Noel Whittaker's Blog I have often heard older people talk about the way the pension system used to be. According to their recollections, part of the income tax you paid was supposed to be hived off and credited to a separate fund, out of which you would receive a pension for life.
Because it was all so vague, and because there was nothing on any of my old tax returns that mentioned the alleged fund, I never took it seriously.
But recently I received an email claiming “older people spent their lifetimes paying for their pensions with an early version of the compulsory superannuation scheme. In 1945, the Commonwealth split personal income tax into two components. One of them, the social services contribution, was to be used exclusively to finance Social Security cash payments. The revenue from the contributions was paid into a National Welfare Fund.”
It went on to say that by 1950 the balance in the fund was £100 million, which would be several trillion dollars in today’s money. According to the email, in 1977 Prime Minister Malcolm Fraser transferred the balance to Consolidated Revenue but to this day the contribution is still coming out of everybody’s pay packet.
These “revelations” started me on a journey to find out the truth, which culminated with my finding the seminal book on the subject, The Foundations of the National Welfare State, written by Rob Watts in 1987.
Watts claims that the idea for a National Welfare Fund started in February 1943, when Treasurer Chifley was trying to find ways to fund Australia’s contribution to World War Two. The Curtin government had publicly vowed never to tax low income earners, and but it faced a major problem – a shortage of money.
At that stage the states were raising their own income taxes, but the Curtin government decided it could boost its own coffers and solve its budgetary problems by taking over all taxing rights from the states.
Despite taking over the states’ rights to raise income tax, it was clear by the end of 1942 that the Curtin government had to find an additional £40 million in taxation. The question was what kind of spin could they put on it so it could not be described as a tax increase? They talked about introducing a separate Social Security tax, but decided that such a move would create administrative difficulties and confusion. In the end it was simpler just to raise taxes across the board.
And so the National Welfare Fund was born. True, a part of all taxes received were paid into it, and certain pensions were paid out of it. But no taxpayer had a separate balance in their own name, so there was no possibility that monies paid in would be allocated to the contributor.
The years passed, governments changed, and eventually it was decided to end the charade of a separate welfare fund, and transfer any money left in it to Consolidated Revenue, which is where Social Security benefits were being paid from.
Some minor political parties are agitating for the money that was originally in the National Welfare Fund to be paid to older people, on the grounds that it was their money all the time. The sad reality is that there is nothing there to pay out – it’s all gone down the vast black hole called government.