Many people in Canberra assert that relative income is more important than absolute income. Consumerism is criticised as leading to unhappy lives; we would be – so it is said – happier living more basic “environmentally friendly” lives. In one paper from Treasury (Coombs Wellbeing and Happiness in OECD countries) it states:
Secondly, individuals tend to make social comparisons. Several authors argue that subjective satisfaction is affected by an assessment of one’s own situation relative to one’s peers. Research also suggests that social comparisons matter more for individuals with higher income, and for those earning less than their reference group. Layard (2005) reviews evidence supporting the existence of social comparisons (for example, US studies suggesting that perceived relative income matters more for personal wellbeing than one’s own income, and Swiss studies showing that personal happiness depends only on one’s own income relative to that of people living in the same community). Social comparisons may, however, also increase life-satisfaction, for example when it provides information on the prospects for own improvement (Senik 2004)
So we have a remarkable set of circumstances, that could benefit the Australian taxpayer, reward Canberra residents for their views, and conduct a natural experiment.
I propose that employees of the Commonwealth living and working in Canberra (including all politicians) have an across the board 10 per cent cut in their salaries. It could use its powers under section 16 of the Australian Capital Territory (Self Government) Act 1988 to force through a similar reduction in ACT public sector salaries.
According to this relativity theory (not Einstein’s!), no one would be worse off. We already know that Canberra has the highest wages in the country. The February 2011 survey by the ABS (cat. no. 6302.0) showed that AWOTE was $1479.60 per week, compared to a national average of $1288.80 and exceeding every other State and Territory.
The reduction in salaries would then be used to move Australia back into a budget surplus. Ultimately it could be used to cut income tax rates.
Surely a pareto improvement?
and also move closer to equality which is an admirable quality.
You have a truly, truly evil mind, Samuel.
JC
15 Jun 11 at 8:23 pm
Thank you JC
Yes, I should have added that it would make an improvement in Australia’s gini coefficient. Surely most Canberra residents want greater equality?
Samuel J
15 Jun 11 at 8:34 pm
I should add, that of course some small proportion of the Canberra population would move interstate to seek a new job. That in itself is a benefit to the national interest as their contribution to the economy would increase. Downsizing the public service would be no bad thing.
Samuel J
15 Jun 11 at 8:36 pm
I’m not sure what the point of this strawman is…
Making a statement like this without controlling for education and other factors is meaningless.
Why do we want to get back into surplus? Given Australia has a current account deficit you are effectively saying that we should revert to raising (already high) levels of private domestic debt.
More private and household debt… surely a pareto improvement?
kennedy
15 Jun 11 at 9:00 pm
JC – before you reply that I have been MIA for a day or so it was because I got caught in the filter (accidentally).
kennedy
15 Jun 11 at 9:02 pm
I wouldn’t take a 10% increase in salary if I had to move to Canberra. Terrible place.
m0nty
15 Jun 11 at 9:02 pm
Kennedy:
I don’t give a toss what happened to you.
Here’s my reply to your silly comment to the thread. The government is making them an offer they can refuse and as Samuel convincingly suggests everything about the deal is good from a Canberra resident’s perspective.
The schleps can simply move house to another state and find a job if they are offended by the offer.
JC
15 Jun 11 at 9:06 pm
Actually since the majority of economists have patently contributed the least benefit to society and the economy (just look at Treasury) I would propose 50% wage cuts and sterilisation.
Journalists who comment on economics should also be moved into more appropriate employment, such as abattoir cleaners, chicken sexers and fluffers, as they are at the sharp end of non-contribution.
I would maintain one or two academics as cultural artefacts, so Sinc and Kates would be safe, for a while anyway.
Ev630
15 Jun 11 at 9:17 pm
I know five people, none of whom are educated beyond year 12, nor (besides one) are they particularly wonderful workers who are on $60-90k a year in the APS, simply as a matter of course. They work their 7 hours 21 mins a day (lol hardly!), take a day every couple of weeks and generally have working lives that the average Aussie worker would not recognise.
