In my working life I have often had to battle complexity. People of great intelligence see an issue that needs attention most react and say, “What should we do?” The result is a series of complex plans to address the problem. Often these plans work for a short time, but as circumstances change other problems arise and then people say, “What should we do?”
Multiple iterations result in the overwhelming complexity that plagues government services and revenue collections. We can see this in the recent bizarre activities at Centrelink. I did some calculations in my head and the number of permutations permitted by the various payments systems existing in the welfare system amount to many trillions, while the number of beneficiaries are measured in only millions. That’s complexity overkill. It’s no wonder that it’s beyond the capability of an individual public servant to be certain that any individual qualifies for a specific benefit at what particular rate. Only a computer can work it out and this week we learnt that even the computer gets it wrong.
So why don’t we ask the question, “What should we stop doing?” We should stop trying to fine tune and target every payment in every case. We shouldn’t have both the welfare system and the tax system handing out welfare. What do I mean? Consider the tax-free threshold. It sounds fine doesn’t it? Lower wages pay less tax. But actually, every income earner gets the benefit of the tax-free threshold. So that is possibly $65 billion dollars that is effectively welfare given to everyone! And lower tax rates for lower incomes takes that figure to over $100 billion. In addition Medicare surcharges cut in above a certain point at far more than the average rate.
Now welfare is handed out according to need so each payment has to be adjusted to account for variations in a person’s income. A rise in income reduces a person’s welfare payment by say 50 or 60 cents in the dollar. At some points the combination of Medicare, marginal tax and the loss of welfare payments mean that a person is earning nothing or going backwards on their additional income.
Suppose income tax was just flat and everyone paid the same proportion of their income as tax. Suppose we had a single set of rules for welfare payments that applied regardless of income? The result would be similar to what we end up with via mind-boggling complexity. Taxes would be flatter. And what about if people were unemployed? They would still get the payment. Then it would be welfare in the traditional sense, but they wouldn’t have to make a claim. They wouldn’t have the chance to cheat or get overpaid. They would still have the same incentive to work as everyone else. No welfare-dependence and no poverty traps.
As the French say “Voila!” And as the Romans used to say, “quod erat demonstrandum.”