Catallaxy Files

Jacob Zuma, the South African president, has nominated former Apartheid era police spy Marthinus van Schalkwyk to replace Yvo de Boer.

Former president Thabo Mbeki used to call him ‘kortbroek’ (short pants) because he was a political lightweight.
(HT: Wattsupwiththat)

Tony Abbott is a big-government conservative in the John Howard mold. This is hardly surprising – Andrew Norton diagnosed this issue some time ago. The logic underpinning Abbott’s parental leave proposal is set out in his recent book Battlelines. I had ignored it when it first came out – the Liberals weren’t going anywhere at the time and neither was Abbott. I did read it over the summer. When Abbott talks in broad principle, I tend to find myself in agreement with him, but on specific policy proposals I disagree. Here he is, on page 102.

Pages 100 – 104 discuss ‘A fair go for working mothers’. Those Liberals MPs criticising Abbott for ‘not consulting’ haven’t read his book.

Tony Abbott’s paid parental leave proposal is very unpopular. Unpopular with big business and the government. Big business shouldn’t like the proposal because it undermines an existing comparative advantage. Many large corporations already have paid maternity schemes and they use these schemes as a drawcard when hiring labour. Any uniform national scheme becomes a subsidy for small business. The government doesn’t like it because they have been outflanked on the left.

We should remember that Australia already had a paid scheme – the baby bonus – that got means tested by the current government, so Rudd and friends only have themselves to blame. Similarly big business haven’t been paying the Coalition enough attention and, while I’m sympathetic to their position, they too have themselves to blame. This is especially the case for AIG and BCA.

One of the sillier arguments was published this morning in the Australian – either by Michael Stutchbury or David Uren. The basic argument is that a parental levy will raise Australia’s corporate tax rate to the fifth highest in the OECD. The Uren article has a nice graphic showing this.

This argument is misleading. It is true that another levy will add to the overall tax burden. But this analysis makes two assumptions that are incorrect. First it assumes that businesses only pay corporate tax and no other taxes or levies. But that isn’t true, comparing the Australian headline corporate tax rate plus parental levy to OECD headline corporate tax rates is not comparing like with like. Second, it ignores all the other taxes and levies that business already pays. A couple of years ago I worked on the IPA State Business Tax Calculator (the 2009 version online here). This project consisted of analysing the taxes paid by a standardised business in different Australian States. The bottom line is that the business tax burden is greater than the headline rate suggests.

This represents about 18 per cent of the amount of Commonwealth corporate income tax (CIT) paid (i.e. in addition to the reference business paying company tax levied by the federal government, the business pays the state government tax imposed upon it which equals approximately 18 per cent of what is paid to the federal government).

There is an excellent argument for lowering taxes on business – they are far too high. But the argument that the parental levy will push us far up the tax ladder is not correct – we are already high up on the ladder. The parental levy will add to an already high tax burden, not create that tax burden.

I have an op-ed at The Drum today, basically a longer version of the piece here on Monday. I was able to track down some public hospital data that shows increased spending in public hospitals over the Howard era.

It is understandable that the current government wants to differentiate itself from its predecessor. It is not clear that it should do so by out-spending the Howard government. Ironically Howard has a reputation of being somewhat hard-hearted; yet the empirical record is very different. Andrew Norton of the Centre for Independent Studies has shown that Howard government spending on issues such as Health and Education rose faster than under the previous Keating government. He has labelled Howard a conservative social democrat.

All governments like to think that increasing the amount of money thrown at problems will solve that problem. But, as we now know from the Rudd government stimulus package, the quality of spend can be more important than the quantity of spending. So too with health – my IPA colleague Julie Novak has shown that the number of back-office bureaucrats has been increasing, while the number of hospital beds per 1000 population has declined. In the spending we have had over the past fifteen years, the bang for buck has declined.