Time to challenge conventional wisdom on taxation, The State of the Left

Time to challenge conventional wisdom on taxation, The State of the Left

19 December 2012,

By David Hetherington.

In Australian politics, 2012 has been the year of personality over policies, of vitriol over values. Our politicians have lurched from scandal to scandal – over union corruption, sexual harassment, misogyny and abuse of due process. There has been an occasional break in the clouds where good policy has shone through, but these have felt few and far between. No wonder voters are fed up, and the standing of party leaders dismal.

Sadly voters will get little respite in 2013.  A national election is due next year, and many fear more of the same. Even more frustrating than the scandal-driven politics of personality is the remarkable sameness of the two sides’ offerings. Australian politics is no longer red and blue but, like the blockbuster novel, Shades of Grey.

The degree of consensus is remarkable. Labor and the conservatives are in furious agreement on most major policies: a budget surplus, a reduction in public debt, no new taxes, hardline treatment of asylum seekers, and a new disability insurance scheme.

To be fair, Labor introduced carbon pricing this year in the face of fierce conservative opposition but this was a rare exception to the rule.

Why do both parties converge in this way? Because they’re obsessed by the median voter in the marginal seat. The professionalisation of politics has meant that opinion polls and focus groups increasingly shape policy direction. The Murdoch press’ fortnightly Newspoll receives saturation media coverage, to the extent that at least one prominent News Limited journalist has chosen to boycott it. In this environment, it is no wonder that politicians look to reflect voter sentiment, rather than lead it.

What is wrong with this, one might ask. Australia’s economy is strong, and quality of life is high. Well, one problem is that it offers voters a choice between Tweedledum and Tweedledee. More worryingly, it is that the embrace of low-risk politics is robbing Australia of the long-term investments in education and infrastructure needed to sustain its prosperity.

Our tax-to-GDP ratio is a paltry 21%, amongst the lowest in the OECD. Furthermore, given their reluctance to borrow or raise taxes, our federal and state governments are running desperately short of funds. In the biggest state, New South Wales, health expenditure is forecast to absorb the entire state budget by 2030, leaving nothing for teachers, police, roads nor trains.

This offers an opportunity for Labor, if it has the courage to grasp it: to make itself the party of a strong, activist government. Citizens desire high quality public services and infrastructure and want governments to be honest with them about funding. Labor could reaffirm itself as the party of social democratic values by committing to lift the tax-to-GDP ratio to 25%, and taking to the 2013 election a fully-costed, comprehensive investment programme in education, health and infrastructure.

Conventional wisdom holds that raising taxes is the ultimate political folly. But is conventional wisdom, as relayed through the mainstream media, always right? I’d wager voters are sick of being promised much-needed programmes they know politicians can’t afford. I’d wager Australian voters are craving political leaders who tell it like it is, rather than what they think we want to hear, especially after the hollow scare campaigns of the last year.

What are the political advantages of this strategy? First, it provides a sorely needed point of differentiation. Secondly, it provides credibility and builds trust – voters will recognise a party acting on its principles, rather than a narrow political calculation, and some will reward it on this basis alone. Thirdly, it provides a platform for a positive, optimistic story on the future of the country, instead of the defensive, fear-mongering that characterises Labors’ political opponents. Finally, it is possible to achieve the programme with very few actual tax increases – the removal of regressive concessions will in most cases suffice.

The pitch to voters would run as follows. We are a proud social democratic party, committed to prosperity and fairness underpinned by thoughtful and activist government. We recognise that you, the voters, value decent public services and infrastructure, and strong education and health systems. Equally, you are fully aware that these must be paid for with real money, not empty promises or reckless borrowing.

If re-elected, we will lift the tax take to 25% of GDP. We will do this primarily by removing a range of tax concessions. These include deductions for interest payments on investment property and generous tax breaks for top-up pension contributions which flow disproportionately to the richest 10%. We will reduce public payments to the wealthiest non-government schools and start a discussion about lifting the rate of consumption tax. We will introduce a hypothecated disability insurance levy alongside the Medicare levy.

With these new funds, we will introduce a national disability insurance scheme, supported by all parties but currently unfunded. We will extend scant public coverage of dental health. We will deliver the investment in underperforming schools recommended by the widely supported Gonski Review. We will build a much-needed second airport for Sydney, our global gateway. We will lift the rate of unemployment benefit, universally decried as inadequate.

This program is challenging but not unprecedented. Bob Hawke, Labor’s most successful Prime Minister, introduced a range of new taxes in the 1980s after making his case to the electorate. Wayne Swan, the current Treasurer, has never received more coverage than when he flagged the importance of redistribution in a speech this year, not least because his case was built on values. The conventional wisdom says you can’t win government by lifting the tax take. However, it also says Labor will lose the 2013 election anyway. Why not challenge these conventional wisdoms by taking a positive and activist social democratic programme to the voting public?

References

Time to challenge conventional wisdom on taxation, State of the Left, 19 December 2012

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