7 May, 2010
Living Without Shame and the Henry Review
This e-bulletin is produced by Anglicare Australia and discusses the outcomes of the Henry Tax Review, the Government’s response and some of the issues that flow from it. The Government has committed to further action in the future.
In the meantime, next week there’s a budget and sometime soon an election. Among the many issues we need to address, inadequate income and unaffordable housing are two that stand out from the Henry Review. This e-bulletin discusses action on those fronts.
The Government and the Review
’Australia’s Future Tax System’, the Henry Review, proposed a coherent series of reforms to the Australian tax system that would result in a simpler, more transparent, somewhat more efficient, and in many cases more equitable, system. It is not, however, particularly radical or visionary.
The Australian Government’s response to date has been to announce some limited, politically careful actions which have been generally well received: the introduction of a substantial tax on resource industry profits, an increase to the level of compulsory superannuation and a boost to the cost of tobacco. Unfortunately, despite some alterations at the margins, the tax treatment of superannuation still favours people on high incomes over those on low. Government rejected the Review’s recommendation to tax people’s super at their marginal tax rate, once their contributions pass a substantial threshold, which would have benefited the less affluent instead.
The government also ruled out a number of other recommendations at the outset. This was not particularly helpful in the context of a broad debate on tax reform as the issues underpinning those recommendations may now be ignored.
And so, while it may reassure many to know the government will not support the introduction of a work requirement for supporting parents once their children reach four, the high effective marginal tax rates and barriers to employment faced by single parents are yet to be addressed. Similarly, the apparent rejection of the proposed phasing out of the PBI fringe benefits tax exemption neither deals with the slow problem of its diminishing value, nor of its opaque and regressive effect.
More detrimental to those seeking a fairer and more progressive society was the assertion that government would not look more carefully at negative gearing, the value of family homes or means testing family benefits, nor even study a tax on bequests.
More helpful perhaps is the vast number of the 138 recommendations that the government to date has remained silent on. They include topics raised in Living without shame Anglicare Australia’s submission to the review, such as adequacy of income, barriers to social and economic participation, rental housing supply and affordability, as well as aged care, transport and the environment. There is every reason to suppose that a number of these will become grist to the mill during the election, or will re-emerge on the agenda when the election is done.
It is hard to know how this erratic political climate will serve us as we seek some progressive reform to the tax and transfer system, particularly in how it affects the most vulnerable and disadvantaged members of our society, but it does provide us with an opportunity to raise the issues in the public domain.
INCOME ADEQUACY AND A GUARANTEED MINIMUM WAGE
The key call in Living without shame was for a guaranteed minimum wage for all people who contribute to our society whatever their capacity, whether that be through employment, volunteer endeavour, care giving, community development, or contributing to the shaping and delivery of the services they themselves depend on.
The Henry Review identified as a principle, the primary purpose of income support and government assistance is: “to ensure a minimum adequate standard of living, taking into account individual circumstances and prevailing community standards.”
Taken on its own that might come close to Anglicare Australia’s call for a guaranteed minimum wage. A closer examination of the review’s analysis and recommendations however makes it clear that it takes a much more superficial approach.
The review identifies pensioners as those who aren’t expected to work, and argues that their pensions should be sufficient to provide an adequate standard of living. It then identifies two lower standards of benefits that clearly would not provide an adequate standard of living, in part because recipients should be required to seek work, and need to have an incentive to do so.
There is no analysis or coherent argument in the review to support the position that it is both necessary and appropriate for income support for these people to provide merely an inadequate standard of living. Nor is there any attempt to factor in the non wage earning contributions to society which some one on income support might be making other than full time carers, who are presumably saving the health care system identifiable dollars and are in receipt of carer payments.
Similarly, while the argument is made that many people with disability could – and it seems should – be earning some if not all of their income, there is no real discussion of the profound social barriers to employment in most workplaces. The same thing applies to ex prisoners, people with episodic illness, and many others.