I could make a comment about the extraordinary nepotism in the APS that has allowed many people I know to never actually sit for a proper interview for any of the jobs that got them into the APS straight after they left Year 12.
Good if you can get it!
twostix
15 Jun 11 at 10:02 pm
Kennedy – Canberra is like a cartel. It is Big Government taking our taxes and paying each other handsomely. Many public servants – even if superficially busy – are not contributing to the Commonweal, merely a make-work scheme.
With the revelation that Kevin Rudd didn’t speak to his Departmental Secretary for four months, what wasn’t noted is that the PM&C SES was increased by over 1/3 in six months. Did these extra officers increase the value of the output of PM&C? I somehow don’t think so. They were running around like headless chooks writing briefing notes for a prime minister who never read anything.
Samuel J
15 Jun 11 at 10:07 pm
I think – as an addition to Samuel’s proposal – that all academics across the nation take a 10% cut.
They are, after all, Commonwealth employees too, and they earn significantly over the national average, particularly those at Prof and Assoc Prof levels.
I’m sure that Sinc and Steve would relish this opportunity to make a personal contribution to the reduction of the deficit.
Piett
15 Jun 11 at 10:09 pm
By the way, Samuel J, if you’ll forgive me for being nosey, what do you do to earn a crust? (No need to go into specific details, but I’d be curious to know what industry it is).
Piett
15 Jun 11 at 10:11 pm
Of course the compelling implication of the relative income hypothesis is the case for strongly progressive income taxes. If people exert excessive individual work effort to get ahead of the pack then such taxes make us all better off.
In fact the silly part of Samuel’s post is the restriction to Canberra. If it increases welfare there it will do so anywhere. Personally I’d relish the thought of some of the more productive members of our society – marketing managers, investment bankers and stock pickers – copping a decent tax slug in the neck.
hc
15 Jun 11 at 11:38 pm
As a Canberran, I would readily vote for a cut of 10% to the wages of all the people to whom I compare myself (even though this would mean that twits such as JC would be left untouched).
The troll formerly known as Tom N.
15 Jun 11 at 11:39 pm
We already do, you indecent little man.
Gabrielle
15 Jun 11 at 11:40 pm
Piett – I confess a connection to Canberra and receiving taxpayer dollars. If the Government proposed an across the board pay cut of 10%, I wouldn’t go on strike and would support such a measure even though it would personally affect me.
As you can probably tell from my various posts, I’m certainly no socialist wanting equality. But I do regularly interact (socially and professionally) with many people in Canberra and my rough sampling would suggest that the vast majority hold to the relativity viewpoint. And if so, and you and all your peers have the same pay cut then you really shouldn’t feel worse off.
I would feel worse off – but I don’t subscribe to the relativity theory.
Samuel J
15 Jun 11 at 11:41 pm
They do Harry. Believe me they do.
———
Tommy:
Oh I get it, salary cut of peers. Interesting idea.
As for the backhander. That’s a freebie. Keep that in your pocket until the week either side of the end of the quarter.
Personally I’d love to see to cut 95%, Tommy. And even that is generous as I would be trying to keep you off the dole.
JC
15 Jun 11 at 11:45 pm
oops that should read:
Personally I’d love to see you cut 95%, Tommy.
JC
15 Jun 11 at 11:47 pm
This is freaking unbelievable. I don’t know what the hell is going on as the vol in stocks is broadly on the low side.
But I really haven’t copped this much vol on stocks I own except through the GFC when bank stocks were moving 30% in a night session. My capital value is moving up and down faster than a Vegas hookers draws of late.
JC
15 Jun 11 at 11:51 pm
Samuel, did you ever think that maybe Canberrans compare themselves to more than just Canberrans. Personally, I compare myself and my circumstances to inter alia those of Australians in general, and come out well ahead thanks to JC’s frequent and large contributions to income, for which I would be grateful except that he unwittingly gets a net benefit from the expenditure.
