Friends don’t let friends pay higher taxes

I spent the weekend conferencing in Queensland. I got to talk about fiscal illusion – a topic I’ve discussed before. It all revolves around how the revenue lobby and the state works to manipulate of fiscal consciousness to pay more for government than we’d otherwise prefer.

The mechanisms of fiscal illusion are:

  • tax complexity,
  • deficit financing,
  • hypothecated taxation, and
  • tax myths.

I spoke about some tax myths. The usual sort of argument where we hear that “the rich don’t pay their fair share of taxation” for example. I concentrated on the tax myth, “If you’re not getting taxed, you’re getting subsidised”. That in the context of the diesel fuel rebate, superannuation, and negative gearing.

But there is another great tax myth that is being propagated at the moment. The Abbott government is not cutting taxes and is not cutting expenditure as it claims. Not only has the Abbott government increased the top marginal tax rate on individuals, it is repealing the tax cuts introduced by the previous government.

We’ve seen these graphs before but to remind ourselves. These are the dollar values of the payments and receipts over the budget forecast period comparing Swan’s last budget (MYEFO) to Hockey’s first budget.

Budget payments 2014

Budget receipts 2014

As we can see there is very little difference. To be sure Hockey is reallocating expenditure but he isn’t cutting expenditure – debt continues to rise and that will have to be paid for out of future taxation.

In short, the Liberals do not have in place a budget strategy that will lead to reduced taxes in future. Right now they are planning to balance the budget at a higher level of GDP. The notion that balancing the budget at a higher level of GDP is equivalent to balancing at a lower of GDP is another tax myth.

All this, however, feeds into a political myth. It has come up in the threads, and again on the weekend, that with friends like me the Liberals don’t need enemies. The reply to a comment like that, of course, is that the Liberals needs to spend some time and effort investing in their friendships and listening to their friends. The great political myth on the centre-right is this: disaffected Liberal voters have nowhere to go.

That is simply not true. The peculiarity of the Australian voting system gives voters plenty of places to go:

  • Preference the Liberals second and not first in the House of Representatives. Your vote will still end up with the Liberals in the two party preferred distribution, but you will have cost them electoral funding.
  • Preference the LDP or Family First in the Senate.

The Abbott government has some of the bad habits of the previous government. It tells us that it is doing a good job, when clearly we can see that is isn’t. To be fair, things are a bit tougher for the Abbott government than Rudd-Gillard. That’s because the electorate is learning and updating its expectations; Hockey cannot get away with the silliness that Swan got away with because the electorate are onto that.

The key here isn’t to whine and whinge but rather to be decisive, get out there tell your story, cut expenditure, cut taxes and be confident about your strategy.

This entry was posted in Budget, Economics and economy, Federal Politics, Taxation. Bookmark the permalink.

37 Responses to Friends don’t let friends pay higher taxes

  1. Token

    In short, the Liberals do not have in place a budget strategy that will lead to reduced taxes in future. Right now they are planning to balance the budget at a higher level of GDP. The notion that balancing the budget at a higher level of GDP is equivalent to balancing at a lower of GDP is another tax myth.

    That quote seems to mystify the parliamentary Liberals across the country. State Liberal Parties would not be facing a crisis if they had the capacity to understand…

  2. stackja

    Hockey cannot get away with the silliness that Swan got away with because the electorate are onto that.

    But the MSM are still getting away with the silliness that there is no crisis.

  3. eb

    I certainly want my taxes vutted! I think…..

  4. Rabz

    I see that imbecile Cormann has been shooting his mouth off (again) about yet more tax increases.

    They really are headed for electoral oblivion.

  5. Dave

    I think the Liberals tend to believe that if you say ‘lower taxes are in our DNA” then lower taxes will just happen without actually having to develop economic policies to achieve that.

  6. Ant

    The mechanisms of fiscal illusion are:

    tax complexity,
    deficit financing,
    hypothecated taxation, and
    tax myths.

    Did you forget another?

    OH MY GOD! WE’RE ALL GONNA DIE!!!

