, meagre the benefits provided), rather than engage in the
risks of loss of income associated with participation in the labour
market. Importantly, there is evidence that the highest effective
marginal tax rates are often experienced by lower income earners,
including the unemployed and people with dependent children,
including sole parents.[60]
The point of this is not that means testing is inherently
problematic but rather, as Sen argues, there are considerations
that run counter to simple argument for maximal targeting .[61] Thus, for example, in
the Australian context, while critical of the extent of tax and
transfer benefits for those on high incomes, Julian Disney from the
University of New South Wales has argued for a relaxation of means
testing in certain areas in order to avoid imposing high effective
marginal tax rates on lower-income people, especially those who
[due to high levels of unemployment resulting from the global
financial crisis] can only find part-time or intermittent work
.[62] Disney has
called for the relaxing of Newstart Allowance income tests to allow
averaging over 3 months or even longer, cutting the withdrawal rate
and raising the threshold at which it starts, at least during the
current recession .[63]
One of the main arguments used against non-poor access to
welfare is that it diverts limited resources from those who need
them to those who do not. Put another way, restricting the non-poor
from accessing welfare enables the maximum level of services and
benefits to be delivered to those most in need. As such, this
argument draws most clearly on the redistributive objectives of
welfare.
As discussed above, different welfare states emphasise different
kinds of redistribution. Broadly, Australia s highly targeted
system is based around the Robin Hood objective of taking from the
rich to give to the poor, while most other OECD welfare states
emphasise the piggy bank objective of either (a) income maintenance
or insurance in case of adverse contingencies or (b) redistribution
across the life-cycle.[64] However, studies comparing the relative effects of
targeted and universal approaches to welfare on redistributive
objectives have largely focused on the capacity of each to address
poverty and inequality. As such, this section mainly addresses the
evidence related to the Robin Hood approach.
From the perspective of the Robin Hood approach, the central
question is whether means tested benefits are better at reducing
poverty and/or inequality than universal benefits. As Whiteford
suggests in relation to poverty, if those countries with means
tested benefit systems have much higher poverty than countries with
universal benefits, then the explicit rationale for targeting would
appear to collapse .[65]
On the face of it, the idea that non-poor access diverts limited
welfare resources from those in need seems a fairly straightforward
proposition. That is, the more we spend on the non poor, the less
we have available for those in most need of assistance (for
example, in the form of higher benefits or additional welfare
programmes). As such, the attraction of targeting derives from the
fact that such benefits involve a clear vertical redistribution of
resources from the rich to the poor .[66]
Thus, according to Goodin and Le Grand:
In egalitarian terms the beneficial involvement
of the non-poor in the welfare state is not merely wasteful it is
actually counterproductive. The more the non-poor benefit, the less
redistributive (or, hence, egalitarian) the impact of the welfare
state will be.[67]
Further, there has long been a view among economists and social
scientists that targeted programs are the most efficient
way of reducing poverty and inequality (measured in terms of
greatest impact on poverty for the least expenditure). For example,
the criterion of target efficiency (defined as the proportion of
expenditure going to those below the poverty line) has historically
been used as a measure of success for anti-poverty programs
(particularly in the US).[68]
As might be expected, a number of studies have confirmed that
countries employing targeted models direct a greater
proportion of expenditure to the poor than do countries
employing more encompassing models. For example, Whiteford compared
the ratio of benefits received by the poorest quintile to those
received by the richest quintile and found that:
Australia directs relatively more of its
spending to the poor than any other OECD country and by a very wide
margin. The average is 2.14, with the Australian ratio being 12.69,
and the next most targeted being New Zealand, where the ratio is
less than half of Australia s level.[69]
However, this merely highlights the extent of targeting in
various systems. It tells us nothing about whether targeted
programs are better placed than encompassing ones to address
poverty and inequality.
In fact, on the basis of comparative research, a significant
number of social policy scholars have come to the opposite view:
that targeting provides a poor basis for addressing poverty and
inequality.[70] For
example, Korpi and Palme found that Australia s targeted system of
welfare benefits is associated with the highest levels of income
inequality, with the lowest levels of income inequality occurring
in those countries with more encompassing systems (universality
combined with earnings-related benefits) such as Sweden, Finland
and Norway.[71]
Korpi and Palme found a similar pattern for poverty rates: the
lowest rates were in the encompassing countries, with Australia
having comparatively high poverty rates.[72] Similar results about the
comparatively better performance of encompassing models compared
with targeted models have been obtained in studies by Kenneth
Nelson and Sheila Shaver.[73]
Korpi and Palme have described this situation as the paradox of
redistribution . That is, the more we target benefits at the poor
only and the more concerned we are with creating equality via equal
public transfers to all, the less likely we are to reduce poverty
and inequality .[74] Hence, in relation to Australia, they argue, the
Australian experience indicates that targeting excluding the better
off citizens is not highly effective in reducing poverty and
inequality .[75] On
the basis of this, Paul Smyth argues that if there is an aspiration
to reduce poverty and inequality then the lesson of the Australian
experience appears to be that more encompassing models are to be
preferred .[76]
One explanation for this paradox is that countries employing
encompassing models have higher redistributive budgets overall than
targeted models and consequently are able to provide higher
benefits to the poor.[77] For example, according to this view, while targeted
systems redistribute a greater proportion of their welfare budgets
to the poor, more encompassing systems are able to make a greater
impact on poverty and inequality because of their higher levels of
expenditure. Thus, argues Whiteford:
In the case of [more targeted] New Zealand and
Australia and to a lesser extent the United Kingdom, the systems
appear to be highly efficient at reducing poverty and inequality,
but their effectiveness is undercut by their relatively low levels
of spending The [more encompassing] Nordic countries have a below
average level of efficiency, but tend to spend more than other
countries, and so reduce poverty and inequality to a significant
extent.[78]
This is confirmed by Korpi and Palme who found that Australia
was both among the smallest welfare states (in terms of
expenditure) and among those with the poorest record of
redistribution, while those countries with the largest
redistributive budgets (the Netherlands and Sweden) had the highest
redistributive effects.[79] (The question of precisely why the targeted model
should be associated with lower expenditure is discussed in a later
section.)
