Tag Archives: inequality

Calling Out Older People’s Privilege

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As I watch the South Australian state election campaign unfold, I feel compelled to call out older people’s privilege – that is, the leveraging of public funds based on a false sense of need and/or entitlement. Spoiler alert: my argument is that poverty and need among older people is about class, not age – but more about that later!

Unequal sign, with wording "inequality - not what you think"

Old Does Not Equal Poor

I will look at a few examples of older people’s privilege below, but first, the basic data that might question the allocation of concessions and government support based on age (or even receipt of the age pension), rather than on need. I have previously posted that 72% of age pensioners own their own home, and around two-thirds of those homeowner pensioners have more than $100,000 in additional financial assets. Not rich, but not poor either – and those statistics say nothing of the self-funded retirees who are too rich for the age pension.

Overall, the data is clear that there is a correlation of age and wealth as many people with steady jobs accumulate wealth over a life-time. ACOSS/UNSW research shows that the average older household was 25% wealthier than the average middle-aged household, and almost four times as wealthy as the average young household.

And yet, we have policies and proposals to provide government support for older people or households that are not available to other, poorer households.

To be clear, an age pensioner who is renting a house and has only limited savings is going to be facing serious financial pressures and in need of support. But that poverty is about not having property and capital income, rather than about their age. And even then, that pension income remains significantly above the income-support and concessions provided to unemployed people of working age.

Yet lurking at the back of our minds and at the front of the social security system is a very old idea of the deserving and undeserving poor. Older people are assumed to have worked throughout their life and deserve support in their retirement, while working-age people who are unemployed or experiencing waged poverty are somehow to blame for their poverty.

This may change as compulsory superannuation opens the possibility of age pensioners being seen as undeserving losers who did not work hard enough to provide for themselves in retirement, but fortunately, we are not there (yet). And in the meantime, despite the obnoxiousness of the deserving/undeserving politics, older people’s privilege is alive and well. Here are a few examples that have come across my desk in the last few weeks.

Examples of Older People’s Privilege

Stamp Duty Promises

At this state election, the Liberal party is promising to provide a $15,000 stamp duty discount for over 55’s looking to downsize, while Labor is promising to abolish stamp duty for over 60s downsizing to a new-built dwelling. Ignoring the impact on government revenue and the fact that stamp duty overall is an unfair and inefficient tax, these tax concessions (almost by definition) go to people who can most afford to pay stamp duty – because they are getting a significant cash bonus from their downsizing. Young families going from their first home unit to a suburban house are likely to need stamp duty discounts more than an aging downsizer, but older people’s privilege prioritises the needs of age over financial position (albeit dressed up as a wider market intervention to free up supply).

The Older People’s Privilege Lobby

The election campaign platform of the state’s leading advocate body for older people, COTA (the Council on the Ageing) proposes free ambulance services for full age pensioners. Nobody wants a cost barrier to people calling an ambulance when they need it, but this proposal is a claim to older people’s privilege (mediated slightly by limiting it to full age pensioners). Age pensioners already get a 50% discount on ambulance cover insurance and ambulance fees, while people who are unemployed (with no children) and those in waged poverty receive no such discounts.

While COTA is simply lobbying for its constituency, a better public policy would be free ambulance services for all South Australians (a universal service). Short of that, the priority should surely be to extend the existing concession to all unemployed people and those in waged poverty, not an extension of an existing subsidy to aged pensioners.

Similarly, COTA’s call for the removal of the work limit for Seniors Card eligibility would see an older full-time worker in a well-paid job receive free public transport and other discounts, based simply on their age. [1] No consideration of income or need, just a claim for older people’s privilege.

Disclaimer – I am particularly grumpy here because these proposals undermine work that SACOSS did to remove unfairness and poverty premiums in the state concessions system – work that was adopted by the SA government in the 2024-25 state budget.

Propaganda in Other Interests

The final example is not an election policy, but a recent Renew Economy article expressing outrage at a proposal to charge all customers a fixed network cost, rather than the usage-based charges currently in place. While fixed charges are usually regressive, this is less the case than the current system where those with money and housing tenure can reduce their chargeable usage (e.g. by installing solar panels and batteries) and avoid paying any network costs.

