How to acquire a welfare mentality — and pay for it at the same time.

I have friends who like to debate the pros and cons of government intervention in in-principle, even theological terms: whether and when it is permissible to levy taxes, fund programs, and pass legislation limiting the liberties of citizens in the name of “the common good” – but contrary to the wishes of those citizens.

I think there is merit in those arguments, and I keep in mind that government policy is not just a question of “ways and means”, but does involve real questions of principle. I think that governments ought to bear in mind, before introducing new programs, that they’re funded by taxes extracted coercively from the citizenry.

Karmic retribution

Happily there are plenty of practical arguments. A favourite is the iron law of unintended consequences: a kind of automatic karmic retribution for government hubris, it seems. A universal scheme to insulate homes – surely a laudable objective in a time of widespread concern about energy use – leads to an influx of unqualified installers, with notorious consequences. A message about climate change leads to a reluctance to release water from dams, increasing flood damage. A “generous” program to build school halls and libraries (“generous” is in quotes because assessing government programs in these terms is a category mistake – you can’t be generous with other people’s money) ends up replacing existing facilities with smaller demountables for the cost of a mansion. Guaranteeing bank deposits wreaks havoc with non-bank investment companies – that sort of thing.

A personal confession: I’ve worked in government, administering and developing policy for complex schemes – and enjoyed it. Explaining my reasons for applying to work on one program with notoriously byzantine legislation, I explained my decision thus: “Look, there are some programs with perfectly straightforward rules: it does exactly what it says on the packet. Where’s the fun in that?”

But in truth, it soon becomes clear that a good program is a simple one. If we accept that government has a role in redistributing income through the tax system, the best-and-fairest way to do that – as well as the most efficient, transparent and predictable – is to make it as simple as possible.

You can’t be generous with other people’s money.

Unfortunately, in the present system there’s an incentive for government to do exactly the opposite.

Measured against the yardstick of political efficiency, the best program is one that yields the most positive publicity for the least amount of money. This creates an incentive for fragmentation: let’s break the policy, the funding into the greatest possible number of “announceables”, maximizing the scope for media releases and photo opportunities.

Instead of having a rolling program to replace capital infrastructure (that’s buildings, but no-one thinks you’re serious unless you say “infrastructure” regularly) as needed, let’s run it like reality TV, with submissions, competition and Lucky Winners – a bit like Lady Marchmain in Brideshead Revisited: “Mummy likes everything to be a present”.

Never mind the argument that submissions may be a good way of identifying those with the capacity to write good submissions, but they are unlikely to be those with the greatest need – they’re probably running about putting buckets under leaks.

So what happens when we apply this to income support?

A fair and straightforward system shouldn’t be beyond the realms of human ingenuity. We could determine, as a society, what we considered an acceptable standard of living, taking into account the real needs of families. The same approach could be applied to the tax system: people earning above this basic standard should be expected to contribute to the running costs of society. We might have to adjust the taper so as to balance needs with incentives, and avoid poverty traps. We could even make room for the Australian expectation that health and education should be sequestered and largely funded by government, because these are areas we think can’t or shouldn’t be the subject of discretionary family expenditure.

Welfare psychology

What such as system wouldn’t do, though, is answer the political requirements of a welfare system. What such a system wants is the maximum number of people to be both taxpayers and welfare recipients, so that they’ll be grateful to a munificent government for getting some of their own tax revenue back – minus the cost of this double-handling, of course. This is what “Family Tax Benefits” are all about. Families are taxed more than their share, because the tax system doesn’t really take proper account of dependents. Instead, some of the money is given back to some of the taxpayers in the form of welfare payments. (To be fair, governments of both political persuasions have contributed to the design of this system, of which the current budget’s payments are only the latest and most flagrant example.)

The strongest objection is not this “churning”: that when money passes through government hands, quite a lot of it sticks.

It’s not even that a tax-welfare system cobbled together as a lot of ad-hoc populist initiatives rather than designed as an integral whole will inevitably be replete with poverty traps – points on the graph where effective marginal tax rates, taking into account the various more-or-less self-funded “subsidies”, mean that people can’t afford to work, or to work additional hours.

It might not even be — exactly — the point Gary Scarrabelotti makes in his recent post Democracies on the brink: that democracy is corrupted when the populace works out how to use it to vote themselves largesse from the public purse, turning citizens into welfare-dependent supplicants.

The biggest problem, and the final irony, may be that we have an increasing share of the populace who think of themselves as welfare recipients, and acquire the psychological characteristics that go with this status – loss of self-confidence and initiative; looking to others to provide for their needs – when they’re paying for it all themselves.