The people at Catallaxy are understandably unimpressed with the reasoning in today’s Clive Hamilton op-ed. Hamilton’s argument (such as it is), using the jailing of tax-evading music promoter Glenn Wheatley as a news hook, is summarised in this passage:
Despite their crimes, some of the tax cheats may feel a sense of grievance — because for some years our public culture and our political leaders have provided justification for tax shirking.
While the Federal Government has said that it will crack down on tax cheats, for years it has actively undermined public confidence in the legitimacy of taxation. Each time the Treasurer or the Prime Minister says he wants to cut the “burden” of taxes to put money back in the pockets of those who have worked hard to earn it, he buttresses the widespread view that governments are out to rip off the poor old taxpayer.
Conservative ideologues go even further, reinforcing the idea that taxation is theft. The Centre for Independent Studies, an influential right-wing think tank favoured by the Government, ceaselessly promotes the view that government is inherently hostile to individual interests and set on exploiting the taxpayer for no good reason.
…If you take this view of the government as a hostile force why would you pay your taxes? If taxation is theft, tax evasion is not only defensible in itself but a blow against an oppressive force.
According to Clive:
These arguments form part of a sustained shift away from thinking of ourselves as citizens with responsibilities to the public interest and towards thinking of ourselves as individuals with responsibilities to no one but ourselves and our families.
Hamilton’s argument is, on a moment’s reflection, very weak – even if some level of taxation is necessary for the ‘public interest’ he provides no evidence, not here or anywhere else, that the current level is necessary. Even the Australia Institute’s Christian Downie last year had a paper out arguing that tourism subsidies were a waste of money (hear, hear). There is no systematic evaluation of whether or not government programmes are value for money, or indeed whether they achieve anything worthwhile at all.
It is implausible to allege that calling for a change in the law is equivalent to calling for the law to be broken, and still more implausible to imply that people evade taxes because they read CIS discussion papers, rather than because they want the money for themselves. I think history will show us that people dodged the taxman for many centuries before the CIS was established in 1976.
But this op-ed is classic Clive. Not so much the guilt by association as the credibility by association. As I argued in my review of Hamilton’s Affluenza, he deeply dislikes modern society, but since his first book of social criticism, The Mystic Economist, he has learnt to sugar-coat his radical ideas with propositions that don’t seem terribly controversial, at least at first glance – we shouldn’t be materialistic, we should have work-life balance, too much debt is not good, or in this case tax evasion is bad.
There is an ascetic authoritarianism underlying Hamilton’s worldview, in which high taxation would be used to stop people indulging their frivolous desires for material goods, and transferred to an all-powerful state that would organise society along Clive-approved lines. He gets quite upset when accused of being an authoritarian. But there is more reason to infer that from his critique of modern society than there is to read a call for law-breaking into an argument for tax cuts passed by Parliament.
Andrew Norton 
Russell,
Now imagine no income tax and the level of services that we had when Paul Keating was PM (which is what I refered to). That is clearly possible and it does not involve ripping up all the bitumen roads.
In any case most impoverished nations generally suffer from too much tax that forces most producers into the informal sector of the economy. They ring fence production and then wonder why there is so little production to tax.
Regards,
Terje.
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It’s easy to do.
Sorry.
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Terje,
I guess I’m just a tax-and-spend kind of person … I prefer to imagine the idea of no GST, and much higher/progressive income/wealth taxes. Glenn Wheatley, “imposed an unfair burden on honest citizens who pay their taxes” by not putting in his fair share. Australians expect people to do a fair day’s work for their paycheck, and also expect people to put in their fair share to provide community services. What is a fair share and how it’s contributed is a subject for debate – where Clive is on one side and the CIS on the other.
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You want them to tax and spend just because they can?
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Terje, I think Russell would tax as much as he could, and then decide to allocate the revenue, whereas you and I (and, I suspect, some other readers) would prefer first to identify the services that the government needs to provide, and then set the level of taxes accordingly.