For reasons outlined in previous posts, I question the data behind the article’s assertion that the fixed charge proposal takes from the poor and gives to the rich. However, in the context of this post, what is interesting is that the poster child of this injustice is a:

“pensioner in a small cottage home, who makes sure they wear their winter woollies to keep their heating bill down, and always takes short showers and who used their small surplus cash to buy solar to contain their power bill.”

This consumer here is not described simply as a person who owns their own home and has capital invested in solar panels and batteries, they are a (deserving) age pensioner. Yet the distributional impacts of energy network tariffs are mostly about technology and housing tenure, not age – but the age pensioner makes an appearance nonetheless as older people’s privilege is weaponised.

Class, not Age

The reality of all these examples (and a thousand others) is that those with a need for government support need that support because they lack income and wealth, not because of their age. Of course, some older people have low incomes because they are marginalised in the labour market by age-discrimination, but in terms of government supports, this could be equally or better dealt with by reference to employment status than age. And as the stats at the top of this article suggest, many other older households have comfortable incomes and wealth.

Age is simply not a good determinant of wealth or of need. As Piketty made famous, the fundamental driver of inequality is capital accumulation. This is true in the big picture of Piketty, but also in the modest capital of owning a home (or solar power).

When we invoke older people’s privilege to continue to provide (or lobby for) supports based on age rather than need, we are making poorly targeted policy, masking the fundamental inequality of class processes, and perpetuating an antiquated view of the deserving and undeserving poor.

Let’s talk about class (income and wealth) and need, not age.

[1]              The SA Senior’s card is currently available to all residents over the age of 60 who work less than 20 hours per week. There are no income limits.

Revisiting Issues of Affordability, Income and Inequality

This post updates and collects in one place my previous writings about how policy arguments around inequality which are based solely on income data (e.g. income percentiles) fundamentally misunderstand and misrepresent inequality.

The basic argument is that standard income deciles/percentiles are misleading because they create a picture of a continuous income distribution spectrum, rather than differential flows of income to certain parts of the economy. More specifically, they ignore fundamental differences in income arising from housing tenure/ownership, income and capital gains on wealth, and social transfers in kind.

In short, such analysis reflects a 1980s world – before housing costs ate household budgets and superannuation turned wage earners into stock holders.

Housing

Housing tenure matters because it creates differences in effective household income (i.e. actual purchasing power) and living standards. In an earlier post I compared the effective income of a renter and homeowner with identical annual salaries. The homeowner (without a mortgage) ended up nearly $30,000 a year better off than the renter on the same $100,000 p.a. income. This result was driven by:

  • differences in housing costs (imputing rental income to homeowners for the value of housing services received)
  • income from investing the cash that would otherwise have gone to rents, and
  • tax advantages that go with that investment.

This comparison did not take account of capital gains which could heighten the gap, and the renter/homeowner difference is probably worse now with rent prices going up faster than income (so proportionately higher imputed income for homeowners) and a booming housing market seeing higher capital gains.

This is all pretty obvious, and echoes why poverty studies tend to focus on “after-housing” income. However, it does suggest that plotting an income spectrum just based on cash incomes is very misleading when it comes to understanding difference in purchasing power and standards of living. At a minimum, we need to be basing analysis on the intersection of income and housing tenure.

Wealth

While housing is the primary form of wealth for most Australian households, the issues above are magnified when all forms of wealth are taken into account. Capital gains and tax advantages are increased, while wealth also creates additional ability to invest in money-saving technologies (e.g. energy efficient devices) which in turn increases future purchasing power without a change in income. And there are financial, health and psychological benefits of having savings/wealth to fall back on in emergencies.

But what is important here is that we can’t simply assume that income and wealth go hand-in-hand. The last ABS data (before the national statistician created an inequality data black-hole), shows that just under a third (32%) of low-income households also had low wealth, but 23% had moderate wealth (probably owning their own home), while 11% of low-income households had high wealth (See the graph below).

Column graph showing percent of households in lowest, middle and high income brackets that have low, moderate and high wealth.
Source: ABS, Household Income and Wealth

A concrete example of this wealth-income divergence emerges from the government’s data on age pensioners. The data for the September Quarter 2025 shows that 72% of pensioners own their own home, and around two-thirds of those homeowner pensioners have more than $100,000 in financial assets beyond their home. These pensioners have low-moderate incomes (otherwise they would not be eligible for the pension), but substantial enough capital to be protected against poverty and to have a better standard of living than many renters on higher incomes.

In short, low income does not necessarily mean low wealth or low purchasing power, and an income spectrum based solely on income figures misleads as to who is likely to be struggling.

