Middle Class Welfare in Australia Presentation to Welfare Future Conference, Melbourne – 31 October 2014 Ben Phillips Principal Research Fellow
May 25, 2015
Middle Class Welfare in Australia
Presentation to Welfare Future Conference, Melbourne– 31 October 2014
Ben Phillips
Principal Research Fellow
Introduction
● What is middle class?
● What is middle class welfare?
● STINMOD modelling
● How much middle class welfare is there in Australia and what are the main elements?
● Poverty in Australia
● Impact of Federal Budget on middle class welfare?
● Future of middle class welfare?
What is middle class
● This is not entirely clear
● Do we base class on income, expenditure, assets, or is it more a social structure/position?
● For the purpose of this presentation and simplicity I’ll consider middle class to be the middle 20% of the income distribution.
● Couple with two kids - $75,000 - $100,000 family income
● Single person - $35,000 to $50,000
● It’s probably a bit broader than this
● A simplification – older families who largely own their own home are hard to compare with a younger FHB family. Old children cost more etc… it’s complicated.
STINMOD - introduction
• STINMOD is a microsimulation tool developed by NATSEM for the Commonwealth from 1994.
• Simulates the tax and transfer system of Australia (for individuals and families) using actual data on real families from ABS income surveys.
• Provides a unique ability to model the ‘distributional’ impact of existing and alternative policies and offers a very detailed snapshot of the Australian population at a given point in time or projection into the future.
• Two standard models – hypothetical and distributional
• Modelled results are benchmarked to administration totals such as the number of pensioners, family payments, unemployed etc..
STINMOD - introduction
• STINMOD is heavily relied upon by the Commonwealth for the modelling
policy change for most of the important government payments and personal
income tax
• Particularly useful for new policy ‘packages’ where administration data lacks
the detail to deal with a range of policy areas, or where policy change
introduces new customers.
• The most famous examples of STINMOD include the introduction of the ANTS
package (GST 2000), welfare to work (2006) and the Carbon Price package in
2012 and 2014-15 budget.
• Regional modelling combines STINMOD with Census/admin regional profiles
• Available as a simple interface version – point and click or much more
complicated ‘source code’ version.
Welfare distribution
$179 $158
$67
$21 $6
$84 $139
$76
$18
$2
$125
$159
$101
$66
$31
$0
$50
$100
$150
$200
$250
$300
$350
$400
$450
$500
Q1 Q2 Q3 Q4 Q5
Distribution of Welfare Payments (Households), STINMOD, 2014
Aged Pension FTB Other Payments
Welfare distribution
31%
37%
20%
9% 3%
Total Government Transfers, STINMOD, 2014
Q1 Q2 Q3 Q4 Q5
Welfare distribution
0
200000
400000
600000
800000
1000000
1200000
Q1 Q2 Q3 Q4 Q5
Payments recipient numbers by income group
Age Pension Other pension Allowees
Welfare distribution
• Where is the middle class welfare (payments)
● Child Care (CCR universal 50% out of pocket costs)
● FTB (particularly Part B – budget 2014-15 has improved this situation)
● FTB – poverty measure for low income families and tapered away to avoid poverty traps + provides ‘tax justice’
● Reality is that middle to high income families don’t receive a large share of FTB but savings can be made in this area.
● Budget was largely about reducing the payment across the board – stealthy indexation pauses and FTB B (once youngest hits 6 or income > $100K) removal the biggest impact.
● PPL – new scheme for 2015 will significantly increase the middle class and high income welfare in Australia
Childcare distribution
Other middle class payments/tax expenditures
• First home buyers grants (largely middle income)
• Negative gearing (property/other investments) (largely middle income)
• Capital gains tax
• Owner occupier housing
• Superannuation
• Trusts
• Salary Sacrificed vehicles
• These are where significant middle class (and upper class) welfare is.
In-kind government support
$87 $70 $36 $30 $14
$93 $149
$176 $152
$117
$253
$260 $219
$198
$187
0
100
200
300
400
500
600
1 2 3 4 5
In-kind Government Support by income quintile, STINMOD14
Welfare in-kind Education in-kind Health in-kind
In-kind government support
Benefits - trends • Remains heavily skewed to low income families
• Small increase under Labor in middle income welfare – can be distorted by
broader demographic/economic conditions and largest influence remains
pension/DSP – not necessarily policy changes driving result.
31%
45%
18%
6%
1%
35%
42%
16%
5%
1%
28%
44%
21%
5%
1%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
Q1 Q2 Q3 Q4 Q5
Welfare Distribution by Income level - share of taxable income
2002 2007 2012
Poverty
Budget Impact
Conclusion • With respect to government cash payments middle class welfare is not as substantial as often suggested.
• Cash payments are generally well targeted with the major payments (pensions, allowances) directed
heavily towards the bottom 40% of income distribution
• Family payments do have a middle class welfare element – although majority directed at low income
families.
• Largest element of middle class ‘welfare’ belongs to in-kind health and education services and tax
expenditures.
• Budget does remove some welfare to middle income but is proportionately directed at low income
groups and is highly regressive.
• Future? Influenced by economy, demographics, policy – current government looking to reduce benefits
and reduce taxation – clearly less progressive.
• Demographically – older population implies increased pensions/health reduced relative share of
education
Thank You