From today’s Crikey:
During the election, I thought one occasion on which Kevin Rudd displayed a bit of passion was in his most wonkish interview of the campaign, talking to Tony Jones about the importance of the public service and good governance. Opposition leader Rudd promised that Labor’s decisions on policy would be “evidence based”, but the evidence belies that so far.
Richard Farmer wrote in Crikey on Wednesday:
So far the Labor Government has maintained that its promised $30 billion of tax cuts is safe as it scrambles to find a host of spending programs to cut. Far better, and certainly much easier, to blame Peter Costello for misleading everyone before the election about the true state of the impact the world financial crisis on Australia. Scrap the tax cuts for all but the lowest paid and get it over with.
Amen to that. All the evidence suggests the tax cuts are a waste of money and will only fuel inflation. And Farmer is hardly alone among commentators in calling for this, and in coming up with a plausible political justification should the government not be able to think one up by itself. If promises have to be kept at all costs (no matter how inflationary), there’s also the possibility of doing a Keating, and delivering them via super, which the actual Keating has suggested.
The problem is wider than the tax cuts.
It wasn’t much noticed, perhaps because Dick Morris so loudly trumpeted his admiration for Latho’s triangulating, that the Rudd campaign was a classic from the Clinton copybook. Narrow the distance, make small and symbolic promises, just as Bill did in 96. It’s a great way to win an election, but a dumb way to govern. Almost anyone could think of a better bang for the education revolution buck than computers in schools, but it doesn’t look like there’ll be any more bucks because of the tax cut driven need to restrain spending. The net nanny state plan is a pointless waste of time and/or a very expensive sop to Steve Fielding. Weighing kids in schools makes a good campaign headline, but as this blog thread demonstrates in spades, as soon as people contemplate the implications, there’s a lot to dislike. Julia Gillard’s department produces a report showing that many schools are over-funded, and the government recommits to indexing current levels despite there being no rational reason to do so other than an election promise.
A smart opposition leader (Turnbull, for instance) might be able to make something of the creeping nanny-stateism in a lot of these Third Way-ish like initiatives, but of course “flagpole in every school” Nelson isn’t in the best position to do so. But the government is probably underestimating the good will that Australians accord to new administrations, and it’s hard to think that if the net nanny scheme, for instance, were quietly sent off to a review which found it unworkable, anyone would care all that much. If the record of the Howard government shows anything, it shows that bad policy has its own blowback down the track. The government has a good narrative – building infrastructure and skills for the future – which should easily see it able to ride out any discarding of dumb election stunts.
Now, there’s probably no truth in the claim that Rudd boxed his own party into Howardian promises deliberately (lest the union bosses or commos or someone run wild, presumably), because these sorts of things are actually far closer to the concoctions of clever consultants with a focus group report in hand.
Rudd has a good argument that Howard forever damned the idea of dropping election commitments with the “non-core promises” line. But there is a certain rigidity in his style, which came out a few times last year when he was blindsided – for instance on the Burke attack. He might do well to emulate Bob Hawke rather than continue with the implementation of all this senseless populism. Let’s hope, for the government’s sake as well as for ours, that the “evidence based” thing is more than an aspiration.
Elsewhere: More from Jacques Chester at Troppo.
Dead wrong. The Keating government never recovered from its abrogation of the “L.A.W. law” tax cuts – it was the biggest reason for its unpopularity and subsequent loss. Similarly, the Howard government came very, very close to being a one term government because of its cavalier attitude to “non core” promises, despite Labor’s lingering unpopularity.
Swinging voters care much less about the culture wars than the belligerents think. Maybe they should care more, but it doesn’t change the fact that they don’t. They do care very much about being lied to (as they see it) especially if they think it’s hitting them in the hip pocket. Claims that you only lied to them “in the national interest” will fall on deaf ears.
Repealing the tax cuts would be political suicide.
How about Hawkie? He junked just about everything he ran on in 83.
All the points you make Mark are good and who won’t be hoping for a rational and careful approach to fiscal policy ?
That said I”m surprised that on this issue people are apparently more believing of politicians’ promises .
If the government at this point takes the action that is responsible and than expends the time and effort to explain why to the electorate the precedent it sets could make rational decision making the strength of this administration.
The alternative might look like an administration that is only keen on the maiontenance of power .
The government already has sent a couple of election promises off to be reviewed, notably the promise to set up a Department of Homeland Security. They’re also reviewing the Super Hornet purchase, despite promising before the election that they wouldn’t change all the previous government’s military hardware purchases.