While the Henry Review recognises and describes in great clarity the appreciable financial disincentives to work confronting many people living on pensions and benefits, and recommends individual adjusted systems to deal with that, it appears trapped in a view of human behaviour that is almost entirely driven by economic self interest, and does not recognise the shameful and disempowering dimensions to the social aspect of exclusion.
If the world of work was more welcoming very many people on income support would take the opportunity to join it, whether the benefits otherwise available to them were adequate or not.
Nonetheless, the most immediate issue facing many people on income support is poverty and hardship which can overshadow the search for employment. The Henry Review strongly recognises that the level of benefits for those entitled to and dependent on them is frequently insufficient, even on its own three tiered criteria. It unceasingly points to inconsistencies in how payments and entitlements are set, and highlights the destructive consequences of such a contradictory system.
Key points made by the Review in its analysis are that “current income support policy settings do not adequately reflect changing employment patterns and changes in the composition of the working-age population. Large differences in payment rates and conditions create incentives to switch to high payment categories that carry greater risk of long-term welfare dependency. Restructuring income support can reduce this risk, but only if it is clear that income support recipients are expected to find work and there is adequate investment in employment-related services.”
In it’s Overview document, the review notes that the 2009 Pension Review set adequacy levels for pensions, and argues that establishing adequacy benchmarks for other transfer payments, and developing a common sustainable indexation arrangement, would make the system more robust.
INCOME SUPPLEMENTS, ALLOWANCES AND CONCESSIONS
The Henry Review argues for a much more consistent approach to means testing, concessions, supplements and allowances. There is not detailed government response as yet and so the danger will be that some of the absurdities or incentives will be addressed in response to special pleading during the election campaign, and others will not. This is an area where government and community sector could and should work together in shaping a more equitable and less demeaning system.
Housing assistance justifiably comes in for close consideration.
Access to adequate, secure, affordable housing is an underpinning for health, wellbeing and connection to society. The exploding shortage of affordable housing sees a growing number of people living in housing stress across Australia. This hardship creates a barrier to the kind of social connection that Living without shame promotes.
To ensure assistance for housing is effectively targeted, in the words of the Henry Review “it should be an integrated component of an income support system designed to alleviate poverty that ensures people requiring assistance can access an adequate standard of housing; is based on a comprehensive assessment of individual means and the costs of housing; and minimises harm to workforce participation.”
That analysis flows on to a discussion about Rent Assistance. While the review’s recommendation that social housing providers charge market rent was met with outrage and immediately rejected by government, the discussion itself is quite nuanced.
The Henry Review acknowledges that not only are caps for Rent Assistance too low, their indexation to CPI means they are falling further and further behind, exposing renters to housing cost risks. As a counterbalance, the limited supply of public housing, with its income based rent, and the consequent use of queues to ration assistance, makes work force participation or relocation very risky for those tenants.
While the review goes on to recommend a shift to market rent for social housing, it does so on the basis of providing adequate and appropriately indexed Rent Assistance for all housing, private and public. This is an acknowledgement that a residualised shrinking public housing stock for high needs tenants and an increasingly expensive private rental market is creating serious social problems throughout metropolitan Australia.
Given the need to grow the supply of housing and to rein in sky rocketing residential rents and prices, it is doubly unfortunate that the Government has, at this stage, ruled out a review of negative gearing provisions, the replacement of stamp duty with a universal land tax, the means testing of high value family homes and the simplification of the capital gains tax.
back to top 
Income Adequacy
The Henry Review recognised that to live in Australia and to be included as an equal part of its society there are certain levels of adequacy that need to be met: adequacy of income, housing, employment opportunity and security, among others. Anglicare Australia would go a step beyond this and include the capability to add value to society intrinsically through the roles that we undertake rather than solely through the dollars that we generate. Government has not yet addressed these fundamental aspects of social inclusion in its plan to reform Australia’s tax system.