In a further twist, Whiteford has argued that the OECD countries
with the highest gross social spending claw back a lot of this
through direct and indirect taxes , meaning that differences in net
social expenditure are much less than differences in gross spending
.[80] As such, he
has provided estimates of net redistribution to the poor (the
impact of the tax and benefit systems in combination on poverty)
across OECD countries. He found that even though Australia spends
less than the OECD average on social security benefits, the formula
for distributing benefits is so progressive and the level of taxes
paid by the poor is so low that Australia redistributes more to the
poor than any OECD country (for which these calculations can be
made) .[81]
According to Whiteford s estimates, Australia s net generosity
is not significantly greater than that of Nordic countries such as
Denmark and Sweden. However, this still appears to indicate that,
contrary to the paradox of redistribution , targeting can be
redistributive. The main problem with this is that, while one would
then expect Australia to have less poverty than other OECD
countries, poverty in Australia is higher than the OECD average
(according to one estimate, 11.2 per cent compared to 10.4 per
cent).[82]
Whiteford s suggested explanation for this apparent paradox is
that the poorest quintile in Australia has the lowest share of
earnings of any OECD country (1.6 per cent of total earnings
compared to 4.5 per cent for the OECD on average).[83] Whiteford also notes that other
countries with targeted and redistributive systems (such as the UK,
Ireland, New Zealand and Belgium) also have below average earnings
shares held by their poorest quintile.[84]
For Whiteford, the implication of this appears to be that, in
the most targeted systems, while the poor receive considerable
levels of redistribution, they remain poor because of their low
share of [private] income .[85] Possible explanations for this include
differences in the composition of the low-income population (in
Australia, many in the low-income category are pensioners and hence
less likely to be employed) and the possibility that this poverty
could be a result of behavioural responses to the benefit system
.[86] This could
refer to responses to high effective marginal tax rates, the
absence of sufficient measures to support the transition from
welfare to work and so forth.[87]
If high effective marginal tax rates were found to have a role
in the low levels of private income of Australia s poor, this would
provide yet another twist in the debate about targeting and
redistribution. That is, despite what appears to be a strong record
for targeted systems in income redistribution, the key mechanism
for targeting, means testing, could potentially be responsible for
undercutting efforts at reducing poverty and inequality.
As noted above, information about the relative effectiveness of
targeted welfare compared with that available to the middle class
in addressing poverty and inequality is easier to come by than that
which seeks to address the objective of redistribution in relation
to adverse contingencies and/or transitions across the lifecourse
(the piggy bank objective). This probably has much to do with lack
of clarity or agreement about precisely what unit of measurement
should be used in any evaluation of the latter.
This is complicated somewhat by the fact that expenditure
related to the piggy bank objective in targeted welfare states like
Australia is provided under a Robin Hood approach (that is, means
tested). In such systems, levels of poverty or inequality among
people in different categories (the unemployed, the disabled, the
elderly and so forth) in either targeted or universal/encompassing
systems might be considered to be a reasonable measure of relative
effectiveness. However, comprehensive comparative data across
categories is not available. There have been some attempts to
compare the effectiveness of different welfare systems in
addressing poverty and inequality among the aged. For example,
Korpi and Palme found that gross income inequality among the
elderly was highest in (targeted) Australia and lowest in more
encompassing systems like Sweden and Norway (though, this may not
take into account indirect taxes paid by the elderly and hence
could potentially overstate the differences between the two types
of system). However, in many categories (such as the disabled),
such comparisons would be particularly difficult to develop due to,
for example, lack of comparable data across countries.
Furthermore, others would argue that focusing exclusively on
poverty and inequality misses a (perhaps the) key aspect of the
piggy bank approach. That is, that rather than being simply about
the redistribution of income, welfare should be seen as about
enabling people to manage risks associated with a range of
contingencies and transitions (for example, sickness, disability,
unemployment, raising children, participating in further education)
across the life course. Thus, for example, family payments can be
seen as not simply compensating people for the costs associated
with raising children but also as part of encouraging people to
take the risks associated with choosing to do so (for example
reducing/leaving paid employment). Similarly, government
investments in some countries in lifelong learning (e.g. technical
and further education), including through income support for those
seeking to re-skill , can be seen as assisting individuals to
manage risks associated with possessing the right type of job
skills. Importantly, welfare expenditures such as these have the
potential to produce both private (individual, family) and public
(employer, the economy) benefits.
According to this approach, the most appropriate measure of
effectiveness is less likely to be about poverty and inequality
than it is about more complex/rich indicators such as willingness
to take risks, capacity to manage social transitions or development
of a range of individual capabilities.[88] According to one proponent of this
approach, these functions of the welfare state are just as
relevant, (perhaps more so) for those on middle incomes as for
those lower down the scale .[89] Consequently, to the extent that targeting
according to means is regarded as a/the appropriate means for
addressing poverty (and the discussion above indicates that the
evidence is mixed), it is far less relevant when welfare is viewed
in terms of the piggy bank objective. Indeed, it may be that, given
the negative incentive effects associated with means testing,
targeting according to income is likely to have negative effects on
people s capacity to manage risks and transitions and develop
capabilities. At this stage, however, comparative evidence
specifically addressing this area is lacking (though, the later
section on social investment does address evidence with some
relationship to this area).
An important theme in public policy debates is the impact of
welfare on productivity and economic growth. That is, does welfare
have negative or positive effects on the economy? Further, what
role does middle class welfare play in all of this? Does
non-poor access to welfare enhance/exacerbate the overall impact of
welfare on productivity?
One of the main criticisms of the welfare state from the
perspective of the right refers to the negative impact of welfare
on the market. This is said to arise for two main reasons. First,
the increased taxation and regulatory burden associated with the
welfare state is said to create a disincentive to
investment.[90] Second, the protection of individuals from market
forces is said to create a disincentive to work (or at
least to work as productively as one otherwise would).[91] Taken together, these
effects are said to produce a dynamic of declining growth and
increased expectations of government for welfare expenditure which
can less and less be satisfied by the available output .[92]
For some critics, what are held to be the negative effects of
welfare on economic growth are exacerbated when households are both
recipients of welfare and tax payers simultaneously (that is, they
are recipients of middle class welfare). This flow of transfers
into households and taxes out of the same households is known as
the tax-welfare churn or churning .
