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.
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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.