Social Transfers in Kind

The final piece of the puzzle would be the inclusion of social transfers in kind – that is, the receipt of public services such as education, public health care, child care subsidies as well as a range of rebates and concessions. Many of these transfers go disproportionately to those on lower incomes, which then increases their effective consumption and standard of living. In turn, this decreases inequality – which was the finding of a leading Australian scholar in this field, Yuvisthi Naidoo, whose work I have summarised here.

However, the analysis is more complicated. A very useful recent briefing paper from the e61 Institute shows that while social transfers in kind are generally progressive (i.e. disproportionately benefit those on lowest incomes), there are significant differences between different transfers. The graph below from their report shows the distribution of transfers across both income and wealth quintiles. We can see, for instance, that pharmaceutical concessions are one of the more progressive transfers when plotted against income, with about two-thirds going to those in the lowest two income quintiles. However, those pharmaceutical benefits are far less progressive when plotted by wealth – in part because older people have more needs and eligibility, and are also likely to have accumulated more wealth (mostly in the form of home ownership).

Bar graph showing the percent of each of 15 different government transfers going to each income quintile. Social/public housing is the most progressive, while community health services and private health insurance rebate are the least progressive.
Source: e61 Micronote: Welfare for the Well Off?

It is worth tracking the comparison of progressivity in this graph for each transfer, and there is further discussion below on energy concessions, but the main point here is simply that inequality looks different when wealth and social transfers in kind are considered.

Why Does It Matter?

Overall, all this matters because it means that the level of inequality we see in standard income spectrums may be misleading, but also because actual households will be in different places on the income spectrum when extended incomes are taken into account. Naidoo’s research showed that nearly a half of all older people (65+) were in the lowest standard (money) income quintile, but the inclusion of imputed rent and social transfers in kind reduced that to 22.5% (because older Australians are disproportionately more likely to own homes and benefit from health services). By the time imputed wealth annuities were included in the analysis, only 17% of older people were in the lowest income quintile. At the other end of the spectrum, accounting for extended income meant that 26% of older households were in the highest quintile, up from 7.1% when based on standard income alone. (Naidoo, Appendix Tables C8-11) .

These issues have very direct implications for policy fairness. My attention was recently drawn to this in relation to energy affordability, where there is a legitimate concern to alleviate and avoid energy costs for low-income households. Obviously we don’t want households to go without power, or be bankrupted by power bills, but targeting energy assistance to those on low incomes may be poor targeting. Worse, a focus simply on income might mean imposing more network and other costs on those least able to pay.

Consider the pensioner households noted above. The nearly one-half of age pensioners who own their own home and have more than $100,000 in financial assets can easily afford solar power and energy saving technologies (if they have not got them already). They are far less likely to be facing energy hardship than renters on the age pension without access to the same technologies (who, incidentally, would be seen to have a higher income due to receipt of Commonwealth Rent Assistance). This is important because both pensioner households would receive the same energy concessions (at least in states like SA where the concession is a flat rate) because concession eligibility is based on income rather than ability to pay.

Further, those homeowner pensioners are also far less likely to be in energy hardship than renter families in waged poverty, yet the age pensioner will get an energy concession while those in waged poverty may not qualify. This is a different type of income fetishism (based on income type rather than quantum), but again we see income as an unreliable indicator of affordability and need for support.

More broadly, we can see in the e61 graph above that energy concessions are more progressive by income than by wealth. Nearly half of all concessions go to those in the lowest income quintiles, but only around a quarter go to those in lowest wealth quintile.

There are lots more intricate issues around who bears (and should bear) the necessary costs of the energy transition and how network costs are paid for (apportioned between customers). But what is clear is that a distributional analysis of energy costs based on a simple income spectrum would be misleading in terms of both ability to pay (income) and access to energy-saving technology (cost).

The Way Forward

Energy is just one area where there is a need for a far more sophisticated analysis of income inequality. We need an analysis of affordability for a range of essential expenditures that takes account of housing tenure, but also extended incomes and the real ability to pay for essential consumption.

Ultimately what I would like to see is, firstly, for the ABS to get themselves resourced and organised to do another Household Expenditure Survey (the last one was 2025-16!), and then to be able to analyse those expenditures based on an extended income spectrum combining wealth, housing and income. Only then will we really know which expenditures are genuinely regressive (have disproportionately highest impact on those with the least ability to pay) and where and how to target support.

