We’ve all heard it. The confident declaration by a friend, relative or work colleague that the country is being ruined by all the dole bludgers out there; people living all too well off the money we earn and they don’t.
The problem is, it’s just not true. You know the dole and other allowances paid to the unemployed are too low when the Business Council of Australia and one of the country’s leading conservative economists are in lockstep with the Australian Council of Social Services and even the Greens in insisting Newstart payments be lifted by at least $50 /week.
This week Chris Richardson of Deloitte Access Economics – yes the mob the Coalition parties regularly employ to do their economic modelling – had this to say about the Newstart and Youth Allowances.
“It is our standout failure as a nation…We don’t have a dole-bludger problem — what we have is a society that is unnecessarily cruel”
In 2012 the Business Council of Australia made a submission to a government inquiry in which it argued that
The rate of the Newstart Allowance for jobseekers no longer meets a reasonable community standard of adequacy and may now be so low as to represent a barrier to employment.
Given there has been no lift in the real level of the payment since then they are still arguing this. Last year, for example, the president of the BCA continued to make the case.
The inadequacy of payments was demonstrated by research at the UNSW. In 2017 the researchers identified the living costs of households where the adults were unemployed and found that in every case unemployment benefits were not sufficient.
So far from dole bludgers living the life of Riley on our hard earned taxes, the reality is stated by Cassandra Goldie of ACOSS
“If you cannot get paid work and you are relying on income support you’re living in poverty, you do not have enough to make ends meet, to cover even the basics,”
As the budget is handed down next week the BCA, ACOSS and Chris Richardson are not likely to agree on many things, but they all agree on this: unemployments benefits must rise and that we can afford it.
“In a country like Australia where we are overall one of the most wealthy countries in the world, none of us should accept that we cannot afford a social security safety net.
On Q&A last Monday night assistant treasurer Kelly O’Dwyer tried to explain to a man on a very low income why it was better for the government to spend $50 billion providing tax cuts to companies than it was to provide tax cuts to low income earners. The argument essentially boiled down to this: lower tax rates will leave companies with more money to invest employing people. Or as a Treasury paper put it
For a small open economy, such as Australia, per capita income is determined by the level of its terms of trade, labour productivity, labour force participation and population. Australia’s terms of trade, labour force participation and population growth are expected to be flat or declining in the foreseeable future which implies any improvement in Australia’s living standards must be driven by a high level of labour productivity.
This paper shows a company income tax can do that…by lowering the before tax cost of capital. This encourages investment, which in turn increases the capital stock and labour productivity
At least that’s what economic models show. What about real-world experience? The Australia Institute has released a paper that suggests in a real world things don’t operate anything like the economic models suggest they should. Check out the charts below. They show that in Australia’s experience cutting company taxes has not produced the bonanzas that are promised. Figure 1 shows that there is very little correlation between company tax rate and the rate of economic growth. Countries with the highest economic growth range from those with very low company tax through to very high company tax. Figure 4 shows how company tax rate and real GDP growth have tracked in Australia over time. bizarrely, if anything, lower company tax rates been associated with lower growth in GDP. Figure 3 shows that declining corporate tax rates have not led to an increase in real capital investment.
I’m not an economist and there may well be explanations for these trends that is compatible with the notion that decreasing company tax rates is beneficial, but the Australian Institute is not alone in its argument. An article by economist Jim Stanford in March new Matilda suggests a similar result in Canada. Between 2007 and 2015 company tax in Canada was cut from 21% to 15%, an enormous cut by any measure. In the same period business investment flatlined as a proportion of GDP.
So if that $50 billion over the next 10 years is not actually producing any benefit to the wider economy, where is the money going, Hmmm…straight out of the pockets of the Australian public and into the bank accounts of shareholders. I reckon there are better ways we could use 50 billion bucks.
Our new treasurer, Scott Morrison, stated this week that “you can’t tax your way to surplus”. It’s become something of an orthodoxy on the conservative side of politics, but when you stop to think about it, it’s a ridiculous statement. The only way the government gains revenue is by taxing people, goods and services, and businesses, so the only way the government will ever pay Australia’s debt is through taxation. The question is not whether we will use taxes to pay debt but what is the correct level of taxation that will allow us to both provide the services we value and repay the debts we have accumulated.
By international standards, tax levels in Australia are exceptionally low. The chart below shows the latest data provided by the OECD, with the figures for 2012. As you can see, total taxes collected across all levels of government amounted to just over 27% of Australia’s national income, giving us the seventh lowest tax take out of the 32 OECD nations and putting us 6.4% below the OECD average.
Ever since the rise of industrialised economies, there has been a trend for citizens to expect more and more of their governments. For example, schools, hospitals and welfare services were once run by churches and other charitable groups but are now the domain of government. In this context it is not unreasonable to suggest that as we demand more services of government, that the share of national income collected by the government as taxation will increase. If, for argument’s sake, we increased our total tax revenue to the OECD average, we would have an instantaneous surplus of around 4% of GDP, or around $66 billion. This could be used to repay our national debt more quickly or to provide increased services.
This would not damage the economy. Given debt repayments are already planned into the budget, any additional taxation could be used to continue funding existing services and to increase expenditure on other areas. In other words, the money isn’t withdrawn from the economy but circulated through it in a different fashion, and so would stimulate demand, create jobs, and more.
Scott Morrison’s mantra is not economics but ideology. The question is not whether we will tax our way to surplus, but whether we will reduce, maintain or expand the services government provides as we do so.