This decade has shown the most favourable attitudes towards more government spending since the late 1960s. In a standard question on whether respondents would prefer reduced taxes or more spending on social services, the proportion saying reduced taxes dropped from 57% in 1996 to 34% in 2007. Support for the more spending option increased from 17% support in 1996 to 47% in 2007. (The numbers from 1993 onwards can be seen at p.29 of this compilation of Australian Election Survey results (pdf)).

But why has opinion changed? The Age this morning reports one theory:

Ian McAllister, who has been one of the principal investigators for the ANU study since 1987 and is a professor of political science at the university, says the changing mood reflects greater support for collectivist solutions to social and economic problems.

This is due in some part to a growing cynicism towards privatisation, a view that it has gone too far, or at least far enough…. Then there’s the jump in private school fees and the cost of higher education, and the rise of private health insurance, which almost half the population now has. Juxtapose this with reports of public hospital waiting lists growing and some schools across the country needing major renovations.

Though I am the exception among the handful of public opinion researchers looking at this data, I don’t think this explains what is going on. The AES itself has results which are inconsistent with an ideological shift being a major factor. For this to drive support for more social spending nearly tripling in a decade, we would expect to see a significant leftward shift in the AES question which asks respondents to place themselves on a numbered left (0) to right (10) scale. There is leftward movement, but not by much: from on average 5.46 in 1996 to 5.29 in 2007. The electorate is stable in the political centre, but has substantially changed its opinion on taxing and spending. Read the rest of this entry »

The odd desire of Australian voters to fight inflation with their tax dollars might be coming to an end.

A poll reported this morning in the News Ltd tabloids found, for the first time in recent polling, more for respondents for the tax cuts than against even after they had been alerted to the possible interest rate consequences.

The Galaxy Poll question read:

Do you think the government was right or wrong to introduce tax cuts, given the risk they may pose to inflation and interest rates on home loans?

49% thought it was right, and 31% said it was wrong. Only last week, The Australian reported a Newspoll that found 53% against the tax cut when told that it might increase interest rates.

The poll also asked a budget better off/worse off question. 23% say they will be better off, which is likely to under-state the real figure, and 33% say they will be worse off, which is unlikely unless they are very heavy alocopop drinkers, a luxury car buyer, or a pensioner about to be hit with hefty private health insurance fund premium increases.

There is a pattern of budget benefits being understated and losses overstated. Even with last year’s budget, which so far as I could tell had no losers beyond new commerce students paying higher HECS, Newspoll managed to find 14% of people who thought that they were worse off, and only 36% who thought that they would be better off.

These polls read the politics of the budget more than its reality. But with pensioner protests in the streets, Labor may now start to realise that by relentlessly droning on about ‘working families’ other households may start to feel like losers. Read the rest of this entry »

For all the tough talk before the Budget, the cuts announced on Tuesday night were small scale and posed no risk to Wayne Swan taking the title ‘ Australia’s highest taxing and spending Treasurer’, which has traditionally gone with the job. As Tim Colebatch says in The Age this morning:

IF LABOR made no policy decisions this year and put the budget on automatic pilot, federal spending next year would have been $287,828 million. Instead, after months of work by the razor gang, federal spending estimates have been cut to $287,764 million.

Spot the difference? In net terms, Labor cut federal spending by 0.02%. Its net cuts totalled $64 million — $1 for every $4500 the Government spends.

As Treasury’s historical data shows, there have been eight budgets since the fall of the Whitlam government with lower increases in real spending, four of them under Labor.

Though I am pleased that the FTB B and the baby bonus are to be means tested, this is more a symbolic change than a big saving, with only $173 million less spending in 2008-09 as a result. Those two programs between them will still increase their spending by $707 million, of the nearly $2 billion in total increases to official family payments. The Education Tax Refund, which is effectively an extension of FTB A, adds another billion.
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My blog suggestion yesterday that ‘working couples with children’ deserve ‘much less’ welfare assistance attracted some questioning in the post’s comments. NPOV asks

is this from the starting point that you believe almost everyone deserves “less”, and couples with children deserve “much less” because they already get more than everyone else?