In the meantime, caution and an analysis based on housing tenure is advised.

Gender Equality @ Work – South Australian Data Questions

I have previously highlighted the fact that the gender wage gap in South Australia was (in 2022) significantly lower than the national gap, primarily because of the relatively lower average male pay in SA. I have not tracked the gaps since they, but was made curious again by the recent launch of the Gender Equality @ Work Index Report and a talk I heard from one of its lead authors, Professor Rae Cooper.

The Gender Equality @ Work Index

The Index is much broader than simply the gender wage gap and covers 7 dimensions of workplace gender inequality:

  • Participation – labour force participation and labour utilisation rates
  • Pay – hourly and average weekly pay gap
  • Hours worked – paid and unpaid
  • Stratification – vertical distribution of men and women across workplace levels (including senior executive representation)
  • Segmentation – horizontal concentration of men and women in different industries and jobs
  • Job security & access to leave entitlements
  • Safety – injury rates and sexual harassment at work

I like a good index (hence SACOSS’ almost famous Vegemite Index!), and the Gender Equality @ Work Index is particularly good because of its unique combination of those 7 dimensions (underpinned by 16 different data sets). The result is an index that brings together fairly mainstream but disparate data sources into a snapshot of gender equality at work, but one which also tracks changes over time in key factors driving the broader outcomes.

For instance, as the summary graph below shows, overall gender equality at work has improved over the last 10 years, but progress has been uneven. The biggest improvement has been in stratification (more women entering management and senior positions), while safety has gone backwards and, despite some improvement, segmentation remains a significant problem with the lowest scores in the index.

Gender Equality @ Work Index 2014-2024 Line graph showing trajectory of each of the 7 elements of the index.
Source: Gender Equality @ Work Index Report. Note: the index scores each dimension out of 100, with 100 representing equality and numbers below 100 showing the extend of the gap between men and women.

For me, the inclusion of safety was one of the most important things in the index, while the relative quantification of gender segmentation was particularly useful. I have long heard that Australia had one of the most gender-segmented workforces in the OECD, but the index clearly shows the importance of this in driving overall inequality.

Beyond that, I will let the Index speak for itself (it is an easy read!), although for reasons outlined here, I would have liked to see the gender wage share included in the pay measure. However, indexes are predominantly about changes over time rather than the nuances of their construction, so it is no big issue. And the data did make me go back to the South Australian data, because the Index is only presented at the national level and I wondered if there might be geographical differences.

South Australian Data

I only looked at SA data for a couple of parts of the Gender Equality @ Work Index, participation and pay, and I used slightly different and more limited ABS data sets than those used in the index. In my data:

  • the participation figures are simply the ABS labour market participation rate (without the underutilisation calculation in the Index), and
  • the pay rate is average weekly earnings – total earnings (a different indicator, and without the separate accounting for differences in hourly rates in the Index).

These differences don’t matter much as I was not trying to replicate the Index, but rather to query whether there might be differences in state and national level data.

The two graphs below show the comparison of the national and South Australian data for labour force participation and pay respectively. To match the Index, the gender gap is expressed as a ratio of female to male participation/remuneration, and while there is much greater volatility in the South Australian numbers, there are some clear differences in the national and South Australian trajectories.

In both participation and pay, the national data shows a steady improvement in the female-male ratios over the last ten years. That is, there has been a relatively steady increase in equality in these two dimensions of gendered workplace equality. However, the South Australian data show that momentum towards greater equality here has largely stalled since COVID (2020).

Line graph showing differences in female and male labour force participation rates in SA and nationally from 2014 to 2025.
Line graph comparing gender wage gap (expressed as a ratio of female to male average weekly earnings) in SA and nationally from 2014-2024.

As evident in the first graph above, the participation ratio in South Australia was higher than the national level for much of the pre-COVID period (due partly to declines in the male participation rate in SA from 2014 to early 2017, and again from early 2019 until the COVID recovery). Significantly though, female participation in the SA labour force has not grown much from pre-COVID numbers, and included a large drop in the first half of 2024, hence the ratio in the post-COVID years is mostly lower than the national average.

Similarly, as evident in the second graph, with the exception of the 2024-25 financial year, the pre-COVID improvements in the gender pay ratio in South Australia stalled after COVID. Between November 2020 and May 2024, average weekly earnings for women in South Australia increased by 16.9% and by 16.5% for men (thus basically maintaining the gender pay gap). By comparison, the national figures were a 18.7% earnings increase for women and 12.9% for men, narrowing the gap and increasing the female-male wage ratio.

