Three years ago I wrote a paper on a reversal in 30 years of public resistance to higher taxation, which I argued was largely the result of prosperity. When household budgets are less tight, I suggested, people want to buy more or better goods and services. But for services that are largely provided by government, such as health and education, it is hard to purchase better services without the large financial leap involved in going private. A small increase in taxes for the government to improve services is, for these people, the cheaper option. This was why the polls showed trade-off questions between reducing taxes and spending more on services trending in favour of services, and why surveys assuming there was a surplus found large majorities in favour of extra spending.
For example, in January 2004 a Newspoll asked
If the federal government has a large surplus, should this be spent all or mainly on health and education, on personal tax cuts, or both?
72% of respondents preferred the surplus to be spent all or mainly on health and education, 9% wanted tax cuts, and 16% wanted it spent on both equally.
In the last few months, there are signs that public opinion is shifting away from tax and spend. In April, an ACNielsen poll found that two-thirds wanted income tax cuts to be included in the May Budget. About a week later Newspoll came to a very similar result.
Neither, however, directly asked about a trade-off with services, though support for tax cuts dropped to 36% when respondents were told that tax cuts might push interest rates up.
Today’s Galaxy poll reported in the News Ltd tabloids again finds the two-thirds in favour of tax cuts previously recorded by ACNielsen and Newspoll. But it also finds significant support for various spending options: 95% for spending on hospitals and schools, 72% for infrastructure projects, 56% for giving more money to the states, and (the favoured suggestion in the Prime Minister’s office) ‘buy its way to an election victory’.
Without questions that are exactly the same, it is difficult to be very confident that opinion is shifting. But it does seem that while people still want more money spent on services, they have reached the point where they also want some money back as well.
What’s changed? The persistent huge surpluses are surely a significant factor here. During the 2004 election campaign, the Coalition announced the Future Fund, the first institutional sign that the government plans to raise more money than it needs for current services into the foreseeable future. The two additional future funds announced since, the Higher Education Endowment Fund and the Health and Medical Investment Fund, can only have added to this impression.
The last two funds were not the result of any great forward thinking, but Treasury’s inability to estimate accurately how much revenue the tax system will bring in. Accordingly, the Galaxy poll found that 51% believed that the surplus was mainly achieved through ‘taxes being too high’.
Though we don’t have any data since 2005, there are some signs that the billions flowing into the health system are having some impact on public perceptions. 63% of respondents to the 1998 Australian Election Survey thought that the standard of health services had declined since the last election. In the 2005 Australian Election Survey, 51% thought they had declined in the previous two years. Those who thought that services were improving went from 12% to 18%.
I would also think that rising interest rates are having some impact. My thesis in 2004 was that household budgets were an important factor in public opinion on tax and spend, and as more money has been allocated to interest payments households will look at increasing revenue from other sources, such as paying less tax.
The 2007 Australian Election Survey and Australian Survey of Social Attitudes will, I hope, repeat previous questions so that we can see if there is a real trend here. But changes in objective conditions, along with the three polls finding very similar support for tax cuts, suggest that we will see a shift away from tax and spend.