One of the main objections to churning relates to what are said
to be the inefficiencies associated with the higher taxes required
to finance middle class welfare. First, these are said to create
work disincentives. Second, it is argued that because taxes have an
efficiency cost, they ultimately reduce overall economic output
(according to economist, Andrew Leigh, the best recent estimate for
the deadweight burden [of taxation] in Australia is about 20 cents
in the dollar ).[93] Thus, according to Peter Saunders (CIS), the efficiency
of the welfare system and the economy could be improved through the
elimination of churning:
At least half of the $175 billion of tax
revenue spent on the welfare state last year will probably find its
way back to the people who put the money in. If we could eliminate
this churning, it would release $85 billion which could fund
spectacular tax cuts without making anyone worse off. We could, for
example, raise the tax-free income threshold to $20,000 and combine
it with a flat 10% income tax.[94]
According to Saunders, this would deliver a huge boost to
individual enterprise and work incentives while still ensuring
everyone gets access to the basic services they need .[95]
A further objection to churning refers to the idea that
including middle class households in the welfare system causes them
to become reliant on government, rather than provide for themselves
from their own earnings. This, it has been argued, diminishes the
capacity of individuals to make decisions about their own lives,
potentially subjects them to high effective marginal tax rates and
creates the possibility that, in future times, they may be subject
to greater government intrusion into their lives.[96]
Criticisms of churning have been challenged on a number of
grounds.[97] First,
compared with other OECD countries, churning is low in
Australia.[98] This
is not unexpected given Australia s high rates of means testing and
the low share of taxes paid by the poor.[99]
Second, it is not clear that churning is as inefficient as has
been suggested by its critics. For example, Korpi and Palme have
argued that there is no evidence of major negative effects on the
labour supply in high-tax welfare states.[100] They suggest that this is
because:
by providing earnings-related benefits and
non-means tested benefits, the encompassing model generates
incentives to work and also avoids poverty traps. Furthermore, if
citizens find that they get significant benefits in return for
their taxes, their take home pay is no longer the only basis for
work incentives.[101]
Further, Whiteford suggests that removal of churning (along the
lines proposed by Saunders) would potentially leave considerable
incentive problems through higher effective marginal tax rates
associated with greater targeting.[102]
Finally, churning may not be as irrational as its critics
suggest. According to Whiteford:
The term churning itself is an example of
persuasive labelling ; it gives the impression that what is
happening is haphazard or unplanned, or is the result of badly
designed or irrational policies. But churning may result from
intentional policy changes designed to reduce poverty or promote
economic efficiency.[103]
For example, Whiteford suggests that an example of rational
churning in Australia might be the July 2000 introduction of the
goods and services tax combined with a compensation package of
increased benefits and family payments. While this involved an
increase in churning, it was specifically designed, he argues, to
increase economic efficiency while protecting low-income groups
from the adverse effects of higher prices .[104]
Further, middle class households may regard it as entirely
rational to pool their resources with the rest of the community
through governments in order to develop and maintain benefits and
services that they regard as being in their (and the broader
public) interest. Saunders work appears to concede the necessity of
government provision of such service as defence, police, transport
(he states that does not include these in his calculations of the
extent of churning). Some might argue that government provision of
welfare benefits (e.g. family payments) and services (education and
health services) is consistent with the objectives of combining
economic efficiency with fairness and equity (see following section
on social investment).
Even if there is some irrationality associated with churning, it
may be that this is not a matter of great concern for most people.
Perhaps it is the case that, as former prime minister, John Howard,
has suggested, people like getting a cheque from the government
.[105] This can
be illustrated by the fact that, although the option exists for
people to take family tax benefit in the form of lower taxes, fewer
than 10 per cent choose to do so (most preferring to take it as a
regular cash payment).[106] It may be that, given the choice, people are happy for
the welfare system to retain its piggy bank role.
According to some social policy scholars, more encompassing
forms of welfare are preferable to more selective forms because of
the role played by welfare in creating and securing conditions
necessary for productivity, efficiency and economic growth. This
position represents a challenge to two key themes in debates about
welfare policy: (a) the notion that welfare is either exclusively
or primarily about altruism and benevolence and (b) as discussed
above, the notion that welfare is inherently antithetical to (or,
at the very least problematic for) markets, productivity and
economic prosperity.[107]
Proponents of the idea of welfare as social investment turn
these themes on their head by arguing for the notion of welfare as
an essential prerequisite for economic prosperity. The basis of
this claim is the understanding of welfare as an investment in
human capital through, for example, strong education and health
systems and inclusive and cohesive societies. In this view, welfare
is conceived as an investment aimed at overcoming what are
essentially problems of poor human capital development (poor
education and health, social marginalisation) that themselves place
limits on productivity and economic growth.[108]
Social policy scholar, Paul Smyth, has illustrated this position
through a discussion of Esping-Anderson s recent work on the
importance of investment in children:
Esping-Anderson writes of the way in which
citizens life chances are powerfully overdetermined by their social
origins. Focusing on the long-term educational importance of
cognitive skills, which are for the most part developed prior to
formal learning, he argues that it is necessary to have, alongside
a well-designed school system, an absence of child poverty through
the guarantee of adequate income to families with children, as well
as the provision of universal, high-quality childcare. In the
knowledge economy, he writes, we simply cannot afford social
exclusion.[109]
Thus, according to proponents of the social investment approach,
welfare is not about stifling markets but rather providing a basis
for market-steering which results in better and fairer market
transactions .[110] Consequently, it is argued, there is no inherent
conflict between equality and efficiency.[111]
Smyth has argued that the social investment approach during the
late nineteenth and early twentieth centuries played a key role in
the development of the Australian economy.[112] Rather than remain a largely
agrarian society with a small population and low wage service
class, he argues, Australia chose to use its land-based wealth to
steer its economic development towards the new industrial sector
and so develop a more diverse, higher-wage economy .[113] At this time, the
state played a bigger role in the Australian economy than in any
other country.[114] This investment included both physical infrastructure
(roads, ports and railways) and social infrastructure (state
secondary and technical education, public health and slum
clearance).[115]
According to Smyth, governments task was conceived in terms of
equipping individuals to participate effectively in the market
.[116] However,
throughout the twentieth century this approach was successfully
challenged by various layers of alternative approaches, culminating
