When you’ve got, oh, probably well over half of the population, heading to two-thirds of the population receiving some form of government benefit, it’s pretty easy to identify where that money is going. And a far better option would be to wind back on expenditure, let people look after themselves a little bit more, lower taxes in due course and reduce the size of the government. – Liberal Democratic Party Senator David Leyonhjelm, interview with ABC NewsRadio Breakfast, April 30, 2015.
The federal budget will be delivered this week and, while the government has promised it will be a dull one, some cuts to spending are expected in an effort to rein in the structural deficit.
Liberal Democratic party cross-bencher Senator David Leyonhjelm, whose support the government needs to pass its budget, has called for welfare spending to be reduced, saying that government benefits flow to “well over half of the population, heading to two-thirds of the population.”
Is that right?
What does the data say?
Comprehensive data on the number of recipients of social security benefits and allowances are available from the Department of Social Services publication, Income Support Customers: A Statistical Overview, with the latest figures being for June 2013. (Quarterly figures are currently available up to December 2014 at data.gov.au but may be subject to revision.)
In June 2013, there were 5.1 million people receiving income support payments, of whom nearly half (2.4 million) were receiving Age Pensions or Veterans Affairs Pensions. A further 821,000 were on Disability Support Pension, 660,000 were receiving Newstart, and the balance receiving other payments such as Parenting Payments, Carers Payment or Youth Allowance.
Income support payments are mutually exclusive - you can only legally receive one payment at any time. The situation is more complicated with family payments, where it is possible to receive multiple forms of assistance at the same time, as well as income support.
About 1.7 million families (Table 57 here) with 3.2 million children (Table 53 here) receive either Family Tax Benefit Part A or Part B – but the Department of Social Services told me that, of these, nearly 700,000 families also receive other income support payments.
Around 930,000 families with nearly 1.4 million children received child care assistance (Table 71 here), and while the bulk of these will also be receiving Family Tax Benefit, there are some families ineligible for Family Tax Benefit who will receive support with their child care costs.
Are children counted as welfare recipients?
A major complication is defining what we mean by who “receives” assistance. For example, while there are millions of children for whom family payments are made, the children themselves do not receive the payments. Moreover, the payments are usually made to only one of the parents, so if there are two parents in the family should they both be counted as receiving payments or should only one of them be counted?
If we counted both parents and children as recipients, then each Family Tax Benefit Part A payment could have at least three recipients. This seems hard to justify. But let’s run the numbers anyway.
If we want to get the largest number, we would add together the 5.1 million recipients of income support payments, 3.2 million children and the roughly 1.9 million parents receiving Family Tax Benefit but not on income support – giving a total of close to 10.2 million people.
So if children were counted as welfare recipients, then around 44% of the total population is receiving some form of government benefit. That figure doesn’t include those getting child care assistance but not Family Tax Benefits, for which a definitive number is not available. If those people were included, it still seems unlikely the proportion would be over 50%.
If we think children shouldn’t be counted as recipients and that only one member of a couple should be included, then we have 5.1 million income support recipients plus around 900,000 parents, or 6 million recipients out of an adult population of 18.2 million - or roughly 33% of the adult population.
Both of these figures are likely to be underestimates because these figures don’t include those getting child care assistance but not Family Tax Benefits - but in total all those receiving child care assistance sums to only around 4% of the population.
However, overall it does not seem correct for Senator Leyonhjelm to say that about half the Australian population receives some form of government benefit. It’s more like 33% to 45%.
People vs households
It is possible that Senator Leyonhjelm meant to say that half of Australian households – not people – receive a government payment. That’s an important distinction.
When asked for a source for his figures, a spokesman for Senator Leyonhjelm referred The Conversation to a 2014 speech Federal Treasurer Joe Hockey gave to the Sydney Institute in which he said:
At the moment over half of Australian households receive a taxpayer funded payment from the government.
Data on the distribution of income from the Australian Bureau of Statistics has included estimates of the proportion of Australian households receiving social security payments from 1994-95 to 2011-12.
We should generally expect that household rates of payment receipt will be higher than individual rates of receipt because households on average contain more than person.
Table 3 in the downloadable excel spreadsheet here shows that in 2011-12, 47.1% of Australian households either received zero or less than 1% of their income from government social security benefits.
This means that 53% of households received more than 1% of their income from government payments.
