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Federal

Jan 21, 2011

Labor’s lazy levy

There's something faintly absurd about a government with a budget loaded with superfluous spending and the lowest debt levels in the developed world insisting that it needs a new tax to pay for the impact of natural disasters.

Bernard Keane — Politics Editor

Bernard Keane

Politics Editor

A flood levy to pay for the cost of the catastrophic Queensland floods would be lazy policy from a fiscally lazy government.

There’s something faintly absurd about a government with a budget loaded with superfluous spending and the lowest debt levels in the developed world insisting that it needs a new tax to pay for the impact of natural disasters — especially when this government itself has been arguing that climate change will cause more extreme weather and preaches “adaptation” to Pacific Island states.

It also suggests this is a government that feels more comfortable playing on voters’ sympathies for the victims of the floods than about making the case for cutting spending in politically sensitive areas.

Remember that illuminating moment before the election, when Julia Gillard herself announced an expansion of the education rebate available to Family Tax Benefit A recipients. That’s a key voting demographic that had strayed from Labor and that the Labor brains trust, obsessed with micro-policies, wanted to win back.

It was Labor that took the first steps to start winding back the endless middle-class welfare spewed out by the Howard government in an effort to keep buying votes. It introduced a $150,000 threshold for Family Tax Benefits in 2008. Problem is, below that level, you start to eat into middle-income demographics with a lot more voting power than high-income earners. The expansion of the education rebate, and the Coalition’s election campaign response of offering to expand it even more, appears to have sounded the death knell for hopes either side would risk making serious cuts to middle-class welfare. Slapping a one-off levy on voters and telling them it’s for the floods is clearly more politically palatable than telling voters they’ve gotten used to levels of government spending that aren’t sustainable in the face of an ageing population.

One-off levies were a favourite tool of the Howard government, despite its reputation for handing out tax cuts. It slapped a levy on sugar to bribe the sugar industry to accept restructuring. There was a dairy levy imposed on milk for a similar purpose for nearly a decade — it only ended in 2009. But levies weren’t just for bribing influential National Party constituencies. There was an airfare tax after the Ansett collapse. There was also the East Timor levy, via an increase in the Medicare levy on income tax, introduced in 2000-01.

For those trying to predict the politics of a flood levy, remember that the East Timor levy — to pay for our peacekeeping commitment to that country — got the Howard government into trouble. Not because people objected to paying it — in fact, the opposite. The levy was only imposed on people earning more than $50,000, and doubled to 1% for those earning more than $100,000. The government immediately copped criticism that it was only targeting high-income earners, when the burden should be shared right across the community.

Levies appeal to politicians because one-off levies can be justified as dealing with one-off hits to the budget, and because the hypothecation of revenue from industry-specific levies can be sold as politically palatable “structural adjustment packages”. But all they do is hide long-term fiscal problems — expenditure that lacks discipline and revenue measures that are inefficient and jury-rigged to address political needs.

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109 comments

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109 thoughts on “Labor’s lazy levy

  1. geomac

    Watching the 7.30 report last night the PM clearly stated that a levy may be an option. After being pressed she repeated that cuts would be made and a levy may be an option. I doubt that there is any fiscal sense in committing to a surplus purely for the sake of saying we have a surplus. One year Costello had a surplus that was in fact a deficit but manipulating the books gave the appearance of a surplus.
    Bolte put Victoria 60% in the red to build Tullamarine airport and didn,t suffer any electoral pain. A healthy budget is a sustainable budget not one dictated by a false presentation of the value of a surplus or deficit.

  2. John

    Julia Gillard and Tony Abbott are the problems in Australia’s politics.
    We need a new way forward.
    Stephen Smith is the ideal Labor PM.
    Malcolm Turnbull will be the ideal next Liberal PM.

  3. shepherdmarilyn

    Stephen Smith is a cowardly, craven child torturer disguised as someone mild.

    Wouldn’t trust him anymore than I trust Gillard.

  4. JamesH

    Bernard has half a point in his relentless blathering about middle class welfare, but ignores that every time you cut “middle class welfare” you raise the effective marginal tax rate. “Welfare” in Australia cuts out so quickly that someone trying to go from “welfare to work” faces a 70%+ effective income tax.

    Also worth noting that studies of the Australian Welfare system have found:

    “The highly selective nature of Australia‘s income support arrangements means that it traditionally has less middle class welfare than virtually all other developed countries, including other low-spending countries such as the USA and Japan.36 This is illustrated by the low share of direct social security transfers in Australia going to the richest households. For example, a 2000 Organisation for Economic Cooperation and Development (OECD) study found direct transfers to the richest 30 per cent of households of workforce age in Australia to be 6.5 per cent, the lowest of 21 OECD countries studied, substantially lower than most other countries.”

    from Money for nothing? Australia in the global middle class welfare debateby Luke Buckmaster at the APH parliamentary library research service (www.aph.gov.au/library)

  5. John Reidy

    If this government were smart they would use the recovery spending to justify dropping popular middle class benefits – say the private health care rebate. If it were Keating he would be able to skewer the opposition.

  6. Mahaut

    Bernard
    I agree that a levy would be fiscal laziness. With prudent fiscal management the Government should still be able to maintain a sound budgetary situation without a special one-off tax.
    I don’t think the politics are going to be in the government’s favour with this one. Politicians seem to take the view that a levy is not really seen as a tax because it is for a special purpose and on many occasions that is the view of the community as well. In our current environment, where we already have in play two tax proposals which have created stark areas of contestation between the two major parties, the community, after a vigorous campaign by the Opposition, be brought round to the view that a levy, yet again, is an undue additional tax burden.

  7. Apathy

    It’s truly astonishing and more importantly it’s an absolute disgrace that we have allowed our society to become what it is today. Politics is a reflection of society and it appears that the world is not mature enough for democracy. I feel ashamed about how leadership in this country has been dumb down to a point where logic and common sense is non-existent and narcissism rules. Both sides are as bad as one another yet people still will defend one side over the other, not seeing the forest through the trees. Have we really become that stupid? Do people out there in voter land just not get it or is it a case of we just couldn’t be bothered? Maybe John Elliot had a point?

  8. Jolyon Wagg

    shepherdmarilyn

    [Stephen Smith is a cowardly, craven child torturer disguised as someone mild.]

    Don’t hold back…tell us what you really think 🙂

    Cowardly and craven seems a tad harsh to me. BTW, where does the child torturing come in?

  9. shepherdmarilyn

    When I pleaded with him before the 2004 election about kids in refugee prisons he told me to piss off because the plebs liked it.

    A report that year showed that locking up refugee kids is torture.

    Ergo Stephen Smith is a child torture advocate.

    As are the rest of the blithering cowards who go to our high court and demand that unaccompanied children be locked up by their guardian, the minister Bowen or whoever of the day, thinks it’s best.

    They blather endlessly about frigging visas, but guess what? The law changed by the ALP way back in 1992 means there is no offence in not having a visa so why do we waste $1 billion per annum pretending there is.

  10. The Hungry Years

    [Remember that illuminating moment before the election]

    Yes

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