21 Aug 2012

How Will We Pay For It All?

By Ben Eltham
Voters want more services – but aren’t so keen on more taxes. To afford big ticket items such as the NDIS and schools funding reform, we can’t remain a low-tax nation, writes Ben Eltham
"Disability plan could top $10 billion". So ran the Australian Financial Review's headline on Saturday. The proposed National Disability Insurance Scheme, the AFR's John Kehoe reported, could well cost $10.5 billion a year by 2018-19, according to the Australian Government Actuary.

The NDIS is currently the subject of heated debate. Despite tripartisan support for the introduction of the scheme in federal parliament, the states, as ever, are worried about the cost. It was for this reason that Queensland, which is in the midst of a brutal austerity drive, decided to stay out of the trial of the NDIS brokered at the most recent Council of Australian Governments meeting.

The NDIS is not the only expensive social spending program in the news just now. Schools funding is also a hot topic. The Government's response to the Gonski review of schools funding is expected within weeks. The price tag for the full implementation of the reforms is estimated at $6.5 billion a year.

Community groups, meanwhile, want to raise the rate of Newstart. There's been a long-running campaign by the community sector to do something about the penurious rates of government assistance for job seekers. The Australian Council of Social Service estimates this will cost around $600 million a year (pdf).

It's not just social spending on the lobby group wishlists. As we've canvassed here before at New Matilda, defence funding has been wound back quickly under Julia Gillard, so much so that the government has thrown out its previous Defence White Paper and is planning a new one for 2013. The boffins and the generals continue to argue that Australia needs to spend tens of billions to acquire new submarines and fighter jets.

Infrastructure investment is another perennial laggard. Australia's infrastructure backlog — the investment required to build new bridges, roads, rail links and so on — has been estimated at $770 billion. Actually, that was in 2008 dollars, so the figure is almost certainly higher. Infrastructure Partnerships Australia has been banging on about it for years. No-one has really been listening, although under Anthony Albanese the federal government has tightened up the process under which the government funds big projects. Even so, it took until 2012-13 for state and federal governments to fund all the projects that Infrastructure Australia identified as "ready to proceed" — back in 2009.

Schools, disabilities, job seekers, defence, infrastructure: there's no shortage of worthy items for the federal purse. But there's not enough money to go round. Julia Gillard's government has slashed billions from the budget in recent years in a desperate attempt to get the bottom line back into the black. At the same time, taxes have been held below Howard government levels. Australia has one of the smallest government sectors in the OECD. Believe it or not, Australia is running a smaller government as a share of the total economy than it has since the 1990s — a fact Julia Gillard was none too shy in trumpeting during yesterday's querulous Question Time.

That hasn't stopped conservative politicians from arguing that government should be smaller. The Opposition under Tony Abbott has long been convinced Australia's government is too large, whatever the international comparisons tell us. An incoming Abbott government would cut 12,000 positions from the Australian Public Service and seek to fund major savings in the tens of billions. Philosophically, Joe Hockey has been open about his beliefs that future governments will no longer be able to afford social entitlements.

At the state level, conservative politicians have gained power at a time when state finances are under pressure. The response has been austerity, particularly in Queensland. There, LNP Premier Campbell Newman is chasing savings that amount to around 10 per cent of the state's annual expenditure; more than 20,000 public service jobs may eventually go.

Savage cut backs like those underway in Queensland are designed to get the budget quickly back into balance. But they also inevitably affect the quality and reach of social safety nets. We're already starting to see significant cuts to public services in the Sunshine State, whether it be public health measures such as breast screening  and HIV counselling, or emergency services such as paramedics. The individual merits of particular programs can of course be debated, but as Newman is beginning to understand, a serious attempt to reduce the size of government will inevitably lead to programs being axed and public servants losing their jobs.

The pain in Queensland and the clamour for disability reform highlights a growing divide in Australian politics. There is a serious disconnect opening up between the expectations of voters for more and better government services, and their willingness to pay the taxes to fund them. Simply put, Australia cannot continue to enjoy European-style social safety nets and American-style taxation levels.

