Home > Economic policy > Tax and spend

Tax and spend

February 23rd, 2004

Reader Jack Strocchi, pointed out this Newspoll report in today’s Australian, concerning voter preferences on taxing and spending. Written by George Megalogenis, who usually gets things straight, it bears the marks of intervention designed to adjust the finding’s to the anti-tax line that has been running hard in the Oz editorial column for some time.

The problems start with the headline Top rate too high, say half of voters. It might be inferred that the other half say that the top rate is not too high. But despite the fact that the excessively high top rate is the central theme of the article, we never find out the distribution of the remaining 50 per cent between “about right”, “too low” and “Don’t Know”. Looking at the partial numbers, I’d estimate that the “Don’t Know’s” at no more than 10 per cent of respondents, implying that about 40 per cent of respondent’s rejected the view that the top rate is too high.

The really interesting news comes in the second paragraph. By the overwhelming margin of 72 per cent to 9 per cent, voters would prefer more spending on health and education to a tax cut. Even among those paying the top rate, most of whom think it is too high, the margin is 69 to 13. If the Australian wasn’t determined to push its opinions into the news pages, this would be the headline.

The implication is that, as regards taxing and spending, the electorate is overwhelmingly more social-democratic than the current government, and arguably more so than the current opposition. It’s no wonder that even mediocre Labor state governments have routinely crushed their opponents since the Howard government was elected.

There are some interesting framing issues here. The “top tax rate” question appears to be framed in a “free good” way – that is, respondents are asked whether the rate is too high, but the fact that a cut would have to be financed somehow is not explicit. By contrast, the tax cut vs spending question makes the trade-off clear.

What really interests me, but isn’t clear in the report is the sequence of the questions (the Newspoll site hasn’t yet been updated). The preference for spending over tax cuts would be even stronger if, as the Oz report tends to imply, the “top rate too high?” question was asked first. Conversely, if the tax cuts vs spending question had been asked first, the framing bias in the top rate question would be reduced.

UpdateIn the comments thread, Don Arthur advises that the paper-based version of the Oz story gives the numbers as 50 per cent too high, 34 per cent about right, 8 per cent too low. Bearing in mind the absence of any mention that reducing rates might mean giving up services, I don’t find this too surprising.

Further update 24/2Andrew Norton at Catallaxy has a post on the same topic, with the same title. and with much the same conclusion. The only difference is that he regrets the outcome and I don’t. A fine illustration of the positive-normative distinction.

Categories: Economic policy Tags:
  1. Jethro
    February 23rd, 2004 at 08:40 | #1

    The editorial in The Australian today notes the “conundrum” between a desire for a cut in the top tax bracket, and the desire to spend more on health & education.

    This is how they explain the conundrum:


    As pollster Sol Lebovic points out, voters may be giving the “socially acceptable” answer on what they want the Government to do with the surplus. In other words, while their consciences may be uneasy about cutting back the welfare state, their gut instincts are telling them we should be cutting back taxes. Mr Howard and Mr Latham would be well advised to respect the voters’ instincts.

  2. John Quiggin
    February 23rd, 2004 at 08:51 | #2

    This only confirms my point. If it’s socially unacceptable to favour tax cuts over increases in public expenditure, then the argument has already been settled in the public mind.

    Lebovic’s assertions about “gut instincts” are drawn entirely his own mind and that of the politicians who share those instincts. He produces no evidence for them whatsoever. The repeated landslide victories for state Labor governments is pretty powerful evidence the other way.

    Finally, if Lebovic thinks that poll answers that don’t agree with his own political judgements should be disregarded, what is he doing in the polling business?

  3. February 23rd, 2004 at 09:06 | #3

    It’s still interesting that tax rises are politically unacceptable though. So the electorate aren’t that much more social-democratic though.

  4. James Farrell
    February 23rd, 2004 at 09:42 | #4

    Isn’t it the GST that’s supposed to pay for health and (school) education? Why then is the trade-off, if it’s explicitly framed at all, always framed in terms of income tax?