Conclusion

I don’t have the expertise or resources to replicate the whole Gender Equality @ Work Index for South Australia, but it would seem that there are some potentially significant differences at the state level. This is not to deny the validity or usefulness of the national index and data. However, if the drivers of inequality play out even a little differently in some states, potentially because of different legislation, policy or industry structures, then the Index creators may want to consider state-based indexes as a future expansion of the project.

Of course, that would add complexity in both data analysis and presentation, and one of the strengths of the Index is that it presents key data on complex issues in an accessible way. So there would be pluses and minuses to incorporating geographic differences in the analysis, but even without state data, the Gender Equality @ Work Index is useful as both an educational tool and a policy starting point in addressing workplace inequality.

Campaigning for Concessions: Reflections on Success and the Bigger Picture

Some time ago, the environment group I worked for engaged in a comparison of the results of campaigning for the protection of land and habitat as against buying tracts of land for conservation. As I recall, the result was pretty stark – buying properties, even with the backing of big philanthropic money, saved far less land from environmental threats (e.g. land clearing, forestry, mining) than could be saved by campaigning to create national parks and/or to stop threatening processes. It was a crude consideration given the complexity of nature conservation, but on a dollar per hectare saved basis, it was not even close. At the time I felt lucky to be working in a campaign organisation.

Now I find myself working in a peak body for a service-provision sector, but I was reminded of those old debates when I reflected on this year’s South Australian state budget. Compared to the environment movement, the social service sector are not great campaigners. Mostly ours is a disempowered sector of professionalised service-providers who do not think in terms of public policy change. Much of what passes for campaigning (although the preferred term is “advocacy”) rarely goes beyond writing to Ministers or responding to government consultations.

A Concessions Campaign

Yet on occasions, I get to contribute to campaign approaches, and in 2021 SACOSS began a campaign to fix the system of South Australian government concessions. Concessions are government subsidies, rebates and payments to help those on low incomes afford essential goods and services, but as our initial State of Concessions report found, the system was fundamentally broken. It included unfair barriers to eligibility, and poverty premiums which meant that those on higher incomes often received greater support than those in most need.

Unlike most sector advocacy, our concessions campaign had a clear path from the beginning. It was not “whinge and pray” advocacy, or a belief that we just need more research and more facts to give to governments. We had a staged plan – what I have been known to call “a plausible path to victory”. It was basic text book stuff, and lots of such plans go wrong. Indeed, it was unusual that this one played-out fairly close to the text book version, but that does not make it magical or unreplicatable.

We began with the research and report showing that the system was broken, but rather than letting the evidence speak (or not), we used the 2022 state election to seek promises for a government review of the system. That was an exercise in publicity and political engagement, not policy. That done, we kept some attention on the issue to see the promise delivered, and then participated in the technical debates and influenced the direction of that review. The goal was always the 2024-25 state budget – a goal happily shared by an engaged Minister and department.

It was not all an inside game, or simply assuming the review would deliver. Given that the Minister was supportive, we directly lobbied other parts of government for funding of the outcomes to improve concessions. We did occasional media commentary to keep the issue in the public (or at least the politicians’) eye, and engaged in opportunistic advocacy in different government processes along the way. All pretty standard stuff, but always with an eye on the formal government process and the campaign strategy.

While the government review proceeded in 2023, we wanted to maintain external momentum – because government processes can bury, as well as facilitate, change. With philanthropic support, we hosted a community panel to consider the issues and feed into the review process. This was an exercise in participatory policy-making which garnered publicity and kept pressure on government, but also ended up substituting for the traditional top-down government consultation.

All up, it was not campaign rocket science, but nor was it mendicancy or reactive submission-writing.

The review resulted in a significant package of measures announced in the 2024-25 South Australian state budget, including:

  • a one-off payment of $243 to existing Cost of Living Concession (CoLC) recipients,
  • one-off discounts for children’s sports fees and school charges for low-income households,
  • doubling the amount of the annual CoLC payment to renters,
  • opening access to more concessions for asylum seekers and share-houses,
  • providing access to more concessions for those in waged poverty,
  • and increasing access and/or payments for some other specialised concessions.
Front cover of State Budget Overview

This amounted to an ongoing $60m increase in expenditure going to people on low incomes, and $130m in one-off payments. At the beginning of the campaign, I would have called $60m for those changes a significant win, even without one-off payments – which will themselves be useful short-term cost of living relief.