Something's going on here, and it's starting to worry senior policy makers. Last week, the Treasury Secretary, Martin Parkinson, was in Brisbane to give a speech at a women in business function. "As Australian incomes have continued to rise over past decades, so too has community demand for the government provision of what economists call 'superior goods', including aged care, health, disability, education and social welfare," he noted in his address (pdf). "We face, as a community, a widening gap between the demands we are placing on government and what we are prepared to pay to fund government."

Put simply, the numbers don't add up. Parkinson pointed out that there is no way existing levels of taxation can finance ambitious new social spending programs, particularly as our society ages. Robust economic growth won't do the trick either, as long as taxes are held static as a share of the economy. "What will be required — of governments at all levels — to meet the community's demand for new spending, will be more revenue or significant savings in other areas," he stated bluntly.

As it happens, I think Australia can afford new safety nets like the NDIS, and new investments in schools, roads and hospitals. But we will have to be prepared to pay more tax. The time has come to re-open the tax reform debate, putting all the cards on the table. Personal income tax rates, the GST, negative gearing, superannuation and capital gains tax should all be up for sustained and robust debate.

There are hundreds of billions of dollars available to governments prepared to broaden the tax base — for instance by including health and education in the GST, by abandoning absurd tax subsidies to wealthy landlords like negative gearing, by subjecting the family home to capital gains tax, by reducing superannuation tax breaks, and by asking Australians earning high incomes to pay more tax. It won't be painless. It won't be easy. Indeed, some of these measures will probably be political suicide for whichever politician first suggests them. But paying more tax will be necessary if we want to keep improving our standards of living, particularly amongst the most disadvantaged in our community.

Of course, there is an alternative. We could reduce Australia's size of government to US levels. Australia could abandon its commitment to free public health, to universal public education, to a meaningful safety net for the unemployed. The richest in our society will do fine: they will be able to save for their retirement, to pay for private health care and for quality private education for their children. But the poorest in our society will go backward, fast.

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compass1312
Posted Tuesday, August 21, 2012 - 14:41

Bring the troops home from Afsmackistahn, cut some of the outlandish pay increases for our underperforming pollies. There's plenty of money if they REALLY want to do things, without raising taxes.

I don't know if you're joking in the last paragraph, but no wonder I dropped my subscription. What a load of drivel from NM's top journo....

This user is a New Matilda supporter. clloyd
Posted Tuesday, August 21, 2012 - 15:00

A good article, Ben. We are now dropping below the US in total government revenue per GDP and are in danger of falling to East Asian and Latin American levels. Consequently we have a dysfunctional state that cannot provide decent services and infrastructure for the population. As in the US, the real problem is dishonest populist politicians who will not speak truthfully and courageously to the public about the necessity of higher revenue to pay for the services the public desires in an advanced, modern democratic society. Gillard's and Swan's foolish rejection of any mention of higher taxes to pay for disabilities, schools, roads, ports, universities, all of which are chronically underfunded, is shameful. Both Canada and New Zealand have higher taxes than Australia and the Kiwis understand the role of the GST in providing revenue. This is where an honest government would start - with the 40% of consumption expenditure that is untaxed - and then raise the level to 12%. After that tax concessions for wealthy superannuation and capital gains recipients should be would back.

Australia's public sector is becoming a global joke. As measured by Net Social Expenditure we are now well below the US and other comparable countries. At a time of relative economic prosperity we should be rebuilding the nation. The long-run benefits of a social investment strategy are very clear when you go to northern Europe. Germany, Sweden, Finland, Denmark, and Norway have not suffered in the present European crisis and are prospering partly because of the efficiency benefits from good infrastructure. Now South Korea and Taiwan are learning this lesson and raising their social investment strategy.

Tonii Gramsci
Posted Tuesday, August 21, 2012 - 16:18

Would it be fair to say that the cut in Defence was made possible by allowing the US to bring its marines here? In which case one could further presume that the US will do our fighting for us. There are obvious benefits for the Americans to base themselves here. And obvious short term cost savings for us.