That said, I really don’t think there’s a way out of the tax cut promises, dumb though they were. About the only way they could get junked is if a recession threatened to throw the budget into severe deficit. Economically, that makes no sense (if I understand the economists, that’s precisely the time when you want governments dumping money into the economy) but politically they could probably get away with it.
One thing to keep in mind is that the government is going to start collecting a whole bunch more pseudo-tax in the not too distant future, when they start auctioning carbon permits in the emissions trading scheme. A lot will go to compensating existing polluters, but there should still be plenty of extra dough going into Treasury.
…despite there being no rational reason to do so other than an election promise.
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Interesting our political culture. We’ve come to accept that election promises are bullshit and at the same time are prone to getting sucked in by this tendency to bribe the electorate with pork. It’s worth remembering that Keating was an incredible liar. Tax cuts were one of his favourite lies and faith in the ALP was well-eroded by this lack of integrity and still is. Of course Howard began as ‘Honest’ John and didn’t exactly end that way did he?
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If I were Kevvie I’d do what he said he was going to do.
Seek a Australian Business Number please.And be responsible for any advice,because the Australian Government could become a victim,even if it is registered as a business in the U.S.A. which is a registered business in its own business of governing the U.S.A. as a democracy.So a fair bet is that the bottom line has to win for legal purposes,which are just one part of the business,much relating to votes and promises are its retail advertising of goods on offer.
The ALP must keep its election promise on tax cuts. They must have known that it was irresponsible policy but they made this promise to buy the election (as did the Coalition). They can’t credibly claim that circumstances have now changed and/or that they didn’t know the full situation.
This is not the only irresponsible promise the ALP made at the last election. Next time they ought to make responsible promises to the public before the election, based on sound policy not populism.
There’s no way they could get away with junking the tax cuts or changing them into something more sensible like converting them into Super. We know and the government knows that these tax cuts are crazy, but the average punter doesn’t. And they never will unless the Daily Telegraph/Courier Mail/etc run that on their front page for a few weeks which is not going to happen.
It would be stupid beyord belief for the Rudd’s government to make the very first major act a break of their most expensive election promise, especially coming in after “non core promise” Howard. It would define their entire government forever. The only way these tax cuts can be rescinded is if its demanded by the Australian public and media, and even then it would be politically risky for Rudd to do it.
These tax cuts were always going to be a millstone around the Rudd government neck which is exactly what Costello intended. They must have known it and now we’re all stuck with it.
Repeal the tax cuts? Not a chance. As DD says Keating paid dearly and is continuing to pay in terms of his historical legacy.
Computers for all kids Years 9 to 12: Begin immediately but do so on the basis of need. If you already have one, then wait for the next round (which may never come). To the best of my knowledge Rudd has never outlined a timetable except to begin ASAP.
Net nanny scheme: Brilliant politics. Particularly when it can be truthfully said that Labor is aiding and abetting porn access through free computers, faster broadband, and tax deductions for same. Net nanny can’t possibly work BUT it demonstrates how much Labor cares for parents and children. Labor will continue to try to help parents raise their children but it was never our intention (nor is it possible) to be a substitute for parents. (Bet there is a filter of sorts already installed on every free computer. Not that it will help much.
Just my thoughts.
“they made this promise to buy the election (as did the Coalition).”
I’m not so sure they promised them to buy the election. Of course the Coalition did, but I think Labor’s response was more about nullifying a possible wedge and preventing a loss of votes than actively trying to gain votes.
“they ought to make responsible promises to the public before the election, based on sound policy not populism.”
Yes, of course they should. Unfortunately people in aggregate are stupid, so populist policies are, unsurprisingly, popular.
‘Honest John’ was an ironic nickname he contracted during his term as Treasurer in the Fraser Government. Only when he became Opposition leader in ‘95 did people for some reason think that it was authentic (probably a certain breed of journalist with little or no recollection of his time as Treasurer). Of course the reason for the original irony became clear during his term as PM – people referred to him as Honest John near the start of his term, and ‘Honest John’ near the end.
Re: the ‘Honest John’ tag. This is perhaps a further case of irony evaporating through over-exposure to a literal-minded and humourless aspect of our public culture. The parallel case that springs to mind is the notion of ‘political correctness’.
I’m not disputing that a lot of this stuff is/was brilliant politics, just that it’s awful policy. As I said, I can see why Rudd wants to keep all the promises. The problem actually began, and perhaps I didn’t bring this out clearly enough, with dumb focus group tested policy last year. As I said in conclusion, I hope we get better from now on.