The troll formerly known as Tom N.
15 Jun 11 at 11:55 pm
wrong fred sorry
JC
15 Jun 11 at 11:55 pm
Tommy, don’t flatter yourself. What other job could you do and with a RDO every fortnight? Please don’t take us for idiots.
Like whom Tommy, like whom? Now don’t be delusional.
And don’t forget to cost the RDOs too, Tommy.
Oh yea.. Let me see. I cut a cheque every quarter to the tax man, have never received one back except for the princely sum of $9.85 (I have it sitting here in a picture frame in my office). What benefit do I get Tommy? Name one. Go on. I dare ya. Don’t piss me off before the end of the quarter.
JC
16 Jun 11 at 12:03 am
Canberra is a company town.
A significant percentage of PS employees are bludgers and they know it, but shut up as long as the pay packet arrives in the bank account.
Pedro the Ignorant
16 Jun 11 at 12:40 am
So because I work two jobs, to support three people and attempt to save up to purchase our first family home, I’m to be punished and that money should be taken off me and given to, say my nieces boyfriend who likes to hang around the pub during the day.
What a nasty little c*nt you are.
twostix
16 Jun 11 at 12:59 am
Harry, people compare pre-tax incomes, not post-tax.
Boy on a bike
16 Jun 11 at 7:36 am
“Samuel, did you ever think that maybe Canberrans compare themselves to more than just Canberrans. ”
Yes, I expect you compare yourselves to the friends in Sydney that you visit on weekends. Trouble is, you are comparing yourself with the residents of Woollahra, Vaucluse and Mosman rather than those suburbs you bypass on the motorway like Liverpool and Rooty Hill and Blacktown.
Boy on a bike
16 Jun 11 at 7:42 am
You could save a lot of money in the ACT without negatively affecting any service delivery.
Only one Federal Department is service delivery – DHS. Add that to the constitutionally approved DFAT, Defence, still leaves you with plenty of fat to cut.
First cab off the rank: Department of Climate Change, followed by the useless policy obsessed federal departments of Health and education.
Quentin George
16 Jun 11 at 7:48 am
Aaaand that’s one reason I left the joint.
Most DO subscribe to relativity, and the place could do with cuts. 10% would be a start. Shut down DCC and cut Defence by 50%.
MarkL
Brisbane
MarkL of Canberra
16 Jun 11 at 7:53 am
“Harry, people compare pre-tax incomes, not post-tax.”. There might be some truth in that. If gross income is used as the relative income status symbol.
But that then would mean you could set ultra unitive progressive taxes which which intensify the case for the relativist argument.
I don’t agree JC that high income earners in Australia are heavily taxed. Apart from the US and cases such as Hong Kong we remain one of the lightest taxed countries in the OECD. And celebrate JC. Take joy in this fact. Be the nice person I know you are.
The ill-gotten earnings of the super-rich just got transformed via Australia’s weakly progressive tax regime into a new set of Titleist golf clubs for me. My happiness definitely outweighs the minor costs of the redistribution. I can see your smile.
hc
16 Jun 11 at 8:10 am
unitive = punitive
hc
16 Jun 11 at 8:10 am
Does this measure all taxes? How does Australia rank in terms of efficiency? Or being an impediment to upward mobility?
Maybe you deserve them? I mean shit, you’re well credentialed and worked hard for your rank yes? The income tax system is so screwed up we tax employment and welfare to work is a complete botch.
I don’t see how you not getting your tax cut makes those people in welfare traps or taxed out of employment by payroll taxes, any better off.
.
16 Jun 11 at 8:54 am
Hi Samuel
Yes, your proposal would be a good natural experiment to test the efficacy of this relative income hypothesis being sprouted about, but why only a 10 per cent cut to PS and pollie remuneration?!!
