Why is opinion on taxing and spending changing?

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.

Nor do I think attitudes on privatisation tell us anything that is useful. Negative attitudes towards proposed privatisations long predate changed opinion on taxing and spending. And if we look at actual behaviour – and the revealed preference of behaviour is far more reliable information than boxes marked on a survey form – people have increasingly gone for private options in education and health over this time period.

Yes, people are annoyed about public hospital waiting lists and schools needing major upgrades. But as with privatisation, a constant cannot explain a variable. If anything, people are slightly less peeved about the state of hospitals and schools now than they were in the in the 1990s when opinion was more favourable for less tax. There is an AES question that asks whether the standard of public health and education services have fallen or increased since the last election. In 1998, 63% thought public health was headed down, and 50% thought the same of public education. In 2007, the corresponding figures were 60% and 47%.

Four years ago I wrote a paper (pdf) setting out an alternative theory. My argument was that what we were seeing was the product of prosperity, with added capacity to increase consumption. The difficulty is that the government is the dominant supplier of important services such as health and education. While better quality private health and education is available, to take it consumers have to both forgo part of their subsidy and pay the premium for better service. While some decide to do this (as seen in trends towards private education and health), for most the cheaper option is for government to spend more on services it continues to deliver for free. That thinking is what drives opinion on taxing and spending.

We’ve hit the time when my theory will be tested. In my 2004 paper, I noted that support for more spending coincided with subjective feelings of prosperity. Now the surveys on consumer confidence and living standards are showing major declines in those feelings of prosperity. With greater attention being given to balancing household budgets, I predict opinion will shift towards wanting the tax relief that will assist with this immediate concern. This will not be the result of increased belief in small government any more than polling in the last decade represents ‘greater support for collectivist solutions’. Opinion is driven by pragmatic responses to circumstances, not ideology.

12 thoughts on “Why is opinion on taxing and spending changing?

  1. A more intricate test of your position would be to look at how people with private health insurance that send their kids to private school have behaved over time. Presumably your position predicts that the proportion of these people that want more tax should have remained stable (or at least one one would expect to find an interaction).
    Also, perhaps an addition reason that hasn’t been mentioned is that, at the individual level, I imagine that for a lot of people it appears that their tax has not increased a lot in the last decade even though their wages have (thanks mining!) — this one would be highly correlated with your suggestion of feelings of prosperity.

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  2. Conrad – I haven’t checked over time, but for 2007 there appears to be very little difference in attitudes to tax cuts by school attended by child: govt 33%, Catholic 38%, other non-government 35%. Private health there is a difference: had the rebate in last 5 years, 38% want tax cuts. Haven’t: 30%.

    These attitudes are hard to interpret though: it would not be inconsistent to prefer more social spending and better public schools/hospitals, but in the absence of sufficient increases still go private.

    In the 2007 AES, 32% thought their taxes had falled since 2004 – the highest figure of the Howard elections. But those who thought their taxes had increased were only slightly more likely to want tax cuts than those who thought their taxes had falled: 38%/34%.

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  3. I think what we need is a complete freeze (at least in real terms) on public social spending and as much focus as possible on encouraging people into the private sector. That way, even with no spending increase overall the public health, education and welfare systems more money can be spent on each person. This also gets around the problem of increased public spending encouraging people from the private sector into the public sector, which puts an unneccessary burden on the system.

    Raising the tax free threshold (and the lower tax rates in general) would do a lot to help facilitate that. I really am quite disappointed that the TFT is still only $6000.

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  4. “Negative attitudes towards proposed privatisations long predate changed opinion on taxing and spending.”

    I think there has been a cumulative effect where privatisations may not have delivered as much as was promised. People seem less prepared for increased spending on facilities such as transport which have remained constant or declined in real terms (e.g. a new freeway attracts more traffic which negates it as an improvement; public transport increases in price without improving in reliability).

    In terms of education and health, a declining state sector ‘competing’ with a private sector obliged only to be slightly better than the public sector does not necessarily mean an overall increase in service. Besides, after reading Bonnor & Caro on education, it is hard to effectively demarcate ‘public’ and ‘private’; with similar funding and administrative tangles in health, the same problems apply.

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  5. If you’re saying people want more govt spending on health because they’re rich and therefore want more health, I disagree.

    I think people want more spending on public health because they see it as a thing that helps those mysterious “other people” that drive so much of political thinking.

    Once your position is stable, you want to help the “other people” who are starving on the streets. So if there’s a spare $1 being debated and you’re doing well, give it to the “others”. If there’s a spare $1 and you’re feeling poor, then you want it back.

    Of course, very few people have actually ever met one of these “others”. They need to be found and subject to rigorous scientific experiments.

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  6. Temujin/John – The altruism hypothesis probably has something to it, but support for more spending collapses when the money is destined directly for the pockets of poor people. For example, in the 2007 Australian Survey of Social Attitudes 90% of people wanted more spending on health. But only just over half wanted more spending on old age pensions, and only 12% wanted more spending on unemployment benefits.

    Perhaps people see less of a moral hazard when services are given away compared to when people are given cash.

    Overall, though, I think it is not coincidence that support for more spending is concentrated in areas with the greatest reach into the taxpaying population such as health and education (80%).

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