Tall order to match Howard on poverty

from The Australian

ANALYSIS: David Uren

LABOR is promising to do more to raise people out of poverty but it will do well if it matches the previous government.

The buoyant economy has helped all sections of the community. The real incomes of the poorest 20per cent of households rose by 31per cent in the decade to 2005-06, according to the Australian Bureau of Statistics. This compares with a 32 per cent increase for people on middle incomes and 36 per cent for people on high incomes.

The halving of the unemployment rate from 8.5 per cent in 1996 to its recent low of 4.2per cent has been the most obvious improvement to living standards in lower-income households.

Work by the economic modelling institute NATSEM shows that the poverty rate among the unemployed is almost 60 per cent.

Improvements to pension indexation have greatly improved the economic status of the elderly and those on disabled and single-parent allowances.

Pensions used to be adjusted according to changes in the cost of living, but now they track average male weekly earnings, which rise more quickly as productivity increases.

The Howard government boosted payments to families on lower incomes and took steps to improve their tax treatment.

A family with young children earning 75 per cent of the average wage receives a top-up from the Government that lifts them to just under average earnings. This is nearly twice as generous as family support in the average developed country, according to the OECD.

Treasurer Wayne Swan is emphasising the workforce participation benefits flowing from the tax cuts, and is promising to make raising participation the centre of his economic agenda.

He can claim some credit for placing the participation incentives of tax on the political agenda. However, the pay-off from the tax cuts to be delivered in next year's budget are small relative to the cost. Based on Treasury estimates for the Coalition's tax package, it works out at about $500,000 for every new job created.

ANU economist Andrew Leigh says that while the strength of the economy has helped all groups, it should be simple to devise more targeted programs to assist the poor than have been deployed over the past decade.

He says intensive programs to help the early development of children in the poorest families have been successful in the US.

Restructuring the payment of teachers would give an incentive for the best to work in the most disadvantaged schools, he says.

Earned income tax credits, which have been used in the US and England, have also alleviated poverty by putting money on the table to encourage people to move from welfare to work.

However, the imperative to retain large budget surpluses while financing promised tax cuts may restrict the Government.