The Government’s decision to waive debts of up to $1,000 for about 400,000 families who have been overpaid family tax benefits is the wrong deed for the wrong reason.
The matter arose as a result of the introduction of the new tax system. Eleven separate benefits were very sensibly brought down to three, and a new method of calculating them was applied. The old system was unfair because if people understated their income, they would not be able to retrieve the entitlements they would have got if they had stated it correctly in the first place. The Coalition introduced a system whereby people could tell Centrelink of their income as it varied and their family benefits would be varied accordingly. However, many people did not tell Centrelink when their income rose. As a result, when their final income was totalled at the end of the financial year it would it transpire that they had been paid too much family allowance. In the ordinary course of events, they would be required to repay the overpayment. However, it is not “the ordinary course of events”. It is instead, the lead-up to a federal election. Moreover, it is the first anniversary of the introduction of the new tax system so the Government is sensitive to criticism.
Centrelink estimates that as many as 400,000 families could be getting a unexpected tax bills. Such an event would cost the government votes. To avoid that, the government has decided rather that it would waive any excess payment. If the over-payments had been for the dole, invalid pension or sickness benefit, one wonders whether a waiver would have been applied. Probably not. But family allowance recipients fit Prime Minister John Howard’s “”battlers” category – the one he needs to appeal to if he is to have any hope at the next election.
The waiver is bad policy. It means that families who did not own up to earning extra income, despite their obligations to do so will be rewarded the greatest. Families who correctly stated their income and correctly notified Centrelink of any increase in income will get nothing for their honesty and diligence.
The incident reveals a fundamental weakness in the Australian welfare system. Welfare is supposed to be directed at the most needy. But Australia has an elaborate system of family allowances under which people on quite reasonable incomes obtain welfare payments. Bizarrely, people on income sufficient to attract the highest marginal tax rate, on one hand, get welfare in the form of family allowances on the other hand. They are being bribed with their own money. A huge amount of money is inefficiently recycled in a system which takes money from people in form of taxation and hands it back to those same people in the form of welfare payments.
The Minister for Employment, Tony Abbott, has alluded to this difficulty, but has been hit on the head by his Coalition colleagues for his trouble. He, like the Labor Party, suggested a system of negative taxation so instead of people coming off welfare been hit by excessively high marginal rates of taxation, they would be rewarded for going out to work by a having a negative tax on a gradually sliding scale which would make the transition from welfare to work more financially rewarding and not subject to the sudden-hit financial penalties that apply at present.
This week’s announcement of the waiving of the family allowance over-payment is clear evidence that a lot more work needs to be done on the way that so many people in Australia at once are liable for large amounts of tax and yet are eligible for welfare payments at the same time.