Certainly my starting point is the classical liberal one that people are entitled to keep their earnings unless there is some strong reason to tax it away from them. Among the reasons given for taxing, redistribution of cash to families seems to me to be among the weakest. It is not specifically aimed at meeting any need that is generally agreed upon, such as for education or healthcare. It is given to people with incomes that are well above average, who are quite capable of giving their children food, clothing and shelter without any outside help at all.

Though some family welfare meets genuine needs, much of it is redistribution between family types irrespective of need. Recent years have seen a significant improvement in the financial position of families relative to single people and couples without dependent children (though people in the latter still generally have the most to spend on themselves).
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The previous government was extraordinarily generous to families.  According to calculations I did from Treasury’s Intergenerational Reports, the FTBs alone increased, in per person terms, 29% per person between the 2002 and 2007 reports. And that’s not counting the baby bonus or childcare handouts.

Yet according to the 2007 Australian Election Survey, only 41% of respondents thought that the Howard government had become more generous over the last 10 years to ‘working couples with children’. 23% of Australians, who must have been holidaying on another planet during the Howard era, even thought that they had become ‘tougher’ on these working families.

But in this familist time, is there any end to the demands of ‘working families’? According to the AES, 49.5% of respondents agree that ‘working couples with children’ deserve more or much more from the social welfare system. My answer, that they deserve ‘much less’, is supported by a miserable 0.8% of respondents. Even the answer that they deserve ‘less’ support has only 4.5% support. And I thought I had a tough task selling higher education reform.

But some hope comes from this morning’s Newspoll reported in The Australian. About two-thirds majorities support means testing the baby bonus and FTB B, and 57% support means testing childcare tax rebates. And there is majority support for the testing to begin at $70,000 a year, which if based on household income would start to make some serious savings.

Of course I think these savings should be directed to tax cuts, which would in part benefit those same families. Yet this Newspoll, like other recent polling on the subject, finds that support for tax cuts drops (in this case from 66% to 36%) if respondents are told that tax cuts might cause interest rates to increase. But tax cuts financed from reduced family spending ought to be neutral for interest rates, since the total amount ending up in consumers’ pockets will be the same.

In response to my implied criticism of Andrew Leigh for assuming that increases in inequality are bad and decreases good, but never specifying for what level of inequality would satisfy him, commenter Leopold responds:

one could turn the criticism around. Liberals believe in liberty - but how much liberty, exactly?

Leopold’s argument (I am paraphrasing here) is that preferences for greater equality or greater liberty are rules of thumb to be applied to specific circumstances, but there are cases where social democrats could accept less equality and liberals accept less liberty. We can’t always precisely calculate the final overall result of all these complex trade-offs to say what is the exactly right amount of equality or liberty. But this doesn’t invalidate the initial assumption that, all other things being equal, more equality or more liberty (depending on your philosophical position) is desirable.

I think Leopold’s point is reasonable. For example, I say that there should be less tax, and while I have clear pet hates among government spending programmes (eg FTB) that I think should be cut to reduce general tax rates, I never say exactly how much tax I think should be levied or what tax rates I would be happy with.

High-level political abstractions gives us intellectual tools that help organise our understanding of the world, but they don’t necessarily provide answers for specific problems. That requires far more detailed analysis.
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Sinclair Davidson’s suggestion that the most formidable opponents of small government are conservatives rather than social democrats is interesting. I wonder whether this could lead to a realignment of Australian politics.

- commenter Winton Bates, in a comments thread prompted by a post on how the rich paid an increasing share of net income tax under the Howard government.

