Tuesday, February 5, 2008

Dismantling the Welfare State: Aussie Style

Over at Thoughts on Freedom, the Australian Libertarian Society Blog, there is a current post on school vouchers that starts by rethinking whether or not they should be means tested. I almost did not click the read more button, but then....

But then it took a turn I wasn't expecting; here's the segment where everything changed:

I have traditionally argued that everybody should get an equal voucher, and that the voucher should not be means-tested. I now believe that it would be appropriate to means-test vouchers.

My primary argument against a means-test was that by reducing the amount of the voucher for high-income earners this would increase the effective marginal tax rate (EMTR) faced by a person as they earn more income, and therefore contributes to the “poverty trap”. I still think this is true, but I now think it is outweighed by another issue.

Everybody in Australia is on welfare. There is no such thing as a “self-reliant” Australian and each of us is both taking from and giving to the nanny state. The government gives money to rich people to pay for their health, pay for their education and pay for their childcare costs… while also charging these same people excessively high income taxes as well as a range of other taxes, fees and charges. This has to change.

It is my opinion that we must create a path for people to get away from government support and once again become self-reliant. This is best achieved by offering tax cuts, which are paid for by removing government subsidisies to high-income families.

This should be a reform that gets appeal from across the political spectrum. Free-market advocates get tax cuts and lower government spending. Economists should celebrate lower levels of churning and bureaucratic waste. Social democrats will be happy to note that it involves no cut in support for low-income people.

The real benefit of this idea from my perspective is the long-term dynamic. In the current political environment it seems very unlikely that any politician will simply dismantle the welfare state. And if we continue with the current policies of universal tax and universal welfare (built by Whitlam & Howard) then it doesn’t seem likely that we will ever escape the welfare state.

But by targetting welfare only at low-income people we create a viable mechanism to shrink the welfare state over time.
With continued economic growth, the number of low-income people (in an absolute sense) will decrease and more people will move steadily towards self-reliance. This may not please the hard-left who are committed to big government… but for social democrats who truely care about helping people this will be seen as a good thing.

Almost as interesting as the post itself are the 54 comments that follow.

Check it out.

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