in the free market approach that came to dominate the international
policy agenda from the 1970s.[117] Recent years have seen a resurgence of the
social investment approach through ideas and policies associated
with the third way particularly in the UK. In Australia, moves
towards a social investment approach have been more tentative than
in countries such as the UK. The clearest Australian manifestation
of the social investment approach ahs been through the Council of
Australian Governments (COAG) 2006 proposal for a third wave of
national economic reform based around a major new investment in
human capital.[118]
Importantly, from the perspective of this paper, proponents of
the social investment approach have argued that welfare systems
that are inclusive of the middle classes make it possible to
combine high rates of growth with social equity. For example, the
economist, Peter Lindert s 2004 study of social expenditure and
economic growth in OECD countries found an association between
strong growth and universalist approaches to welfare. Lindert found
that high budget welfare states have achieved much the same growth
[as lower-spending countries] with greater equality .[119] Similar conclusions
have been reached in studies by economists Harold Wilensky and
Anthony Atkinson.[120]
Smyth suggests that an important lesson from Lindert s work is
the way tax and transfer systems can be designed to avoid
compromising growth; and in particular the way in which universal
systems can foster growth better than strictly means tested ones
.[121]
Lindert s explanation for this is that it probably relates to
the politics of welfare. That is, he argues that for social
democratic welfare states, universal welfare entitlements have
created both the political necessity and opportunity for pro-growth
tax mixes :
It is easier to pass pro-growth, relatively
regressive changes in the tax structure if the left opposition can
be calmed by a commitment to spend tax proceeds on universalist
safety net transfers. Such political transfers seem to have tied
the postwar emergence of the welfare state to the rise of broad
consumption taxes rather than taxes aimed at businesses and the
wealthy. By contrast, conservatives in low-budget countries like
the United States have lacked such protective political clothing
for their preferred tax reforms. Having rejected the welfare state
with its broad transfers and public health care, conservatives have
looked like blatant redistributive grabbers when they have called
for consumption taxes and tax relief for capitalists.[122]
There are several points that can be raised in relation to the
proposition that universal welfare is strongly associated with
economic growth. First, Lindert s political explanation for why
this should be the case, while plausible, appears to be mainly
speculative. This suggests the need for more research into what
specifically it is about universalist systems that makes them as
good (or better) at achieving growth than systems which employ
means testing. Is the decisive factor actually whether the system
is universal or selective or are other elements at play?
Second, evidence of the benefits associated with universal
systems notwithstanding, the recent resurgence of the welfare as
social investment approach (particularly in the form of UK New
Labour s third way) has involved a strong emphasis on targeting of
particular groups thought to offer the best returns on investment
(e.g. education, childcare, health). Some have suggested that this
has led to a reduced focus on other groups and policies. For
example, Jenson and Saint Martin have suggested that the social
investment approach have led policy makers question the
cost-effectiveness of second chance interventions for
adults.[123] They
have also suggested that the elderly are likely to be disadvantaged
under this approach.[124]
Arguably, this is the logical consequence of reordering of
welfare along productivist lines that is, conceiving of welfare in
(instrumentalist) terms of serving the economy rather than in terms
of social rights. However, some suggest that this is not
necessarily the case and that a social investment approach informed
by values (as Smyth puts it, new social criteria for investment
decisions ) can enable the pursuit of economic prosperity in
combination with people s current and future welfare needs.[125]
Finally, the social investment is relatively silent on the
question of the environment and appears to assume that the only
relevant impediments to growth are social. Arguably, though, there
are reasonable grounds to suggest that economic and social policy
need to be rethought in the light of environmental risks such as
climate change. Smyth argues that the social investment approach
implies the possibility of integrating economic and social policy
in a mutually beneficial way. Perhaps an integration of economic,
social and environmental policy is equally crucial.
One of the main arguments used for including the non poor in the
welfare state relates to what Goodin and Le Grand have called the
sharp elbows of the middle classes :
The idea here is that if the middle classes
benefit from programmes, then they will use their not
inconsiderable political skills to obtain more resources for those
programmes or to defend them in periods of decline. As a result,
the welfare programmes will be better funded and the poor better
off in consequence than they would have been had the middle classes
not been beneficially involved. [126]
Thus, as Peter Saunders from the Social Policy Research Centre
argues, broadly based programs have an important role in
underpinning the support of the middle classes :
without which the welfare state would founder
politically. Far from being its main weakness, middle class welfare
is the lifeblood of the welfare state.[127]
For advocates of this position, sometimes known as the middle
class inclusion thesis , systems that restrict welfare services and
benefits to the poor are much more vulnerable to retrenchment (that
is, being eroded or withdrawn) and likely to be inadequate compared
to those to which all citizens may participate in by right.[128] In other words, if
the welfare state includes the middle class, the political
possibilities are greater for providing generous social protection
for the less fortunate .[129]
The main evidence in favour of there being a middle class
inclusion effect is that, as discussed above, more encompassing
welfare states have larger redistributive budgets and provide more
generous benefits than those based around basic security and
targeting. That is, as Shaver puts it, benefits earmarked for the
poor are likely to be poor benefits .[130]
There are a number of explanations for how middle class
inclusion operates to produce support for generosity for the poor.
For example, in his history of the European welfare state, Peter
Baldwin has described this phenomenon in terms of a trickle down
effect resulting from the middle classes ensuring that their
interests were protected through a generous social insurance
system, which then opened the way for the poor to benefit.[131] Korpi and Palme
argue that more encompassing welfare state arrangements act as
intervening variables creating the bases for cross-class
coalitions:
By giving basic security to everybody and by
offering clearly earnings-related benefits to all economically
active individuals, in contrast to the targeted and basic security
models, the encompassing model brings low-income groups as well as
the better-off citizens within the same institutional structures
The encompassing institutional model can thus be expected to have
the most favourable outcomes in terms of the formation of
cross-class coalitions which include manual workers as well as the
middle classes. By providing sufficiently high benefits for
high-income groups so as not to push them to exit, in the context
of encompassing institutions the voice of the better-off citizens
helps not only themselves but low-income groups also.[132]
Thus, the idea common to most explanations of why middle-class
inclusion in the welfare state results in more generous benefits to
the poor relates to the self-interest (rather than altruism) of the
middle classes.
