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Kennett rails against handouts -

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ELEANOR HALL: While the Federal Government prepares to hand out more money to low and middle income
Australians to try to prevent Australia's economy plummeting into recession, a former state premier
says the Rudd Government should be doing exactly the opposite and reducing government handouts.

Jeff Kennett was premier of Victoria in the 1990s and is well-versed in handling financial
difficulties. He says Kevin Rudd's generosity will come back to bite him because Australians are
already too reliant on welfare and the strain will be too much for an economy during a downturn.

Financial modelling reveals that 4.1 million Australian families*(see editor's note) are living tax
free because of the structure of the welfare system.

In Melbourne, Rachael Brown reports.

RACHAEL BROWN: More Australians are receiving, rather than contributing to the nation's wealth,
according to the former Victorian premier Jeff Kennett.

He's told a Municipal Association of Victoria conference, the pressure on councils to provide
welfare services will increase as the world economic crisis deepens.

Mr Kennett says more than 40 per cent of Australians rely on government handouts thanks to a
growing trend of complacency over the past 25 years.

JEFF KENNETT: The tendencies by government to give in to those who clamour for more and we as
citizens for continuing to believe the government owe us more.

RACHAEL BROWN: Mr Kennett says it's time citizens took more responsibility for their own welfare
and independence.

JEFF KENNETT: Otherwise the dependence upon government will continue to grow; the ability of
government to respond will decrease and therefore the pain for many Australians will grow. People
tend to forget that in order to look after those in need, who need government assistance to look
after them humanely and generously, you've got to generate the wealth first.

RACHAEL BROWN: He says despite Australia's massive wealth creation over the past 15 years, the
nation has failed to address fundamental issues crucial to the nation's future prosperity.

He hopes the credit crisis proves to be a catalyst for both citizen independence and policy change.

JEFF KENNETT: A stock take across a whole range of issues that might have Australians rethink how
we live our lives and the priorities in our lives in order to deliver a safer and more secure
country 20, 30, 40, 50 years from now.

RACHAEL BROWN: Journalist with "The Australian" newspaper George Megalogenis says there's been a
huge spike in those families not paying tax in the last four years.

GEORGE MEGALOGENIS: It's gone from 39 per cent to a bit over 42 per cent and that's an increase in,
if we talk about real voters, real households, 276,000 more people moved into a position of paying
no net tax. Roughly half of the 276,000 are families with dependent children.

What we do know over the last decade is that the home ownership rate for families with dependent
children has increased and also the proportion of households where both the mother and father have
jobs has increased.

RACHAEL BROWN: Mr Megalogenis says the welfare boost follows not a surge in poverty, rather, the
opposite - a surge in revenue courtesy of the China-led resources boom.

GEORGE MEGALOGENIS: And both governments - the Howard government and more recently the Rudd
Government have chosen to redistribute some of that excess revenue back to households that
previously paid tax.

My query is: what happens now that the economy is slowing?

RACHAEL BROWN: So the generosity could come back to bite?

GEORGE MEGALOGENIS: It can come back to bite because you have to wonder as our population ages and
we know we're going to run out of workers. Notwithstanding what's happening with the financial
meltdown at the moment, in the next 10 or 20 years we're going to run out of workers as the
population ages.

If a smaller proportion are paying tax for a larger proportion of people who are paying no net tax
- now that's not just retirees but families with jobs - then you have to wonder if the tension
between those two groups might get a bit political.

RACHAEL BROWN: It might prove a bit of a quandary for government - not a popular thing for
governments to do obviously, to increase tax. So what's the solution?

GEORGE MEGALOGENIS: I think once you write a cheque for a household it's very difficult to take
them off. This is going to be a long-run reform. Now I expect and I understand that the Rudd
Government is thinking, with their tax and welfare reform, not just what the position will be
between now and the next election. They're thinking in a five in a 10-year time frame.

And I think if governments adopt those sorts of time frames they can re-weight the sort of price
signals in the system so people get to keep more of the income they earn, ie. they pay lower taxes,
but hopefully that they are not as dependent on handouts in the future.

ELEANOR HALL: George Megalogenis is an economics journalist with The Australian newspaper.

*Editor's note: This transcript was amended on 17.10.08 to correctly state in the introduction the
number of families living tax free in Australia.