Why does the government fund university degrees? Why does it fund childcare? What is the purpose of welfare? These may seem like obvious questions but rarely do we see budget decisions reasoned from these first principles. Instead, most commentary focuses on two things: distributional issues (who wins, who loses and by how much) and overall cost (debt and deficits).
Subscribe now for unlimited access.
$0/
(min cost $0)
or signup to continue reading
The challenge of using answers to these fundamental questions in justifying budget changes is that your perspective depends greatly on your ideological view of government. Moreover, for some payments (much like the tourist asking the Irishman how to get to Dublin), if you wanted reform you wouldn't start from here.
Yet often, instead of arguing one particular program is unaffordable, the better case for change is that government should never have been running that program in the first place. One of the reasons the Coalition had such trouble selling its case for reducing spending – so much so that it has ultimately abandoned any serious attempt – is that it mostly focused on debt, not on government overreach.
A "small government" perspective may suggest there are two main reasons for making payments to individuals: to alleviate poverty, or to secure a benefit for taxpayers.
The need for payments to alleviate poverty are self-evident: income support payments like Newstart and the disability support pension serve a clear purpose. It is the second category of payments that are far more problematic.
Payments such as childcare support, paid parental leave and even support for university students all have objectives well beyond alleviating poverty. The benefits are often vague and the justification flimsy or misleading.
The glib rationale for these payments is that they all generate a benefit to the public and so should be publicly funded. In the case of university, for example, a person with a degree likely earns more income and so pays more tax over their lifetime – so the public benefits from more people getting degrees.
However, if the aim is to increase the number of people getting degrees, it needs to be understood that the individual also gets a benefit – a higher income – which in many cases would be sufficient to see them undertake extra study with far less government support, if any.
We can know this because, despite much higher average levels of student debt in comparable dollar terms, about 70 per cent of students in the United States (where there is less government aid for tertiary education) still immediately enrol in some form of college after graduating from high school.
There is no reason to compensate people just because they generate a secondary, public benefit.
It is true that universal assistance schemes (like degree subsidies) help low-income groups, but many beneficiaries are not disadvantaged and some don't need support at all. If some of this money does nothing to increase the number of people getting degrees, it is effectively wasted from a policy perspective. Consequently, it would be more efficient if subsidies were focused primarily on people who wouldn't get a degree without it.
This analysis can be extended to a number of payments. For childcare, the issue is not just that taxpayer funds are directed to millionaire families, it's that there is no benefit to taxpayers in doing so. If a subsidy is not helping alleviate poverty, the onus should be on those supporting it to show there are real gains to be made by extending the cohort.
In other words, it is insufficient to show that childcare enables women to work extra hours and therefore earn more income. It must also be shown that this wouldn't happen without government support.
This analysis may generate savings but its focus can be on improving outcomes from payments. Take paid parental leave, one of the aims of which was to increase the number of women taking at least 18 weeks off after birth. A 2014 study found it successfully increased the percentage of women who did so from 77 per cent to 85 per cent.
However, another way to assess those figures is that paid parental leave only swayed one-third of those who weren't going to take the time off. Nine out of every 10 women accessing the leave were going to take that time off anyway. Instead of targeting savings by cutting support for those with access to private parental leave schemes, maybe the better approach is to consider whether more women would take more time off if the nearly $1.5 billion cost of the scheme was better targeted.
It may seem counter-intuitive, but a tightly targeted system is far more likely to be able to afford to make generous payments. It is invariably the universal or quasi-universal payments – like family benefits, childcare or the age pension – that are unaffordable.
The believers in small government have taken a big hit from the budget. Perhaps the best response is to focus efforts on showing you don't need to increase spending. You can get better outcomes from what is spent now.
Simon Cowan is research manager at the Centre for Independent Studies. scowan@cis.org.au