So the figure of 50% of Australian households currently receiving a government payment is correct, and if anything is likely to be something of an understatement.
Are we heading to two-thirds of the population receiving benefits?
As with any set of numbers, however, the important issue is what the numbers mean and whether we are “heading towards” two-thirds of the population receiving a government payment.
Around half of the 5.1 million people receiving income support are of age pension age, with the other half being of working age.
The numbers of families and their children receiving family payments is in the order of 6 million people.
Table 3 in the ABS publication shows that between 1994-95 and 2011-12, the proportion of households receiving zero or less than 1% of their income from government payments actually rose from about 41% to 47%.
So on this measure – and assuming these trends continue – we are not heading up to two-thirds, but down. The proportion of households who rely heavily on government payments is actually shrinking.
As we know from the Intergenerational Report, the proportion of Australians over 65 years is forecast to increase, leading to upward pressure on welfare spending.
However, the overall number of Australians who rely on government benefits as their main source of income has been going down from about 28% in the mid-1990s to just under 25% in 2011-12.
But my own research has shown that for working age households relying on government benefits as their main source of income, the decline is even larger – from a peak of about 21% in 1996-97 to 13.8% in 2011-12. Past experience suggests that, so long as unemployment remains low, this proportion should not grow markedly.
So what has been happening to family payments? Analysis by the Parliamentary Library points out that non-means-tested child endowment was introduced in 1941, although it was not until 1950 under the Menzies Government that it was extended to families with one child.
From that time on, effectively 100% of families with children received family payments. In 1976, the Fraser Government in 1976 replaced income tax concessions for children and child endowment payments with Family Allowances. Family Allowances were income-tested by the Hawke Government in 1987, and for most of the period since that time, roughly 80% of families with children received family assistance.
Since 2007, however, there has been a remarkable turnaround in this proportion. This is a consequence of decisions by the Rudd and Gillard governments to change the indexation of family payments from wages to prices and to freeze the higher thresholds for income-testing.
This means that the proportion of families with dependent children receiving Family Tax Benefits has fallen from around 81% in 2007 to 68% in 2011-12, as can be calculated from Table 1 in the ABS survey of Families. This does not take into account the effects of the continuation of the freeze on income test thresholds continuing since then.
Moreover, if we go back further in time, then the downward trend is even stronger, simply because until 1987 Family Allowances were universal. In 1985, for example, there were 3.3 million income support recipients and 2.2 million families receiving family payments (around 1.3 million individuals receiving Family Allowances).
So out of a total adult population at the time of 11.5 million, 4.6 million people - 40% - were receiving a payment, compared to a comparable figure of 33% in 2013, as calculated earlier.
The proportion of Australian adults receiving cash payments is well below 50%. It is correct however, that about 50% of Australian households receive a government payment. While population ageing is likely to increase the number of recipients in future, changes to family payments have had a substantial downward impact on the overall proportion of the population receiving government payments. Absent future policy changes this share seems more likely to go down than up.
In general, I agree with the arguments above.
However, one of the main points is that it is actually quite difficult to know how many people are receiving payments because different payments are not mutually exclusive, as the author notes. With this being the case, it is not possible to just add up the recipients in each category of support payment to come to a single number of total recipients.
The Department of Social Security lists 22 different categories of payments, including rental assistance and the Seniors Health Card. The one number that seems clear is that there are about 5.14 million recipients of income support, up from 4.86 million in 2003.
If we add family payments, then the number of about 10.2 million overall recipients should be close to the number of overall recipients.
But the author rightly points to the difference between individuals and households. The latest ABS numbers have Australia with about 9.1 million households. If one does some back-of-the-envelope calculations on the basis of family payments and income assistance, it would seem that more than half of all households are receiving payments. So the conclusion that fewer than half of all individuals, but more than half of all households are in receipt of government payments would seem correct.
The final point is on the trends – again, I agree with the author. The number of income support recipients as a fraction of the population is falling, not rising.
However, I guess the point that the Senator is making is that if we don’t change policies then the fraction of recipients will rise. I think that is probably correct. Recent falls in the fraction of recipients have been due to policy changes, particularly to means test programs more strongly. It may not be the case that the fraction of recipients will rise to two-thirds of the Australian population, but it could well be the case that the fraction of recipients will rise if policy does not continue to tighten eligibility, given an ageing population. – Mark Crosby