    ‘Myth’ hardly seems to cover it.

    A good example would be the headline in yesterday’s Sunday Age:

    “UNIVERSITIES FEAR DOOMSDAY CUTS” – no less.

  7. James

    The Abbott government is not cutting taxes and is not cutting expenditure as it claims.

    Carbon tax is cut. Mining tax is supposed to be cut. Company tax to be cut next year. Problem is, senate won’t let them cut the associated spending.

    It’s easy to say smaller government, lower tax, lower spending.

    When it is implemented, it means government doing less, leaving private initiatives to take up more; more personal responsibility, less handouts, more user pay. The Abbott government is doing just that, and people are whinging all over the place.

    People simply expect better services without the pain of having to pay for it.

  8. H B Bear

    The idea that the Liberals are the party of small government is a myth.

    Howard’s B Team on full display.

  9. H B Bear

    Napthine is about to find out what happens to LINOs in Victoriastan too as they return to the warm bosom of their CFMEU overlords.

  10. outsider

    Speculation will commence re the core members of the next LNP administration, composed of current and likely future MPs prepared to ‘rediscover their roots’ and rise phoenix-like from the ashes of the next election, which they will very likely lose. The main players and architects of the current outfit of policy pygmies deserve only derision, and never support.

    By 2019 both major parties will be seen equally as discredited dinosaurs not fit to govern, being too beholden to special interests and their venal dispositions. It’s amazing what a short employment recession and burgeoning debt of massive proportions can achieve, we are heading toward that shoal at a fair clip right now.

  11. Dr Faustus

    That’s because the electorate is learning and updating its expectations; Hockey cannot get away with the silliness that Swan got away with because the electorate are onto that.

    You betcha the electorate is updating its expectations. Those expectations are ‘free stuff’ and ‘unearned supplementary income’ – and more of it.

    And I doubt very much that the majority of the electorate has any real understanding of where government gets its funds, apart from tax (which plays a fairly modest part in most lives), or what happens when the band stops playing.

  12. Steve D

    The peculiarity of the Australian voting system gives voters plenty of places to go:

    Preference the Liberals second and not first in the House of Representatives. Your vote will still end up with the Liberals in the two party preferred distribution, but you will have cost them electoral funding.
    Preference the LDP or Family First in the Senate.

    This is what referencing was made for. You can place you you really want at position number 1, safe in the knowledge that if they are eliminated, then you already have preference number 2 lined up. None of this wasted vote stuff as soon as your guy (or gal) is eliminated.

    As much as I understand the Rabz approach, I don’t think I can bring myself to put the Libs below Labor (and, knowing the Libs, it may just convince them that becoming more socialist is the way to go after all), but I can certainly put them below FF, LDP and even DLP, perhaps.

    In the meantime, FF and LDP need to put on their kicking boots and be warming up for the upcoming rounds, both in the media and at the ballot box.

  13. entropy

    I believe the LNP base is busy updating its expectations, the left were never going to give the LNP the benefit of the doubt they gave that fool Swan. The left have no expectations vulnerable to change.

    Which is of course why Abbott and Hockey are so stupid. They need to get up every day and the first thing they do, at the same time as doing the morning slash, is to repeat to themselves the mantra ” the left will never vote for us anyway; the left will never vote for us anyway; but our base can always vote for someone else.”

    They should also have pictures of Clive Palmer, mad Katter, David Leyonhjelm, Mr Day and mr Xenephon above the trough and on the back of the dunny doors in the party room toilets to remind them their base could very well vote for someone else.

  14. Rabz

    Steve D – I’ll be voting informal at the next election.

    It will be a cold day in hell before I ever vote for either of the major parties again.

  15. Makka

    “People simply expect better services without the pain of having to pay for it.”

    You are full of syte. We expect a dramatic cut to all duplication and waste along with the tens of thousands make work jobs the Unions create in the PS for their maaaates. Services have bugger all to do with that. This is standard Socialist drivel , try harder Leftslime.

  16. eb

    Rabz! You mean you won’t be voting for that wunnerful Mr Dr Andrew Leigh!