For me, and I think for you too, taxation is purely functional. For others, it seems to be a moral imperative. Hence Clive Hamilton’s linking of taxation to our ‘thinking of ourselves as citizens with responsibilities to the public interest’.
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Jeremy,
Clive would say we’re “citizens with responsibilities to the public interest” because he’s a real intellectual, whereas I would have said that we’re people with responsibilities to each other, because I operate more and more from emotion. I don’t know what else to do when I hear that there are people who can’t afford dental treatment, or get the special ed their child needs, or watever, other than hope that the government will provide. How else will they get what they need?
But I am despairing about how governments go about their business. As union rep at the last agency I worked in I went through cycles of EBA negotiations representing the staff, though I actually felt that never had so many, produced so little, for so few, as my colleagues. I watched that agency mismanaged into a state of utter dysfunction – I think a lot of government departments are like that. I just don’t know how else ‘things’ will be somehow looked after, if governments don’t do what they do.
I don’t like big government – during those golden Whitlam years when I was at uni I was as much influenced by the hippies and yippies as by Marcuse. And by the thrifty habits of my parents. But looking back it all seems to have been so simple then, and so complex now.
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Russell,
In the same breath you said that we have a responsibility to other people and then you infered you were going to do nothing about dental care because the government should use it’s coercive powers to make somebody fix it. This seems to me to be an abdication of the very responsibility you are asking for. It also seem willfully blind to the overall efficacy of coercion.
Regards,
Terje.
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Terje,
No, I have paid taxes in order that the government help those people, and the government has a surplus, so why can’t they use it to subsidise dental treatment for people who can’t otherwise afford it?
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Fun and games on this issue over at catallaxy.
In proposing that we cut taxes radically and privatise infrastrucutre and services to trusts to which local landholders and citizens may own shares which are gifted to them, I’ve been accused of advocating socialism and crony capitalism.
I actually would appreciate some intelligent feedback or criticism, not like what I am putting up with now.
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Why can’t it increase the tax free threshold so that more people can pay for such services themselves? We have a tax free threshold of only $6000 which means that people on Aged pensions and people on the minimum wage are all paying income tax. Why not focus on putting more money in their pockets via an increase in the tax free threshold so that people can themselves deal with the multitude of unexpected expenses that come their way?
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Good idea, but still wouldn’t make enough of a difference. Being a pre-flouride baby-boomer I’ve already spent more than $4000 on remaining teeth this year – I’ve passed the limit health insurance allows, so even I am starting to notice the bills!
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“We have a tax free threshold of only $6000 which means that people on Aged pensions and people on the minimum wage are all paying income tax.”
While it is true that people on the minimum wage pay tax, I wish the same was true of age pensioners (at least those who have as much income as someone on the minimum wage). One of the most profligate things this government has done, in my opinion worse than churning money back to taxpayers with children, is to bring in huge tax breaks for retired people, so that very few of them pay tax. When it comes to conventional notions of capacity to pay, it is hard to argue that a retired person who owns their own home, has long since given up supporting children and has no work-related expenses doesn’t have a much greater capacity to pay tax than someone on the same income with kids, a mortgage and the costs of going to work every day.
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Russell,
I grew up on rainwater from a tank because we lived on a farm. Hence no flouride. I’m personally in the middle of a string of dental proceedures expected to come in at about $2000 all up. A few months back my father had all his teeth pulled out because they were beginning to go down hill. Such is life.
Forcing people to pay my bill (or my fathers) does not amount to taking responsibility for eachother. And given your current dental expenditure it seems likely that your policy prescription based on emotion (your claim not mine) are probably as much about helping yourself as any notional altruism towards others.
Regards,
Terje.
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Backroom girl – fair point. Although with less incentive to work it probably makes some sence to give this group a low tax threshold.
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p.s. My personal health insurance does not cover dentistry so I pay the bills directly.
