FactCheck: do eight out of 10 taxpayers work every day to pay our $150b welfare bill?

Eight out of 10 income taxpayers go to work every single day, and that just pays the welfare bill. Now, that is $A150 billion a year. We need to ensure that we’re getting more people on employers' payrolls and not on the taxpayers' payroll for welfare. – Scott Morrison, Minister for Social Services, interview with Peter van Onselen on Sky News, March 29, 2015.

Scott Morrison has argued this point several times now, going so far as to state that, soon, it could take 10 out of 10 income taxpayers to finance welfare expenditure.

The “welfare bill” Morrison is referring to is the A$149.91 billion estimated expenditure on social security and welfare by the Mid-Year Economic and Fiscal Outlook 2014-15 (MYEFO). The same document is also the source of the total individual income tax revenue that Morrison refers to, which stands at just over A$180 billion.

Very simply, the Minister is implying that 80% of Australian income tax goes straight towards the welfare bill.

Is that right?

Eight in 10… every single day

When asked by The Conversation for a source for the numbers in his statement, a spokesperson for Mr Morrison said that the 2014-15 MYEFO showed:

$181.4 billion in income tax receipts in 2014-15 [and] $149.9 billion total social security and welfare spend in 2014-15. [Therefore] 82.6% of taxpayer receipts are paid towards social security and welfare or, putting it another way, on average eight in 10 income taxpayers are needed to pay the bill.

Morrison’s “eight in 10” calculation is broadly correct, if one refers to an abstract “average taxpayer". (Of course, in reality, different incomes attract different levels of income tax, so the idea of an “average taxpayer” is somewhat hypothetical.)

The Minister has also stated more explicitly that eight million out of 10.1 million Australian income taxpayers fund the entire “welfare bill".

This statement appears to assume, somewhat misleadingly, that all income taxpayers pay roughly the same amount of tax. Additionally, the emphatic “every single day” in Morrison’s statement could be interpreted to mean that there are 10 million Australians working full-time whose taxes pay the welfare bills of those not in work. This ignores the fact that 30% of the Australian workforce works part-time.

It also overlooks the fact that a large proportion of income taxpayers benefit from social security and welfare payments and services. In other words, there is no clear division between those who pay income tax, and those who receive welfare. Indeed, the 2014-15 Budget papers show on Page 17 that a single-income family with two adults and a two-year-old dependent child with an annual income of $90,000 would pay $23,047 in income tax in 2016-7 and receive at least $6693 in government payments.

Most taxpayers are also welfare recipients.AAP Image/Julian Smith

The welfare bill

What’s included in the “welfare bill” that Morrison refers to?

It covers public expenditure on pensions, allowances and services, but excludes tax expenditures. If these were included, the welfare bill would be much higher.

According to the the pie chart titled “Total Social Security and Welfare expenditure” in the 2014-15 Budget, the vast majority of expenditure on social security and welfare, excluding tax expenditures, goes to support seniors (29%), family tax benefits (13%), people with disability (12%), carers (5%), veterans (5%), parents income support (4%), and child care assistance (4%) and “other welfare expenditure” (21%). Only 7% of the “welfare bill” goes to support the unemployed and sick.

Newstart, the largest benefit scheme for the unemployed, currently costs approximately A$10 billion per year. In January 2015, the total number of recipients of Newstart allowances was 754,340.

In the unlikely event that every single person currently receiving Newstart Allowance was instead employed full-time in a minimum wage job (that is, at $640.90 per week), the “welfare bill” would fall by approximately $10 billion, assuming entitlement to other payments did not change. Each one of these people would then contribute approximately $3096 in income tax and Medicare Levy, generating an additional tax intake of $2.34 billion.

Under this optimistic scenario, 76% of the total income tax (or 7.6 out of 10 income taxpayers, using Mr Morrison’s maths) would still go to fund social security and welfare.

In other words, if Scott Morrison has set himself the goal of reducing the proportion of income taxes that go towards welfare through “getting more people on employer’s payrolls and not on the taxpayer’s payroll for welfare,” he may have set himself an uphill task. The “welfare bill” would still be very large.

There are manyalternativeways of funding welfare.

Verdict

The maths of the Minister’s statement is broadly correct, if tax expenditures such as the concessional rate of taxation on super contributions are not included as part of “the welfare bill”. The context in which Scott Morrison places the statement however, is potentially misleading. Most welfare recipients of today are yesterday’s taxpayers (older people), while many other welfare programs are designed and put into place in order to allow individuals to either enter or stay in the workforce (such as child care rebates), or provide support to families with children. Getting more people on employers’ payrolls – which, of course, is a positive thing – may not greatly reduce the share of income taxes that go towards welfare.

Review

I generally agree with the comments made in this Fact Check. As noted in the verdict, the maths is broadly correct, but the Minister’s statement in isolation omits some important concepts.

Social security and welfare in Australia is funded out of general government revenue, not income tax. The figure of $181.4 billion in income tax comes from Table 3.12 of the 2014-15 MYEFO, but it is more appropriate to use the figures on a cash basis in Table 3.8, which, at $1.76 billion, has a slightly lower level of individual income tax.

More importantly, the figure quoted for income tax refers only to individual income taxes and withholdings. Income taxes also include fringe benefits tax, company tax and taxes on superannuation, so as Table 3.8 in the 2014-15 MYEFO) shows, the total level of income tax collections estimated is just under $259 billion. There are also other significant sources of taxation and non-taxation revenue, so that the total level of general government revenue is estimated at around $379.5 billion.

Social security and welfare therefore accounts for 39% of total Commonwealth Government Revenue. It might be argued that we should exclude the GST, as these revenues ($54 billion in 2014-15) are earmarked for the States and Territories. If this revenue is deducted, then social security and welfare spending rises to 46% of the remaining total Commonwealth Revenue.

As the Fact Check points out, and I have argued previously, the idea that there is an “us and them” dichotomy between taxpayers and welfare recipients is incorrect. Many people receiving Age Pensions have already paid tax for most of their working lives, and a majority of Australian households of working age will need to use the social security system at some time in their working lives. – Peter Whiteford

Gerry Redmond has received funding from the ARC and the Department of Social Services and the Department of Education.

Peter Whiteford has received funding from the Australian Research Council and the Department of Social Services. He is an independent member of the Sustainability Committee of the Board of the National Disability Insurance Agency.

Rodrigo Praino does not work for, consult to, own shares in or receive funding from any company or organisation that would benefit from this article, and has no relevant affiliations.