I agree it would certainly be a good move for Australia for Rudd to abandon the tax cuts. We would reduce inflationary pressures and keep a lid on future interest rate increases and get rid of Kevin Rudd’s government in a single term.
Most of the tax cuts eliminate bracket creep. Foregoing them would retain taxation by stealth which sounds like good Labor policy.
Mark you say ‘All the evidence suggests the tax cuts are a waste of money’. So you think a dollar spent by the government is a dollar spent well but a dollar spent by an income earner is a waste. Sounds again like sound Labor thinking.
Go on Kevin, go on, abandon the tax cuts. Good boy Kevvie, atta boy.
hc, in this instance, if the dollar in question was spent to improve services or provide infrastructure it would be well spent, while as you yourself have just acknowledged, if it goes into people’s pockets and flies out just as quickly, then we have a problem. I’m not sure how you reconcile the belief that these tax cuts are probably a bad idea with a belief that tax cuts in general are to be preferred.
Note also that I said that I agreed with Farmer that the cuts for low to lower middle brackets should be delivered. More broadly, in terms of the big debate at the beginning of 2006 on genuine tax reform (where I support the position articulated by Nick Gruen), I know Swan was paying attention, and I think if he’d had his druthers, we would have seen tax policy that really attempted to do something other than return bracket creep. All the indications are that Swan wanted to leave any tax decisions til after the election when there could have been a decent debate on what direction to take. In this instance, sensible policy got blindsided by politicos advising Rudd that he had to “match” Howard, with a symbolic deferral of the top end tax cuts a few years out being used to fund an equally symbolic “lap top for the kiddies rebate”.
I hope that as we move beyond next year’s budget, we do get a quality debate on tax, and some good policy.
If the public sector spends an extra dollar that has more inflationary effect than the private sector retaining the dollar because private individuals save. Apart from this the effects on aggregate demand are identical – your argument is wrong.
The government can only slow things by hanging onto the money and running bigger surpluses.
Why should the public sector run long-term surpluses with our money? Most of the Howard tax cuts returned bracket creep and the results of high income growth. In fact Howard’s despite big cuts was criticised as a high taxing PM.
So were you being sarcastic, hc, when you suggested that the tax cuts be cancelled?
I’d have no problem either if the additional surplus went into a “fund” – Costello was actually onto something with that though it was hardly original as he suggested – and it ought to be directed to some better purpose than paying off public servants’ super.
And I’m not sure that your argument makes much sense when you consider the empirical evidence that people are doing the exact opposite of saving.
Mark re: ‘brilliant politics’. Rudd’s purpose was to get elected and then perhaps to go beyond one term. He has achieved the first bit against the odds in the sense I don’t think the ‘Bomber’ could have done it. The second goal will prove to be much more problematic given international developments.
As you would know, Rudd by nature is a very conservative character who is not a natural politician. His strength lies in his ability to develop good ‘public policy’. And I know that he works very hard at it. Then does it again. The work ethic is unbelievable.
IMHO good public policy is what he will emphasise now that the election is over. In my view Rudd will be a very dull PM but a very proper one.
As I have said before I don’t particularly like the guy, but you do have to respect him for a whole range of reasons.
I agree with most of that, wpd, except that I don’t think that adverse economic circumstances will pose that much of a threat to a second term – given that Labor has a good narrative (working to set us up beyond mining rents) – and I think that a large amount of goodwill is accorded to first term governments. Hawke and Keating were both (90, 93) able to win in the face of awful economic times because they could tell a story about where the show was heading. Maybe that’s not so much Rudd’s talent, though. The weak opposition thing is similar.
They would be politically insane to cancel the tax cuts, whatever their merits as policy. The way they will fix the inflation problem is by cutting wasteful spending, of which there is heaps: the baby bonus, Family Tax Benefit B, much defence spending etc etc.
Rudd could very usefully also eliminate a lot of tax deductions, such as the billions claimed for “work-related expenses”. There is ample scope to deliver the tax cuts and keep inflationary pressures in check while keeping the politics sweet.
Won’t most of the inflationary pressure of the tax cuts come from those given to the low to lower middle brackets? Those on higher incomes are likely to save their tax cuts as they have enough money already and those on lower incomes are under pressure already, so spend it.
Let me get this straight. It’s OK to can your promises after an election. As long as you’re the ALP, that is.
If the Libs do it, Mark would be unquestionably be screaming blue murder. (And quite rightly too.) But it’s just hunky-dory for the other guys.
Double standards are found throughout politics, but it’s rare to see such an blatant expression of them.
