Does the nature of a democracy change when an increasing majority of its voters receive net benefits from, or are employed by, government — while a diminishing minority shoulders the net tax burden?
Australia is in the process of finding out.
Recently released ABS figures show that in 2015-16, nearly half of Australian households received more in broadly-defined benefits from government, than they paid in direct and indirect taxes. When the number of public sector employees is added, close to a majority of voters benefit more from government than they contribute.
The figures are surprising, not because some households benefit from the tax/transfer system, but because so many do. If the population of households is divided into quintiles (slices of 20% each) from lowest to highest income, not only the first and second quintiles are net beneficiaries, but also the third (middle) quintile.
In Voting for a Living: A shift in Australian politics from selling policies to buying votes?, released this week, Terrence O’Brien and I explore the implications of this trend. The paper outlines that having such a large group of government beneficiaries exerts pressure for policy making to preserve existing benefits and create new benefits; while largely restricting new taxes to higher income households.
The emergence of such a large population segment that in a sense ‘votes for a living’, could help explain much of what has gone awry with Australian public policy in recent years. Specifically, it could help explain government decisions such as the abandoning of the proposed pension age increase from 67 to 70, announced earlier this week.
This decision also illustrates a general point made in the paper — that it is not just voter behaviour that’s affected by increasing net benefits. Political parties will also curry favour with this group of voters and become more interested in buying votes than selling good policies.
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