It has been more than two years since Joe Hockey’s famous speech to the Institute of Economic Affairs in London signalled an end to the age of entitlement. In that period, the Coalition has been tentatively etching out a vision for how it defines entitlement. But the budget sets it out clearly.
Seeing which programs have been changed or removed, which have been expanded, and which candidates for budget repair have been selected or rejected is decisive in what it reveals about how the government conceives entitlement.
Much depends on how the complex notion of entitlement is defined. Entitlement can have a benign meaning such as sick leave entitlement, or it can mean something that one receives but does not deserve.
At the heart of it, the question of whether someone or something is deserving is a moral one. So when we discuss ending the age of entitlement, often what we’re really doing is wanting to draw a line between those who are morally worthy and those who are not. It is this view of entitlement that dominates the decisions made in the budget.
The definition of entitlement that underpinned the terms of reference for the National Commission of Audit is “government should do what people cannot do for themselves, but no more”. The commission made several far-reaching recommendations that touched almost every area of government spending. Given that the commission’s exercise was fundamentally an exercise in pragmatism, not moral judgments, only a few recommendations made it into the budget.
The act of governing requires appealing to emotions, but to actually govern requires a generous dose of pragmatism. In the end, there are mixed messages.
The approach of yesteryear to certain kinds of government benefits and how these have evolved is instructive.
Our conception of family benefits, for example, has shifted because of changing social expectations and the role of the family. When the male-breadwinner family with children was the norm, a system of concessional rebates for children, child endowment, and tax treatment for dependent spouses was part of the tax-transfer system. More than simply being the best way to target relief for the costs of children, the system existed to affirm the role of the family as the moral cornerstone of society.
Similarly, the age pension has changed as higher life expectancy and social expectations have evolved. In 1960, treasurer Harold Holt said that the pension represented a supplement to the income an elderly person derived from their savings or from the support from their family. This view became outdated by 1968, as prime minister John Gorton said that the pension should provide “a modest standard of living … so that (pensioners) at least have enough to eat and a roof over their head”. The advent of compulsory superannuation has refined this notion as being more about a safety net than a universal guarantee — at least in theory.
Substantial changes to family benefits have been included in Hockey’s budget. The logic of needs-based payments is interwoven with the reforms to the income tests for family tax benefits with the aim of rescinding supplements to the income of wealthier families on the basis they can provide for themselves adequately. Family Tax Benefit Part B, the last nod to the traditional single-income family, is now restricted to those with children aged six and younger. It indicates that society has changed, such that there is no longer a moral case for maintaining this family form through taxpayer subsidies.
On the other hand, there is inertia on reform of the age pension, despite the Treasurer clearly indicating he sees the practical problems involved. However, public discourse on this issue suggests there is a substantial moral dimension to this. The moral dimension in question is one that knows no political boundaries: it is the notion that having paid taxes entitles one to benefits — now or at some point in the future.
The concept of deadweight loss or churn — the notion that some of the value of each dollar collected by the government is lost by the time it is redirected elsewhere — is irrelevant to this school of thought.
There are practical consequences to this oversight. It permits scope for tax to be levied at levels that are higher than what is needed to provide basic services. Levying higher taxation also means that people want some of it back, in any way possible — often through benefits that are generous when means are considered in the context of the broader income distribution.
This is evident in the government’s paid parental leave scheme, which is intended in part to compensate for the hit to household budgets incurred by one person dropping out of the workforce to care for a newborn.
Adults make informed decisions regarding the financial commitments they make about spending their money, including the decision to have children. For the government to facilitate maintaining financial commitments such as a mortgage and an existing standard of living is a decision made on moral, not needs-based, grounds.
The same applies for the age pension. The present assets test is generous because it allows somebody to collect a pension while owning a significant housing asset, because the primary home is excluded from the assets test. To tighten the test would mean facilitating those who wish to receive the pension to draw on the value in their home. Yet the government ignores this in the budget, and the smaller changes to the pension it does make have been pushed out beyond the period of the next election. This reveals a troubling inconsistency in the government’s conception of entitlement.
It is undeniably the language of entitlement that says people deserve a pension simply because they have contributed taxes in the past, or that they are entitled to taxpayer-funded wage replacement parental leave or other family benefits because their tax burden is high. But the proceeds of tax don’t sit quietly in a corner, waiting until they who pay have need, with no loss whatsoever involved in this transaction. To state the moral case for these entitlements cannot ignore the significant practical disadvantages involved.
Today’s taxpayers and their families enjoy the use of schools, hospitals, infrastructure and other services, just as today’s pensioners did when they were yesterday’s taxpayers. People of pension age who are of means should not be treated as a class distinct from people of working age, who are subject to much more stringent tests to be eligible for those payments.
If we accept that there is a line of poverty below which those with no chance of an income, or those with family responsibilities, should not drop, the policy settings should reflect this. A modest existence is one thing, but the taxpayer should not facilitate maintaining a particular lifestyle. The government has recognised this for family benefits; the age pension ought to follow.
Hockey’s “age of entitlement” speech was based on the idea that it was morally wrong and practically infeasible to maintain generous government programs. In short, it outlined a vision based on the idea that governments should do only what people cannot do for themselves. But to be selective in ending the age of entitlement risks undermining this sound foundation of the government’s role. If the relationship between people and government is to be permanently reconceived, more consistency is needed.
Trisha Jha is a policy analyst at The Centre for Independent Studies.