Reflections

All that said, these concession changes did not come simply because we campaigned cleverly. Often the best campaigns don’t succeed. While our campaign was broader and more sustained than much sector advocacy in our state, it was still mild and relatively small-scale. And of course we did not get everything we wanted. There were still holes in the government’s package which reflected, in part, our failure to get engagement from a couple of Ministers and departments. Further, the big one-off concession payments announced in the budget were not part of the review or our campaign – but the lasting changes certainly were.

Our campaign could well have come to nothing in different circumstances. Yes, we had the imprimatur of an election promise and a proactive Minister for Human Services driving the review, but the broader political economic context of a “cost of living crisis” was crucial. There was great pressure on the government to “do something” to address the crisis. And when the government needed to act, there was a set of responses where the policy leg-work had been done and could be easily implemented.

[I am sure someone once said that people make history, but not in circumstance of their choosing].

All campaigns need a measure of luck and the right environment, but in this case there was also a fortuitous and useful flow-on. With the government under pressure to address financial pressures on many households, the prior policy leg-work done by the department and prompted by the campaign meant that the government’s cost of living relief package was built around concessions. It was therefore targeted towards those on lower incomes who are likely to be hit hardest by the crisis. That stands in contrast to the federal budget where the energy bill reliefs were delivered to all and sundry, and the bulk of the tax cuts were delivered to – well, it is hard to be polite about the tax cuts, even in their revised form.

I don’t want to get too carried away about a small state-based campaign. Despite the $200m headline, state concession payments are still at the periphery of income distributions, and will make only a marginal difference to households. After all, income and income supports are primarily federal government responsibilities. However, the concession increases are still a win – a distribution from the treasury to those on low incomes. And importantly, I would argue that they will make far more difference to far more households than charity and service provision to what can only ever be a small minority of impacted households.

Bottom Line

It is not that service provision is not important, but the budget win on concessions did remind me of the importance of campaigning. It is why I want to scream every time I hear that I (or at least my money) can change the world “one child at a time” (with said child usually looking forlorn and helpless), or one animal or species (usually cute) at time, or one village at a time. That is the stuff of fundraising and marketing, not of political economy or social change.

Despite it being a hard slog with uncertain and often disappointing outcomes, campaigning for change is crucial because the bottom line is that to end poverty you need to redistribute wealth, not just provide counselling or relief services. To end domestic violence you need to change men’s behaviour, not just provide services to victim-survivors. To end racism, you need to address white privilege and power, not just provide better services to close a gap or support migrant communities.

Of course, we need to fund those services and supports, but we also need social change that will make those services redundant. That said, I know concessions are not revolutionary and systemic change. By definition, they are band-aids on an inequitable system – but the example still makes me (re)believe in campaigning and the possibility of bigger change.

Debt, Interest Payments and Choices: A Surprise in the SA State Budget

As we make our way through the first month of a new financial year, political economic debates are dominated by inflation, interest rates and “full employment”. But the discussion of interest rates is generally focused on their impact on inflation at the macro-level, and on mortgages and cost of living at the micro-level. The impact of interest payments on government budgets is usually noted in budget night commentary on the deficit/surplus scorecard, but promptly forgotten for the rest of the year.

However, an unusual occurrence (at least in recent times) in the South Australian state budget should serve to illustrate why interest rates matter to government and to the community. In 2023-24 the amount of government expenditure going to servicing state debt ($1,254m) will eclipse the budget for the Department of Human Services (DHS) ($1,148m). This difference grows over the forward estimates with the DHS budget subject to real cuts (low indexation and older operational savings) while interest payments increase substantially. By 2026-27, interest payments are predicted to be $1,684m, by comparison with a DHS budget of just $1,233m.

Column graph comparing SA State Budget expenditure showing interest payments increasing from 2022-23 to 2026, while DHS expenditure remains stable.

In practice, this means that we are spending more on debt repayments than we are on the Department that is the primary provider of support services for the most vulnerable and disadvantaged people in our state. That feels wrong – but apart from the shock value, does it really matter, or it is just a statistical coincidence with no budget or social impact?

A Debt Problem?