One criticism made of the middle class inclusion thesis is that
the middle classes will tend to reserve their support for the
welfare state for those parts of it from which they are most likely
to directly benefit. For example, in case studies examining the
fate of welfare programs under the Thatcher and Reagan Governments,
Goodin and Le Grand found that in Britain, the Thatcher Government
had been significantly more generous in its treatment of social
programmes characterized by predominantly middle-class
beneficiaries than in its treatment of programmes used
predominantly by the poor . In the US, non-means tested social
insurance programmes continued to flourish under the Reagan
administration s cutbacks, while the means test for social
assistance programmes targeted tightly on the poor [grew]
progressively meaner .[133]
Similarly, a study by Kenneth Nelson found that vulnerability of
means tested programs to retrenchment (that is, cuts in the form of
reduced benefits and/or abolition of programs) is greater in the
more extensive welfare states (those with encompassing social
insurance systems), than it is in countries that rely primarily on
basic security forms of social insurance or that place greater
emphasis on private forms of income protection (for example, the US
and Australia).[134]
While Goodin and Le Grand take this as evidence against relying
on the middle class as a guarantor of welfare generosity, others
see it as evidence for the need of greater middle-class inclusion.
As Baldwin argues:
social legislation aimed also at the middle
classes has been more stable and firmly supported than measures
reserved for the needy. Even perhaps especially the cutbacks of the
1970s confirm the point here, having hit most harshly those
programs and policies addressed particularly or only to the poor,
while largely sparing middle-class entitlements. In the long run,
the unfortunate have gained most from those welfare states anchored
in the interests and affections of the bourgeoisie.[135]
One problem with the argument that universal/encompassing models
are a better guarantee of public support for welfare is that, the
attempts above notwithstanding, it is very difficult to demonstrate
a causal relationship between the type of welfare institution and
the attitudes and behaviours of specific people. Korpi and Palme
themselves acknowledge this problem when they note the lack of
direct causal (as opposed to associational) evidence for their
hypothesis:
The empirical testing of macro-micro links
between institutions and the formations of interests and coalitions
provides a major challenge to social scientists. So far, we lack
the comparative micro-data necessary for opening up this
macro-micro blackbox.[136]
However, in support of their hypothesis Korpi and Palme do
provide evidence that the German social insurance model, comprising
separate schemes for manual workers and salaried employees (under
which the latter are substantially privileged), has significantly
contributed to the cementation of the white/blue collar divide in
Germany .[137] In
other words, the existence of separate schemes has militated
against the possibility for cross-class coalitions. Several authors
have also referred to survey evidence which indicates
universal/encompassing models of welfare receive considerably more
support among citizens than targeted models.[138] However, other studies have
found no variation in support across welfare state types.[139] In any event,
indications of support for a particular welfare model do not really
assist us in understanding whether that model is a decisive factor
in producing attitudes and behaviours towards the welfare state
and/or towards the poor.
A possible alternative explanation for the middle class
inclusion effect could be that there is a universalist/encompassing
approach to welfare because there is a general socio-cultural
disposition in favour of welfare expenditure, rather than the other
way around. British sociologist, Anthony Giddens, suggests that
this might be the case when he argues that Nordic egalitarianism
has historical and cultural roots rather than being only the
product of the universalist welfare state .[140] There is, he argues, wider public
acceptance of higher taxation than in most Western countries
.[141]
It is also important to note that, while there is evidence that
people will tend to support social institutions from which they
directly benefit, there is also evidence of the opposite: that
people will support institutions despite there being no obvious or
immediate benefit to them directly (for example, bushfire services,
the police). Further, there is also evidence that people will
support social institutions for moral reasons (for example, blood
donation).
None of this is to argue that the middle-class inclusion thesis
is wrong but rather that (a)it is difficult to prove and (b)the
picture is likely to be more complex than simple causality between
type of welfare system and level of support for welfare
generosity.
The idea that welfare is positively
associated with social cohesion has long been a prominent feature
of social policy debates. Broadly speaking, social cohesion can be
said to refer to the process of minimising social disparities and
avoiding conflict and polarisation.[142] In other words, it is strongly
associated with values and objectives such as equality,
inclusiveness and community. Social cohesion is therefore closely
related to (and often used interchangeably with) concepts such as
solidarity, fellow-feeling, unity, social connectedness, social
stability, social integration and social inclusion.
The term social cohesion (and its
various related terms) and the ways in which it has been used have
frequently been the subject of criticism.[143] White has described it as a
quasi-concept whose conceptual precision seems to be inversely
correlated with [its] political usefulness .[144] Nevertheless, it has long been
a key concept in the social sciences, including studies of social
policy. Indeed, according to some accounts, the development of the
welfare state can be understood as a series of political responses
to social cohesion. According to White:
England was the first country to adopt a
clearly social policy, in the form of the poor laws (1563,
1601, 1834), in which the crown established and enforced the first
national program for the management of poverty through
redistribution. The Poor Laws aimed to protect the landed gentry
and an emerging bourgeois society from the so-called dangerous
classes , by physically maintaining and containing the latter in a
manner that would enforce obedience to the new norms of labour
market and self-responsibility. Yet it was not in liberal England,
but rather, in conservative Germany that the first welfare state is
considered to have been born. The most advanced industrial nation
in the 19th century, it was also the most immediately
threatened by the potential for class war. Here, in the 1860 s,
Bismarck introduced a series of social insurance programs which,
for the first time, institutionalized a degree of security for
workers through cross-class solidarity, to be enforced by
government.[145]
Further, White argues that contemporary welfare states are the
direct descendants of these different, early strategies for
managing volatile market societies, as well as more modern
strategies, based on social democratic traditions .[146]
As can be seen from the above, the
basic argument for a positive association between welfare and
social cohesion is that the former contributes to the latter by
enhancing the capacity of the society to ensure the well-being and
sense of security of individuals or groups. However, the social
policy literature contains a range of propositions about the
precise mechanism(s) according to which welfare promotes social
cohesion, including:
- by reducing social inequality, exclusion and insecurity,
welfare reduces the possibilities for class resentment and social
conflict.[147] In
other words, conflict is less likely in societies in which the
broadest number of people consider that their basic material,
social and various other needs have been met
- by reducing the social distance between citizens, welfare
creates a shared space of identity and status. This is considered
to enhance possibilities for the development of social unity and
affinity. In some cases, this can be expressed in the form of
national identity (for example, when comparisons are made with the
less generous welfare states of other countries).[148] According to some accounts,
universal welfare is better placed than targeted welfare to achieve
social cohesion because it involves citizens from across the
society belonging to the same systems, programs and
processes.[149]
For example, Titmuss strongly emphasised the role of the universal
welfare state in cultivating people s altruistic feelings and
institutionalising a deeper sense of community and mutual
care[150]
- similarly, some argue that welfare enhances the possibilities
for the formation of political alliances and solidarity among
interest groups and social classes. As discussed in the previous
section, some argue that universal/encompassing welfare states are
more conducive to cross-class solidarity than targeted ones as a
result of the middle class inclusion effect. That is,
universal/encompassing welfare states encourage cross-class
cooperation because it is in the interest of all who participate in
the welfare state to do so.
