“FLATTER TAXES AN INCENTIVE TO WORK MORE” screams the headline in The Financial Review.
It’s always intrigued me how people argue that tax takes away people’s incentive to work. It makes some sense… But only if you ignore the reality for most people. Take, for example, the CEO of a company on three million per annum: Is the idea that he or she will go and pick up a couple of shifts at KFC, if the tax rate is just a little lower.
Then, of course, there’s the reality that many people don’t have a choice about whether they work overtime or not.
However, even if you look at the situation where people can choose to work less. Do we really want to encourage people to work 60- 80 hour weeks and not see their families? Or would it be better if the work they were taking was going to someone unemployed?
Ok, I do admit that doesn’t work for some jobs. Even though a surgeon may be overworked and tired, I’d still rather they had the incentive to work. I mean if someone was going to perform brain surgery on me I’d rather a qualified surgeon even if I was running the risk that they’d make a mistake through exhaustion and I could end up like a Liberal frontbencher, than someone doing work experience where I could end like a National Party leader.
But it’s the whole concept that a Budget surplus is always a good thing that I object to. We’re encouraged to associate it with ideas like thrift and frugality and a good work ethic and living within your means…
Ah, “living within your means”. It makes sense when you apply it to a household but not when you apply it to a government. In some ways, governments have almost unlimited means. If they train more workers in jobs that have shortages, then sometime down the track, there are more taxpayers. If they spend more on health programs, they may save when people don’t need more expensive options because of delays in their treatment. If they spend more on education, then people are more likely to realise what absurd justifications politicians put forward.
A Budget surplus means that the government is taking more in revenue than it’s giving back in services. That’s it.
Just think about that for a moment.
While the Liberals are quick to accuse Labor of being a party of “high taxes”, the truth is that if we have a deficit, at least we’re getting something for our money. It’s a bit like being given a choice between two restaurants. One charges more money but gives you a substantial meal with table service. The other tells you that people should choose it because not only are we charging a few dollars less, but the Coalition Restuarant will encourage everyone to find their own food, which they then take home and cook because there’s no such thing as a free lunch so why are you expecting us to do it for you? Besides, the reason there’s nothing to eat is because the other restaurant keeps feeding people.
Of course, the Liberals have managed to frame the whole idea of a Budget surplus in totally ridiculous way. If we forget any discussions of modern monetary theory for a moment, and just go to the basic idea of a household budget even though it’s a ridiculous analogy. Let’s imagine for a moment that you were living with Kevin and he was a spendthrift. He argued that we need to extend the mortgage because we need a new car and new clothes so that we can keep our jobs and this will be worth the extra interest we have to pay. And while everyone does manage to keep their job, some members of the house tell us that we’re now in an emergency. Tony says that we should give Joe a go at managing the budget, because unlike Kevin, he’ll get it back under control.
Now, I could go on with this analogy but I’d have to swap Joe for Scott after Joe sold off the car because we poor and we don’t need to drive. And there’d be all that stuff about how anyone who knocked at the door asking for help was locked in the chook shed and we were told not to ask about them. All that and I haven’t even got to Malcolm moving out because nobody liked him even though he promised not to express an opinion on anything and all the arguments about whether the solar panels were actually saving money when Tony and Barnaby kept covering them up with tarpaulins so that we’d be forced to use the old briquette heater even though the chimney was blocked…
The fundamental point is this: Even if you accept that Labor created an enormous overseas debt and that the doubling of this by the Coalition was all Kevin, Julia and Bill’s fault, then the fact remains that the only cost to the Budget bottom line is the interest on that debt. At $500,000,000,000 dollars the interest would be about $15 billion.While $15 billion is even more than Julie Bishop’s shoe budget, in the scheme of the Budget, it’s small potatoes. The projected revenue in the Federal Budget, for example, is 3.3 trillion dollars.
Just as with the household analogy. Joe and Scott’s inability to create a surplus has very little to do with the alleged debts of Labor; it’s more like their inability to actually balance their own spending relative to revenue. Just as the household could have got their yearly budget back into surplus with a bit of sensible decision-making, it was never the debt that stopped this, any more than it was Bronwyn’s helicopter flights… Although the later may have had more to do with it.
Billions of dollars of tax cuts to big businesses sound good, but they would have taken even more from the bottom line. As for the idea that they’d stimulate more economic activity, I’m yet to read of any CEO announcing that they would have invested more, but the idea that they’d be taxed at 30% rather than 25% if they made an extra billion, so they decided it wasn’t worth it.
No, when someone tells you that the Liberals are good economic managers, you can remind them of the re-opening of the Christmas Island detention centre, only to announce it’s closure a few months later. Although anyone who still believes the old line about the Liberals being good economic managers will probably reply:
“But they’ve saved over a billion dollars by closing it! Imagine how they’ll be able to spend that…”
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