David Uren’s piece in the Australian today has some pretty eye-catching figures:

…nobody starts to pay tax until their earnings exceed $18,200, but the Australian Bureau of Statistics shows that 60 per cent of all households receive more in cash benefits than they pay in tax.

A household in the middle 20 per cent of the earnings distribution pays income tax of $143 a week but gets cash social benefits totalling $164. Subsidised health, education and childcare deliver that average household a further $346 a week.

To use these figures in this way is disingenuous and potentially misleading, as they don’t include the indirect taxes that households pay, like GST and excise on fuel and alcohol.

Any complete calculation of the net amount a household receives from, or pays to, government would need to take account of these four things: direct (income) taxes, cash payments, indirect taxes, and in-kind benefits. Uren cherry-picks three of the four and in the process gives a misleading sense of how much middle-income Australian households receive from government.

Every six years the ABS tries to figure out how much households at each level of income receive from or pay to government. Table 9 of this ABS publication is the source for Uren’s figures. If you have a look at the numbers, you’ll see that Uren faithfully reproduces the following figures for middle-income households:

  • Income taxes: $143 per week
  • Cash social assistance benefits (eg. age pension,parenting payments): $164
  • Social transfers in-kind (education, health, etc.): $346

If you add these together, you’ll see that the amount that middle income households receive in cash and services ($510 per week) is $367 per week more than the amount it pays in income taxes. Uren has ignored the fact that those same households pay an estimated $171 per week in indirect taxes, including $59 on the GST. That reduces the net benefit received by middle-income households by nearly half, to $196 per week.

With that in mind, let’s go through Uren’s piece line by line:

nobody starts to pay tax until their earnings exceed $18,200…

False. Nobody starts to pay income tax until $18200 (actually it’s $20542, but let’s not quibble). Low income earners still pay other taxes.

the Australian Bureau of Statistics shows that 60 per cent of all households receive more in cash benefits than they pay in tax.

False. The bottom 40% receive more in cash benefits than they pay in tax. The middle 20% do not (if you include indirect taxes). If you include in-kind benefits, then the true figure is somewhere between 40% and 60% of households that receive more in total (not just cash) benefits than they pay in tax. The quintile figures in the ABS publication show the averages; they don’t mean that all households in that quintile match the average.

A household in the middle 20 per cent of the earnings distribution pays income tax of $143 a week but gets cash social benefits totalling $164. Subsidised health, education and childcare deliver that average household a further $346 a week.

Incomplete. On average, households in the middle 20 per cent also pay $171 in indirect taxes.

This isn’t just a minor quibble. Have a look at how the inclusion of indirect taxes affects the amount of tax that households pay as a proportion of their gross incomes:

taxes by quintile

We’re starting to see in Australia the infiltration of the “moocher class” rhetoric that has coloured American politics in recent years. It’s an unfortunate development. Uren’s piece will fan those flames.

David Uren is usually among our less sensationalist economic commentators of the centre-right, and his piece does note that “redistribution brings its advantages,” particularly in the way we reduce poverty by a greater amount per dollar spent on welfare than any other advanced economy. His argument is done no credit by selectively omitting indirect taxes from the equation.

About these ads