Tuesday, January 30, 2007

Tuesday Column: An election without tax cuts

Who would have thought it? We are about to have an election about things that really matter.

The last one wasn’t. Although the theme of the Prime Minister’s campaign was “keeping interest rates low” what he promised was a tax package directed to families and high-income earners. By contrast Mark Latham promised a tax package directed to families and middle income earners. We were given a choice: a tax package from Tweedledee versus a tax package from Tweedledum.

The ACT’s Chief Minister has a better handle on the things that really do matter. On the weekend he nominated ensuring that his electors did not run out of water. As he put it: “There’s no more fundamentally important issue that I could face.”

Fundamentally important issues have been missing from Australian election campaigns. The voters themselves are in little doubt about what they think is important and what they would like the opportunity to vote for.

Last May the polling company AC Nielsen put this question to Australian voters: “The Federal Treasurer recently announced a large budget surplus. Which of the following should be the highest priority for the government - reducing taxes and charges or increasing spending on services and infrastructure?”...

An astonishing 68 per cent opted for increased spending on services and infrastructure. Only 29 per cent wanted a tax cut.

AC Nielsen has been getting the same sort of result in each of the last three years that it has asked that sort of question, as have Newspoll, Roy Morgan and the survey conducted in the lead up to each election by the Australian National University.

Party hacks on both sides of politics counsel their leaders to pay no attention to these polls. They say that whatever Australians tell pollsters; in the privacy of the voting booth they opt for tax cuts. Besides, actually fixing water or schools or hospitals is a largely untested strategy. Tax cuts are safer. Because both sides usually offer them they are seen to work.

The hacks even have a pseudo-scientific word to describe the reason why we can’t be believed when we say we want real problems fixed rather than money in our pockets. They call it the “halo” effect - we are inclined to give pollsters the answers that make us look virtuous rather than tell the truth.

The halo effect exists. When ACT residents are asked whether they be prepared to pay more for electricity that comes from renewable sources, 23 per cent say yes. But when it comes to actually ticking the GreenChoice box on the ACTEW form and paying the money, only 5 per cent do.

But the halo effect can’t explain away the answers about tax cuts. Here’s why: The ANU and other pollsters have been asking essentially the same question for 30 years. For most of that time there can’t have been much of a halo effect. As recently as 1990 Australians who wanted tax cuts outnumbered Australians who wanted more spending on services eight to one.

From around the mid-1990’s our attitude changed. We lost interest in tax cuts and became increasingly keen about fixing up national problems. Australians who want more spending on services now outnumber Australians who want tax cuts two to one. In fact 70 per cent of us say we would actually be prepared to pay more tax if we knew the money would to health.

The Centre for Independent Studies, like many of its sister think tanks, is a big supporter of tax cuts. But it is prepared to acknowledge that attitudes are moving in the other direction. In a paper entitled Will you still vote for me in the morning? one of its most thoughtful researchers Andrew Norton observes that “too many surveys from too many polling organisations say similar things to doubt the general trend. Tax is less unpopular than in the past.”

What is it about the last decade or so that has made us lose our enthusiasm for tax cuts and yearn instead for more government spending to solve pressing problems? I believe it is prosperity.

We have now had 15 years of rising incomes - the longest period of sustained economic growth since settlement. On a personal level most of us have more or less what we want. What we don’t have is a guaranteed water supply, hospital systems about which we can feel confident, schools at which we feel happy to leave our children and an ACT bus service that runs more than once an hour in the middle of the day.

The problems that remain are those that we need governments and their billions of dollars to solve. For most people private money can’t buy a guaranteed water supply and it can’t buy fully equipped hospitals to ensure that we are looked after wherever we fall ill. (It can buy education, which may be why more and more of us are switching to private schools in frustration at what state and territory governments are offering, and it can buy private transport which may be why fewer and fewer of us are waiting to catch infrequent buses.)

Our current desire to have the government use our money to solve pressing national problems rather than give it back to us is not without precedent. We last had it during the 1960’s, another time of rapidly increasing prosperity in which we felt our personal needs were being met.

In is early days in the 2007 campaign but so far I have heard no talk from either side about tax cuts. What I have heard instead is talk about from Labor about education and talk from the Coalition about water.

This could be because we are yet to be offered our (largely unrequested) traditional dose of tax cuts or it could be because Australia’s political party hacks have at last caught up with the reality of the shift in voters’ Australian views.

Or it could be something else: that the problem of Australia’s dwindling water supplies is now so urgent that the government feels compelled to throw billions at it and to turn it into an election issue in a way in which it wouldn’t have before. And it could be that the Opposition Leader Kevin Rudd, who ran the state Cabinet Office in Queensland recognises the extreme importance (and potential economic benefits) of getting education right in a way that his party’s hacks do not.

And it could be because of the Reserve Bank. It pushed up interest rates four times in a row last year largely in an attempt to control the surges in spending that the last few tax cuts brought on. This election it will be easy to argue that a promise of further tax cuts is a promise of a further rate hikes.

Whatever giveaways each side does promise us in the year ahead are likely to be dressed up as nation-building – investments to secure our water supplies, to fix up our schools and to equip us to fight global warming. Which is as it should be. It is what we want.