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Abbott Proposes Welfare Crackdown

The Federal Opposition Leader, Tony Abbott, has attacked the Gillard government’s handling of the economy, and announced a policy to extend the Work for the Dole program.

Abbott proposes that Work for the Dole become mandatory for people under 50 who have been receiving unemployment benefits for more than six months. The policy also proposes quarantining to the necessities of life half the welfare income of all long-term unemployed people, and creating a new benefit for people whose disabilities can readily be treated.

The welfare crackdown will also involve suspending the payment of young people’s unemployment benefits in places where there are unfilled, unskilled jobs.

This is the text of Tony Abbott’s speech to the Queensland Chamber of Commerce and Industry.

Towards A Stronger Economy

Every opposition has to demonstrate its credentials to run the economy. For the current shadow cabinet, this is less of a problem than usual because we’ve done it before. Sixteen of its members were ministers in the Howard government which managed more than 2 million new jobs, a 20 per cent plus boost to real wages and a doubling of Australia’s net wealth per person. The Howard government turned $96 billion in Commonwealth debt into $70 billion in assets and a $10 billion inherited deficit into a $20 billion surplus.

As a minister for nine years, a cabinet minister for seven years and leader of the House of Representatives for six years in the best government since Bob Menzies, I was directly responsible for creating the Green Corps programme that gave young people landcare work; for stabilizing the Jobs Network, the community-based alternative to the failed Commonwealth Employment Service bureaucracy; for massively expanding Work for the Dole; for establishing the building industry royal commission; for expanding Medicare rebates to allied health professionals such as dentists and psychologists; for providing higher Medicare rebates for people with high out-of-pocket health costs; and for responsibly managing a departmental budget as big as that of the NSW government.

My team has a solid track record of good government. We certainly can deliver fiscal discipline, competent administration, improved standards of living, sensible consultation with people before critical decisions are made, and a strong commitment to families because we’ve done it all before. We say what we mean and we mean what we say. The Australian people sense this because that’s what they experienced from us under the former government.

The current opposition should be judged by the results achieved in government and the current government, likewise, should be judged on results. It turned a $20 billion surplus into a $55 billion deficit in just two years and $70 billion in net assets into almost $100 billion in net debt. It’s borrowing more than $100 million every single day. It boasts that it steered Australia through the Global Financial Crisis yet the prime minister who did so was politically executed because, by its own admission, the government “had lost its way”.

Labor has demonstrated in government that its priority is redistributing wealth rather than creating it. It says that its carbon tax, for instance, is about changing behavior but making everything more expensive will create a huge political slush fund and generate new, politically motivated handouts long before it stops people from driving their cars or turning on their air conditioners. By contrast, the Coalition’s priority would be creating wealth, fostering economic growth and boosting well-paid, secure jobs for the benefit of everyone. We believe that lower taxes build a stronger economy with higher living standards for all Australian families. Lower taxes will help our manufacturing and mining industries to grow and help to secure Australia’s long term prosperity. Lower taxes will help small business to create jobs. So to make lower taxes possible, the Coalition will end Labor’s waste, balance the budget and reduce Labor’s debt.

A government’s economic outcomes largely reflect its underlying economic values. When Kevin Rudd said that he was an economic conservative, so did Julia Gillard. When it was convenient to be something else, so was she. The Prime Minister went along with her predecessor when he claimed, in February 2009, that capitalism was the god that failed. In September last year, she was happy to form an alliance with the Greens, a party she now admits is “extreme”, whose principal economic policies include: death duties, higher taxes, more regulation, and big cutbacks to private schools and private health.

The Gillard government says that it wants a stronger economy but always seems to be burdening businesses with more regulation and new taxes. There have been 13 new or increased taxes since 2007. It says that it supports free enterprise but has created sovereign risk issues for Australia by threatening to change the economics of projects that have already begun. It says that it supports a market economy but is replacing a competitive market in telecommunications with a government-owned monopoly. It says that it supports more productive workers and businesses but has rolled back the workplace changes not only of the Howard government but of the Keating government too. It says that it wants to return the budget to surplus as quickly as possible but has spent billions on overpriced school halls and combustible roof batts. Unchastened by that experience, it now wants to spend $50 billion plus on laying cable to every home whether it’s needed or not. It says that it wants to reduce carbon dioxide emissions but proposes just to make them more expensive thereby increasing Australian prices and cutting Australian jobs without necessarily reducing global emissions at all.

Unlike every single one of its predecessors, the current government seems unsure whether economic growth means higher standards of living for everyone or just more pollution and more inequality. In fact, it’s impossible to have a strong community without a strong economy to sustain it. The only sustainable basis for high employment and rising wages is private business profitably making things that people want to buy.