Julie Kirsten Novak
16 Jun 11 at 9:05 am
What a bunch of bullshit. When it comes to the APS, otherwise intelligent posters here turn into slack-jawed yokels with pitchforks.
Abu Chowdah
16 Jun 11 at 1:22 pm
“OTHERWISE INTELLIGENT”?
It is true, Abu, that “slack-jawed yokels with pitchforks” aptly describes most posters on Catallaxy. Where you err is in contending that they have an alternative state.
The troll formerly known as Tom N.
16 Jun 11 at 1:47 pm
Oh yes Tom, Canberra is the cultural capital of Australia. Filthy’s on Friday and Freedom Furniture hungover with your fiancee on Saturday. It just screams culture…
The only reason why you get shit here is because you have bizzare beliefs such as an APS dude like you can know everyone else’s preferences better then everyone else – because it might be part of your job title and you passed micro III back in the 1980s.
Tom you’re probably good at your job (whatever the hell it is) but when you tell everyone you know what is good for them and Treasury tells everyone don’t worry about upward mobility, you lose the respect of the punters.
It’s amazing you don’t get this but it probably relates to your bizarre belief no 1.
.
16 Jun 11 at 1:55 pm
Abu, I don’t think you should take this to heart in any way as the criticism was never leveled at you personally.
In fact if we had our way we’d put you in charge of the APS and let you get to work cleaning out the dead wood and congenital twits like Tommy who seems to only care about his RDO’s.
JC
16 Jun 11 at 1:59 pm
Public servants aren’t allowed in the Eastern Suburbs, unless they are judges or diplomats. All others are regarded as declasse twats. What happens in less hip Mosman is anyone’s guess
Rococo Liberal
16 Jun 11 at 2:03 pm
I got told a younger friend of mine (hoping to get into medicine through GMAT) got barred to an undergrad law student party in Mosman because he didn’t do law.
Less hip?
Wankers.
.
16 Jun 11 at 2:05 pm
That’s the opportunity to smash their moosh in and reply “bet you wish there was a Dr. here now?” The perfect comeback to such rudeness.
Infidel Tiger
16 Jun 11 at 2:07 pm
I like the cut of your gib, young man.
.
16 Jun 11 at 3:19 pm
As a newly minted public servant, I will simply make the observation that I’m now doing half the work for twice the money I was on in the private sector.
Looking around the office, I can’t see too many people actually doing nothing, but I’m sure the workforce could be halved and still be able to produce the same output with a few changes to the corporate culture…
Tim Quilty
16 Jun 11 at 5:49 pm
Julie – I agree it could well be more than 10%! Perhaps the experiment could be calibrated by having a bigger reduction in certain suburbs.
Samuel J
16 Jun 11 at 7:21 pm
Actually, that appeals. I accept the appointment.
This chap seems to have self-selected as a passenger, so he’ll be the first to go:
Fortunately I appear to work in a department where people are professional, have a strong esprit de corps and work bloody hard – and not just for the money. I’m sure there are other departments full to the gunnels with lazy bastards, just as I know (from personal experience prior to the APS) that there are people in the private sector who work to rule and pinch shit from the owner.
Will I be getting paid as much as wombat boy or Garnaut in this new slot JC? Time to put my feet up!
Abu Chowdah
17 Jun 11 at 4:23 pm
Youi’ll be earning retrenchment bonuses that would give Goldman Sachs execs a heart attack.
Infidel Tiger
17 Jun 11 at 4:27 pm
Abu
1,000 to 1,500 bucks for each retrenchment. An added $100,000 for each 1,000 let go.
JC
17 Jun 11 at 4:30 pm
I could grow to like this. I’m sure over time I could develop a flinty heart, a shiny bum and an arrogant mien, akin to the key qualities of the former head of Treasury.
Abu Chowdah
17 Jun 11 at 4:31 pm