May 04, 2004 | Graham

Higher taxes and house mates

The latest series of Big Brother premiered last night and I couldn’t resist putting those two words – “big” and “brother” – in this first paragraph because it will generate a lot of google searches; and because shared housing is one model that demonstrates the problems with the latest campaign to convince us we should trade tax cuts for better services.
This campaign has been running for a while, but it has been recently boosted by a coalition of groups calling itself, Services First. The coalition, which is about to shrink because it includes the soon to be abolished ATSIC, also includes a diverse range of groups including ACOSS and The Royal Australian College of General Practitioners. Judging from this morning’s Courier-Mail,one fellow traveler is Alan Fels. It also has received support from the ANU’s Survey of Social Attitudes (results of which are not on the web yet).There are two common arguments across most groups advocating this position. The first is that the tax cuts that are being given are so insignificant to taxpayers that they would be better spent on services. The second is that recent surveys suggest that taxpayers would prefer better services to tax cuts and therefore there is no constituency for lower tax. What they both add up to is that some of us believe that collectively we are in a better position to decide how each of us spends our money than we are individually.
This is where the share house model of taxation comes in. It’s not a perfect model, but it does illustrate the basic dilemma. Share accommodation is generally happiest when everyone feels that they are getting their fair share of services and everyone is pulling their own weight. So most share accommodation arrangements limit the expenses for which money is pooled to the bare minimum. When you start pooling money to buy groceries jointly, or tide Briony over because she just lost her job and can’t put in this week, the trouble starts. In any share house there tend to be the minimisers – like me – and the organizers – like Alan Fels – and as some of us like to win, we’ll advance the arguments that we need to so as to get our own way. So here are a few shots on behalf of us “minimisers”.
The higher tax/higher service argument partly relies on the rhetorical tactic of confusing relatives with absolutes. Last year’s average weekly tax cut of $4 may only be the value of a “hamburger and milkshake” to each of us as Senator Amanda Vanstone so eloquently put it, but that won’t change if it is pooled. The fact that there are around six million taxpayers means that the pool will be the equivalent of six million hamburgers and milkshakes, which exchanges into Australian dollars at around $2.5 billion, a very large number, but it will never be more than one hamburger and milk shake each, whatever the government decides to do with the money.
Ah, but won’t pooling make a difference? No it won’t. $2.5 billion (or even the $7 billion being mooted as the current likely budget surplus) won’t buy the government much more than a government sized hamburger and milkshake. It certainly won’t provide universal free health and education, fill every pothole in the country and ensure that Telstra turns up within a reasonable time to fix rural phone connections. Resources are limited. In fact, what you will undoubtedly find is that the proponents of these higher taxes will want the pooled funds spent on some specific project, one which they advocate, control and preferably administer. The problem with this is that it might buy the organisers three square meals a day for the rest of the year but it will leave many of the contributing taxpayers without even the smell of their hamburger.
Actually, it’s not really that simple as I am playing the same minimization card that the higher taxers are. The tax cuts are actually worth quite a bit more than a hamburger and milkshake. At $208 per year, or $416 per working couple, last year’s were quite substantial. This year’s at say $1,040 per couple (note how I artfully chose the largest available figure) could be even more substantial. I don’t know about you, but I might give up $10 per week to someone else, but I’d be decidedly less keen about $1,040, even though as a single I’m really only likely to get $520. And those sums of money can make a real difference to my quality of life. They’ll pay my gym fees, for example, which are probably the single largest monetary contribution to my health that I make in a year.
Another logical problem with this strategy is that if the amount of money this year is so small that it can painlessly be foregone, then the same small amount of money can easily be foregone next year and so on. Before you know it, inflation will have increased our salaries to a stage where we are all paying income tax at the highest marginal rate of tax – that is half of our income. Which leads to the constituency argument of the survey results.
Survey results like the ones being quoted do not actually show what they purport to show. For a start, it is often the case that people will say they would prefer to pay more tax, when what they mean is that the rest of us should pay more tax, but they would like to pay the same or less. The Survey of Social Attitudes avoids this by asking whether the individual would pay more tax to pay for better provision of particular services, but it does not avoid it entirely because at the heart of this reaction lies the question of size. How much more tax would you be prepared to pay? It also fails to properly explore the context. For example, if foregoing my $4 per week tax cut would only build one more hospital and shorten waiting lists by an average of one day, would I be prepared to forego it? It also ignores the alternatives – $200 for me to spend on school uniforms, versus a higher doctor subsidy from the government so he will bulk-bill me.
In any event, the debate is largely academic. The Services First Coalition proclaims itself “non party-political” and promises to “not endorse or otherwise support any parties or candidates…”. It “will suspend activities once a Federal Election is formally called.” Just as well, as both the major parties understand all too well that whatever they might say, Australians prefer to make their own decisions as to how their money is spent, rather than letting the government make them for them. To believe anything else is to risk being ejected from the big white house near Lake Burleigh Griffin.

Posted by Graham at 4:41 pm | Comments Off on Higher taxes and house mates |
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