Category: Tax & spend

Driving policy in the wrong direction

~ Andrew Norton ~ 19 Comments

Yesterday’s announcement of massive subsidies for the car industry is a big victory for industry minister Kim Il-Carr and the auto lobby. But it is a big defeat for consumers, taxpayers, and alternative beneficiaries of government largesse. On my rough calculation, every taxpayer will contribute the best part of $700 to this plan (where is suspicion of foreign multinationals when you need it?).

My CIS colleague Stephen Kirchner points out the additional hidden costs in diverting resources away from more productive uses.

And in the latest issue of Policy, Malcolm Roberts gives the sorry history of car industry protection.

We can be sure that this latest scheme, like all those before it, will fail to make the car industry viable, and this will not be the last of the corporate welfare bail-out packages.

Update 12/11: Shaun Carney’s argument for the subsidy. Summary: Other industries, and other countries, have stupid policies, and therefore the car industry deserves a stupid policy as well.

The hip pocket politics of climate change

~ Andrew Norton ~ 3 Comments

The Treasury modelling of climate change abatement released this week put the likely cost at about $1 a day for the average household. An ANU poll (pdf) also released this week confirmed a general willingness to pay higher prices to protect the environment. But how does this dollar-a-day price to climate change abatement compare to more specific polling on the issue?

A Climate Institute poll of marginal seats last November found just 13% of its sample were prepared to pay $30 a month or more, the cost range according to Treasury. The annual Lowy Institute survey, which was carried out during July, found only 19% of its respondents were prepared to pay $21 a month or more.

Though there has been an advertising campaign for the government’s package since these two polls, it was only telling people what they already thought (something needs to be done), not selling them on a price, so I doubt the punters’ opinion on how much they are happy to spend will have softened. It is more likely that it has hardened, as voters focus on protecting their short term financial position during what will at best be a significant slowdown, if not a recession.

Though the dollar-a-day at least gives the government’s spin doctors something specific to work with, the polling shows that they are starting from a very low base of support.

Is HECS a tax?

~ Andrew Norton ~ 20 Comments

Commenter Charles objects to HECS as

an exotic tax aimed at passing education costs to the next generation

Though until 2004 I thought that HECS could reasonably be classified as a tax, that analysis would have been disputed by the courts. Under the Constitution, there is a distinction between taxes and fees for services, and arguably HECS was a fee for service, in that the person who paid it became entitled to a specific service in return.

However, HECS had other attributes of a tax: it was set by the government, it went to the government, and was mostly collected by the Australian Taxation Office (up-front payments went direct to universities, but as money owed to the Commonwealth, with an adjustment to the government income of universities as a result). It made the Australian tax-welfare system mildly more progressive than it would otherwise have been.

But since the student contribution amount system came into force in 2005, I do not think ‘tax’ is the best description of this payment.
Continue reading “Is HECS a tax?” →

Labor’s faulty uni intuitions cost taxpayers $562 million

~ Andrew Norton ~ 20 Comments

Fulfilling an election promise, this year’s budget contained:

$562.2 million over four years to encourage students to study maths and science and compensate universities. From 1 January 2009, the maximum annual student contribution amount for maths and science will be reduced to the lowest ‘national priority’ rate for new students.

As I pointed out when Labor first announced this plan in early 2007, it rests on two false assumptions.

The first assumption is that choices between broad academic disciplines are driven by relative prices. There is no evidence in the history of changing HECS levels that this is the case. A moment’s reflection explains why: for most people, a choice of course is a career decision, and who in their right mind would choose a field that did not interest them to save a few thousand dollars in eight or nine years time (when their HECS repayments would finish earlier than would otherwise be the case)? And for students motivated by money, a few thousand dollars in tuition costs is not going to change substantially the lifetime earning relativities between occupations.
Continue reading “Labor’s faulty uni intuitions cost taxpayers $562 million” →

A silver lining in the ideological storm clouds?

~ Andrew Norton ~ 4 Comments

In the AFR yesterday my CIS colleagues Gaurav Sodhi and Jeremy Sammut see a rare silver lining in the ideological storm clouds of the financial market meltdown. The driver of bloated government – the easy money flowing into Treasury’s coffers during a long boom – is about to slow. And

[as] government revenues [] fall, [] there won’t be the same scope for irresponsible spending promises. This is no bad thing. More straitened times give governments an excellent opportunity to implement unpopular measures, strike down bad policy, and enact new reforms.