As for the tax base - the lowest income earners carry the load of the tax burden. Always have. The rich are always finding new ways to avoid tax and this is reinforced with the advent of conservative governments. The lack of leadership of the Left, over the last 20 years, has brought us to this point. Backflips and gutless actions continue aplenty with Labor governments. Look at the debacle Swan makes of himself - voting against the mining tax then berating mine owners for their greed. Nationalise the mining industry for christ's sake. Haven't we come far enough now to know what it takes to run a business? The biggest business in town is is just a business. Think about the opportunity cost in lost earnings. Over the last 10 years we could have funded anything we wanted. Leadership has been our Achilles heel. Still is.

Collar the Berator
Posted Tuesday, August 21, 2012 - 22:08

Almost good, Ben. I agree that we can afford to pay more tax and we SHOULD pay more tax.

I agree that negative gearing should be done away with, but I very much doubt that it would make much difference.

I totally disagree that the family home should be subject to CGT. For most ordinary people, the family home is their main defense against future inflation and they deserve that hedge against something they cannot control.

If you have been reading Alan Kohler lately, you would have an appreciation of why that hedge is becoming more and more important.

zeroxcliche
Posted Tuesday, August 21, 2012 - 22:26

Corporate Super Profits Tax at 40% with no deductions for profits above $1 billion - when you are earning about $40 profit for every person in the country or in the commonwealth bank's case $280 you are basically operating as part of a highly profitable cartel which there should be a corresponding social dividend - you could exempt mining I wouldn't - manufacturing only with a certain level of labour intensity. Would they begin to divest and move offshore - if they did which I doubt (especially the banks) in the long run that would be a good thing because the market share would be taken up by competitors and the political influence of the two big miners would be diminished

This user is a New Matilda supporter. Marga
Posted Wednesday, August 22, 2012 - 07:07

We live in an era where we assert our rights, our entitlements, but we do not want to meet our responsibilities.

In an advanced civilized society we also need good infrastructure, physical infrastructure and social infrastructure, but it cannot all be funded from General Revenue raised through income and income-related taxes.

In an article I read the other day that the world's rich have $21trillion stashed away in tax havens; others make that $32trillion; again others say the amounts are exaggerated. Whatever: for sure is they hide a lot of their wealth in tax havens. That needs to be attacked.

Then we need tax reform and super reform. Super is seen as a tax-effective investment vehicle, a nest egg to supplement the welfare pension; it benefits the high income earners at the expense of the taxpayers subsidizing it. Super should be treated as deferred income paid out during retirement, taxed, and terminated when the beneficiary terminates. In other words: residuals stay in the fund to benefit those who live past their life expectancy rather than benefiting the beneficiary's estate.

Ken Henry proposed a land tax. I go much further: we need commonsense natural resources tax, including a tax on land. More precisely: the economic rent which is now harvested by individuals but belongs to the community, should be given to the community, or at least half of it.
Yes, that would include the family home, but only the land not the improvements, such as the house.
As an aside, there is little capital gain to be made from the building. People who have lived in their family home for a long time and cared for it will have spent much more on its maintenance than they could ever recover from the market.

We also need punitive taxes on the environment, pollution taxes. Example: frequent flyers, frequent drivers should be paying progressively more. The same goes for utilities (energy and water).

We should switch from welfare, paid from consolidated revenue and used as a political football, to compulsory social insurance in key areas (that includes disability), directly funded, publicly owned but managed independently - a bit like the RBA. People would have a sense of ownership then, know where their money goes; whilst general taxation can be reduced.

We are really giving our politicians far too much control over our money and they spend it unwisely.

calyptorhynchus
Posted Wednesday, August 22, 2012 - 10:02

"Joe Hockey has been open about his beliefs that future governments will no longer be able to afford social entitlements."

I'd like to see the Liberals cut back on all the middle-class welfare they introduced in the first place.

meski1
Posted Wednesday, August 22, 2012 - 10:29

Sure, I'll pay more tax, if you don't spend it on non-assets.

Fractelle
Posted Wednesday, August 22, 2012 - 12:33

I am commenting in this space, because I have yet to hear back from New Matilda's management regarding a question I raised concerning email notifications of comments.