    Costello’s idea of letting the states decide the level of the GST was called a ‘political masterstroke’ at the time. But the GST rate never seems to make the headlines, and it certainly hasn’t been an issue in state elections.

    John thinks we elect Labor state governments because we actually like them taxing and spending. An interesting test, therefore, would be if the Liberal state oppositions campaigned in a united fashion for a GST cut.

    This probably won’t happen soon, so in the meantime I’d be interested to see an opinion poll in terms of hospitals and schools versus GST.

  5. Homer Paxton
    February 23rd, 2004 at 09:59 | #5

    The present Government is a typical tax and spend Government which usually typifies Social Democratic Governments.
    They have had plenty of opportunities to both reduce the size of Government and taxation and tanked it.

    What you really want is a Social Democratic Government with spending priorities that you approve of.

  6. February 23rd, 2004 at 12:44 | #6

    tax rises are politically unacceptable

    That would be news to Howard given that he tied his fate to the GST, a pretty big tax rise.

    The desire for tax cuts and benefit increases is simply an aspect of the universal desire to have ones cake and eat it too. In fact it implies a preference for deficits, which is what we see in both private and public economies.

    Still, the combination of GST and low threshold for the top marginal rate is probably not conducive to enterprise. What are the overtime and income splitting profiles of families earning ~ $75,000?

    Rate cuts of any kind are popular amongst upper middle Australian, given the continuing love affair with real estate. The cut in interest rates, CGT and negative gearing have increased gross liabilities by $200 bill, but net assets have gone up by about $1 trillion.

    Another point is that fact that large numbers of Australians leave this nation in search of high incomes, high excitement, higer currency values and lower taxes. We can’t do much about the first three, but lowering taxes on the goers might entice more of them to stay.

    The article does not dwell on the folk down the bottom of the income scale, the working poor, who face marginal tax rates of 60% if they take on extra work.

    The normative polling technique pioneered by Lebovic is a real breakthrough. Pretty soon we will simple do away with asking people what they want, and simply consult the oracle-pundit.

  7. Don
    February 23rd, 2004 at 17:17 | #7

    John,

    You write: “But despite the fact that the excessively high top rate is the central theme of the article, we never find out the distribution of the remaining 53 per cent between ‘about right’, ‘too low’ and ‘Don’t Know’.”

    The woodchip-consuming version of the Oz has the tables on page 2. They go like this:

    Much too high 27
    Little too high 23
    About right 34
    Little too low 5
    Much too low 3
    Uncommitted 8

    I’m curious about why poll results for some European countries are so different from those in Australia. In Denmark, for example, there seems to be far less support for tax cuts. Why do you think this is?

  8. February 23rd, 2004 at 19:26 | #8

    “If it’s socially unacceptable to favour tax cuts over increases in public expenditure, then the argument has already been settled in the public mind.”

    Non sequitur, like any PC pressure. It does not mean that the voters are somehow intuiting a general will that has evolved a consensus on the subject. Rather, like the PC who pressure the non-PC on the grounds that some other hypothetical person will be injured, each voter is steering clear of being a target. That’s how PC works – any individiul is a minority as compared with the PC, who aren’t themselves a valid interest group. Think of the way hearsay evidence isn’t allowed in court.

    For what it’s worth, my view is that tax cuts would cause harm just as releasing a tourniquet without addressing the underlying injury would, yet applying a tourniquet is not only not a cure for that, it also makes a cure impossible. To translate the allegory, the right wing are all for tax cuts and damn the consequences, yet the left are all for treating the symptoms and damn the disease. What we should be after is progress towards not needing all those government services, then and only then (or at any rate in step) cutting the taxes that supply them in order to reduce the burden that itself drives ever more people into that dependency (as noted by right wingers). Unfortunately the standard right wing approach (if they ever consider any cure at all) is analogous to blowing out the match and ignoring the resulting fire.

