The new 60:20 rule


It’s difficult to have a properly working democracy and decent government finances when the government is a sugar daddy for most citizens:

The top fifth of households by ­income are almost entirely supporting the bottom 60 per cent of earners, according to a report that argues the dwindling share of net taxpayers is making it harder for parliaments to govern wisely.

Analysis of the latest official survey of incomes and benefits, ­including in-kind health and education payments, shows the bottom 60 per cent of households received more in benefits than they paid in taxes, including GST and excise taxes.

Based on 2016 data, the top fifth of the nation’s nine million households, whose incomes averaged $269,000, were paying more than $1000 a week into the tax-transfer system, while the bottom fifth, whose incomes averaged $30,300, received $619 a week after subtracting benefits received, cash and in kind, from taxes paid.

Robert Carling, a research fellow at the Centre for Independent Studies, which conducted the analysis, said: “The emergence of a large segment of the population that in a sense ‘votes for a living’ could help explain much of what has gone awry with public policy in Australia in recent years.”

Considering the government voracious appetite and its limitless capacity to spend – sorry, “invest” – to take care of the ever-increasing number of needs, emergencies and priorities, it’s no wonder than so many think that “the rich aren’t paying enough”. The question that no one seems to answer particularly well is how much more they should be paying? Because eventually you reach the stage where there just aren’t enough rich to pay for everything you want.

If wealth transfer in the name of equity from those well off to those not so is the ultimate objective, then the most transparent system would ensure a direct transfer. Instead, the government takes a mind-boggling “commission” for its service. “The rich” are not only supporting the three lower quantiles but they are also supporting the whole machinery of government. Government is like any other industry – it’s main objective is perpetual growth and expansion. Unlike any other industry, however, government has the monopoly power to force “customers” to buy its services. Just as flat taxes would eliminate a great deal of complexity and the public-private industry which has grown around it, so direct transfers would eliminate large sections of government and the consequent burdens it imposes on the economy. I’m not advocating such simple redistributionism, but we could do worse than cutting out the middle man.