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Drag on welfare is not the poor but the comfortable

Date

Jack Waterford

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What stops most middle class people from committing fraud – say, by claiming false expenses, making dodgy tax claims or exaggerating their assets to a bank – is thought to be a calculus of the risk of being caught and the extent of public disgrace if one is caught. By contrast, politicians seem to assume that underclass and working class fraud, like other crimes, including violence, being committed by them is deterred only by the severity of jail sentences.

The theory might be wrong, at least as far as welfare fraud is concerned. All of the evidence suggests that false claims on expenses by politicians and other forms of middle class fraud by government and employers is of higher incidence than welfare fraud but, even allowing the very high proportion of Australians receiving one form or another of welfare benefits, almost all of the concern and almost all of the detective energy is going on welfare fraud.

A recent British report on social security fraud might provide an interesting backdrop. The British government hands out about $300 billion in welfare benefits a year. By its best calculations, including close random audits, there are problems with about $9 billion of these payments, although mistakes by officials seem to be responsible for most of the problems. About $2.8 billion will have been underpaid to clients, because of mistaken assessments of eligibility by the British equivalents of Centrelink staff, other federal, state, federal, municipal or private sector contractors, or perhaps misunderstood information supplied by the claimant. About $6 billion will have been overpaid to claimants. The reason for the overpayments will involve mistakes made by officials ($1.2 billion), innocent mistakes made by "clients" ($2.8 billion) and deliberate fraud by claimants (about $2 billion).

Mistakes by officials are thought to be responsible for about 0.4 per cent of all welfare expenditure; innocent mistakes by "clients'' about 0.9 per cent and by deliberate fraud about 0.7 per cent of all expenditure. If a wrong payment is identified, in short, fraud will be involved in about one in every five cases.

These figures seem comparable with Australia's. Australia's social security and welfare bill is about half of Britain's and, if anything, the rate of mispayment could be expected to be a bit lower, given that Australia's present system of doling out money through Centrelink is (even if in a state of dismantlement) intrinsically more centralised, integrated with tax and other systems, and more focused than the British system. To that, no doubt, some might point to Australia's origins as a dumping ground of Britain's bludgers, skivers and crooks but, my own ancestors apart, the composition of the Australian population is now much changed and, in any event, it must be remembered that Great Britain is where all those awful convicts came from.

The average "fraud" on Centrelink seems to be about $1000. The war, and internal security, fraud control and quality assurance programs lead to about 4 million reviews of payments to individual clients every year. The cost of this fraud and quality control is about half of the money saved by reviews. By contrast, investigation of fraud by the Tax Office is sometimes said to produce a $7.50 return for every dollar spent on compliance review, although, no doubt, that is a figure that will soon be up in the air with the implementation of government directions to reduce taxation staff by more than 10 per cent. Even before those staff cuts, the Tax Office was reviewing only about 2 million files a year, although its "client" population is at least twice that of Centrelink and other welfare benefit services. 

But increasing the resources going into the accurate reporting of income, or deductible expenditure, has political costs that hardly ever arise with welfare fraud, particularly if the sort of welfare fraud that is envisaged involves unemployed beneficiaries with undeclared sources of income, supposedly single mothers with undeclared partners, or invalid pensioners thought to be more fit and able than they claim to be. Dob-in rates from members of the public are high, as are investigations spurred by suspicions of Centrelink staff. In fact, about half of those "caught" catch themselves, because data holding on them elsewhere in the Commonwealth (including at the Tax Office) is at variance with information they have volunteered to Centrelink.  

No one is suggesting that conscious and deliberate fraud on the welfare system should not be detected and punished. But the attention given to the problem, and the media and political spotlight on fraud, cheating, bludging and a bloated sense of entitlement, is out of all proportion to government resources focused on other types of fraud, or checks and balances against abuse of various systems. 

A paper by Greg Marston, of the social policy unit at the University of Queensland, a few years ago pointed to a steadily increasing rate of prosecutions for social security fraud, while the number of prosecutions for fraudulent tax claims had remained steady over more than a decade at about 250 a year. In 2002, there were about 24 times as many Australians being charged with making a fraudulent claim on social security as every person charged with tax fraud. Two years later, 80 per cent of all criminal cases being prosecuted by the Commonwealth Director of Public Prosecutions involved social security fraud. Very few of the fraud prosecutions are over tax and other concessional payments going to ordinary working Australians, although there is little evidence that the fraud or mistake rate would be lower than with benefits dealing with unemployment, invalidity or disability.

Marston quoted, approvingly, a comment by ANU professor John Braithwaite that "the DPP is serving Australia very poorly with respect to serious white-collar crime ... it is tough on the fraud of the poor and very soft on the fraud of the rich''.

The tough talk about "cracking down" on welfare fraudsters, bludgers and scroungers, a constant dialogue coming from the tabloid and infotainment media that would seem to suggest that many folk on welfare are cheats, and talk by politicians of cutting relief for extended periods to young unemployed, and making others work for the dole, sometimes seems to divide Australians into whether they are "contributors" or whether they are dependents on others. No doubt this perception helps those such as Treasurer Joe Hockey in calling for an end to the culture of entitlement. Yet no one knows better than Hockey that the real problem with a culture of entitlement – if there is one – is not that too many of the underclass, the young and the aged are receiving welfare benefits but that too many of the middle classes are getting it. Perhaps a tiny percentage of the very poor are getting fractionally more than their legal entitlement but, with or without it, they are nearly all poor. By contrast, the charge about cutting back the reach and cost of welfare is about weaning working people, middle class people and others from reliance on government. And even assuming that such "salt of the earth'' people (once characterised as Howard's battlers) may be intrinsically more honest than the workshy scroungers (a proposition not supported by evidence of tax evasion, or expenses fiddling), the extra entitlement exceeds by a big amount all of the fraud at the bottom.

