By Steve Blizard – Roxburgh Securities 29 Dec 2016
Author and journalist James Bartholomew was introduced to Margaret Thatcher at a party in May 2006.
He mentioned to the former British prime minister that he had just written a book arguing that Britain would be better off if the welfare state had never existed.
Straight away she demanded to know what should be done about it.
He replied that he couldn’t suggest anything, or at least nothing that would ever be acceptable in a democratic society.
“You can’t say there is a problem and not come up with a solution!” she declared in the peremptory tone that her former ministers knew so well.
“If you say the welfare state is no good, you must suggest an alternative!”
Bartholomew’s book, titled The Welfare of Nations, is his attempt to provide an answer to Lady Thatcher.
His book is an unparalleled investigation into how welfare states “are changing civilisation”.
He takes the reader on a journey that visits institutions in 11 countries, from schools in San Francisco, hospitals in Holland, and a tough-minded benefits office in Singapore.
But the paradox is that as the wealth of the nations has increased, so has the number of people apparently in need of the nations’ welfare.
Analysts on the Left, most recently Thomas Piketty, in his book Capital in the Twenty-First Century, see it as a consequence of out-of-control capitalism, which the inequality between the have-nots and the have-yachts stretches ever wider.
The welfare state, as its advocates contend, always promises a better society, with higher levels of equality.
Bartholomew provides ample evidence that welfare states worldwide have produced a range of disastrous consequences, including unemployment, ‘broken families’ and social isolation, despite the best intentions of their architects.
Means Testing Counterproductive
Published in November 1942, the report was officially entitled “Social Insurance and Allied Services”.
Amongst other concerns, Beveridge was opposed to “means-tested” benefits.
His proposal, ultimately undermined by bureaucrats, was for a flat rate contribution rate for everyone and a flat rate benefit for everyone.
Means-testing was intended to play a tiny part because it created high marginal tax rates for the poor, otherwise known as a “poverty trap”.
Bartholomew cites the example from the UK of Pauline Ford, who lived frugally in a mobile home while claiming welfare benefits.
Pauline never went out and didn’t smoke or drink.
In 2011 she was convicted of fraud because she hadn’t disclosed that she had built up savings of £22,000.
Obviously under means testing she should have disclosed this under the law, but Bartholomew says that if she had drank and smoked, or if she had bought furniture or gold chains, she wouldn’t have had the savings and therefore not committed any crime.
This example demonstrates how the British welfare state discourages saving by the poor, because if they build up savings, they will cease to be entitled to certain benefits.
Australian Aged Pension changes
From 1 January 2017, 300,000 Australian retirees will see their Centrelink Aged Pensions slashed or cut altogether.
The maximum amount of assets a person can have before their pension is hit, has been reduced.
Under harsh new “partial” means-testing, Australian retirees are now being impacted by a “savings trap”, whereby they are being punished for doing the right thing by saving during their working lives.
Pensions will cut out more quickly for those with assets exceeding $375,000 for homeowner couples, $450,000 for single non- homeowners, and $575,000 for non-homeowner couples.
This is an appalling long-term policy message to be sending to the community, of which the Federal Coalition Government in Canberra seems incapable of recognising as being a problem.
As Bartholomew notes, means tested benefits discourages work, honesty and self-reliance.
With Australia tightening the Age Pension means-testing regime, but excluding the family home (irrespective of value), the system here is now rife for abuse, fast becoming highly inequitable against those doing the right thing.
The message from the government for Australian workers now is don’t save, because it will cost you a small fortune in lost aged pension later on.
In contrast, when Bartholomew visited New Zealand, he discovered that the Kiwis have a flat rate universal pension for all citizens over 65, providing they have lived there for at least 10 years.
Means-tested pensions were first introduced NZ in 1898; however the Kiwis eventually abolished income and asset means testing of the pension, with the introduction of the 1938 Social Security Act.
In New Zealand today, you don’t need to be “retired” – you can have a full-time job, save and still collect the full pension, if you choose to apply for one.
High Administration Costs
Another weakness of means testing that Bartholomew identifies is the massive increase in administration costs.
The latest Department of Social Security annual report (2015-16) reveals that it cost $622 million to administer our total pension system.
Of this, $325 million in salaries were paid to over 2300 employees, with most based in Canberra.
Part of this massive administration impost is to regularly monitor the assessable assets and income of millions of Australian pensioners.
This unnecessary and pointless overhead is simply not incurred under the New Zealand system.
With Pauline Hanson now paying close attention as to how the Aged Pension system is failing hard-working Australians, be assured we have not seen the end of pension reform in this nation.
Pension reforms pointless unless homes are part of eligibility test – article here
Taper Tweak to Commonwealth Aged Pension – article here
1 Jan 2017 Pension shift sparks asset trimming – article here
How Scott Morrison’s new wealth test could backfire, and see more people on the pension – article here
SHORT VIDEO: James Bartholomew introduces his new book, “The Welfare of Nations”