Are voters tiring of tax and spend?

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.

7 thoughts on “Are voters tiring of tax and spend?

  1. I think this shows how badly the Government has ‘educated’ the punters. They think the surplus is too large and taxes can be cut.

    They can only be cut if spending is cut given the sate of both aggregate demand and supply and Howard is doing quite the opposite.

    Is howard’s strategy I will try and win as many votes as possible by spending and let rates rise after the election?

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  2. Thanks for your reflective piece. I am not convinced that the trend to tax and spend has been reversed but I agree that some of the factors you mention such as interest rates and ‘huge surpluses’ may be pulling in the direction of lower taxes. But I have two observations.

    First, I don’t think it is the surpluses themselves that are to blame but rather the fact that big surpluses are being poured into funds which have no clear connection to services. This is especially true of the Future Fund but also to some extent of the Education and Health Funds which have vague long term objectives. I am a great believer in hypothecation of taxes (such as the guns levy or Medicare levy). While it reduces fiscal flexibility, its big advantage is that Australians can see exactly where their money is going – education, the environment, health etc. – and this helps reconnect citizens to the tax system. It offers a unique form of participatory democracy. The evidence is that most citizens do not trust governments and disapprove of taxes for vague, unspecified government spending.

    My second comment is that I am not convinced that the public is getting happier with the state of their public services. I cannot get my hands on the relevant surveys quickly but in areas like education, health, public transport and public housing, I have a distinct impression that there is a high level of dissatisfaction with quality and affordability and among lower income people a resentment that privatization is widening the degree of inequality. You are the wizard on polls so please correct me if I am wrong.

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  3. “They think the surplus is too large and taxes can be cut.
    They can only be cut if spending is cut given the sate of both aggregate demand and supply and Howard is doing quite the opposite.”

    Strike up the band, the old ‘tax cuts cause interest rate rises’ chestnut has made another appearance …

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  4. Fred – The public opinion research does show that if the question mentions services the public likes, such as health and education, support for tax goes up. I’m not sure that hypothecation would change attitudes, though, if it is meant to signal that people are getting value for money. For most taxpayers it would highlight that they are being ripped off, since people who pay little or no tax (the elderly, chronically ill people) consume a large share of the health budget.

    One problem here is that it is hard to know what people are talking about when asked about the standard of health services. I suspect impressions are dominated by waiting lists for elective surgery and emergency room delays. In areas where the hospital bottlenecks can be bypassed with drugs dispensed by chemists we are getting big improvements (eg major reductions in deaths from stroke and heart attack due to cholesterol and blood pressure medication). Also, some public health measures are working well, eg improved vaccination and reducing smoking translating into significantly fewer lung cancer deaths.

    The feds alone have increased per capita health spending by nearly 40% over the last decade in real terms; but the hospitals through a mix of a real increase in patient load and I suspect mismanagement are still struggling.

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  5. Fred

    British labor has poured money into health services by the bucket load…. no by the maxi loader used in open cut mines…. it’s increased 1.7 times since they came into power. The outcome is horrendous.

    the UK now more administrators in the dep. of ed than it does teachers.

    Maybe the Aussie public is more awke to the shoddiness of government spending.

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  6. Believe Morgan polling found a few months back that ‘keeping taxes low’ was one of the few areas Howard leads Rudd by as much as he led Latham in 2004.
    I believe from recent comments and an article by George Megalogenis that the PM is onto this… what’s the best way to structure election campaign tax cuts? Cutting the 15c and 30c rates is probably the most straightforward method.

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  7. Perhaps the great unwashed have finally awoken to the fact that they’re being taxed into oblivion, and have decided they want some of it back before they finally go under.
    Y’know, it wouldn’t be so bad to direct huge swathes of budgetary surpluses to health and education, if we, the providers, could be sure beyond any reasonable doubt that that was where it was going. But we don’t, do we.

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