Currently the rates of payment, which are meant to support families and disadvantaged Australians to live a meaningful life in the Australian context, do not adequately reflect the needs and expectations of, and social responsibilities to, these groups. Further, any motivation to augment allowances through work is swiftly swept away by insurmountable marginal tax and withdrawal rates. The number and structure of payment categories, says Henry, “can and should reflect the changing social expectations”.
Henry also acknowledges that currently payments do not reflect an adequate living standard and that “under present indexation and benchmarking arrangements, the relative adequacy of allowances diminishes over time”. Although Henry has recognised the inequity and inadequacy of allowance payments, the review perpetuates the notion of fiscal ’non-productivity’ as non-participation. Those of working age and with no other mitigating circumstances such as caring responsibilities or disability, are expected to work. What Henry does not do is explore the underpinning issues such as diminished capacity, long-term unemployment effects, inter-generational unemployment and other such social barriers to full economic participation and ultimate reliance on income support. As such, the discussion around incentives and disincentives for work and the subsequent benchmarking of allowances is flawed.
Henry describes the need to provide incentives for work and the danger in providing income support at such levels as to be a disincentive. The review stipulates that this is an ineffectual system. However, the current benchmarks, marginal tax rates and withdrawal rates are also a disincentive to work and an ineffectual system. A balance must be struck between an individual’s need for adequate income support and the Government’s insatiable need to have all eligible workers, working.
In its tax reform plan the Government alluded to further announcements in the coming months regarding personal income tax and the individual experience of the tax system, claiming that it will be made fairer and simpler for everyday Australians. In the lead up to the budget and the election we would like to see Government take on the challenge of developing a clear and transparent justification and process for the implementation of a transfer system with adequate allowance benchmarks and appropriate checks and balances that support rather than impede ’full’ participation.
It is clear that these are important reforms for the outcomes of disadvantaged Australians and Anglicare Australia will seek to ensure that they are not forgotten in the Government’s plans for a stronger economy and a higher standard of living. The recent institution of the national Compact with the third sctor is timely. It will be a test of the Government’s rhetoric on social inclusion and commitment to that Compact to see if it engages squarely with our sector to set about effecting change that builds on the strengths of people and supports them up and out of disadvantage.
back to top
Housing Affordability
The findings of the Henry Review on the impact of tax provisions on housing affordability come as no surprise to progressive social policy advocates.
The complete exemption of all owner occupied housing (no matter what its value) from land and capital gains taxes and the pension assets test provides a significant financial benefit to the most wealthy, and encourages investment in very large houses occupied by only a few people. And forces up the price of houses generally.
Similarly, the tax concession on negative gearing advantages those on high incomes over lower income home owners and renters. It is another factor pushing up the price of housing, and hence the cost of rent. Furthermore, these sorts of policies have encouraged the wrong sort of housing. Luxury units for professionals are squeezing affordable housing out of the inner suburbs.
While the Henry Review’s call for a substantial rise in Rent Assistance is on the money, the implication of its recommendation to shift all social housing to market rent as well puts too much trust in the market. Without addressing the supply of affordable housing, increases in rent assistance are likely to go into the hands of the landlords. That will increase rents and hurt the working poor, people on lower incomes but just out of the social security system.
The review also articulates the complex links between state and local government in land release and planning policy, and identifies the need for work at the COAG level. Nonetheless, until more work is done, its recommendations on zoning, infrastructure charges and land release may be used to play off affordability against amenity and sustainability in development, rather than ensure they work together.
If the shortage of affordable housing for those living on low incomes is to be addressed, Australia needs to develop a national plan of action through an open debate involving all levels of government and the wider public.
While the Australian Government has ruled out addressing some of the inequities embedded in our tax system, modelling the impact of reducing them, in increments, would provide a benchmark for the level of change that is needed. Investing a proportion of the newly boosted superannuation funds into affordable housing, and directing some of the infrastructure funds into social housing are the kind of options we could consider.
back to top
|