I’d have been overjoyed, Paulus, if the Libs had junked almost everything they promised going into the last election, so foolish and irresponsible were they.
I’ve seen some evidence that the theory that the better paid save tax cuts isn’t accurate, Chris (a different one). In any case, people have to live.
To Chris (a different one):
“Those on higher incomes are likely to save their tax cuts as they have enough money already and those on lower incomes are under pressure already, so spend it.”
As a single parent having to cope on very little income, and where the biggest financial decision I make in a week usually involves an internal debate over whether to purchase the extra litre of milk or the extra loaf of bread, I was rather astounded at the concept that those on a higher income would be more inclined to save any extra money than those on a lower income. In my former life, pre-parenthood and pre-’the bread or the milk’ conundrum, my income was such that, according to this theory, I should have had savings coming from my ears. Well, actually, like a lot of people receiving a good income, I can only describe my former self as a wilful spender – and why not spend, because all that money was coming back into my hands again next week. Having now experienced less income, any non-essential purchasing decision is mulled over for days and weeks, and the final decision is usually a no. The fact is, if I have even $20 left over at the end of the week, that $20 stays where it is (ie as savings). The reality is that $20 represents far more to me now than it ever did when I had a higher income. So from my own experiences, I don’t beleive that it is the higher income earners who would be more inclined to save their tax cuts.
Kevin is definitely up a gum tree on the tax vs inflation issue. I’m still wondering how last minute the trimming of the tax policy down to the current 31 Bn really was. I wonder if it really happened in the last hours before the launch speech as some have speculated. In any case we would all have been better off (and Kevin would still have won) if he’d pulled it down to say 15bn or so.
Wayne Swan and Lindsay Tanner are currently chasing around for hollow logs to cut and I’m sure Howard left many behind and nothing but good can come from cleaning the house of that sort of crap. Still, the objective truth, backed by the experts, is that shelving most of the tax cut would be the best economc policy right now.
I’m not disputing that people have to live, just whether the amount of decreased inflationary impact of reducing the tax cuts in the manner you describe would be worth the political price the labor party would pay.
Well, I’m not sure how much of the cost of the tax cuts goes to the upper middle and upper brackets and it would depend where you drew the line, but it would sure be easier, as Farmer says, than finding an equivalent number through spending cuts (not that getting rid of a lot of the padding and rubbish in federal programs Howard put in wouldn’t be a good thing to do anyway).
As to the political price, I’m sure it won’t be an issue as the horse has bolted. I’m just saying that it’s a pity, is all. The time to do it was just after the election. It’d still be possible to do some lesser fiddling at budget time, I suspect, without too much of a political cost.
On RobertBe’s point, the tax policy was announced just before the debate at the end of week 1. I believe there was a “vigorous” debate within the Labor hierarchy over what to do. The story about the policy launch was that the decision to call time on the spending auction was made just before it started – hence the delay to the start of the speech. The rumour is that what was cut out of it was systemic money for education (as opposed to bells and whistles like scholarships and computers).
I also note Jacques has weighed into the debate at Troppo:
http://clubtroppo.com.au/2008/01/11/riddle-me-this-economists/
Is that change in your own behavior due to a change in income or due to increased maturity though? I’ve certainly seen the former behavior a lot in young people when they first start out and have few responsibilities beyond their own immediate welfare. As they get older and their incomes and responsibilities increase, they’re much more likely to save extra income rather than spend it.
And for those doing really well, though it might sound extraordinary to a low income earner, but an extra $50-$100 per week in the pocket simply isn’t going to affect a high income earner’s spending patterns. As much as newspapers like to print tables of the absolute increase in people’s income due to tax cuts, I think its the percentage increase in people’s income, especially at the higher end that changes behavior.
Yeah but the money gets chucked into the economy regardless. Who knows if it doesn’t go on an extra glass of chardie once a night?
I know its easy to say in after the fact, but in retrospect I don’t think there was any reason for them to follow the whole tax cut package in the first place. They still would have won the election.
And isn’t that the same argument (or one of them) used against targetting tax cuts at the top end anyway? In practice, they have enough and don’t need the extra “incentive” to “work harder”, as the biz lobby groups are fond of saying?
The baby bonus and the family tax benefit are just tax cuts delivered to people who produce sprogs, it’s a have-a-kid bribe. Part of Johhnnie’s back to the 50s programme. If you cut it out and simply let people keep the cash in the first place it would obviously be better fiscally. People would be just as well-off, more so if they don’t have a family and we’d save all the admin expenses that come of taxing people and then giving it back to ‘em.
