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Thursday 27 April 2017

How to eliminate the deficit now!

Are we living in La La Land? The polls seem to suggest so. Recent polls indicate we want to have our budget fixed but not at the expense of welfare cuts (see "Voters: cut spending but no pain to fix budget deficit"). Sort of having our cake and eating it too!


At ~$160B Social Security & Welfare is the largest single cost in the budget representing some 36% of total expenditure, and of course it is growing at the fastest rate. With a ~$37B deficit if we were to leave Welfare untouched and bring the budget into balance the savings would have to be made from Education, Health, Defence, the Public Service, etc. I wonder how voters would react to cuts of over 10% in Health and Education. Or imagine how Unions would react to a reduction of 20,000 public servant (ie 13% of the estimated 150,000)!

If this option is not palatable why not just raise taxes? Of course that also received low approval in the poll, but I am sure the pollsters would have achieved a higher rating had the choice been to "tax the rich".  Alas, taxing the rich, won't cut it any more either (see Judith Sloan's article  "Stop the rich-bashing: they pay their share" The Australian 26 April 2017). Unfortunately there is not that much cake to go around.

That now only leaves increasing taxes on everyone, while leaving their welfare payments alone.

Yes! That could work and may even be acceptable. Don't tell anyone that you are taking their money then giving it back to them. They won't work that out. Hey they haven't so far.

Limit welfare to the needy!

But seriously, you could could try something really novel. Limit all welfare payments just to the needy. Who are the needy ? We can afford to be generous, so lets call the needy those households that earn less than the average household income.

While I don't have recent figures, the above table for the 2009-2010 year (Government Benefits, Taxes and Household Income, Australia, 2009-10), shows the various adjustments to household income resulting from social services and welfare. It shows that 11% of Social assistance benefits in cash were paid to households whose income was above the median ( I had to cheat a bit by taking the third quintile and halving it on the basis that half of those in this quintile would be above the median household income and half below.) Taking the total of Social assistance benefits in cash as the total Social security and welfare budget of $160B welfare budget in the above pie chart, the 11% savings is equivalent to some $18B. A significant sum!

If we also consider the Social transfers in kind, a further $36% of these transfers were paid to those above the median household income. Taking these Social transfer in kind as represented by Education and Health totaling ~$105B in the budget, the 36% savings equates to  ~$38B.

By these admittedly simple approximate calculations we can see that limiting all Social security and Welfare payments, and Health & Education transfers just to the 'needy' households, the Federal budget could be cut by ~$56B per annum. This is massive, and certainly enough to not only eliminate the deficit but leave some change to start repaying our debt!.

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