As I pointed out in SACOSS’ post-budget analysis, government debt and deficits are not necessarily a problem – and may represent important economic stimulus or long-term investment. And there is no suggestion that this level of debt in unsustainable, although the budget papers show that a 1 percent point increase interest rates in 2023-24 would equate to an extra $203m in service payments. That would obviously be a significant imposition on the budget, but even with the debt-to-income ratio rising, the government can clearly still maintain payments. However, if debt is unchecked or interest rates continue to rise, at some point interest payments either become unsustainable, or more likely, a significant constraint on budget spending in other areas.

In that sense, the comparison of interest payments and the DHS budget is important because it reminds us of the potential impact and opportunity cost of state debt. I am not suggesting that if we were not paying that money in interest, we would be spending it on human services. That would be wishful thinking! However, all government spending has distributional impacts, and interest payments are no different. The comparison with DHS expenditure simply serves to focus the interest payment discussion on inequality.

Debt, Interest Payments and Inequality

In providing concessions and emergency supports to those on low incomes, and funding charities to provide a range of other supports, the Department of Human Services functions to transfer money and resources from the budget to those most in need. By contrast, interest payments are a transfer from the budget to government bond holders – who, by definition, are those with excess cash to afford to lend money to the government (by buying bonds).

As Piketty has pointed out, (and [as ever] some of the concerns here come from my reading of his work) it is far more advantageous to those with capital to have public deficits and receive interest on their money than to have that capital taxed to balance the budget (Capital in the Twenty-first Century, p.130). So, in creating government debt we have already chosen to favour those with capital by borrowing rather than taxing their money and creating an ongoing flow to rather than from that capital.

Seen in this light, the contrast between the DHS budget and the amount going to debt servicing is an indicator of choices about government priorities – the choice to provide relatively less to the poorest in society (via government expenditure) than to those who are better off (via taxes foregone and interest paid out).

Caveats

Of course, as with everything in economics, it is not as simple as that. The initial use of borrowed capital may be used for things which support those on low incomes, and inflation may quite separately have a counter-balancing impact by undermining the real value of bonds and the interest payable on them. Further, bond-holders may not be South Australian residents and may therefore be outside the tax ambit of the state government. In that sense the taxing v borrowing from capital argument above is not about individual bondholders. Rather it is illustrative of the options of government in general and operates at the level of class: that is, the state government has options to tax local capital rather than borrow from capital in a national or global market.

To the extent that we can look at individual bondholders, it is also worth noting that, as Piketty points out, they are no longer necessarily the wealthiest people in society (as the super-rich can invest more lucratively elsewhere). ABS wealth statistics do not record bonds as a separate category, so it is hard to confirm this. However, it is clear that the low-inflation era of the first years of this century made bonds a safe investment for middle class superannuation and investment funds, so when we talk about bondholders it is likely we are talking about middle and above-average income earners (often via superannuation or investment trusts). In that sense, the DHS/interest payment comparison is not so much about rich vs poor, but about a form of middle-class welfare instead of a transfer to those in most need of the supports that a DHS might offer them.

Finally, there is another (non-taxation) route to balancing the budget and avoiding interest flows to capital owners. That is by cutting expenditure. However, cuts to expenditure (and therefore to services) usually impact disproportionately on the poorest people. Those with the fewest economic resources are likely to be most reliant on support services and have limited or no alternative options, so expenditure cuts usually also impact most on the poor. Further, it is notable that in this SA budget, government debt continues to increase even with operational surpluses from 2023-24 onwards, so balancing the budget is not simply done by cutting expenditure. However, there is little doubt that when government services are cut (the “austerity approach”) this exacerbates inequality, so if fairness or equality is a consideration in balancing the budget, we must ultimately return to revenue issues – and our preference for borrowing rather than taxing capital.

Why Debt and Interest Payments Matter

Budget deficits and surpluses matter, but not for the reasons often touted in economic commentary (“responsible government”, “living within our means”). They matter because they determine the level of debt, which in turn, within any given interest rate regime and revenue base, impacts on the money available to spend on services. And as interest rates increase, so too does the cost of servicing government debt. The choices made to borrow rather than tax capital increasingly manifest in a distribution of government revenue to the middle and upper middle classes rather than to those on the lowest incomes who would benefit most from government service provision.

The fact that the SA state government interest payments now eclipse spending on the Department of Human Services should make us think about government priorities and the need for a stronger tax base.