I have no trouble receiving specific articles from specific authors as well as the New Matlida magazine in my email.

However, if someone responds to a comment I have made, I remain unaware.
If someone makes a comment on an article in which I am interested, I remain unaware.

Yes I do select the option for "Subscribe to comments on this post" in the RHS of this page.
And yes, I have everything enabled on my browser yet still do not receive comments.

Apologies for interrupting discourse, however unless this bug is fixed I cannot participate fully in the New Matilda discussions.

Wilhelmus
Posted Wednesday, August 22, 2012 - 20:30

Ben Eltham is a true socialist junky, who believes in ever more red tape and taxes. We should instead go back to the 1950's with more private enterprises and opening up of our country's rich resources, instead of the hopelessly over-taxed societies like in Europe with enormous armies of bureaucrats, who never contribute to anything at all. And education can only succeed, if/when all students are willing to contribute something for the money spent on them. Ask Bill Cosby in the U.S., why he is so "p.... off" with the black Americans, who rather become hip-hop artists, then become like the "whities". Also, instead of the Greens and our socialist government squandering billions of dollars on illegal immigrants, that money should be spent on improving our infra-structure and cheap energy, like nuclear power, which is the cleanest energy available. But there are too many scared to death Aussies, who have a phobia for that technology, which helps countries like France to enjoy very cheap electricity, without any fear and the French not only generate 80 percent of their total output from nuclear power, but also sell 16 percent of their surplus to the neighbouring countries, that went "Green" and now pay the price for their folly. Canada also has a price of just 7.95 cents per Kw/h against our average of close to 30 cents per Kw/h, which has very much to do with the very expensive and hopeleslly inefficient cost of the "green energy".

thomasee73
Posted Wednesday, August 22, 2012 - 23:54

Marga - you can so clearly see the injustice of a few fortunate wealthy Australians deriving economic rent from the natural resources that they happen to control through their own, or their ancestors', good luck or good sense. Clearly those natural resources should be exploited for the benefit of all, not just a lucky few?

I'm sure that those few wealthy people are convinced of their natural rights to that wealth, however. They would very much prefer to determine who comes by the benefits of those resources and the circumstances in which they come by them. The wealthy elite are absolutely convinced that ordinary Australians like yourself simply don't have the education and the sense to properly manage natural resource assets, and would likely squander them. In short - you simply don't have the appropriate culture, and they are not about to share the benefits of their assets unless you develop the right attitudes and values. And one of those attitudes is to NOT expect a handout from property that belongs to other people!

They say to you - look, we're not going to give you a handout and do ourselves out of our wealth at the same time. HOWEVER we do very much ENCOURAGE you to start to build your own wealth, using the resources that you have available to you - and they'll even give you a few tips and advice for free if you ask nicely. That's another one of the "positive" "can-do" attitudes that wealthy people encourage people like you to have - a willingness to use the resources THAT ARE AVAILABLE TO YOU and work hard to build on them, just like their great grand-dad did. And then, having worked for them and created those riches you would really DESERVE them, just like they deserve their wealth now.

Almost all wealthy people are quite in agreement on this matter - they are very keen for you to develop the right attitudes and values, to go back to your communities and work hard to become as deservedly rich as they are. Something they are NOT keen on, is simply letting you (and all the other unwashed hordes) helping themselves to a share in what is rightly theirs. They feel for us, Marga, it really pains them to see our relative poverty. But they know that if they let one or two ordinary people share with them, it would open the floodgates. They know that we wouldn't be satisfied with just raising a small royalty levy on their economic property, and that we wouldn't be happy with anything less than an open door policy on access to the economic rent that they themselves are currently enjoying. (That would represent nothing less than the destruction of civilisation.)

Just like all sensible Australians quite rightly don't want to share this wonderful nation that is OURS and belongs to US with people who don't share OUR attitudes and values. But we will happily support their efforts to nation-build in THEIR OWN countries. We will provide lots of encouragement and support, just as, I'm sure, that Gina Rinehart would be happy to sponsor a few places in business school for a few underprivileged Australians. But only ones who had the right attitudes of course - they'd have to be appropriately educated to stop banging on about "economic rent" and "harvesting it" for the "community". There's only a short distance from there to Communism - and we all know what a dreadful system that is, don't we?