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Politically it’d be harder. It’s ammunition for conservative banshees to screech about the anti-family socialists etc. I truly think that part of the proble with democracy isn’t so much finding quality leaders as a quality citizenship. We’re all such a bunch of lazy dumbarses it’s necessary for politicans to lie and cheat us to keep their jobs.
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MAYOR QUIMBY: I’m sick of you people. You’re nothing but a pack of fical mushheads.
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LEADER OF CROWD: He’s right. Give us hell Quimby!
I think its pretty hard to ever argue for the tax cuts at the top end because they need the money, or need the extra incentive to work harder. At that level I think most are working increasingly hard for other reasons (at least for the PAYE people). But if you let the taxation levels float too high people do end up either going to great lengths to minimise their tax or simply move overseas.
I know quite a few people have moved overseas to lower tax countries to save up for a few years with the plan of moving back later. Professional jobs especially these days are very portable. During the dotcom period quite a few IT people moved overseas for a few of years purely to vest their shares because of the huge difference in taxation – especially since in Australia stock options are seen more of an executive bonus rather than something for the general workforce.
Overall I think these discussions about taxation would be a lot easier if the brackets were indexed to inflation. Then we could have real arguments about whether to decrease or increase real taxes at different incomes. At the moment, too much of it is mixed in with the government agreeing not to tax the population more through bracket creep, but disguising it as a tax cut.
Those people are already in the position that if they wanted an extra glass of chardie a night, they’d already be drinking it.
I’d be surprised if any financially literate people have been convinced to have a kid based on the baby bonus. At best it might move the decision forward a little bit in time.
Given that in a progressive taxation/welfare system you are meant to be taxing people on their ability to pay, taking into account their need for expenditure, I think you can reasonably argue that even a high income couple with a child should pay less tax than a high income couple without a child. Whilst having children is optional, it isn’t comparable to a pet or an overseas holiday, its another human being that should be taken into consideration when it comes to calculating taxation levels. For example I understand that in France, a child is considered to have half the tax free threshold of an adult which the parents are able to use when calculating their own income tax liabilities.
If keeping the tax cuts means cutting pork and middle class welfare harder, pricing carbon emissions and road congestion sooner, and making the overall fiscal structure simpler and saner, it’s probably a good thing in the long run.
We are stuck with the political fact that a sectorally unpopular measure is more widely unpopular if it’s in breach of an electoral promise.
Mark: “And I’m not sure that your argument makes much sense when you consider the empirical evidence that people are doing the exact opposite of saving.”
So what you are saying is that the less money people have, the better.
The campaign which appeared late in Howards final term to educate people better on “money matters” was the good seed, but with roots that didn’t extend deep enough. To expect people to take the initiative to read the governments info on how best to handle their money… might as well expect people to take the initiative to use common sense in their money matters. People arent stupid. They’re just wanting. There is a tremendous amount of pressure placed on people by advertising to spend money on non essentials. People are driven by consumerism. Either this, or they just don’t have enough money to save. Basic life expenses ARE on the rise.
The question is, when is it going to cross over. Expenses are on the rise, wages are not. At least not in line with these expenses. That poverty line draws ever closer and closer to so many tax payers. People need help, but not necessarily with tax cuts in the form of weekly wage growth. Force people to save those tax cuts by opening special bank accounts, perhaps implement the tax cuts into those accounts Kevin Rudd has proposed to help new home buyers as a starter fund, or a dollar for dollar incentive. The side effects of having a great economy on the more modest earning sectors of society are really what swung old Johnny out of government. Particularly the rising unaffordability of the old Australian dream.
No, I am not. I am saying people at the top end of the income distribution don’t need tax cuts which could usefully be cancelled for macro-economic purposes.
In context, I referred specifically to higher income earners, and I’ve specifically said that tax cuts for low to middle income earners should be delivered.
Please read more carefully.
“Is that change in your own behavior due to a change in income or due to increased maturity though?”
Ok, you really got me thinking on this one. I would say that first came changes in behaviour because of the change in income. After this came the realisation that with less money, and with less spending, my life was no poorer really. Spending money on “things” no longer has any attraction. But I did make a point of stating that it was my own experience, and so I may be in the minority of the minority on this one.
“I truly think that part of the proble with democracy isn’t so much finding quality leaders as a quality citizenship.”
Word up.
Try saying that in public though.
The solution is pretty obvious – give the round of tax breaks, but take away wasted pork (as long as it didn’t get it’s magic protection from the election). Then invent some dodgy financial instrument, a la the Future Fund, to salt away surpluses for now.