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and so you should. I don’t want subsidised dentistry because I can pay. (I don’t really want to pay for the vast tank of tropical fish in the waiting room, or the TV on the ceiling, but anyway …). Don’t run away from the point – you know I’m talking about people who need their teeth fixing, and can’t afford to have it done.
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“Although with less incentive to work it probably makes some sence to give this group a low tax threshold.”
I’m not sure which group you mean Terje – the oldies or the workers on minimum wage. I have to say I’m not all that convinced of the usefulness of trying to provide people with increased incentive to work by fiddling with their EMTRs or whatever. I suspect that people who work past retirement age are of two kinds – people who need the money because they can’t live on the age pension, and people who enjoy working for its own sake. I suspect both of these groups would work regardless of the carrots dangled in front of their noses, whereas the people who have just been hanging out waiting to retire are unlikely to be enticed back into work, whatever you do.
In the case of super tax breaks (pun intended) for oldies, I suspect its pretty much a case of simple electoral bribery. But increasingly expensive to undo and very unfair to other taxpayers, no matter which angle you look at it from. Unless of course you think that anyone paying less tax is a good thing 🙂
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Since when did having a Macleans Smile become a human right?
People should all pay the same tax rate regardless of their age, their income, their circumstances. The law works best when its consequences are impersonal and completely driven by the personal choices of people. I’d even go so far as to say that all Australian citizens should pay the same total tax. Australian citizenship and all its rights and protection, that will be $10,000 please. Income tax as a flat tax to a maximum would be as fair as you could get. People don’t pay doctors or grocers according to their ability to pay, rich or poor, for the same level of service, Australians pay the same. Why not government services?
Tax minimisation is national pastime, and an expensive one a that. Hoards of lawyers and accountants would be unemployed if income tax free day was the same as Federation Day, not to mention many of the bloodsuckers in the ATO.
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BRG,
Change happens at the margin. If you don’t think straws can ever break camels backs then I think you are denying logic. Each of us have thresholds beyond which our behaviour will change. And obviously many people can carry a lot more additional burden before they will alter course. Whether it’s the “bullshit from the boss” threshold (or too much shit from the employees) or the “too much tax to bother” threshold. Sometimes it is just a matter of timing with some people putting up with the extra burden for a few years whilst some will tolerate it only for a few months. However if we deal with people in aggregate these things add up.
Those that argue for more government services readily argue that families are at “breaking point”, so the logic that marginal changes do have an impact is hardly an isolated idea.
You are probably right that older Australians are getting a pretty sweet deal on tax relative to many other groups in the community. It’s time the tax free threshold was raised for everybody across the board.
Regards,
Terje.
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Terje – indeed, I agree with you that the effects of policies of one kind or another on behaviour are only at the margin. But that means that most people’s behaviour remains unchanged – but all of those people benefit from the policy as well. And among a group who might be expected to have a fairly strong preference for leisure, increasing their disposable income by reducing their tax might even have the perverse effect of encouraging them to work less. So you need to work out whether the marginal benefits from the policy (ie increased labour force participation by the few) outweigh the deadweight costs of lowering taxes for all the better-off oldies whose behaviour doesn’t change or changes in the wrong direction – extremely unlikely I would have thought.
I would be more than happy to see the tax threshold raised across the board – all I was saying was that I can’t think of any really persuasive argument for giving old people a huge tax break relative to everyone else, who are likely to be doing things much harder overall.
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BRG – I fail to see anything perverse about allowing people to work less. Any policy that deliberately requires people to work more by taking away some of the fruits of their labour should more reasonable be considered to be the perversion.
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I was only using the word perverse in a technical sense (as in unintended), not to indicate that I personally think there is something wrong with people working less. But I think you will find that one of the public justifications for the special tax treatment of retirees is that it will encourage them to stay in the workforce longer. (In these times of population ageing, no government is going to admit that the purpose of a policy change is to encourage people to retire or work less – god forbid.)
My argument was never about whether tax is a good or bad thing per se, just about whether it is justifiable for one group in society to pay so much less tax than other groups.
