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The budget and democracy

May 12th, 2004

Is Costello’s budget good or bad for Australian democracy? I’ve been critical of the exceptional reliance on lumpsum payments, which certainly looks like bribery. But this is a presentational trick Australians ought to be able to see through (if not, the adage about getting the government you deserve applies). Leaving this trick aside the Budget is clearly based on the premises that:

* what people need is money in their pockets rather than better publicly-funded health and education

* we need to redistribute income towards households with children and away from those without

* at least for households without children, tax cuts for ‘middle-income earners’ (that is, everyone with incomes over $50 000) are more important than for those with incomes less than $50 000[1].

Labor will presumably accept the second of these premises, and merely argue that it could do a better job of implementation. But that leaves plenty of room for disagreement on the first and third points. So, if Labor takes up the challenge, we might for once be faced with a real choice, something we haven’t really had for many years[2]. I’ll post on what some elements of that strategy should be in the near future.

fn1. As the scare quotes around ‘middle-income earners’ indicate, only around 20 per cent of all income-earners make this much money. And to get the full benefit of the tax cuts, you’ll need an income of at least 70 000 in 2005.

fn2. Neither Beazley in 1998 and 2001, nor Howard in 1996 nor Peacock in 1990 offered positive alternative to the government. Hewson certainly put up a radical strategy in 1993, but his radicalism consisted largely in being more Keatingesque than Keating.

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  1. Jill Rush
    May 12th, 2004 at 21:01 | #1

    A quick survey of my workplace where there are many parents, all of whom would be seen by the general populace as middle class suggests that if you are middle class outside Sydney or perhaps Melbourne then the lump sums will be resented as something someone else gets.

    There was one of the upper management with 4 children who was smiling broadly – he was a winner. For the rest,with grown up children, no children or who fall between FTB A and $52,000 a year there wasn’t too much to be pleased about.

    The hype outways the delivery – as we have come to expect. Middle Australia will not be smiling too much.

  2. Mark Bahnisch
    May 12th, 2004 at 22:07 | #2

    Costello said last night there was heaps for single people without kids earning under 52k – the super thing! Has anyone apart from Carol Johnson noted the appalling coincidence of Costello’s obsession with women having kids and the Tampa race thing… shades of “race suicide” stuff from the 30s and 40s. Arthur Calwell would be proud.

  3. Matt
    May 13th, 2004 at 00:50 | #3

    I wish all commentators would stop calling people earning above $50K “middle class”.
    If the top 20% of earners aren’t upper class, who is?

  4. Matt
    May 13th, 2004 at 00:50 | #4

    I wish all commentators would stop calling people earning above $50K “middle class”.
    If the top 20% of earners aren’t upper class, who is?

  5. observa
    May 13th, 2004 at 01:28 | #5

    John is a bit critical of lump sum payments as bribes. I recall the prior Whitlam govt inheriting the situation where tax deductions were claimed for childrens education and medical expenses. This had the undesirable effect of making tax refunds higher for those on higher marginal tax rates. To negate this, Treasurer Bill Haydn, bought this out, by applying a non means tested, equal rebate for dependants. An administratively efficient, lump sum if you like. This dependant rebate was proclaimed for its administrative simplicity, as well as for its horizontal equity, in recognising the added cost burden of children, at all income levels. Over time it was attacked as being vertically inequitable and means tested again under the previous Labor govt. Labor now attacks the Coalition for the debt that some families accrue, due to not estimating their variable incomes accurately, for the means test. The additional Budget lump sum of $600 is seen a neat way of ameliorating this effect at the end of the tax reconciliation year. This can be offset against any overpayment.

    In light of this experience, the question arises-Should both Parties have stuck with Haydn’s original, administratively simple payment scheme?

  6. observa
    May 13th, 2004 at 01:43 | #6

    Interestingly enough I heard an expectant mother (in the next few weeks) pop the question to Finance Minister Nick Minchin today, as to when the baby bonus would be paid. Unfortunatey for her, he pointed out, it was to be from July 1, due to the need to legislate for it. Now I’d like to see the plummet in statistics for induced births, in the last week of the financial year. Can you imagine the language to a gyny, asking mum to push at five to twelve on June 30th?

  7. John Quiggin
    May 13th, 2004 at 07:14 | #7

    Observa, I don’t claim that lump sum payments are necessarily bribes or necessarily bad. It’s just that there were so many of them in this Budget that it’s hard to draw any other conclusion.

  8. John Quiggin
    May 13th, 2004 at 07:59 | #8

    Matt, you’re spot-on. The scare quotes were my lazy way of indicating this, but I’ve spelt it out in a footnote now.

  9. Mike Hunt
    May 13th, 2004 at 12:07 | #9


    I think you’re confusing income and wealth. Someone earning $70,000 may well be comfortable, but I would hardly call them upper class.

    $70,000 a year in Sydney is not a lot of money. Certainly not enough to have a butler, a driver and a cook.

  10. May 13th, 2004 at 12:29 | #10

    Latham’s problem in delivering expanded services is that he is painting himself into a corner by supporting both the family tax assistance and the movement in the marginal rates.

    He is also proposing more assistance for low to middle class earners and if you add expanded health and education services into the mix, the obvious question becomes: where is the money coming from? In order to be credible, Latham has to clearly show either what areas of funding he is going to cut, or where his extra revenue is going to come from. Otherwise, the government will tear him to pieces.

    Hopefully he has funded his policies correctly and carefully, I don’t think he his economic credibility can survive many gaffes, of which there have already been a few.

    We deserve to be presented with at least two solid choices for the direction of this country, hopefully Latham can stay credible.

