The turn of the cycle

Reader Stephen Ziguras has sent me this interesting graph on public preferences regarding the choice between lower taxes and more services.

It illustrates what Andrew Norton has called the issue cycle. Although our preferences differ quite a bit on this, I think Andrew and i share much the same political analysis. Voters are broadly satisfied with the moderate social democratic settlement that’s been in place for the last twenty-five years or so. When taxes go up a lot, as they did, thanks to bracket creep in the 1970s, they want tax cuts. When the quality of services like health and education gets squeezed, they want more public money spent on those things.

Those who want to argue for either a substantial enhancement or a substantial cutback in the role of the state have their work cut out for them. In this context, much of the me-tooism we saw in the recent election campaign is not that surprising, and nor is the defeat of the Liberals. There’s not much risk that the state will expand far beyond its current role, and a pretty strong feeling that lots of public services are in need of expensive repairs.

36 thoughts on “The turn of the cycle

  1. Terje, you missed a couple of things. They are subtle, deliberately so in order that people don’t spot them.

    Yes, you do pass GST on to customers – but not a direct sense, i.e. you do not pass the GST bill you get straight on to the customer just like that, or the embedded GST in the cost of the goods you had as inputs. On each cycle, funds go to the government early on, perhaps via your own suppliers, and get paid back by the end consumer later, at the point of final sale and payment. That’s not direct, there’s a gap in the middle which actually makes a lot of difference.

    And I did not say that company tax was actually better than GST, only that it has the potential to be better, not that either is much cop in principle. I made it clear (I thought) that the way it actually works out is so botched that in practice it actually works out worse. (I’m using “actual” in the old sense that Marxists use when they speak of something or other “actually existing”.)

  2. “Perhaps we should be prepared to do some of these. A different way to look at this is whether people should pay pensions etc. for others with more money than they themselves can ever hope to have. If i’m sitting on a 1 million dollar house, should you pay for my pension?”

    The Australian pension is both means-tested and asset tested. Very few people “sitting on a million dollar house” would be eligible.

    Most of them would probably be bright enough to sell the house, move to a $500,000 unit and invest the rest of the money.

  3. Ian,

    As far as I’m aware, your home is not included in the asset test for the pension (nor unemployment benefits — I’m sure about that one — all it does is reduce the amount you get slightly), so my point still stands. Feel free to substitute “1 million” for “500,000”, and also feel free to ask someone that doesn’t own their own place, lives in outer suburbia and spends all their time driving to work if it is fair. Thats the situation we have now. Its like Robinhood in reverse.
    Its easy for me to think of other unfair examlples if you like (FTA and B, for example, vs. a 25 year that wants to have kids, but wants to buy a place before doing so such that they can live a stable life.).

  4. Katz

    The only people who pay for their university educations are those who who end up earning over a certain level of income. Even then, they pay it off very slowly and with no interest. And even then, they only pay about 25% of that cost.

    In the baby-boomer days, access to university was very restricted, and if the elite university graduates did not pay for their education, who did?

  5. “The only people who pay for their university educations are those who who end up earning over a certain level of income. Even then, they pay it off very slowly and with no interest. And even then, they only pay about 25% of that cost.”

    Last time I checked, HECS debts did attract interest – and debt repayments kicked in at well-below the average wage.

    In the days before the Whitlam reforms to tertiary education, fees only covered a portion of costs, the rest were paid for by the Commonwealth. In the case of merit scholars (who passed the competitive exams for university entry) they paid no fees and got a stipend – also at the expense of the taxpayer.

  6. JG you insist on persisting in being both captious and incorrect.

    1. My comments on university education were not prescriptive. They were descriptive of what I believe an important sector of the Australian voting population thinks about the marginal utility of certain kinds of public expenditure, notably funding of university education.

    2. IG has indicated your ignorance about HECS, which appears to be considerable.

  7. Katz

    On the contrary, it is both you and IG who flaunt your “ignorance about HECS.”

    1.HECS loans do not attract interest

    2. The difference between Whitlam/Fraser/Hawke years and today is that today students borrow only about 25% of the cost of a degree. In the “free” years, this figure was obviously zero.

    3. You have avoided your claim about “free.” It was not free as those students then went on to pay top marginal tax rates of 60%; the bloated welfare state resulted in double-digit unemployment.

  8. JG,

    1. HECS loan repayments increase with the cost of living. Not interest-bearing per se, but a potentially uncapped impost on the debtor. Therefore it is incorrect to say that HECS covers 25% of education costs, or indeed any specific proportion of education costs.

    2. I never used the word “free” in relation to university fees. You have interpolated that word into your misconstruction of what I did say.

    For the record, I regard the state footing the bill for the education of individuals under the Whitlam regime as a prime example of middle class welfare. But that perception had nothing to do with my argument, which was that boomer parents today probably quite like the idea of the return of this form of middle-class welfare.

  9. jquiggin Says: November 28th, 2007 at 8:16 pm

    I cite that paper a lot, melanie. It’s very helpful in understanding the political history of the past few decades.

    In fact O’connor cribbed a fair bit of it from Schumpeter’s “Crisis of the Tax State”. This paper described how the original Old Left welfare state would hamper the economic development of capitalism, thereby hastening the much predicted demise of that system. It was Schumpeter’s take on the self-fulfilling aspect of Marxian social policy.

    O’Connor updated the analysis to deal with the fiscal problems for OECD states experienced in the seventies. These emerged when the New Left superimposed the benefit claims and tax shortfalls of minorities onto the Old Left’s welfare state, designed for majority-run households.

    Thats when we started to experience program “overload” and political “backlash”. This strengthened the hands of right wingers who wanted a more selective welfare system.

    The restoration of non-inflationary high growth (due to PRC and IT) and the reformation of the welfare state along more selective lines has lessened the pressure on state fisc.

  10. JQ

    Fiscal Crisis of the State was one of the best books I read at uni. I was very interested in the sociopolitical implications of the rupture between national monopoly capitalism and globalisation. I was a marxist in those days, but found Connor’s book to be the most insightful and useful. In fact it was pivotal in convincing me that we had beyond the stage where Marxist economics and historiography were useful analytical tools.

  11. I am not, nor have ever been, either a Marxist or Monetarist. I have always been a somewhat re-constructed conservative social democrat.

    Bill Hayden is about as good as it gets for people like me. I find partisanship – either ideological or psephological – difficult to understand.

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