Welfare payments must be overhauled in any reform of the nation’s tax system, according to a senior federal government adviser who warns that flaws are being entrenched in a system that costs $150 billion a year.
As Malcolm Turnbull considers expanding the GST, the head of the government’s welfare review is pressing for a radical overhaul to simplify and tighten the delivery of unemployment benefits, the Disability Support Pension and family payments to boost Australians’ incentives to get jobs.
The warning, from former Mission Australia chief Patrick McClure, will widen the debate over tax reform as the Prime Minister prepares the ground for sweeping change, despite grave concerns among Coalition MPs about the political danger of a 15 per cent consumption tax.
At least one third of the revenue boost will have to be paid as compensation to meet Mr Turnbull’s pledge of “no disadvantage” to the vulnerable, triggering $9bn in extra payments every year in some scenarios.
Mr McClure told The Weekend Australian that welfare changes would have to go hand in hand with any tax reform in order to fix old rules that fail to do enough to encourage social security recipients into work.
“If they are going to embark on tax reform it’s also very important for them to look at reform of the social security system,” Mr McClure said. “That means looking at a simpler system and also ensuring that it pays to get into work.”
Scott Morrison has made job creation a key principle in his approach to the GST debate, arguing for greater rewards for those who move from welfare to work. Experts believe the Treasurer’s goal will require stricter rules on welfare payments to encourage recipients to move into the workforce, as well as income tax cuts so that workers keep more of their salaries.
Mr McClure is calling for greater investment in training and employment services to move people off a lifetime of welfare, as well as a simpler payment to all people of working age.
“We also have to start looking at the Disability Support Pension and the working age pension,” he said. “We’ve got to create the incentives for people to get into the workforce.”
The commonwealth will spend $154bn on social security and welfare this year, about 35 per cent of all expenses. This will rise to $187bn, or 37 per cent of expenses, by 2019.
Liberal MPs fear that a tax-reform compensation package will add to those expenses without producing a reform dividend unless the system is shaken up.
Millions of Australians could be out of pocket from a rise in the GST from 10 to 15 per cent unless the government offers to increase transfer payments as well as cut income taxes to compensate for the bigger household costs.
The group includes 2.4 million people on the Age Pension, about 820,000 on the Disability Support Pension, more than 660,000 on unemployment benefits and 220,000 on carer payments.
and National Employment Services Association chief Sally Sinclair — warned in a report issued in February that the payments system had become “incoherent” and needed to be streamlined with a focus on work.
With the Disability Support Pension, for example, many recipients suffer from extreme depression or anxiety and can receive permanent income support. Yet mental health experts believe that engaging in work or training can help their recovery, which means employment incentives could get people back to work.
Reforms in New Zealand have shown that spending on training can curb the mammoth “lifetime cost” of the welfare bill over decades.
Mr McClure told The Weekend Australian that welfare reform and an investment in services could help meet the government’s goal of producing a fairer system with tax reform.
“We are an aspirational people,” he said. “It is far better for people to be in training or a job rather than be on welfare for a lifetime, unless they are unable to through age, disability or caring responsibilities.”
The Weekend Australian has been told the government is still considering whether to proceed with substantial welfare reform, but that this depends in part on the threshold question of whether to lift the GST.
Social Services Minister Christian Porter has warned that the current welfare system is “excruciatingly complicated”, with 20 different categories of payments and 55 different subcategories of payments. That complexity raises doubts about whether the existing system could be used effectively to reimburse vulnerable households for a higher GST.
“The system is overwhelmingly complicated and, of course, part of a reform agenda has to be in terms of simplifying those 55 different sub-payments and the 20 payment category types,” Mr Porter said this week.
The parliamentary secretary for social services, Alan Tudge, also said the system had to ensure that recipients had the incentives to “take work where it is available” while also helping to create job opportunities.
“That is the overall objective of what we are trying to do, while of course having a very strong safety net still in place for those who are most vulnerable in our society,” Mr Tudge said. “For those who, through no fault of their own, have an incapacity to be able to look after themselves — and that is the reason why we have this social security safety net, to assist those people. But for others that have the capacity to work, then we should be encouraging them to do so.
http://www.theaustralian.com.au/national-affairs/tax-reform-must-link-to-welfare/story-fn59niix-1227...