The current government seems to think that there is no problem that can’t be improved by a higher tax, a new regulation, or a bureaucrat who knows better than the Australian people what’s in their own best interests. The job of government is not to solve a free people’s every problem and a market economy’s every vicissitude. It’s to set policies, as far as it can, to foster and maintain low and simple taxes, understandable and amenable regulations, frugal and competent administration, responsive and efficient public institutions, and a capable and creative citizenry. Government’s job is to do well what only government can. It’s not to create a domineering state at the expense of purposeful citizens in a civil society.

The current government is spending too much, taxing too much and wasting too much. Quite possibly, it’s the worst national government in Australian history. My purpose today, though, is not to tell a business audience what it instinctively knows but to remind the wealth creators of Australia of all the ways that the next Coalition government will resemble the last one. We will make the changes needed to keep our businesses competitive and profitable so they can keep wages high and employment up for the benefit of Australian families.

For the past two decades, Australia’s economic success has largely depended on good governments making difficult but correct decisions in the national interest. It was the reforms of previous Australian governments rather than the spending spree of the current one that have largely enabled us to take advantage of geography and to beat the Global Financial Crisis.

The latest national accounts show that the Australian economy has expanded at a little over 2 per cent a year since the election of the Rudd government. This is tepid by historical standards and poor against the growth of many of our Asian neighbours, even over the past three years. Not only is growth less impressive than it seems but it’s rested on historically high terms of trade and has depended on rapid population increase rather than on increasing production per person. In per capita terms, real output is up a paltry quarter per cent a year over the past three years compared with an average of two and a quarter per cent a year under the Howard government. This explains why people haven’t felt more prosperous despite good headline statistics.

Although the global economy grew by 5 per cent last year, in many advanced economies production is still below that of three years ago. In the United States and Britain, government deficits are at unsustainable levels that investors will eventually refuse to fund. In some smaller European countries, huge budget deficits and exposed banks mean a continued risk of sovereign default that could undermine the recovery and jeopardize Australia’s export prices.

In an unstable and uncertain world, it’s more important than ever that Australian governments get their policy settings right. With unemployment down to 5 per cent, the terms-of-trade at record highs, and global recovery already underway for two years, there is no way that this year’s Commonwealth budget deficit should be well over $40 billion, or 3 per cent of GDP. By comparison, in 2004-5, when the unemployment rate was also at 5 per cent, the Commonwealth ran a surplus of $13.5 billion, or one and a half per cent of GDP, despite terms of trade around 40 per cent lower than now.

This highlights the extent to which budget settings have been structurally loosened, far beyond any requirement to cushion the economic cycle. According to the Treasury Economic Roundup, for the past three years the Commonwealth has been running structural deficits averaging well over 4 per cent of GDP. By contrast, the same estimates show that the Howard government ran structural surpluses averaging over 1 per cent for its final five years. The continuing profligacy of the Gillard/Brown government contrasts sharply with the recent behaviour of Australian households whose saving ratio has risen to levels last seen twenty years ago. Although global uncertainty makes it more important than ever that the government “save against a rainy day” this government couldn’t even respond to the recent floods without raising taxes.

Because government can’t spend a dollar that it doesn’t take from citizens through taxes or borrowings, inability to control spending is the mark of a government that has little respect for taxpayers. Governments owe it to taxpayers to be frugal with the resources they hold in trust. That’s why the Liberal and National parties have consistently advocated greater fiscal restraint and a more rapid return to moderate surpluses. True to our principles, at the last election we set out $50 billion in savings that would have delivered a budget improvement of $11 billion over the forward estimates.

Expenditure restraint is not just the most obvious sign of the deference that government owes to taxpayers. It’s an essential precondition for the tax reform that Australia needs in order to become a more productive society. As Ken Henry pointed out, Australia’s tax system is “inordinately complex” with 125 separate taxes, many hardly worth the effort of collecting them. It’s noteworthy that the government billed the Henry Review as supporting “simpler, fairer, stronger” (rather than lower) taxes because the only substantial recommendation that it adopted, the original version of the mining tax, on revised figures, turned out to raise more than double the revenue that was proposed to be given back.

A tax change that raises net taxes is not reform. To be genuine tax reform, the overall burden of tax must decline. Genuine tax reform requires lower government spending. Genuine tax reform doesn’t just raise money; it fosters a more competitive and productive economy.