  11. May 13th, 2004 at 15:50 | #11

    Some people contend that the role of government is to redistribute wealth. In this light, refunding taxpayers money to all is a form of wealth redistribution and should be applauded.

    I, however, disagree. The role of government should be to create purchasing power. A government should make it practical for talented but poor people to gain a tertiary degree increases the pool of talent necessary to service the needs of society, and keeps costs low – hence making all members of the society wealthier. We are not talking about learning for the love of learning here. We are talking about cold hard numbers on the ground who are going to be working to meet our daily needs.

    Redistributing money to childbearers is another way of addressing the nation’s need for productive capacity, especially in a country where we almost have an insatiable demand for services. It is arguably appropriate to fund this with a deficit if regarded as “capital project”.

    Nominally, it is.

  12. May 13th, 2004 at 16:37 | #12

    Chui why dont we import these people from where there is an oversupply?

  13. kyan gadac
    May 13th, 2004 at 17:00 | #13

    Well there was a brief note in the ‘West Australian’ the other day that students in Tanzania were demonstrating because of the loss of free uni entry and I thought – what’s their problem!

    It seems to me that we’ve sunk to the kind of electioneering that goes in in New Guinea sometimes. I think the libs have a good chance of winning, much as I sympathize with Latham. Howard has had a ‘good war’ and has maintained the US relationship while not committing troops to the quagmire and I think that will be a factor round the pubs and bbq’s.

    The question is – are we dumb enough top fall for the politics of handouts. I think that Costello has overplayed it somewhat and if Latham et al. get their aim right they should be able to wing him a bit.

  14. Matt
    May 13th, 2004 at 17:48 | #14

    I don’t consider people earning $50-70K extraordinarily well off, but they are better off than the overwhelming majority of people.
    My comment is more about the press parrots who call these people “average earners” and “middle class”. I think that stretches the truth quite a bit.
    And if the govt wants to discuss these things in terms of avg earners and middle classes, surely it’s fair to point out that the beneficiaries of this tax cut are pushing well towards the boundaries of the “upper classes” or “high income earners” whether you define that as the top 5, 10 or 20 percent of earners.
    Most average earners won’t see a dime of these tax cuts and it’s dishonest of the govt to imply they will by using those sorts of terms to describe the recipients.

  15. Mark Bahnisch
    May 13th, 2004 at 21:21 | #15

    Having lived on both an income of over 52k (just!) and the dole at various times, I think the big difference is when you are on an above average income your control over life is much greater and the choice you have in consumption patterns much broader. Given that increasingly access to public goods such as health, education (and in a different way housing) is predicated on private provision accompanied by the ideology of ‘choice’, by definition such choices are denied to those on low incomes by the evisceration of public provision, and such choices as can be exercised often become very cruel or invidious. It seems to me that there is a massive qualitative difference in quality of life between those on incomes below 30k and those on incomes above 50k and taxation policy ought to be directed towards narrowing this gap.

  16. Jethro
    May 13th, 2004 at 21:32 | #16

    what people need is money in their pockets rather than better publicly-funded health and education

    So how much of the surplus has been generated by reduction in these services, which is then redistributed back to (arguably some subset) of taxpayers in the form of tax cuts?

  17. Brian Bahnisch
    May 14th, 2004 at 00:12 | #17

    John Abercrombie, Bob Mcmullan has been saying for ages that Labor have identified heaps of waste in the current government expenditure and that they would reallocate funds to new and better priorities.

    Latham said the same tonight. In fact he said that every dollar they spend on enhanced social services will come from reallocated existing program funds. The figure he put on it was $8.4 billion, I think. I don’t think we’ll see the detail on what will be cut until the election is called.

    Mark, do you know what the median wage is? Last I heard it was about $31K, but that was a while ago.

    I’d like to see some analysis on how the beneficiaries of Costello’s largesse relate to marginal seats. I suspect that is where the action is.

  18. May 14th, 2004 at 14:43 | #18

    Why don’t we import people from where there is oversupply?

    That is possible if you want to import unskilled labour.

    Let’s talk about engineers and doctors instead. Apparently 40% of China’s university graduates are engineers. Now that doesn’t mean that they will get an easy passage in Australia.

    In fact, there are a lot of overseas doctors already in Australia who aren’t working as doctors because:

    a) their qualifications are not recognized

    b) sometimes their training is a bit short of the professional standards required of in Australia.

    c) we don’t have sufficient post grad training places to get them accredited. Most overseas doctors start as ‘medical observers’ in public hospitals, but in some states like NSW, there aren’t enough places available.

    d) even if their qualifications are recognized, they are only to work in places where there is dire shortage (in little towns like Murgon, Qld) [see Health Insurance Act s 19AB]. Again, I heard of a lady doctor whose husband has a job as a Nuclear Physicist. Well, she’s chosen to stay at home and look after the kids instead.

    We are not necessarily talking about third world doctors either. I know of paediatricians trained in Germany who cannot work as paediatricians in Australia.

    Australia, being a developed country, has barriers of entries for professionals – and for good reason. Unfortunately, due to Australia’s isolation, these standards are not always mutually recognized with those of other countries. In the EU, a doctor from Sweden can work in UK because their qualifications are recognized (rightly or wrongly). In Australia, the only sure way of meeting our requirementsunfortunately is to train them ourselves.

  19. Mark Bahnisch
    May 16th, 2004 at 22:17 | #19

    Brian – not sure about the median wage now – but the ABS should report it somewhere. I’d bet it’s still a lot lower than the ‘average wage’ that the gov’t talks about.

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