While these propositions are categorised
separately, they are not necessarily mutually exclusive. For
example, while it is often presumed in welfare and other policy
debates that people are motivated either by altruism
or self-interest, others have suggested the need to assume
that people will have multiple, co-existing impulses and
considerations (which may include both altruism and
self-interest).[151]
The key question for this paper is whether
possibilities for social cohesion are enhanced (or perhaps even
diminished) by middle class participation in the welfare
state. As noted above, a range of social policy scholars, from
Titmuss to Korpi and Palme, consider universal/encompassing
approaches to welfare to be more likely than targeted ones to
achieve social cohesion. On the other hand, some have suggested
that targeted welfare can also play an important role in
strengthening social cohesion. For example, T.H. Marshall argued
that a total scheme is less specifically class abating in a purely
economic sense than a limited one, and social insurance is less so
than a means tested service .[152] Further, White has suggested that in targeted
approaches, the right to social assistance is available to any
resident who meets established criteria of need, thus laying a
basis for a shared sense of social security and solidarity amongst
all citizens, should calamity befall any one of them .[153]
The main problem in evaluating the relative
claims of universality and targeting in promoting social cohesion
is the absence of specific studies comparing different welfare
approaches in relation to this objective. This could possibly be a
result of the conceptual imprecision discussed above. That is, the
specific evidence any such study would be looking for is not
entirely clear (the extent of social conflicts?, attitudes across
the society to people in different classes, subclasses, ethnic
groups?). While, as discussed above, some have suggested that
public opinion about the welfare state might be used as evidence
for cross-class solidarity in universal/encompassing systems, the
evidence for this is mixed. Further, even if there was strong
evidence for greater support for welfare in universal/encompassing
systems, we would still need to ask precisely what this is
measuring. Is the particular model of welfare the only or decisive
factor or should we be looking to other explanations such as
differences in culture and/or the social, political and economic
organisation of the welfare state.[154]
A further (infrequently acknowledged) point to be made in
relation to debates about the relationship between welfare and
social cohesion is there are competing notions of precisely what
kind of society is the desired endpoint. What one considers to be
the good society will tend to differ according to one s
philosophical and/or political point of view (conservative,
liberal, social democratic and so forth). In other words, while
notions such as social unity are often presented in political
debates as if they are above politics, they are inextricably linked
with competing notions of the good society (that is, they are
inherently political).[155] Governments will tend to use different kinds of
welfare expenditure to advance the notions of the good society to
which they subscribe. Further, some attempts to advance particular
notions of community at the expense of others might well be
considered as socially divisive, rather than advancing social
solidarity. Some have argued that this is one effect of welfare
reforms inspired by the concept of mutual obligation over the last
decade in many western countries that is, the division of welfare
recipients into those deserving of more or less unconditional
support (the aged, families with children) and those to whom
conditions (such as activity tests) are applied.[156]
On a related note, it has been argued that welfare reforms in
recent years, in addition to promoting the interests of particular
categories of citizens over others, have eroded the basis for
social cohesion by emphasising the role of the individual over that
of the social. According to White:
Traditional welfare state policies, at their
best, constructed solidarity by placing all citizens on equal
structural footing with respect to a spectrum of social rights,
providing a shared sense of social security. They supported the
view that market societies posed multiple risks to all citizens,
risks that the state could mitigate through the techniques of
social policy New policies, in contrast, locate risk in the
individual: in his or her levels of, and capacity to deploy, human
and social capital. They support the view that a citizen s ultimate
place in the multidimensional hierarchy of income, education,
skills, health and so on, depends on what he or she does with
opportunities, however meagre these may be.[157]
Thus, according to this view, the underlying
notion of citizenship reflected in welfare state policies is
central to understanding the relationship between welfare system
type and social cohesion. This may include questions about whether
the middle class participates or not but equally it may include
additional questions such as whether a given system ultimately
locates the welfare problem in the actions of individuals or in
social factors.[158]
As noted above, understanding the possible implications for
Australia from international debates about welfare policy is made
complex by the different kinds of welfare regimes and programs
prevailing in different countries. Further, while much of the
debate and evidence outlined above refers to comparisons between
different welfare state types (universal/encompassing, targeted) at
the macro level, the Australian debate about middle class welfare
has tended (at least in recent years) to focus on whether
particular welfare programs should be means tested or
available to all.
A related issue is that a policy change in the direction of
either means testing or universality does not necessarily imply a
move by a given government/welfare state in the direction of a
particular approach to welfare at the macro level. For example, one
of the criticisms generally made about the (at present)
universally-available private health insurance rebate (and other
private health insurances incentives) in Australia is that it forms
part of an attempt to erode the universal basis of Medicare. It is
said to do this by constructing the public health system as an
essentially residual, safety net system and the private system as
that used by responsible Australians seeking to take the pressure
off public services.[159] With these caveats in mind, this section attempts to
briefly sketch some of the possible implications for Australia of
the debate and evidence discussed in the previous section.