MrFreedom
Posted Thursday, August 23, 2012 - 08:40

This debate is so predictable - those who mooch off the state argue for higher taxes and more handouts because they aren't going to shoulder the bulk of the higher tax burden they promote.

I work damn hard for my money in a real job (as an engineer) that generates real value and profit and ultimately props up the economy - and the money I earn is rightfully mine. Even though a massive percentage of it is zapped away to the government before I even see it, it is mine - if I didn't work for it I would not have it.

Tax is a precious gift from a citizen to the government to provide the infrastructure of governance and services the private sector cannot deliver equitably - because it is a gift not an obligation it should be spent efficiently and frugally, and I am damn sure from first hand accounts of public servants in Queensland that vast sums of it are pissed up against the wall.

Would you believe people are just moved around to a different team when they don't don't do anything and their boss wants them fired, just because it's too hard to sack anyone in that hyper-unionised environment? Would you believe people literally sit at their desks and read the newspaper all day because there is nothing for them to do? Well, you'd better believe it happens right now in QLD, and probably most of our bloated government departments across the nation.

Until the government uses all the money I give them today without waste, I will fight tooth and nail to stop them taking any more of my money.

This user is a New Matilda supporter. Marga
Posted Thursday, August 23, 2012 - 12:29

thomasee73:
Spot on. In summary: they are opinionated, self-serving, self-righteous, greedy, condescending and so the list goes on. They are Social Darwinists.
They (sometimes) like to be philanthropists and return a fraction to the community of what they stole in the first place, but want recognition for it
(the Pratt case is a classic example).

Mr. Freedom:
See that's why we need economic rent to go to the community. Then you can keep more of the money you earned the hard way for yourself.

thomasee73
Posted Thursday, August 23, 2012 - 23:15

Dear hardworking MrFreedom. With tongue partly in cheek, I point out that no-one is forcing you to work damn hard for your money only to have it stolen by the government. You've had just as much opportunity as anyone else to become a Queensland public servant and to sit at your desk all day in a protected hyper-unionised environment and take advantage of hard working people such as yourself. If you can't be bothered doing the hard political work to get yourself unionised and change the rules of the game in your favour then I'm sorry - you lie in the bed you make for yourself. Queensland public servants are just individuals maximising their own self-interest in the situation that they find themselves in - and what could possibly be wrong with that?

Stop whining about the fact that others get to have a relatively enjoyable lifestyle and material comfort without having to work all that hard. Instead of trying to figure out a way of taking those advantages away from other people to the benefit of yourself, how about you try to think about a way of getting what you want WITHOUT depriving public servants and other aspects of government of their income.

Your freedom to do what you please with some 60 percent of your income is a precious gift from the government, who control the army and the police force, to individual citizens, to bribe them to keep on working instead of turning all angry and violent. If you think the government is going to simply give you the remaining 40 percent for you to squander it on internet porn and high definition televisions, and then come back in twenty years time with your hand out for an old age pension, then you've got to be nuts.

And because the government, who - did I mention - control the police force and the army, do not force you into slave labour to work for eighty hours a week in the mines, perhaps it would be wise of you to spend what remaining free time you have enjoying yourself quietly instead of wasting it on forums like this, trying to stir up trouble, cause agitation, and some might observe, attacking the very hand that feeds you.

jackal01
Posted Friday, August 24, 2012 - 20:10

thomasee73
There’s only a short distance from there to Communism - and we all know what a dreadful system that is, don’t we?

The Americans saved the Comos from Hitler.

Capitalism needed the black hole of the Communist economy to dump our over production and therefore protect commodity prices.

When communism failed the Yanks went out and caused strife so that they could give their over produces garbage to the U.N for relief to the many disposed that they created.

In short your full of it.

jackal01
Posted Friday, August 24, 2012 - 20:14

MrFreedom

77% of all Australians work for the Taxpayer, who ever you think he is.