    Sinc will be cross with you.

  17. .

    People simply expect better services

    Let me translate that for you:

    The unions want a bigger wage bill.

  18. Clam Chowdah

    The reply to a comment like that, of course, is that the Liberals needs to spend some time and effort investing in their friendships and listening to their friends.

    Good post. Well said.

  19. Rabz

    the wunnerful Mr Dr Andrew Leigh

    AKA the “former economist”.

  20. Glynn

    You are a disgrace, Sinclair Davidson. Nobody in their right mind would listen to anything you advocate.

  21. Petros

    Fuck off, Glynn.

    Thanks for the advice, Sinc, re preferencing and funding. I didn’t know that.

  22. Mick Gold Coast QLD

    From Glynn at 3:25 pm:

    “You are a disgrace, Sinclair Davidson. Nobody in their right mind would listen to anything you advocate.”

    Did the bastard put a bet on the All Blacks against the Wallabies? That’s outrageous, I agree!

  23. Gab

    You are a disgrace, Sinclair Davidson. Nobody in their right mind would listen to anything you advocate.

    Notice how there’s no explanation. He’s probably a “disgrace” in becuase he’s a middle-aged white male* who doesn’t support the Left. That’s all it takes these days. *Oh yeah, that automatically makes him a meeesogineeest.

  24. Tim Neilson

    If voting is to continue to be compulsory, there ought at least to be a “none of the above” option. “None of the above” would be a candidate just like any other, capable of receiving first votes and preferences, or in the Senate to receive quotas. If sufficient votes accrued to “none of the above”, the relevant electorate would be deemed to have chosen to save Australia’s taxpayers the cost of one MP, or of a Senator (and if more than one Senate quota accrued to “none of the above” more than one Senate position would be left vacant).

  25. Shelley

    Hockey cannot get away with the silliness that Swan got away with because the electorate are onto that.

    Not sure about that. I think it is because 1) Hockey is a Liberal and therefore the natural enemy of the Left and the MSM and 2) Free stuff that the low info voters/non tax payers want – the way they see it Swan (and Gillard) promised it and Hockey taketh away.

    But I agree with your comment about nurturing friendships. They (Libs) have done anything but since Sept 2013.

    I am seriously looking at Family First.

  26. Shelley

    Like the idea of 2nd preferencing also in HoR. They need a wake up slap.

    I assume some Lib advisers read this blog – if so take heed.

  27. Tel

    Preference the Liberals second and not first in the House of Representatives. Your vote will still end up with the Liberals in the two party preferred distribution, but you will have cost them electoral funding.

    Absolutely, if you do nothing else to show your feelings, at least do that much. This sort of preference protest shows up very clearly in the count, so it is published and remains on the historic record. If enough people do it, the major parties will pay attention.

  28. Tel

    I think the Liberals tend to believe that if you say ‘lower taxes are in our DNA” then lower taxes will just happen without actually having to develop economic policies to achieve that.

    Gradually people will stop working, and as that happens taxes will steadily fall to a lower amount. It’s all in the DNA.

  29. Squirrel

    “stackja

    #1428680, posted on August 25, 2014 at 10:37 am

    Hockey cannot get away with the silliness that Swan got away with because the electorate are onto that.

    But the MSM are still getting away with the silliness that there is no crisis.”

    Yes – just adding to the likelihood that we’ll go all the way down the European path, but without the likes of Germany to bail us out, it will be left to the international financial markets to shatter the sense of complacency and righteous entitlement which is now so widespread in this nation.

  30. Motelier

    It seems to me that the link between the LNP and the electorate is now tenuous at the least.

    I am now betting that every CEO of any private company, firm or small to medium enterprise is wondering what the hell has happened in the last 12 odd months as they try to trim the excess costs in their enterprises.

    Perhaps all members of the government of the day, along with their compatriots in the opposition, should spend a month or two working for various enterprises on the shop floor, so to speak.