The various technical problems associated with
means testing suggest, at the very least, the need for careful
design (and, where necessary, redesign) of welfare programs. Given
the nature of the debate, Australia is likely to remain the most
means tested of all welfare states for the foreseeable future.
Further, continuing pressure on budgets is likely to lead to calls
for means testing in other areas such as health and education.
However, the possibility that means testing can have negative
consequences for the very people it is intended to assist (for
example, through poverty traps associated with high effective
marginal tax rates) does not feature prominently in Australian
debates about middle class welfare.
It is interesting to note that even authors as strongly opposed
to middle class welfare as Goodin and Le Grand have described
Australia s attachment to means testing as just plain perverse ,
given the difficulties associated with finding the Perfect Formula
for restricting welfare to the poor.[160] While this may overstate matters,
it is reasonable to suggest that a greater appreciation of the
problems associated with means testing would provide greater
balance to the Australian debate. Arguably, this is an important
objective given the increasing rate of unemployment associated with
the global economic crisis. To this end, as noted above, Julian
Disney has suggested making adjustments to the current means
testing regime for Newstart Allowance.
On the matter of redistribution, comparative
studies indicate that welfare states with the highest levels of
middle class welfare perform better than those with low levels in
reducing poverty and inequality (the Robin Hood
objectives of welfare), though the precise reasons for this remain
unclear. As discussed above, Whiteford has shown that the common
explanation, greater middle class support for generosity for the
poor in those systems in which the middle class are participants,
is undermined by the fact that, once taxes are taken into account,
transfers to the poor are not substantially greater in
universal/encompassing systems than they are in selective systems.
However, this does not alter the fact that poverty rates are higher
in selective countries than those favouring
universalist/encompassing approaches and that one possible
explanation for this is that this poverty could be a result of
behavioural responses to the benefit system (that is, poverty traps
associated with means testing). This challenges the assumption at
the heart of much of the debate about middle class welfare in
Australia that excluding the middle class enables more resources to
be directed at alleviating poverty and inequality.
As discussed above, comparative data about the comparative
performance of selective versus universal/encompassing systems in
relation to the piggy bank objective of welfare is
scarce. Whether one considers middle class welfare in this area to
be desirable will largely depend on whether one takes a narrow or
broad view of the role of welfare. For example, if, family payments
are seen simply as compensating people for the costs associated
with raising children, one might argue that it makes sense to
restrict such compensation to those on the lowest incomes. On the
other hand, if such payments are seen as part of
encouraging people to take the risks associated with
having children (for example, reducing/leaving paid employment),
one could argue that it would be rational to include people on
middle incomes (and at a level that makes taking such risks
sufficiently attractive).
A similar point can be made in relation to health. A narrow
approach would restrict assistance for the sick to those on low
incomes, while a broader approach (the approach that underpins
Australia s Medicare system) might seek to establish arrangements
that did not require people to become poor in order to receive
assistance (on the grounds, for example, that such disruptions are
not conducive to individual or broader socio-economic
security).
This is an important area for discussion given that much of the
recent controversy in the middle class welfare debate has been in
areas related to the piggy bank objective (for example, family
payments, pensions/superannuation). While some would argue that
recent policies in this area have been poorly designed or built on
unfair foundations, at least some of this controversy may have been
avoided if it had been possible to have a clearer public debate
about the choices involved (as opposed to the politics of envy
versus welfare for the rich ).
Further, despite arguments suggesting a connection between
welfare and poor economic productivity, there is
comparative evidence showing that high taxing
universal/encompassing welfare states have been able to achieve
high rates of economic growth combined with social equity. In other
words, on a broad systemic level, the evidence indicates that
middle class welfare does not create incentive problems and hence
is not related to poor productivity outcomes. As discussed above,
some argue that, to the contrary, substantial and broad state
investment in human capital (social investment) is essential for
economic recovery and future economic development. In Australia, as
in other countries seeking to address the global economic crisis,
the state has increasingly taken on the role of investing in
physical infrastructure in order to stimulate the economy. Those
favouring a social investment approach would argue that similar
investments need to occur in human capital (for example, in
training for green jobs , investment in children, particularly in
early childhood) in order to ensure to ensure a sustainable
economic recovery. Nonetheless, questions of values remain
important. At this critical juncture, do Australians want an
expanded role for the state or do they want state intervention to
remain at its current (relatively minimal) level? As Smyth has
argued, a strong move in this direction would involve an historical
change from the Australian Way of building up the public
infrastructure to exercise real freedom, but not constraining
everyone within a universal welfare state .[161]
Further, evidence indicates that middle class welfare is
associated with greater generosity in the level of benefits
provided overall and greater resistance to retrenchment (that is,
erosion in the level of benefits and/or abolition altogether). The
most widely accepted explanation for this is the middle class
inclusion thesis: put simply, the middle class is more likely to
support welfare generosity to the poor if they themselves believe
the welfare state to central to their interests. While this paper
has argued that, given the lack of specific causal evidence, there
are problems with assuming that the type of welfare state
(selective or universal/encompassing) is the only relevant factor
in welfare state generosity, the association overall appears to be
a strong one (and is relatively uncontested). For those seeking to
institutionalise broad support for the welfare state overall
(including generosity to the poor) or even particular programs, one
lesson from this is that middle class support is likely to be a
crucial ingredient in achieving this objective. The
institutionalisation of Medicare in Australia is probably the most
significant local example.
On the other hand, the fact that programs accessible by the
middle class tend to be resistant to retrenchment suggests that
some caution should be applied by policy makers and others when
considering whether or not a program should be available
universally. As Norton has argued in relation to the expansion of
middle class welfare under the Howard Government, when generous
welfare payments reach deep into the middle class, covering
families living in the marginal seats that decide federal
elections, it would be a very brave government that cut them
.[162] While the
second Rudd Budget did include a relatively significant expansion
of means testing, it is important to look at this in the context of
the extraordinary budgetary circumstances prevailing as a result of
the global economic crisis.
