May 20, 2009
Throughout his time as prime minister, John Howard endlessly repeated his contention that the old class conflict was dead and buried. He was right. These days most people think of themselves as "middle class" regardless of the extent of their means. We're conscious of social status, but we don't think in class terms.
All of us, except Howard. Now he's gone and the dust has settled, it's easier to see how assiduously he worked to advantage the interests of the better-off.
Over eight successive tax cuts (the last three of which are being delivered by Kevin Rudd), he quietly cut the tax paid by the top quarter of income earners by a lot more than he cut the middle. At the same time as he was undermining the government's revenue, he was ramping up government spending on the better-off.
By the standards of the developed world, Australians have never been highly taxed. We pay only a bit more than the Americans. The reason we pay less tax is that we've been careful to stick to a quite frugal welfare state.
We pay low, flat-rate pensions and benefits unrelated to people's former incomes, with payments subject to tight means-testing. If you don't need taxpayers' help, you don't get it.
This system we inherited from the sainted Bob Menzies. Yet his latter-day disciple spent more than a decade white-anting it. He did this mainly by introducing benefits that weren't means-tested.
The classic example was the 30 per cent rebate for people with private health insurance. Then there was the baby bonus, the greatly increased grants to private schools, part B of the family tax benefit and, for that matter, part A, which was means-tested only lightly.
Or, take child care. For a long time, the subsidy for the cost of child care was the means-tested child-care benefit. But Howard added a 30 per cent child-care rebate that wasn't means-tested.
Next, take the self-proclaimed "self-funded retirees". By definition, these are people whose means disqualify them for eligibility for the age pension; they don't need help from the taxpayer.
As everyone but me seems now to agree, Howard allowed the base rate of the single pension to become inadequate to the tune of $30 a week. But he was always slipping handouts to those whose claim to be self-funded was not a proud assertion of their independence, but a complaint that they were missing out. He gave them a special tax rebate, a seniors card and access to cheap pharmaceuticals. Most of all, he eased the age pension means test, cutting the rate at which other income reduced eligibility for the pension from 50 cents in the dollar to 40 cents. This enabled many more people to become part-pensioners (while still professing to be self-funded).
Finally, Howard changed the taxation of superannuation savings, making it obscenely and unsustainably more generous to high income earners (such as my good self).
So unclass-conscious have we become that it only dawned on the battlers they were being got at when Howard went over the top with his Work Choices industrial relations policy.
One of the main reasons economists fear the Rudd Government will have difficulty returning the budget to surplus after the recession has passed is that those eight successive years of tax cuts have weakened the recuperative powers of the budget's revenue side.
So eventually we'll need either explicit tax increases or big cuts in government spending to restore the budget to surplus. Now you see why the budget cognoscenti are urging Rudd to attack (upper) "middle-class welfare", rolling back Howard's profligacy and restoring the welfare system to its former means-tested Menziean modesty.
Rudd put a toe in the water in last year's budget, imposing $150,000- a-year cut-offs on eligibility for family benefit part B, the baby bonus and the dependent spouse tax offset. This year he went further, imposing a means test on the private health insurance rebate, hacking into the superannuation tax rort, tightening the indexation of family allowance part A, phasing up the age pension age to 67, and returning the pension "withdrawal rate" to 50 cents in the dollar (but doing so in a way that exempted the present crop of whingeing self-funded retirees).
There was just one problem: the savings from all those five measures will do no more than cover the huge and ever-growing long-term cost of the increases in the pension. So expect a lot more cuts to middle-class welfare.
It was always going to be interesting to see how much of this crackdown on middle-class welfare Malcolm Turnbull would oppose. He chose to wink at everything bar that old ideological battleground, private health insurance.
Rudd's desire to means test that rebate, he said, was the proof that Labor still hated private insurance because it "encourages self-reliance and offers choice". His objection was not the hit to the pockets of high income earners (including me) but the extra pressure it would put on public hospitals as people gave up insurance.
Nonsense. Because Labor plans to increase the Medicare levy surcharge on high income-earners without private insurance (the stick) as it reduces or removes the rebate (the carrot), even the industry accepts its loss of membership is likely to be minimal.
As for this proving Labor's eternal enmity towards private insurance, it's actually the reverse: the increase in the surcharge is Labor's acceptance of Howard's government-supported, two-class health system.
So there was Turnbull defending a handout to the better-off by proposing it be replaced by higher tobacco tax (which these days mainly hits low income earners, whatever its health virtues).
None of this leaves Rudd as any kind of hero. He came to office promising to increase Howard's 30 per cent unmeans-tested child-care rebate to 50 per cent. He's sticking doggedly to his promise to implement the three unfair and now irresponsible tax cuts he pinched from Howard.
And he's refusing to pass the pension increases on to sole parents and the unemployed, deepening Howard's division between the deserving and the undeserving poor.
He's no class-warrior, just another pragmatic vote-gatherer.