Higher taxes could fund a better Australia

April 22, 2013

There was an irony in the very public occasion of Margaret Thatcher’s grand funeral procession in London last week. This was, after all, a political leader who infamously declared, ”There is no such thing as society.” Few figures have done more in office to hollow out the public realm while celebrating all that was private.

As Australians, we are fortunate to have been spared the social brutality of Thatcherism. But Lady Thatcher’s symbolic power in Australia as the heroine of free market economics and liberal conservatism remains potent. Her Australian admirers regard her as a paragon for transforming society in the image of market efficiency.

Thatcherism wasn’t the only way to do reform, of course. There was an alternative. We often forget that Australia managed to liberalise its economy in a very different way to Britain under Thatcher. As economist Tim Harcourt has reminded us, whereas the Iron Lady did it with confrontation, Bob Hawke did it with consensus.

During the Hawke-Keating years, economic reforms were carried out with the co-operation of the labour movement, as symbolised by the Accord with the ACTU. Wage restraint by Australian workers was rewarded with a ”social wage” – with boosts in the public provision of health, education and training, not to mention the introduction of superannuation. This was the crowning achievement of Labor social democracy during the 1980s and ’90s: ensuring that market liberalisation happened in a civilised manner.

Lately, some Labor sympathisers have expressed nostalgic yearning for this golden age. The ”Hawke-Keating legacy” has become something of a reformist shibboleth. However, for all that it softened the blow of structural change, modern Labor never quite managed to craft a new language that could compete with the strictures of neo-liberalism.

Many Labor social democrats adopted the language of markets with uncritical enthusiasm. They acquiesced to ideas that a smaller state was a better state, that taxes always had to be lowered, that productivity growth was the best measure of progress.

Such unqualified embrace of the market undermined the moral purpose of social democracy – namely, to advance the common good and to secure the good society. The late historian Tony Judt put it best in observing that Western democracies suffer from a linguistic disability. We no longer know how to speak about a sense of collective purpose. And we seem to believe that economic aspiration is now the only sentiment worth appealing to.

This shrinking sense of the public is increasingly troublesome. Last month, a survey conducted by my colleague David Hetherington of the Per Capita think tank revealed that half of Australians believe they pay too much tax and feel more highly taxed than they did three years ago. Never mind that the Gillard government increased the tax-free threshold in July 2012.

Most striking was the cognitive dissonance of Australian taxpayers. More than one-third of high-income respondents (those with an annual household income of more than $150,000 and in the top 5 per cent of Australian households) believed they paid too much tax while also believing that high-income earners pay too little tax. More generally, two-thirds of respondents who believed that they pay too much tax maintained that governments should spend more on public services.

Politicians and sections of the media undoubtedly feed such dissonance. The ethos of aspiration is, in many cases, little more than economic narcissism. All Australians, however affluent, come to believe they are genuine battlers entitled to government handouts, be it family tax benefits or subsidised private education for their children. Any effort to maintain the progressive nature of the taxation system, or to redistribute income, is decried as ”class warfare” – an expression of the new conservative political correctness.

But how long can this unreality be maintained? Hetherington argues that a reckoning must come soon. There is structural gap in Australia’s tax revenues, created by years of income tax cuts and a failure to reap the full rewards of the mining boom. If future governments are to support the kind of public services and investment that Australians appear to want, taxes will need to rise.

For now, there is little appetite among politicians to propose this, even when tied to worthwhile reforms. Witness the Gillard government’s cuts to universities to help fund the Gonski school reforms. Many may conclude that such dubious timidity reflects a lack of leadership. But there is something also at work. For how can governments call for the public to make sacrifices for a common good, when everything else in the political culture is geared towards private aspiration? When taxes are regarded as akin to an investment from which someone is entitled a personal dividend?

In such circumstances, it may only be natural that private wealth comes at the price of public squalor. This is what happens when you cross the line from a market economy to a market society.