In much the same manner that some politicians are deterred from the more blatant fraud on their generous expense entitlements only by the very slight chance of exposure, Joe Hockey's campaign might be better served by demonising the welfare dependency of "ordinary'' and typical Australians. The problem is that all too often it is just the Commonwealth benefits that have made them dependent on the public purse that were, as often as not, given to them by previous Liberal governments. 

20 comments

  • Jack, I'm still waiting for you to write about the class issue in Canberra, which is what have the ALP Gallagher government done for West Belconnen, what have they not done, how many schools were closed, which of those school sites will have their ovals sold off, etc etc. Get to work, Jack. Higgins, Holt and Flynn ovals are under threat.

    Commenter
    zebra
    Date and time
    June 11, 2014, 1:52PM
    • Yes I know of several wealthy people claiming disability pensions for disabled dependants. If they can afford to look after them then why should the taxpayers?

      Commenter
      Frank
      Location
      ACT
      Date and time
      June 11, 2014, 2:24PM
      • Reeks of right wing analysis.

        Commenter
        ray pace
        Location
        narrabeen
        Date and time
        June 11, 2014, 2:33PM
        • In a meritocracy designed by the selfish (Murdoch/Gina etc). If the rich merit their success then the poor merit their poverty. So lets start building high walls around our homes to keep out the inevitable increase in crime. Johannesburg here we come.

          Commenter
          Urban Off-gridder
          Date and time
          June 11, 2014, 3:48PM
          • These figures seem comparable with Australia's. Australia's social security and welfare bill is about half of Britain's and, if anything, the rate of mispayment could be expected to be a bit lower, given that Australia's present system of doling out money through Centrelink is (even if in a state of dismantlement) intrinsically more centralised, integrated with tax and other systems, and more focused than the British system.

            So not comparable at all.

            3 times the population but only 2 times the taxable money paid out as benefits in the social security.

            Which to me would logically imply that Australia was more likely not less to incur mistakes, to over-pay, under-pay, or face fraud.

            So, perhaps the LNP are justified in targeting the benefit system, much as I would loathe to admit that the recent budget might in some cruel and ironic way, be justified.

            Commenter
            Joe the POM
            Location
            Geelong
            Date and time
            June 11, 2014, 3:51PM
            • It’s a poorly written article as it jumps between different units of measurement (dollars, then percentages then rough estimates), but your comment isn’t much better.

              The article says “about half” and yet you boldly state the UK is 3 times Au with 2 times the spending – neither of these figures is accurate as the population is less than 3 (2.8ish) and the spending isn’t referenced so it could be just under half or just over. And even if we did spend more on welfare, it’s peanuts compared to the actual problem which is tax reform.

              The issue with the budget isn’t that it tries to reform welfare spending, it’s that it tries to reform welfare spending whilst making zero attempt to reform tax avoidance and investment benefits for the rich. In fact, by reducing the ATO staff they are encouraging tax avoidance. So no, I can’t agree that the budget is in anyway justified.

              Commenter
              Tom Calthorpe
              Location
              Canberra
              Date and time
              June 11, 2014, 4:22PM
            • I watched a doco a few weeks back about this in Britain. The trouble when the government makes the mistakes is that people are left without income for weeks or even months and lose their homes, they have to rely on free food banks and the dole is 71 pound a week.

              What they don't have in Britain is vast amounts of middle and rich welfare like we do.

              Commenter
              Marilyn
              Date and time
              June 11, 2014, 4:37PM
            • So you agree with the article that the middle/upper class welfare should be targetted. To put some numbers on thing, for each newstart payment not made for 6 months is about $6,000 saved. Family Tax benefit is often worth north of $10,000 per family. FTB is what will save money. Further, the newstart strategy will probably cost money in the long run, as people are likely to stay unemployed for longer, or enter the criminal system as they become desperate. Oh, but crime expenditure appears in state budgets doesn't it?

              Commenter
              vote for pedro
              Date and time
              June 11, 2014, 6:54PM
          • In order to avoid defrauding the welfare system, it is necessary to know the rules.

            When my mother went in to care she sold her home and was required to “pay a deposit” to the facility (UPA). The payment did not entitle her to any form of ownership of the facility – it is a source of funds for the facility to draw upon and the balance will be refunded on her departure from the facility. Centrelink deemed that in my mother’s case the existence of the “deposit” means that she “owns her home” and so was not eligible for non-homeowner benefits, but that “deposit” also constitutes an investment that is deemed to earn interest (a form of double-dipping on the part of the government?). None of the other residents have received this type of assessment.

            I checked the social security web sites and found a variety of definitions of home ownership, each having somewhat different implications regarding assessments. I have also attempted to gather information related to other issues and found the web-sites contain a range of vague statements indicating there are unspecified “ifs and buts” in the rules meaning that it is impossible for one to work it out for oneself.

            An option might be to allow the social security people to work it out – however I have personal experience of them getting it wrong, and besides which it is us who are punished for getting it wrong to our benefit yet we are not provided with “back-pay” when they get it wrong to their benefit.

            The social security system has been a shambles for some decades – yet none of the successive Australian governments appear able (willing?) to untangle it. Can we have rules that are consistent and understandable?

            Commenter
            John
            Location
            Canberra
            Date and time
            June 11, 2014, 4:43PM
            • That back-pay should occur. It did for me with FTB, they got it wrong, so I received a lump sum to account for previous under-payments. However, it may be that if you get assessed as receiving nothing, then they probably won't have a method to pay you. Keep pestering them, they'll eventually get it right.

              Commenter
              vote for pedro
              Date and time
              June 11, 2014, 7:20PM

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