Home > Commentary > Opinion > Mixed messages on the handout front
Mixed messages on the handout front
It has been more than two years since Joe Hockey’s famous speech to the Institute of Economic Affairs in London signalled an end to the age of entitlement. In that period, the Coalition has been tentatively etching out a vision for how it defines entitlement. But the budget sets it out clearly.
Seeing which programs have been changed or removed, which have been expanded, and which candidates for budget repair have been selected or rejected is decisive in what it reveals about how the government conceives entitlement.
Much depends on how the complex notion of entitlement is defined. Entitlement can have a benign meaning such as sick leave entitlement, or it can mean something that one receives but does not deserve.
At the heart of it, the question of whether someone or something is deserving is a moral one. So when we discuss ending the age of entitlement, often what we’re really doing is wanting to draw a line between those who are morally worthy and those who are not. It is this view of entitlement that dominates the decisions made in the budget.
The definition of entitlement that underpinned the terms of reference for the National Commission of Audit is “government should do what people cannot do for themselves, but no more”. The commission made several far-reaching recommendations that touched almost every area of government spending. Given that the commission’s exercise was fundamentally an exercise in pragmatism, not moral judgments, only a few recommendations made it into the budget.
The act of governing requires appealing to emotions, but to actually govern requires a generous dose of pragmatism. In the end, there are mixed messages.
The approach of yesteryear to certain kinds of government benefits and how these have evolved is instructive.
Our conception of family benefits, for example, has shifted because of changing social expectations and the role of the family. When the male-breadwinner family with children was the norm, a system of concessional rebates for children, child endowment, and tax treatment for dependent spouses was part of the tax-transfer system. More than simply being the best way to target relief for the costs of children, the system existed to affirm the role of the family as the moral cornerstone of society.
Similarly, the age pension has changed as higher life expectancy and social expectations have evolved. In 1960, treasurer Harold Holt said that the pension represented a supplement to the income an elderly person derived from their savings or from the support from their family. This view became outdated by 1968, as prime minister John Gorton said that the pension should provide “a modest standard of living … so that (pensioners) at least have enough to eat and a roof over their head”. The advent of compulsory superannuation has refined this notion as being more about a safety net than a universal guarantee — at least in theory.
Substantial changes to family benefits have been included in Hockey’s budget. The logic of needs-based payments is interwoven with the reforms to the income tests for family tax benefits with the aim of rescinding supplements to the income of wealthier families on the basis they can provide for themselves adequately. Family Tax Benefit Part B, the last nod to the traditional single-income family, is now restricted to those with children aged six and younger. It indicates that society has changed, such that there is no longer a moral case for maintaining this family form through taxpayer subsidies.
On the other hand, there is inertia on reform of the age pension, despite the Treasurer clearly indicating he sees the practical problems involved. However, public discourse on this issue suggests there is a substantial moral dimension to this. The moral dimension in question is one that knows no political boundaries: it is the notion that having paid taxes entitles one to benefits — now or at some point in the future.
The concept of deadweight loss or churn — the notion that some of the value of each dollar collected by the government is lost by the time it is redirected elsewhere — is irrelevant to this school of thought.
There are practical consequences to this oversight. It permits scope for tax to be levied at levels that are higher than what is needed to provide basic services. Levying higher taxation also means that people want some of it back, in any way possible — often through benefits that are generous when means are considered in the context of the broader income distribution.
This is evident in the government’s paid parental leave scheme, which is intended in part to compensate for the hit to household budgets incurred by one person dropping out of the workforce to care for a newborn.
Adults make informed decisions regarding the financial commitments they make about spending their money, including the decision to have children. For the government to facilitate maintaining financial commitments such as a mortgage and an existing standard of living is a decision made on moral, not needs-based, grounds.
The same applies for the age pension. The present assets test is generous because it allows somebody to collect a pension while owning a significant housing asset, because the primary home is excluded from the assets test. To tighten the test would mean facilitating those who wish to receive the pension to draw on the value in their home. Yet the government ignores this in the budget, and the smaller changes to the pension it does make have been pushed out beyond the period of the next election. This reveals a troubling inconsistency in the government’s conception of entitlement.
It is undeniably the language of entitlement that says people deserve a pension simply because they have contributed taxes in the past, or that they are entitled to taxpayer-funded wage replacement parental leave or other family benefits because their tax burden is high. But the proceeds of tax don’t sit quietly in a corner, waiting until they who pay have need, with no loss whatsoever involved in this transaction. To state the moral case for these entitlements cannot ignore the significant practical disadvantages involved.
Today’s taxpayers and their families enjoy the use of schools, hospitals, infrastructure and other services, just as today’s pensioners did when they were yesterday’s taxpayers. People of pension age who are of means should not be treated as a class distinct from people of working age, who are subject to much more stringent tests to be eligible for those payments.
If we accept that there is a line of poverty below which those with no chance of an income, or those with family responsibilities, should not drop, the policy settings should reflect this. A modest existence is one thing, but the taxpayer should not facilitate maintaining a particular lifestyle. The government has recognised this for family benefits; the age pension ought to follow.
Hockey’s “age of entitlement” speech was based on the idea that it was morally wrong and practically infeasible to maintain generous government programs. In short, it outlined a vision based on the idea that governments should do only what people cannot do for themselves. But to be selective in ending the age of entitlement risks undermining this sound foundation of the government’s role. If the relationship between people and government is to be permanently reconceived, more consistency is needed.
Trisha Jha is a policy analyst at The Centre for Independent Studies.
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