Finally, while an association between welfare inclusive of the
middle class and social cohesion has long been
asserted, the lack of specific comparative evidence on this matter
makes it difficult to draw firm conclusions. Some would argue that
Medicare provides a good example of a universal social policy
enhancing social cohesion, given the widespread support it has
throughout the community and the sense in which it has become, for
many people, identified with the Australian notion of a fair go for
all . Indeed, for many people, the existence of Medicare has become
a source of national pride a symbol of Australia s commitment to
egalitarianism and community to be contrasted with, for example,
US-style health care .
There is an argument, though, that that universal access does
not necessarily have to imply universal free access.
Drawing on an argument first advanced by Crosland in the 1950s,
Goodin and Le Grand have suggested that it is one thing not to
means test access to a service; it is quite another not to use
means tests to charge those who can afford to pay for their usage
of those universally available services .[163] The difficulty, from a technical
point of view, would be in devising a combination of tests and
charges that did not cause people to avoid using necessary
services.[164]
McAuley and Menadue made this argument in a 2007 paper proposing
health reforms in Australia based around a restored universalism
:
Universalism means one system accessible to
all. As citizens we should all use the same health care system.
Poor and rich should have access to the same health care services
from the same providers. (This contrasts with the present
government policy of encouraging a segregated two tier system.) A
universal system is not necessarily a free system; the poor and
rich may pay different amounts to have access to that universal
system, but the well-off and the poor should not have separate
providers (the charity ward notion of health care). All should
share the one, high quality system.[165]
The authors go on to suggest that co-payments, if
well-structured, can help people make better choices, and they can
provide some relief to public budgets .[166] Given that such a system would be
based around universal access to the same services, it is at least
possible that Medicare could achieve the same impact on
social cohesion, though in a way that recognised the different
capacity of people to pay (and hence was more redistributive in its
overall impact).
Further, others might question whether the means testing of most
of Australia s welfare benefits, in any tangible way, diminishes
social cohesion. Perhaps it is enough for people to know that the
welfare system is available to them should they ever need to access
it. According to Shaver, although not fully universal, the social
protection [Australian welfare benefits] have afforded has been
sufficient to establish a foundation of equality in which all
citizens are able to participate in social, economic and political
life .[167] Would
social cohesion be significantly enhanced by universalising
programs such as the aged pension and how would we quantify the
difference?
On a final note, arguably the most significant factor for social
cohesion (particularly, if we take this term to have some
relationship with the term social inclusion) in recent years has
been not so much the extent of means testing but the differential
treatment of welfare recipients in different categories. That is,
tightened conditionality for some categories such as the unemployed
and single parents, at the same time as greater generosity in terms
of benefits and relaxation of means testing for others such as
families with children and the aged.
The various cuts to middle class welfare announced over the
previous two budgets do not appear to amount to a significant
change in direction in the welfare area by the government. Rather,
they are more likely to be a reaction to increased budgetary
constraints and the sense that the previous government went too far
with middle class welfare (at least, in some areas).
Nevertheless, the emergence of the global economic crisis and
associated social upheaval (particularly in the form of high
unemployment) is likely to give rise to increasing debate about the
appropriate shape and extent of Australia s welfare arrangements.
Given the dictum that one should never let a good crisis go to
waste , some will take the opportunity to press for fundamental
changes in the direction of either more encompassing forms of
welfare or a more streamlined (and, they would argue, sustainable
approach) guided more strictly by the objective of assisting those
most in need.
This paper has highlighted evidence suggesting that, should the
Australian Government be interested in fundamental reform, there
are a number of potential benefits associated with including the
middle class in the welfare system. It is reasonably clear that
welfare systems that have high levels of middle class involvement
are associated with high levels of redistribution, productivity and
support for welfare. Some also argue that such systems can also be
associated with high levels of social cohesion (though comparative
evidence is lacking). Similarly, as argued above, targeting through
means testing is not necessarily the panacea that many suggest it
to be (particularly, where it gives rise to high effective marginal
tax rates, poverty traps and other unintended consequences).
Importantly though, as argued above, not every policy change in
the direction of either means testing or universality implies a
move towards a particular approach to welfare at the macro level.
Indeed, for example, it is possible that some forms of universalism
can potentially have the effect of eroding others (some have argued
that the non-means tested private health insurance rebate had
precisely this effect in relation to Medicare). Further, it is
possible that universalism in particular categories of welfare, if
they are introduced concurrently with more rigorous conditionality
for other categories of welfare, can undermine key objectives of
universal/encompassing systems (for example, social cohesion).
The role of values and associated objectives is also vital in
understanding the middle class welfare debate. An Australian
commentator on public policy issues has argued that:
Public policy should proceed from articulation
of underlying values, through statements of principles, to details
of programs giving effect to those principles. For the most part,
however, the political processes have generally been confined to
the last step, with people left to work out the principles by
inference.[168]
What seems clear is that the debate about the middle class and
welfare could be made more productive if participants were clearer
about the values and objectives underpinning their perspectives.
Those considering the rights and wrongs of middle class access to
welfare may also wish to consider the following issues:
- what should be the role of welfare? Should it mainly be about
redistribution of wealth to those in need or are other objectives
equally as important? Is it appropriate to trade-off principles
such as equity in pursuit of other objectives?
- should we treat all areas of welfare in the same way? For
example, should we treat income support benefits in the same way as
health care services?
- what should a twenty first century (post-global economic
crisis) conservative, liberal, social democratic or green position
on welfare look like?
- is the design of Australia s current welfare arrangements
(non-contributory, predominantly means tested income support
combined with (largely) non-contributory, non-means tested health
care benefits) appropriate to meet current and future challenges
such as rising unemployment (potentially sustained at very high
levels) and the ageing of the population?
- what should be the role of the state? Political and economic
debates for several decades have been premised on the virtues of
small government and the withering away of the state as part of
globalisation. Does the interventionist response by international
governments to the global financial crisis mean looking differently
at these issues? Is the state regarded as having a legitimate role
in social investment through the welfare system? Are people willing
to pay higher taxes in order to pay for an expanded state role in
welfare?[169]
- the response to the global financial crisis has highlighted the
role of (non-means tested) corporate welfare in promoting economic
and social stability. Does this have any implications for our
understanding of means tested welfare?
These are difficult questions (and far from the only ones that
might be asked in relation to this topic) but the answers to
fundamental questions such as these should form the basis of
attempts to respond to the complex issues associated with middle
class welfare in Australia.
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