As I argued in my big government conservatism article, the Howard government turned into a conservative social democratic government. Like Labor before them, the Liberals under Howard used the proceeds of a broadly market economy to finance a large welfare state. Under Howard, welfare spread up the socioeconomic ladder, towards the universalism that social democrats have long wanted to create wider support for the welfare state. And by boosting the not-poor but not-rich middle class from taxes on the top 25% of earners, Howard helped keep overall income inequality fairly constant under his watch, despite growing inequality in market income.

It remains to be seen whether this is a medium or long-term ideological shift. At one level, Howard’s policies can be explained (though not explained away) by factors that are unlikely to be permanent. Politically, periods of prosperity are accompanied by greater pressure to spend more on government-provided services, so we are in the spend part of the tax-and-spend public opinion cycle. It is hard for governments without massive public opinion support for other reasons to resist such political pressures - especially when the necessary money is just flowing in on existing tax arrangements with no need to raise tax rates.
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The National Union of Students had a flop last week with a very poorly attended ‘national day of action’. But they showed smarter tactics in peddling this story to The Age for a slow news Easter Monday.

The story opened this way:

THE Federal Government is under growing pressure to revamp the Higher Education Contribution Scheme, as students seize on research suggesting it could contribute to reduced home ownership, low fertility rates and tax evasion.

None of this ‘research’ should trouble the federal government, or anyone else, at all.

I’ve not seen any statistical evidence showing that graduates are suffering particularly in the housing market. Less than two weeks ago the papers were reporting research that despite high housing prices more young Australians were embarking on home ownership than in the past. I can’t find the paper on which that claim was based, and I am sceptical about whether it is true in absolute terms. But certainly earlier research found (pdf) that once you control for other factors affecting the time of house purchases, such as marriage and children, there hasn’t been a reduction in home ownership among the young (though the increases in house prices in the last few years should put a question mark over whether that would continue to be true in the future).

Regardless of the precise trends, though, as I argued last year there is no case for graduates getting a special first home owners grant. Effectively what NUS is saying is that even though graduates earn more on average than non-graduates, they should get an additional goverment subsidy so that they can further bid out of the market other Australians who did not go to university. Though Kevin Rudd has made the home ownership point himself, I would hope that on thinking more carefully a social democratic government would reject such a regressive policy.

On fertility, The Age says:

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The Australian Workers’ Union commissioned Roy Morgan Research to conduct a poll on the idea that half Labor’s promised tax cuts should be diverted to superannuation.

As in the Galaxy poll of Queenslanders a couple of weeks earlier, a bit over a third of voters wanted the tax cuts in full. In the Galaxy poll, 55% wanted all the tax cuts to be put into superannuation. In the Morgan Poll, 50% wanted the money to be split half each between tax cuts and superannuation.

According to AWU National Secretary Paul Howes:

The poll shows voters are economically literate, and politically sophisticated enough to understand that in the fight against inflation and rising interest rates the option of increased superannuation rather than tax dollars in the pocket is smart stuff.

But should workers really be so keen on establishing the idea that budgetary policy should be used to combat inflation? As RBA Governor Glenn Stevens pointed out in a recent speech:
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I have argued before for the social democratic tendencies of the former Howard government. One basis for doing so is that upper income earners during the Howard years provided an increasing share of the government’s total income tax revenue.

With the release yesterday of the ATO’s 2005-06 income tax statistics, Sinclair Davidson has updated the series of statistics (1996 to 2003 here) he has been keeping on what proportion of all income tax the top 25% of taxpayers pay. As it did every year except one since 1996-97, the top 25% picked up a larger share of the tax bill in 2005-06 than it had the year before.

In 1996-97, the top 25% of income earners paid 60.8% of all income tax. By 2005-06 that had increased to 65.2%, compared to 64.3% the year before. That was despite the complaints back in 2005 (eg from Andrew Leigh) that the tax cuts implemented that year would be regressive.

Yes, this was off an increased share of total income - up from 50.5% to 50.9%. But such is the effect of still very high marginal tax rates that a 0.4% increase in the top 25%’s share of income translated into a 0.9% increase in the share of all income tax paid. It helps explain why overall income inequality is quite stable.