Has the High Court imposed spending constraint on the Commonwealth?

July 9, 2009 ~ Andrew Norton ~ 11 Comments

In the Fairfax broadsheets this morning, constitutional law academic George Williams gives his reading of the High Court’s judgment in Pape v Commissioner of Taxation and the Commonwealth of Australia.

As readers may recall, earlier in the year UNE academic Bryan Pape challenged the constitutional validity of the government’s tax bonus payments. Unlike the whinging cultural offspring of the welfare state who missed out on it, Pape was among other things seeking an injunction stopping the ATO paying him the money.

The High Court decided against him, but as is common in constitutional cases there were many different arguments made. Williams argues that though the Commonwealth persuaded the Court on enough of these to get a verdict in its favour, comments made by the judges on their other arguments raise questions about the validity of other Commonwealth spending.

The issue here is that the Commonwealth has long spent money on things for which it has no legislative power under the Constitution. Various additional spending powers have been read into the Constitution as relating to the executive power of the Commonwealth or an implied ‘nationhood’ power. As Justice Mason put it in 1975: Continue reading “Has the High Court imposed spending constraint on the Commonwealth?” →

Is opinion turning back against tax and spend?

June 25, 2009 ~ Andrew Norton ~ 9 Comments

Regular readers will know that I have a distinctive explanation of why public opinion has shifted since the mid-1990s to favour more taxing and spending. Most researchers in this field think it is an ideological shift towards government services, while I argue that it is linked to household finances. Under my theory, when economic times are good people tend towards spending more on everything, including those services they pay for via taxation. When economic times are not so good, people want to protect their household budgets, and opinion tends towards preferring lower taxation.*

According to my theory, in a mild recession we should be starting to see a shift in opinion back towards lower tax. One indicator of perceptions of household finances I used in my original research, Roy Morgan’s consumer confidence poll, shows that while confidence is rising again it is still well below its 2007 levels, when pro-tax opinion was high.

An Essential Research poll published on Pollytics blog earlier this week on whether tax increases to fund more spending have support appears consistent with that theory. Continue reading “Is opinion turning back against tax and spend?” →

No bribes needed to support the budget

May 19, 2009 ~ Andrew Norton ~ Leave a comment

Like last year, Australian voters have shown that they don’t need to be bribed to approve of budgets.

The Nielsen poll, like other polls, found between one in four and one in five voters thought that they would personally be better off as a result of the budget (there are a lot of pensioners). But heading on to three times than number thought that it was fair (56%) or said that they were satisfied with it (58%).

The Newspoll reported in The Australian found that twice as many voters thought that it would be good for the economy (45%) as thought it would be good for them personally (22%).

Whatever its merits as an economic document, the Budget was well handled politically by the government. The manipulation of expectations I noted last week in higher education was successful across portfolios. The Essential Research before-and-after question shows that good reactions exceeded forecast good reactions, and actual negative reactions were lower than anticipated negative reactions.

The only problems for the government are a narrow majority (56%) against lifting the retirement age in the Neilsen poll, and in the Newspoll only 30% of respondents believing that the budget will be back in surplus in six years. Not even Labor voters (49%) believe the government on this one.

Public divided on tax and spend

May 5, 2009 ~ Andrew Norton ~ 11 Comments

The first of the Budget tax and spend polls have been released, but it is hard to get a clear reading on whether the long-term trend towards support for more taxing and spending is easing or reversing.

In a Newspoll published in The Australian, the public is almost equally divided between saying scheduled tax cuts should go ahead (44%) or cancelled to reduce the deficit (47%). The 44% saying go ahead is slightly below the 49% who nearly 12 months ago wanted last year’s tax cuts to go ahead, but the trade-off posed has changed completely: last year the stated risk was higher inflation and interest rates (it seems so long ago…), this year the risk is making the budget deficit even larger. In both cases, however, just under half wanted tax cuts despite a risk of negative consequences later on.

As reported at Pollytics blog, the Essential Report survey found that, when given a choice between reducing the deficit and increasing taxes on high income earners and decreasing spending, 49% went for higher taxes and 42% for less spending.

If we assume that higher taxes and cancelling tax cuts are much the same thing, it seems like pro-tax views are still favoured by more people than the lower-tax perspective. However, the role of deficits in structuring opinion makes it hard to see where the underlying trend is going; it is possible that the deficit may induce support for tax that would not be there in better fiscal circumstances, just at it was possible that the previous large surpluses induced support for more spending that would not have been there if higher taxes were needed to pay for it.

Should welfare recipients be able to claim tax deductions to make them welfare eligible?

April 20, 2009 ~ Andrew Norton ~ 14 Comments

The Age this morning reports on a Federal Court judgment that opens the way for welfare recipients to claim as tax deductions expenses incurred in maintaining their eligibility for welfare.