Even though it funds a modest reduction in company tax, the mining tax is a tax fiddle, not tax reform. It inflicts major costs on one sector to fund modest improvements in others. It involves no greater efficiencies, no greater simplicities, no greater incentives to produce and compete. It’s essentially robbing Peter to pay Paul. The carbon tax promises to be even worse. The theory is that people will buy goods that are less energy intensive as a result of price signals on carbon emissions. The reality is that people will just pay more to use their cars and air conditioners and will replace more expensive local steel, aluminium, cement and vehicles with cheaper imports.

The much-trumpeted tax summit has been watered down into a mere forum that won’t discuss the mining tax, the carbon tax, the GST or, we now learn, the rationale for calculating payments to the states. It will inevitably degenerate into an academic argument over the relative efficiency of state versus federal taxes and won’t focus on lower, simpler, fairer Commonwealth taxes because the current government is incapable of the spending discipline that this would require.

Tax reform is important because giving people greater incentive to work is one of the principal means of achieving a more productive economy. Ideally, people should either be in the tax system or in the welfare system but they shouldn’t simultaneously be paying tax and receiving welfare. First, there’s the churn factor. More insidiously, there’s the interaction of progressive tax with means tests to ensure that people who are both earning an income and receiving a welfare benefit usually face effective marginal tax rates of 70 per cent or more.

One of Henry’s most important recommendations was to increase the tax free threshold so that a much greater proportion of welfare beneficiaries would not pay tax. Unfortunately, as proposed, this meant higher taxes on most middle income earners. The Liberal and National parties would like everyone, regardless of income or family responsibilities, to be able to earn an extra dollar without losing an incentive-sapping percentage in tax and in welfare clawback. There would be little point, though, increasing work incentives for low income earners while decreasing them for middle income earners. On this score, Henry’s recommendation is a worthy goal but could only be implemented once the Commonwealth’s fiscal position had sufficiently improved to implement a “no losers” version.

The Howard government’s 2000 tax reform package was possible because of the spending cuts announced in the 1996 budget and the spending discipline maintained thereafter. In the absence of fiscal savings, the most useful tax reform might simply be to oppose new and distorting taxes on the principle that the least bad tax is the one that people are familiar with. It’s quite possible that, in the absence of significant savings, welfare and participation reform rather than tax reform might be the most achievable way to boost people’s incentives to work.

At the last election, the Coalition proposed a job commitment bonus scheme for long?term unemployed people under 30 who found a job and kept it. There was also a relocation allowance for young people who moved to take a job and who agreed not to return to welfare within six months. These remain Liberal and National party policy. So does our commitment to a fair dinkum paid parental leave scheme giving most mothers six months with their babies at full pay.

Another important policy that the Liberal and National parties took to the election was an incentive payment for employers who hired welfare dependent people aged over 50. Not only would this make older people more employable but it would also help to overcome some employers’ prejudice against mature workers. It’s the sort of innovation that’s needed to draw more people into the available labour pool. As well, the Coalition proposed to end the discrimination against older workers by allowing them to keep contributing without age limit to their superannuation.

These policies and more should swiftly be put into practice if Australia is to have its best hope of meeting the economic challenges ahead. Here are four further economic reforms that even this government should not shirk:

  • Making Work for the Dole mandatory for people under 50 and receiving unemployment benefits for more than six months;
  • Quarantining to the necessities of life half the welfare income of all long-term unemployed people;
  • Creating a new benefit for people whose disabilities can readily be treated; and finally,
  • Suspending the payment of young people’s unemployment benefits in places where there are unfilled, unskilled jobs.

The government vowed to retain Work for the Dole at the 2007 election but has since deliberately allowed it to decay. Since its introduction in 1997, more than 600,000 people have participated in Work for the Dole gaining the discipline and dignity of performing useful work while developing the life skills and work culture so critical to obtaining and keeping a real job. Since 2007, Work for the Dole participation has fallen by 60 per cent to less than 10,000. Work for the Dole should be the default option for everyone under 50 who has been on unemployment benefits for more than six months. Reasonably fit working age people should be working, preferably for a wage but if not for the dole.

Quarantining welfare income is a justified interference in people’s lives because taxpayers have a right to insist that their money is not wasted. I originally proposed this while Shadow Minister for Family and Community Services in May 2008. Last year, as part of normalizing the intervention, the government introduced automatic welfare quarantine for all long-term unemployment beneficiaries in the Northern Territory. Because this is right in the Territory, it can hardly be wrong elsewhere. Ensuring that at least 50 per cent of welfare income is spent on the necessities of life should be a help rather than a hindrance for unemployed people. It would also have the advantage of discouraging people who might be “working the system”.