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BRG, the margins I think Terje (please correct me if I’m wrong) is referring to are at the margins of people’s behaviour, not the marginal people. Acceptance of overtime, a promotion, a new job by an individual will be weighed up against multiple factors, called an oppurtunity cost. This affects everyone, just not a few hard working souls at the coal face who love their job.
I’m glad you don’t see anything perverse in people having the freedom to use their time as they please, be it working or whatever.
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Brendan – yes that is a fair summation of what I was saying.
Most people don’t run the numbers like an actuary might. However most people via a process of trial and error, observing what other people do, and simply in seeking life satisfaction and minimal personal pain will alter their behaviour to seek an optimal personal outcome given the policies that prevail.
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BG, I assume you are unhappy about the new super tax breaks rather than the pre-existing tax breaks? My take on the new tax breaks is that they won’t benefit too many (existing) oldies. The previous “reasonable benefits limits” were high enough to ensure most oldies did not have to pay super exit tax – after all, most of them haven’t accumulated much super. The real beneficiaries of the changes are people with lots of super. There are some oldies in this category, but by far the largest group will be (assuming the policy remains in place or is at least grandfathered) young people on high incomes who can afford to salary sacrifice large amounts. For them, their top rate thresholds have effectively risen by about $36k (that’s the $50k deductible contributions limit less the max employer super guarantee contribution of about $14k). Given that most young people on $200K+ are raising families and buying bigger houses as a result, one could argue that the biggest beneficiaries will be (presently) young high-income childless people. Perhaps I should not complain so much about transfer payments to families? It’s only poor childless people who get screwed all round.
On the work incentives, the new super system means that people over 60 basically don’t pay any tax. Presumably that will increase workforce participation on the margin, albeit at a high ‘cost’ to the Treasury.
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“Presumably that will increase workforce participation on the margin, albeit at a high ‘cost’ to the Treasury.”
Again, that is the claimed objective of making super non-taxable from 60. But as I said, I’m not all that convinced that there will be a net increase in workforce participation (for example, if the people who work less because they are more easily able to achieve their target income outweigh those who work more because they get to keep a higher proportion of their income.)
You see, I think people obsess about EMTRs altogether too much – I’m not really convinced that they are such big drivers of people’s behaviour. Have you ever noticed that all of those people complaining about how highly their overtime is taxed are actually working the overtime anyway (presumably because they think they ‘need’ the money)? I accept that there must be a point where an EMTR is so high that there is no point working, but I don’t know how you would determine what that is and of course it is different for everyone.
But in the end, I think that most people are focused on whether they have ‘enough’ money in their pockets, not how much tax they are paying. And it’s their idea of how much is enough that motivates them to work more or less, rather than the EMTR.
Just to clarify something, I didn’t originally have the superannuation tax changes in mind, but just the very generous Senior Australians tax offset – the super changes are just icing on the cake for a small subset of senior Australians. And what motivates me is the idea that policy should be ‘fair’ – in this case between different demographic groups.
And I would agree with your observation that it is ‘poor’ childless people who get screwed around – as a group they are on the bottom of the pile for both sides of politics. But on the other hand, they are paying very little in tax, by definition, so they can’t really complain about that side of things.
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I guess my priors were that most retirees would not be in the ‘target income’ camp given that most don’t have a lot of super and would not just be working to support themselves day-to-day but also to put more money aside for their futures.
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BRG,
EMTR’s affect the transition from unemployment to employment harder. They are called effective marginal tax rates because they combine the tax rate that people pay on income earnt and the loss of benefits. They are real and they do affect people’s choices.
The EMTR of overtime is simply your marginal rate of taxation, unless you are also receiving other means tested welfare. If your marginal tax rate is 45 cents in the dollar compared to 40 cents (or 40 cents compared to 30), you have to work that little bit longer to get the same reward. People are working to earn the extra net income, not the extra gross income. How much more overtime will be a function of the reward, with decreasing utility as the time required to earn it increases.
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