Tax and super

Stephen Kirchner draws my attention to a Galaxy/Courier-Mail poll of 800 Queenslanders that:

found 55 per cent of respondents would prefer the proposed tax cuts to be delivered as extra payments to their superannuation fund. This included a majority of Labor and Coalition supporters.

Only 38 per cent of people wanted the money upfront through lower taxes.

That’s a very similar result to a Newspoll last May, in which a supplementary tax & spend question warning respondents that tax cuts would be inflationary saw opinion on tax cuts shift from 66% in favour to 33%, with the proportion against going from 19% to 53%.

The public seems to have paid a suprising amount of attention to the macroeconomic debates over the role of fiscal policy in inflation and interest rate outcomes.

There is, however, an important difference between this week’s Galaxy poll and last year’s Newspoll. As Stephen notes, people could get the tax cuts and voluntarily put the money into super. He suggests that the logic might be as follows:

The only reason to favour having the choice made for you would be as a solution to an imagined collective action problem: I might save my tax cut, but if others don’t, the consequences could be inflationary, so a policy that is also binding on others is to be preferred.

There is a pattern in public opinion of the public believing rather different things of themselves compared to others. My favourite in his genre was an Australia Institute poll a few years ago which found a majority of people thought that they did not have enough money and that Australians in general were too materialistic. But in this case it is realistic to believe not just that others will spend rather than save, but that the respondents themselves might think they need shielding from their own temptations.

The poll question I’d like to see is whether people support cuts to government spending as an inflation remedy, and not just the soft-target, small-dollar cuts in the number of public servants. To seriously reduce government spending health, education, defence or social security need to be targeted.

And unlike tax cuts, some of which will certainly be saved, all goverment spending reductions on domestic purposes eases demand in the Australian economy. A question on cutting government spending would be the real test of how serious the public is about the links between fiscal policy, inflation and interest rates.

6 thoughts on “Tax and super

  1. I assume the poll included retirees who don’t pay tax (lots of them in Queensland!), who therefore have the luxury of offering a response that is not only fiscally righteous but also might keep inflation down, which happens to be in their interests.

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  2. I like the idea of giving taxpayers the option of choosing whether they’d like the tax cut now or put it into their super contribution for later.

    This would allow Labor to keep their election promise whilst taking some pressure off inflation as some people will clearly be in favour of putting their tax cut into their super.

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  3. “The poll question I’d like to see is whether people support cuts to government spending as an inflation remedy”
    We’ve seen those polls that show that people are prepared to pay more tax for better government provided services, so normally you wouldn’t expect people to vote for cuts. They want better services not less.
    As for inflation, people might want to hear about more options for controlling it, before they would approve of cuts to public spending.

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  4. Russell,
    (1) can you suggest some better ways for controlling inflation in the short term (as in now, when it needs to be controlled) excluding cutting government spending and higher interest rates?
    (2) As far as I’m concerned, you should be asking groups that pay a net positive amount of tax whether they want to pay more tax for better services. Otherwise you are essentially asking people whether they want someone elses money, which comes to a rather unsurprising answer.
    (3) You might also like to ask them whether they think there are any long term effects of high tax rates and the government running everything before accepting their answers (most people don’t think about this). Obviously there’s some trade-off between these factors, but if you want to see where it has gone too far, then I recommend you go to some of the high taxing European countries. Having 85% of the young people in your country aspiring to join the public service (and the rest probably moving to London or the US to get away from them) is not exactly condusive to a great future (note that people in the 25-35 group are some of the few that pay a positive amont of tax — so losing them is super problematic — especially because everything else they have done, like university, is free). Even the countries that everyone likes to think of as shining examples (versus France and Germany), like Denmark, start worrying about this problem, as evidenced by recent debate (try googling it).

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  5. Conrad,
    If Andrew says we have to ‘ease demand’ than why not increase taxes on middle income earners and substantially increase taxes on higher income earners – you know, just until the inflation threat recedes. There’s a helluva lot of demand for multi-million dollar mansions, Maseratis, million dollar yachts etc in Perth – that’s a demand that could be cooled.
    On the other hand the WA government has announced plans to spend billions on assorted stadia, new trophy hospitals, and trying to make Dullsville more ‘exciting’ – surely that’s very inflationary, given our overstretched building industry, and the money would be better spent paying off state debt.
    (Would it be very inflation-causing to abolish university fees ? There’s an idea …..)

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  6. “substantially increase taxes on higher income earners – you know, just until the inflation threat recedes.”

    I couldn’t help but laugh at that one.

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