Wednesday, May 12, 2004

A healthy appetite for higher tax

At last, a budget that gives the people what they want, eh? Well, if the Treasurer had really listened to what we want last night, he wouldn't have given us tax cuts at all. When asked, an astonishing 70 per cent of us now say we would rather have extra money spent on health and education than given back to us in tax cuts.

But we haven't always thought that way. As recently as the late 1980s it was the other way around: 70 per cent of us wanted a tax cut, fewer than 30 per cent wanted more government spending. What's changed?.

Andrew Norton, of the Centre for Independent Studies, notes that until recently our views about government spending responded to actual spending itself. So that when spending was low under Menzies and his successors we wanted more of it and then when it shot up under Whitlam and continued climbing until the mid-'80s we wanted less.

But that relationship shattered around 1993... From then on as government spending climbed, more and more of us have wanted more of it. This Government is the highest-taxing in our history (although low by international standards), yet our willingness to pay tax is the highest it has been for decades.

It could be that we don't realise just how highly taxed we are these days. Much of this Government's tax is invisible to many of us. We don't see the GST. It could be as well that we don't realise how much the Government is already spending on health and education - on some measures more per person than ever before. Yet at least on health this Government has been subtly implying that the public system is run down, offering us subsidies to take out private insurance.

Or it could be because of something more fundamental - a phenomenon known to just about every student who has ever enrolled in a first-year economics course.

Australia is enjoying its longest period of sustained economic growth in modern history. We are much richer than we used to be. And as people get richer their tastes change.

As Irish incomes increased in the 19th century the consumption of potatoes actually went down. Potatoes were what is known as an "inferior good". In Australia at the start of the 21st century health is what is known as a "superior good". The richer we become the more of it we want, much more so than goods such as food or entertainment.

And the basic health infrastructure we want can really only be provided by government, whatever the privately purchased add-ons. When Kerry Packer suffered a massive heart attack while playing polo at Warwick Farm in 1990 he was taken first to the State Government's Liverpool Hospital.

It is concern about health, more than anything else, which is driving our apparent new willingness to forgo tax cuts. An Australian National University survey suggests that 70 per cent of us would actually be prepared to pay more tax if we knew it would go to health, 63 per cent would pay more if it would go schools and only 34 per cent would pay more tax to see it spent on welfare.

And the Australians most prepared to pay more tax for health are those on the highest incomes. Only 23 per cent of Australians earning more than $78,000 say they would prefer a tax cut to spending on health and education, compared with 32 per cent of Australians earning $31,000 to $36,000.

So why do our national leaders act as if these polls aren't right and offer tax cuts regardless? In large measure it might be because of our peculiarly Australian division of state and federal responsibilities.

In Australia, the state governments run the hospitals and schools, while the Federal Government raises most of the tax. It is possible for voters to kid themselves that they can get the best of both worlds, voting for hospitals and schools at the state level while voting for tax cuts at national elections.

The Labor Party has won nearly every state election in Australia in the past decade. Right now it governs in every Australian state. It has traditionally been the party keenest to spend on schools and hospitals. State Liberal leaders such as Kerry Chikarovski, Jeff Kennett and John Olsen learnt this to their cost.

At the federal level the Coalition has done much better. Voters have occasionally been swayed by the promise (if not always the delivery) of lower taxes, believing hospitals to be a separate issue.

It is a fools' paradise that might be about to change. The state and federal health ministers have before them a proposal to remove hospitals from state control and place them instead in a national body funded directly by the Commonwealth.

Federal decisions about tax would suddenly have consequences. As the economist John Quiggin puts it: "Voters would be faced with a clear choice: they could vote for lower personal taxes and do without improved health care, or forgo tax cuts, and perhaps accept some tax increases, in return for high-quality, publicly funded health care."

And there's no reason to stop at health. The states could be given the full responsibility for funding and running schools. Each state election could then become a mini-referendum about the need for spending on schools and the level of state taxes, including the national GST, needed to raise the money.

It would improve the workings of Australian democracy and provide Australians who say they would prefer education or health spending to tax cuts with the opportunity to actually vote that way.

Quiggin would go further still. He would index the personal tax scales so that the Government's take no longer automatically increased. Then the overwhelming majority of voters who say they want more spending on health would find that the only way they could get it would be to vote for higher taxes and to accept them in federal budgets.

There's a good chance that they would.

See: Tuesday Column: An election without tax cuts January 30, 2007

See: After the tax revolt: Why Medicare matters more to middle Australia than lower taxes Trevor Breusch, Shaun Wilson; Australian Journal of Social Issues, Vol. 39, 2004

See: Money in your pocket, or money spent where it's needed? SBS Television 7.30pm Tuesday 4 May, 2004


Tuesday, May 04, 2004

Money in your pocket, or money spent where it's needed?

That's one way of describing the question that will be posed on Insight tonight, SBS TV 7.30pm Tuesday 4 May.

Another way of putting the question is "the money or the box".

We recorded it last night at the SBS in Sydney.

Among the guests - former Treasury Secretary John Stone, "Krugman of the antipodes" John Quiggin, "responsible tax payer" Eva Cox, "develop the North" Bob Katter, "tax facts" Neil Warren, and Mike Keating, the head of Prime Minister and Cabinet under Paul Keating, who has authored a paper entitled The case for increased taxation.

It is a very good program (even if the producer has to say so himself).