Hockey’s amazing discovery: Bigger households use more of everything
I’m a bit late joining the pile-on to Joe Hockey for his silly claim that poor people won’t be hit by fuel excise because they don’t drive (or not as much). Obviously, that’s true of just about every tax you can think of: poor people, earn less, spend less and therefore pay less tax. The big question, as the Australia Institute and others have pointed out, is how much people pay as a proportion of income. Food and fuel represent a larger than average share of spending for low-income households, so taxes on these items are more regressive than broad-based consumption taxes like the GST which in turn are regressive compared to income tax.
But there’s a more fundamental problem with the ABS Household Expenditure survey data cited by Hockey to defend his claim. In the tables he used, the ABS sorts households by income, with no adjustment for the number of people in the household (the ABS also provides “equivalised” figures, which adjust for household size). To quote the ABS
This difference in expenditure is partly a consequence of household size: households in the lowest quintile contain on average 1.5 persons, compared to 3.4 persons in households in the highest quintile. Lone person households make up 63% of households in the lowest quintile.
This makes a big difference to the figures quoted by Hockey, that top-quintile households spend $53 a week on fuel, and bottom quintile households only $16.
Comparing expenditure per person, the top quintile spends $16 per person and the bottom quintile $11 – a very small difference. Of course, the income figures need adjusting also, but here the difference remains huge. Income per person in the top quintile is about 5 times that in the bottom. And Hockey’s argument would look even worse if the ABS sorted households by income.
This is the kind of mistake that’s easy enough for an individual politician to make, but Hockey has the entire resources of the Treasury at his disposal. If he’d asked them before making his bizarre claim, I’m sure Treasury officials would have warned him off. As it is, they have had to provide him with the statistics most favorable to his claim and watch him get shot down.
Still, it was good enough to fool Andrew Bolt.
The fact that a fuel tax is regressive does not mean that a return to indexation of the fuel excise is necessarily bad. There are good reasons for taxing fuel, and no sensible rationale for allowing the tax to be eroded by inflation. But fuel taxes bear most on the poor, so they need to be put in the context of a budget that it is progressive in total. That’s the exact opposite of what Hockey is doing.