The case was brought by Symone Antsis, a former Australian Catholic University teaching student. In the tax year in dispute, she earned about $15,000 working for the Katies retail chain and about $3,600 from Youth Allowance. In her tax return, she claimed work-related self-education expenses which included depreciation on her computer and spending on university textbooks.

The rule on self-education expenses is that the deductible expenses have to be related to your current employment. Her expenses were clearly unrelated to selling women’s clothes. But she argued that they were necessary to undertake the studies necessary to maintain her YA eligiblity, and therefore she ought to be able to deduct them.

Amazingly, Justice Ryan of the Federal Court accepted this argument:

Continue reading “Should welfare recipients be able to claim tax deductions to make them welfare eligible?” →

The ATO and social solidarity

April 6, 2009 ~ Andrew Norton ~ 22 Comments

Jessica Gilbey, a 25-year-old PHD student, won’t see a cent of the payments even though she lives on a piecemeal casual income that is often less than $100 a week. Technically, she did not pay any tax in 2007-08 so she will not receive the payment.

“I was completely devastated,” she said. “You feel left out, you feel like you’re not a citizen.”

– SMH, 6 April 2009

Ms Gilbey strikes me as a truly pathetic individual if her sense of social solidarity and citizenship comes from whether the tax office sends her a handout, which is a symbol not of social membership but a once-off do something, anything response to a slowing economy.

And what is ‘technically’ paying no tax? I think what they mean is that ‘technically’ she did pay some small sums in 2007-08, but the ATO has already given it back to her, meaning that her net tax payment was zero.

I’ve heard quite a few complaints along these lines, none of which I have any sympathy for. It’s just an example of how the welfare state brings out the worst in people, encouraging them to whinge about not getting handouts instead of working.

Update: Jessica Gilbey says she was misquoted.

Your taxes at play

March 14, 2009 ~ Andrew Norton ~ 26 Comments

Yesterday The Australian added anecdotal evidence to the statistical evidence that Youth Allowance is middle-class welfare.

STA Travel has also released sales to entice students to splash their stimulus cash offshore.

The company’s product and marketing director, Basil Hyman, said anecdotal evidence suggested inquiries for travel to short-haul destinations such as Bali, Fiji and Vietnam had shot up since the handouts had begun reaching bank accounts. “I think it has helped to stimulate overseas travel,” he said.

We are still waiting to see if Gillard will, as the Bradley report suggested, make YA a less rortable scheme.

The long-term politics of budget deficits

February 17, 2009 ~ Andrew Norton ~ 22 Comments

As a childless person on an above-average income – ie, the principal victim class of the tax-welfare system – I am pleased with the Coalition’s stance on massive budget deficits. I’ll be paying for it in the long run (and consistent with the permanent income hypothesis, I am increasing my savings to maintain stable long-term living standards).

But personal interests aside, I am interested in the long-term politics of this. The most detailed polling on this to date (pdf), though based on an online panel, finds majority public support for the government: 51% supporting Rudd’s approach, 33% Turnbull’s, and 16% undecided.

However, the latest package of handouts hasn’t changed confidence in Australia’s capacity to withstand the GFC, which has been hovering around 60% since October last year. Nor has it changed approval of the government’s performance since November last year. (The Opposition’s disapproval has substantively increased, from 35% to 44%).

The Pollytics blog is convinced that this is a disaster for the Coalition. Maybe. But less that twelve months ago the public was also buying the then media-macroeconomic wisdom that we needed a contractionary fiscal policy, of which the Coalition was sensibly (even more so in retrospect) sceptical.

The medium term politics depend on how Australia’s performance in the GFC is judged, and what effect is attributed to the handouts. The longer-term politics depend on attitudes to public debt and tax. If my theories are right, the underlying tax and spend public opinion dynamic should be turning back towards lower taxes. The Coalition’s current stance, along with their historic advantages as the more-favoured party on tax, could help them take advantage of any swing back towards preferring lower tax.

A good rule-of-thumb on deficits

November 24, 2008 ~ Andrew Norton ~ 11 Comments

Earlier in the year, there were signs that the general public had picked up the then orthodoxy that what we needed was a contractionary fiscal policy, to the point of not wanting their tax cuts in cash (there was support for diverting them to superannuation).

But it seems that the flipside orthodoxy – that we need deficits in the downside of the economic cycle – has not (or not yet) entrenched itself. A Newspoll published today found that 56% of voters would be concerned about the budget going into deficit next year.

As Club Troppo readers would have predicted, Fred Argy isn’t impressed.

Regardless of the purely economic arguments on this subject (few economists think that temporary deficits are of major concern), I think this is quite a good result. On the assumption that few voters will ever acquire sophisticated economic knowledge or understanding, and that they will use rules-of-thumb instead, an anti-deficit rule of thumb is the one to have.

In other countries with weaker anti-deficit cultures, borrowing is used to finance normal recurrent expenditures and avoid budgetary discipline. Australia is in a much better long-term position than most other countries for having taken its anti-deficit attitudes beyond what economic theory would recommend.