It’s notable that the hung parliament in the UK has not stopped the new British government from reforming the disability pension with a more targeted payment for people whose disabilities might not be permanent. Australian disability pension numbers are set to pass 800,000 this year at an annual cost of $13 billion. That’s about 220,000 more working age people on the disability pension than on unemployment benefits. With just over one per cent of disability pensioners moving back into the workforce every year and with nearly 60 per cent of recipients having potentially treatable mental health or muscular-skeletal conditions, a reform of this type should be considered here.

What’s needed is a more sophisticated benefit structure that distinguishes between disabilities that are likely to be lasting and those that could be temporary and that provides more encouragement for people with some capacity for work. This is not, I stress, about cutting the disability pension. It’s about ensuring that people get the help they need to participate fully in the economic life of our country and to develop their own potential. It’s about another version of the DSP, not a lesser one, with different support arrangements and different expectations of beneficiaries. It’s about ending the practice of “parking” older unemployed people on the disability pension rather than helping them to continue to participate economically as well as socially. Better directing disability payments could help to part-fund much greater assistance to people with very serious disabilities as proposed in the Productivity Commission’s recent draft report into disability care.

A further measure that the government should consider is to suspend unemployment benefits for people under 30 in areas where there are shortages of unskilled labour. This is perhaps the strongest signal that government could give that people must take opportunities to work seriously. Why should any reasonably fit person be on unemployment benefits in Karratha, for instance, when employers can’t find cleaners to work even at well above award wages? Why should an able bodied person be on unemployment benefits in Orange or the Barossa Valley, for instance, when growers can’t find people to pick their crops? The former ALP national president, Warren Mundine has publicly supported the suspension of unemployment benefits in places where work is reasonably available and I hope there might be bi-partisan support for this measure.

Sometimes, governments have to be firm to be fair. Allowing people to stay on welfare when there is work they can reasonably do is the kindness that kills. It’s the misguided compassion that eventually breaks down the social fabric, as the more perceptive Aboriginal leaders have long recognized.

Encouraging more people into work has important economic consequences. As well, because most people derive much of their sense of self from what they do, attracting more people into the workforce is likely to improve the country’s morale and to help people to feel more comfortable in their own skins. It’s a good social policy as well as an important economic advance.

Of course, encouraging more Australians into the workforce might not fully satisfy the demand for labour, especially skilled labour to work in highly paid, technically specialised jobs for employers under tight deadline pressure. The former Coalition government introduced section 457 visas precisely to meet this need. Unfortunately, the current government has made access to these visas more difficult. Although the Liberal and National parties have been critical of the unannounced surge in immigration over the past three years and the pressure it’s put on neglected infrastructure, we want to free-up, not restrict employers’ access to the skilled labour they need. After all, the very best migrants are usually those who can make a contribution to their new country from day one; and what better contribution can usually be made than working in a highly skilled job in an expanding industry. Genuinely skilled migration needs to be reformed and encouraged, not cut back. Immigration should never be seen, though, as a way of making up for some Australians’ reluctance to take work.

The best contribution that government can make to so many social problems is to strengthen the underlying economic resilience of Australian society. A more prosperous country is more likely to have the resources and self-confidence to handle all the issues that inevitably arise regardless of whether these are best tackled by individuals, private organisations, community groups or by government itself.

It’s a truism that money can’t buy happiness. It’s important for government no less than citizens to appreciate all the things that money can’t buy. Financial strength and economic power can’t solve every problem. Still, there is almost no problem that lack of resources doesn’t make worse. That’s why the Liberal and National parties are so committed to fostering a strong economy in which more individuals and more businesses have a chance to get further ahead. We understand in a way that our opponents often don’t that people rarely work hard just to boost their bank balances or to purchase the latest designer accessory. They do so to provide a better life for their families and to be more capable of serving the people they love.

As Kim Beazley acknowledged in a moment of candour, Labor has never been the party of small business. Far from being the greedy rip-off merchants of union demonology, small business operators are often the real battlers of modern Australia: putting their homes on the line to make a decent living for their families and their staff in the face of fierce competition from better resourced rivals and intransigence from various levels of government. Governments should strive never to make the problems of small business worse. That’s why the Coalition thinks that the government shouldn’t demand that businesses do all the paperwork for free for its Mickey Mouse version of a parental leave scheme.

Australian businesses and the people who run them provide the jobs that produce the income that enables the vast majority of families to be fed, clothed, housed and brought up – to standards that the rest of the world rightly envies. They are social benefactors. They’re not just factors of production or parts of an economic machine that government should run. Business is the concrete expression of people working together to meet everyone’s most important needs and dreams. That, in any event, is the strong conviction of the parties I lead and explains our constant dedication to the task of economic reform.

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Malcolm Farnsworth
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