A Nurse, Teacher gets 100% of their income of the Tax Base and gives 33% back, money that wasn’t his to start with. So 67% which is his/her income for services rendered, he/she gets from this mythical person called the Tax payer. A road construction worker or anyone who builds infastructure like roads, rail, the electricity grid, public transport etc also gets 67% from this mythical person after giving back 33% in income tax. The butcher who sells any or all his goods to either the Government or one of its employees makes either all or part of his income from this Mythical Person.

An Unemployed person gets less then all those working because he basically does nothing.

So where does all this money, the 67% that you don’t give back, come from. Exports, the resources of a land that did not belong to us, that we took for exactly that reason. So, we infact only give back a very small percentage of what once belonged to the indiginous people and then we say that we are keeping them rather then their land is keeping us. take away our exports of Uranium, Coal, Gas etc and we would all be bashing each others heads in because there would be no money in the Tax Purse, because we all only take out we do not put in.

Its about time the white fellow stopped bull shitting about what and who actualy supports life and the population of this nation which has transplanted itself from Europe like a cancer a cancer sucking the life out of this continent, until, there is nothing left, like Greece an economy of smoke, mirrors and ego’s. its like breaking into someone elses house and eating everything in the fridge, until their is nothing left, the problem is we can’t leave because there is no other house to break into, to steal food from etc.

Thats why Marbo was so such a shock to the white fellows system of exploitation, a Farmer can’t make an income and pay taxes of Land he does not posses, own, does not belong to him, or has to pay Royalties on.

A lot of white fellows fantacies that they created something out of nothing. Get on a boat and sit in the middle of the Ocean and see what you can create out of nothing or live in the Simpson desert and see what you can create.

White fellow is here because we wore out our welcome over their, we had boats and the price of a ticket and we ended up here and then we took and took and we are still taking because our kids have a need too and so will their kids, but their is only so much of the planet left that we can still steal, we have stolen most of it. Country bumpkins are already moving into the Cities because their lives out their are unsastainable. Cities are the reservations of old, we want the rest of their land because we need it, without it nothing of what we think we are is possible and we know it, admitting it however is the hard bit. Admitting means admitting that our lives and those of our children a built on myths, bull shit and Plunder, even murder.

Civilised or just thieves in fancy stitches??????

jackal01
Posted Friday, August 24, 2012 - 20:21

thomasee73
Posted Thursday, 23 August 12 at 11:15PM
Brilliant comment.

jackal01
Posted Friday, 24 August 12 at 8:10PM
When I mentioned, "In short your full of it." I meant in relation to communism, but your comment was tongue partly in cheek, right. If it was diregard my dribble.

thomasee73
Posted Monday, August 27, 2012 - 07:37

Mr Jackal,

My remarks on this page directed primarily towards Marga follow on (at least I intended them to follow on) from a little bit of back and forth on the page "Gillard gambles it all on asylum seekers". I suspect that Marga missed my point unfortunately, which means my remarks failed their intended aim. The point is that people in in-groups can treat people who are in out-groups very poorly. And we can have quite seemingly contradictory intuitions about what principles of fairness should apply depending on whether we fall into the in-group or the out-group.

I wrote quite an extended post on that previous forum as I flesh out (for my own enlightenment) some of the implications of regarding social groups as an explanation for political rhetoric that seems (at least to my understanding) quite contradictory when it comes to balancing the interests of smaller subgroups (including individuals as the limiting case) with the interests of others within larger groups (with all living persons as the limiting case - Peter Singer would even include animals with high levels of "sentience" within the group of all "persons").

Of course its much easier to spot inconsistency in the arguments of others than to develop a consistent position myself. I know where my sympathies lie, but I also realise that my supporting reasoning is inconsistent in different places to varying degrees. Sometimes I use irony and hyperbole as a means of simultaneously either criticising a particular position, or instead exploring the limits of that position.

Allie
Posted Friday, August 31, 2012 - 21:50

Thomasee73;
I think I am in love.
You speak for me.
I wish I could read more of you.

Thank you for your amazing pieces in response to those who 'do not know'.

Thank you.