History suggests that real cuts in spending are very rare, occurring only at the tail end of long periods of severe deficits. Dire fiscal necessity can let politicians get away with truly tough decisions; it is not enough that money is tight or spending programs are a waste of money. The largely petty savings in the first Rudd Budget, despite the big talk about spending constraint and the start of a new government being politically the most favourable time to make cuts, suggest how hard governments find tackling the areas that drive big-dollar spending: welfare, health, education and defence.
Continue reading “A silver lining in the ideological storm clouds?” →

And the losers are…

~ Andrew Norton ~ 11 Comments

With the partial exception of Stephen Kirchner, the government’s spending-the-surplus extravaganza is receiving a positive reaction.

Yet there has been very little about what was going to happen to the surplus, particularly the planned contributins to the Education Investment Fund and the Health and Hospitals Fund. One of the Prime Minister’s media releases yesterday referred to speeding up spending from these funds, but this seems to be a separate issue from how much money will eventually find its way into them.

On that issue, the amount contributed to the special investment funds was to be ‘subject to final budget outcomes’, so presumably they are taking a double hit: lower surpluses or even deficits in the coming years, and the current surplus spent on handouts to families, pensioners, and home buyers.

It reinforces the need for universities to disconnect themselves from the budget cycle as much as possible, and to receive their income through markets.

Why is opinion on taxing and spending changing?

~ Andrew Norton ~ 12 Comments

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. Continue reading “Why is opinion on taxing and spending changing?” →

The public warms to tax cuts

~ Andrew Norton ~ 5 Comments

The odd desire of Australian voters to fight inflation with their tax dollars might be coming to an end.

A poll reported this morning in the News Ltd tabloids found, for the first time in recent polling, more for respondents for the tax cuts than against even after they had been alerted to the possible interest rate consequences.

The Galaxy Poll question read:

Do you think the government was right or wrong to introduce tax cuts, given the risk they may pose to inflation and interest rates on home loans?

49% thought it was right, and 31% said it was wrong. Only last week, The Australian reported a Newspoll that found 53% against the tax cut when told that it might increase interest rates.

The poll also asked a budget better off/worse off question. 23% say they will be better off, which is likely to under-state the real figure, and 33% say they will be worse off, which is unlikely unless they are very heavy alocopop drinkers, a luxury car buyer, or a pensioner about to be hit with hefty private health insurance fund premium increases.

There is a pattern of budget benefits being understated and losses overstated. Even with last year’s budget, which so far as I could tell had no losers beyond new commerce students paying higher HECS, Newspoll managed to find 14% of people who thought that they were worse off, and only 36% who thought that they would be better off.

These polls read the politics of the budget more than its reality. But with pensioner protests in the streets, Labor may now start to realise that by relentlessly droning on about ‘working families’ other households may start to feel like losers. Continue reading “The public warms to tax cuts” →

Petty savings

~ Andrew Norton ~ 19 Comments

For all the tough talk before the Budget, the cuts announced on Tuesday night were small scale and posed no risk to Wayne Swan taking the title ‘ Australia’s highest taxing and spending Treasurer’, which has traditionally gone with the job. As Tim Colebatch says in The Age this morning:

IF LABOR made no policy decisions this year and put the budget on automatic pilot, federal spending next year would have been $287,828 million. Instead, after months of work by the razor gang, federal spending estimates have been cut to $287,764 million.

Spot the difference? In net terms, Labor cut federal spending by 0.02%. Its net cuts totalled $64 million — $1 for every $4500 the Government spends.

As Treasury’s historical data shows, there have been eight budgets since the fall of the Whitlam government with lower increases in real spending, four of them under Labor.

Though I am pleased that the FTB B and the baby bonus are to be means tested, this is more a symbolic change than a big saving, with only $173 million less spending in 2008-09 as a result. Those two programs between them will still increase their spending by $707 million, of the nearly $2 billion in total increases to official family payments. The Education Tax Refund, which is effectively an extension of FTB A, adds another billion.
Continue reading “Petty savings” →

Family finances under familism

~ Andrew Norton ~ 32 Comments

My blog suggestion yesterday that ‘working couples with children’ deserve ‘much less’ welfare assistance attracted some questioning in the post’s comments. NPOV asks

is this from the starting point that you believe almost everyone deserves “less”, and couples with children deserve “much less” because they already get more than everyone else?

Certainly my starting point is the classical liberal one that people are entitled to keep their earnings unless there is some strong reason to tax it away from them. Among the reasons given for taxing, redistribution of cash to families seems to me to be among the weakest. It is not specifically aimed at meeting any need that is generally agreed upon, such as for education or healthcare. It is given to people with incomes that are well above average, who are quite capable of giving their children food, clothing and shelter without any outside help at all.

Though some family welfare meets genuine needs, much of it is redistribution between family types irrespective of need. Recent years have seen a significant improvement in the financial position of families relative to single people and couples without dependent children (though people in the latter still generally have the most to spend on themselves).
Continue reading “Family finances under familism” →