Op-ed in The Age: Treasurer’s agenda running out of truth

This article originally appeared in The Age.

Treasurer’s agenda running out of truth

by Warwick Smith

Joe Hockey has been talking non-stop about how the country is running out of money for Medicare, for the ABC, for welfare and for education. He’s said that ”we will either have to have a massive increase in taxes – and that means fewer jobs at the end of the day – or we are going to have to look at ways that we can restructure the system to make it sustainable” (”Hockey waves big stick, points to shortage of cash”, The Saturday Age, February 22).

Tony Abbott has said similar things, including repeating lines such as ”no country has ever taxed or subsidised its way to prosperity”. Those of us who know anything about tax economics know Hockey and Abbott are talking rubbish. Fortunately for them, most people don’t know much about tax economics and don’t want to know.

Have countries subsidised their way to prosperity? Do higher taxes mean fewer jobs? If we look at the 20 countries with the highest GDP per capita we find quite a few have much higher rates of tax as a proportion of GDP. Sweden, for example, has similar GDP per capita to Australia and takes 54 per cent of GDP in tax (compared with 31 per cent in Australia).

Most of these high taxing, high GDP per capita countries have low unemployment, low inflation and score very well on various measures of life satisfaction and wellbeing. Their existence and their success prove Abbott and Hockey wrong and demonstrate that there is another path to prosperity, one that also leads to less inequality while maintaining very high living standards for the overwhelming majority.

The reality is that Hockey and Abbott are ideologically conditioned to believe in small government and that government is incapable of doing things as well as private enterprise. This is precisely why Medicare and the ABC are at the top of their hit list. These two government-funded organisations are very efficient and very popular. They therefore must be destroyed because they prove wrong one of the central tenets of small government ideology.

We can easily pay for all the things Joe Hockey claims we cannot afford if we are prepared to increase government revenue. In my opinion, the first place to start would be tax expenditures (tax deductions or exemptions).

Treasury forecasts that next financial year we will spend over $45 billion in total on superannuation tax concessions, around $17 billion of which will go to the top 10 per cent of income earners.

We also spend over $8 billion a year giving concessional treatment to capital gains earnings and allowing negative gearing. Again, this money mostly goes to the more wealthy Australians and it artificially drives up house prices. You could easily add tens of billions of dollars to government coffers just from those sources without having to compromise on healthcare, education or the quality of our national broadcaster. We haven’t even begun to discuss the outrageous subsidies and tax concessions given to our mining and energy sectors – there’s billions more to be found there (and no, it wouldn’t send them to wall, that’s just more unsubstantiated rhetoric).

I don’t want to trivialise the structural problems that exist in our tax and transfer system and I certainly believe genuine tax reform is required. The above simply illustrates that there is plenty of cash to pay for Medicare, education and the ABC if Joe Hockey is prepared to look around.

We know as surely as the sun will rise tomorrow that Joe Hockey and Tony Abbott will not for a second consider the above sources of revenue. Welfare for the rich who contribute to both major parties’ electoral campaigns has been effectively removed from democratic scrutiny (and certainly not included in any definition of the ”age of entitlement”).

Still, even though we know they won’t do it, it’s valuable to know there are real alternatives to Hockey’s slash and burn agenda.

Warwick Smith is a research economist at the University of Melbourne.

This entry was posted in Australian politics, Economic theory, Political philosophy, tax economics and tagged , , , , , , , , . Bookmark the permalink.

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