Economy

May 13, 2016

Duncan Storrar is right, ScoMo is wrong — money does mean more to the poor

A little goes a long way when household income is low. The same boost requires a lot more money once you’re richer.

Jason Murphy — Journalist and economist

Jason Murphy

Journalist and economist

Treasurer Scott Morrison believes in you. Here’s what he said in delivering the budget:
“[W]herever possible we prefer to leave a dollar in Australians' pockets than take it for the government's pocket, because we know that it is money in your pocket that can help you and your family most.”
It’s a weird thing for the nation’s chief tax-taker to say. On one hand he takes 25% of GDP in tax, but on the other hand he reckons that’s bad? If you take his argument to its extreme you have no justification for funding the federal government at all. The problem is he’s making that same statement to all of us, rich and poor alike. While I can see the case for leaving those last few dollars in the hands of a cash-strapped family of six, I can’t quite see the same case when it comes to a double-income couple like Malcolm and Lucy Turnbull. Marginal utility of money Part of the basis of our progressive tax system is that a person has a declining marginal utility of money. With our first $20,000 a year we meet very basic needs. Our next $20,000 goes on things less basic. This goes on and on until the difference between making $280,000 and $300,000 a year is barely noticeable. The government knows by this stage you’ll just be buying a different brand of truffle oil and maybe a second gardener with that marginal 20 grand, and says OK, Society can probably think of better things to do with that money. Let’s have 47% of it. The question posed on ABC TV on Monday night by Duncan Storrar -- a man with a disability who has worked on minimum wage and is now a flashpoint in the election campaign -- relates directly to this concept. “If you lift my tax-free threshold, that changes my life. I get to say to my little girls, 'Daddy’s not broke this weekend, we can go to the pictures',” he told Assistant Treasurer Kelly O’Dwyer. “Rich people don’t even notice.” We have estimates of the marginal utility of money from the Australian Unity Well-being Index. A little goes a long way when household income is low. The same boost requires a lot more money once you’re richer.

J Murph household income graph

In fact, above a certain level, some household members seem to experience a reversal in well-being.

J Murph gender wellbeing graph

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7 comments

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7 thoughts on “Duncan Storrar is right, ScoMo is wrong — money does mean more to the poor

  1. drsmithy

    What taxes are really for in the modern economy:

    http://neweconomicperspectives.org/2014/05/taxes-mmt-approach.html
    http://bilbo.economicoutlook.net/blog/?p=9281
    http://home.hiwaay.net/~becraft/RUMLTAXES.html

    Remember Duncan from Q&A? After he asked his very pointy question, The Australian newspaper pointed out he pays “no net tax”. The amount he gets in cash transfers, they revealed, is larger than the tax he pays.

    I don’t read the Oz, but did it occur to any of the bright sparks over there that each dollar less tax Duncan pays and each dollar more he earns is a dollar less in welfare he needs ?

  2. sparky

    @ Dr Smithy, I do read The Australian and they’re really laying into this man. Today seemingly they’ve trawled through his background to reveal what a blighter he is. Mean girls/boys at high school style.
    Reading about this reminded me that I actually pay no bank fees, the bank graciously ceased them a few yrs ago because I was “a good customer”. These costs actually make no difference to me but to others I have no doubts they do. These costs of living in 1st world place are rarely talked about but have a major impact.

  3. kanooka

    Why would the Ozz write anything good about this matter, the truth and honest comment have no place in Murdoch press, why give the poor bloke an even break when tearing him down in public is so much more fun?

    No doubt they will scream “public interest” as if most of us were concerned about his past, it is his here and now, and future that is the worry for most caring Australians.

    Storrar and those in his situation deserve all the help we can give, even if it does cost Malcolm and his wealthy mates $7k each a year.

  4. Roger Clifton

    Perhaps lotteries would do better to offer several “first prizes”, to maximise the perceived benefit to the punters.

  5. AR

    As Sparky notes, there are numerous benefits enjoyed by virtue of being well off in the form of charges not levied.
    Lots of aspects of Life are more expensive for the poor – split payments for insurance, those iniquitous NO INTEREST repayments on crappy furniture offered by retailers in the dormitory suburbs, even down to the coin-in-slot gas & electricity meters.

  6. mike westerman

    The phrase “living on welfare” annoys me mostly because so many middle and upper income families are receiving subsidies in private school, health and parenting without blinking even tho’ articles like this suggest if it was taken away it would make little difference. We should be embarrassed to receive any direct benefits from government if we can afford not to – to do otherwise is the extraordinary hypocrisy Murdoch personnal and in the press specialises in.

  7. Adam R

    What a side show. This whole issue about whether or not Duncan is deserving of help is beside the point. There are many who are deserving of help. With no disrespect to Duncan, there are undoubtedly many who are more deserving.

    The real question for our government is what is the appropriate division and distribution of the general revenue to give the best overall advantage to Australia. That necessarily means some will go to ‘welfare’, some will go to incentives to business (whether by direct payments, or reduced costs), some will go on healthcare, more on defence. Any government has to juggle these demands.

    Frankly, if it was the case that giving away cash to the LEAST deserving Australians was the way to grow the economy and ‘raise all ships’, then that is what should happen. These moral judgments about who deserves help, or who will appreciate help more, if taken to the extreme, would lead to national paralysis. We just have to accept that cash will be spread around. Duncan gets some, I get some, we all get some. The balance will change from year to year, and if we don’t like the balance we vote.

    Let’s not make Duncan into a martyr to a lost cause.

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