    So they are all of them wrong, and everybody is out of step except me.

  9. observa
    February 23rd, 2004 at 22:06 | #9

    And we reckon our pollies are devious and flip floppy?

  10. February 24th, 2004 at 00:08 | #10

    Jack there were tax cuts tied in with the GST- the claim was that it was supposed to be revenue neutral.

  11. February 24th, 2004 at 00:32 | #11

    Surely, though, with consumer sentiment still defying gravity (though I can tell you from first-hand experience, that the import-friendly exchange rate might have bit to do with that), that must be some indication that people have plenty of cash to spend, and might serve as an indication that people aren’t being taxed enough… Still, everyone likes having more money to spend.

    However, some of that might be attributed to consumer debt, which even the recent interest rate rises haven’t seemed to have abated. But if interest rates raise any higher, as the differential between our IRs and those elsewhere are contributing to the exchange rate rise.

    Feh. This is all too Keynesian of me.

    And what does it mean when we educate people to the point where their skills are more in demand overseas than here? All the superannuation, along with this outside investment doesn’t seem to be going into industries that will keep them here, but rather just mundane, though lucrative, stuff like building apartments and irrigation farming and turning trees into paper. It doesn’t take a real lot of brainpower to do the latter. “1. Chop down tree. 2. Put tree in chipper. 3. Send chips to Japan. 4. Profit!!!”

    I had a brief thought, that since all this excess cash seems to be sloshing about, further incentives for investing in biotech, though we’ve been left way, way behind on that, it’d be a good match for our existing agricultural base.

  12. February 25th, 2004 at 09:56 | #12

    PML – I liked your summary. I guess you count this drug-legalising, anti-war, anti-censorship, pro-gay marriage commentator as a right winger because of my tax views…

    but putting labels aside for a second I’ll just add that my position is at least internally consistent given your framework in that I believe there _is_ no wound under the tourniquet, and is the patient’s fear of having to use their arm again that’s stopping them from removing it. :)

    Unfortunately, the tourniquet is hurting, and as their arm is becoming sore many commentators are suggesting that the only way of alleviating the subsequent pain is by tightening the tourniquet (that’s where you come in John Q). If pain persists, then tighted some more. (continue throughout the 20th century until tax rates double, then triple, then…)

  13. February 25th, 2004 at 18:16 | #13

    John Humphreys -

    First off, I myself don’t fit off the peg party labels. Roughly speaking I have tended to get more left wing as issues got more domestic, then abruptly right wing at a personal level (taking Stirnerian anarchism as right wing, that actually makes sense – I pass through top dead centre). But along with many retro conservatives I am against this current round of wars.

    It may help to clarify my tourniquet analogy by looking at one particular issue, education. If parents had more to spend and they had a mindset geared to it, it would make sense to have in place tax cuts and a cut back on state education, with parents’ own funds being channelled into their children’s education without state intermediation. This is not only because of the transaction costs of churning via the state but also because of allowing them their own choice of values (this isn’t an echo of John Howard’s reported remarks, but in defiance of the US educationist Horace Mann, a despicable social engineer who felt entitled to make children into “citizens” rather than allow parental values – a true Moloch worshipper).

    However look what would happen if you just did that. There would be an echo of the educational collapse that accompanied the Dissolution of the Monasteries (privatisation before the word), which wasn’t felt for a generation but then needed major repair work in the form of the Grammar Schools. The same thing done today would give parents more funds without always having a consciousness of the value of paying school fees, and what is worse the intergenerational problem would mean that current parents would not have enough accumulated anyway (they would have been taxed for other children’s education right up until they needed to call in the same for their own). So the existing system needs a transition to escape from its dead hand, and the problems of transition are often represented as justifications for the system.

    Something similar applies to practically all state provision of public services. There are several different typical cases, that I won’t go into here for reasons of space.

Comments are closed.