    I hold no hope for Labor and the Greenfilfth. However the LNP seem to like to “talk the talk”. Maybe a bit of down and dirty “cost cutting” with business owners and CEO’s might get them to “walk the walk”

  31. luke

    The reason they can’t make cuts to spending is the same reason they can’t cut red-tape (legislation); it’s because no Minster or their advisors have a clue! They don’t want to take their time up actually understanding the details. Get down to the details and it’s easy to make significant cuts. Approach everything like a cowboy with a broad brush and everything seems essential. Never ask the public service, or if you do, pit them against each other. Ask health what cuts education can make. Ask education what cuts Arts could make. Ask a department about their own cuts and they’ll be out to convince you that everything is essential or, at best, reshuffle the deck chairs.

    Want examples?
    Legislative – road rules, like any other rules, are full of rules that are never enforced. Some can’t even be enforced, or would never be enforced because the relevant authority can’t or doesn’t bother to fund prosecutions (leading to the modern danger of arm chair law enforcement – Conviction by administrative action). Under the model road rules it is an offence not to ride your bicycle properly using the seat. I’m not kidding. We make criminals of someone who rides their push bike side saddle. And that’s nothing compared to the overlap that we have between local, State and Federal laws. Typically the State is the one with the actual power but the feds use a slight of hand (otherwise known as the treaty power, corporations power or tied funding) to stake out their own legislative playing field (better known as job creation).

    You may be horrified to know that many public servants are given greater powers to investigate purely administrative offences (completely victimless crimes) than police officers are given to investigate murder, rape and other life changing crimes.

    Funding – grants. Get down to the detail and you’ll find most grant money goes through at least three levels of administration before it gets to where it is actually spent. Additionally, find out if what it is actually spent is worth the taxpayer being hit up for it. e.g. the millions given to foreign film studios to film part of a movie here. Enjoyed the latest Marvel blockbuster? Thank Film Victoria (Vic taxpayers) for their funding contribution.

    Ask a department what they do. Pick a project and then check to see exactly what contributions were made by the different levels of public servants who all claim responsibility for that project. Typically the top five levels of the department contribute less than 1% of the work done. Overpaid diary keepers are a massive part of public servant wages. Is the project even worth doing? What does it actually deliver to the public? Often the higher the level of government (local, State and Federal) the more naval gazing it does.

    Look at the number of different government agencies, government owned business and private businesses that are solely funded by government. Zero them out. With very, very rare exception, discontinue all of them and re-establish new ones. Each and every re-established entity having to be justified a new and distinguishing what they do from any other. The number of redundancies, mission creep and empire building exposed will be staggering.

    But all this can’t be done in 1 month and a catchy Ministerial statement, so it doesn’t get done. And so the giant tax sucking kludge that is government continues to grow whether it’s Liberal or Labor.

  32. AP

    I will be voting from last to first: Greenscum, socialist parties, the two liar parties (Liebor, Lieberal), then randomly the other minor parties, LDP, then Family First.

  33. .

    Good lad, AP.

    Spread the word.

  34. .

    Funding – grants. Get down to the detail and you’ll find most grant money goes through at least three levels of administration before it gets to where it is actually spent. Additionally, find out if what it is actually spent is worth the taxpayer being hit up for it. e.g. the millions given to foreign film studios to film part of a movie here. Enjoyed the latest Marvel blockbuster? Thank Film Victoria (Vic taxpayers) for their funding contribution.

    Not to mention the government monitoring another level of government spending taxpayer funds, and the grant acquittal process.

  35. MartinG

    Squirrel
    #1429253, posted on August 25, 2014 at 7:39 pm

    Yes – just adding to the likelihood that we’ll go all the way down the European path, but without the likes of Germany to bail us out, it will be left to the international financial markets to shatter the sense of complacency and righteous entitlement which is now so widespread in this nation.

    I think If you look at Argentina, you will see what’s in the future for Australia.

  36. Tel

    I think If you look at Argentina, you will see what’s in the future for Australia.

    We should formally default sooner rather than later. Get it out the way, and OK a few Chinese bond holders will be grumpy, but they knew the risk.

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