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March 22nd 2010 print

Peter Smith

Tawdry bribery

Politicians buy votes by spending taxpayers’ money but lose votes by increasing taxes. This presents them with a fiscal problem which they seldom, if ever, solve by spending less.

In government, Tony Abbott plans to raise company taxes to pay for yet another massive welfare entitlement. Mr Abbott is on the conservative side of the Liberal Party? “Are you having a laugh”, Ricky Gervais might say in his TV series Extras.

Mr Costello has spoken out against Abbott’s plan. Well done, I suppose, but to be fair to Mr Abbott, he would not be taking the Liberal Party into virgin territory. Expenditure on social security and welfare doubled during the Howard and Costello years. The pot calling the kettle black springs to mind.

The Abbott plan would put Australia near the top of the OECD league table in providing parental leave entitlements from the public purse. For the moment let us leave aside this latest assault on self-reliance from the Liberal Party and look at from where the taxes are to come. We are told with a straight face that they are to come from companies earning more than $5 million a year in taxable income.

No, they will not, except in some superficial sense. Companies are legal artifacts. In the end result, they don’t pay taxes, people do. The question to be asked is which people. Of course Mr Abbott will have no idea. The incidence of the tax may fall on shareholders (including those with small superannuation balances); on company employees (including those on relatively low incomes); on suppliers to the companies; and/or on customers of the companies concerned. No-one will have any idea how discriminatory, or regressive or progressive the tax will be. No-one will have bothered to try to calculate the additional compliance costs falling on companies and the ATO. No-one will have any idea how a progressive tax of this kind on company income will distort the allocation of resources between companies.

Politicians buy votes by spending taxpayers’ money but lose votes by increasing taxes. This presents them with a fiscal problem which they seldom, if ever, solve by spending less. They either time shift the problem by borrowing or they raise taxes using obfuscating techniques designed to minimise voter backlash. Taxing companies is one of those techniques.

Abbott’s plan typifies government of today; of the left certainly, that is expected, but also, unfortunately, of the so-called right. They have neither the resolve to turn back the ever-expanding and unaffordable entitlement culture that their predecessor governments have been busily nurturing nor the courage to face up to the costs this brings by openly increasing taxes. They resort to unsustainable borrowing or to underhand taxation.

I read in The Australian that Green Senator Sarah Hanson-Young supports Mr Abbott’s parental leave plan. Pointing with approval to Greece among other countries that have expansive parental leave entitlements, Senator Hanson-young  thinks that paying new parents lots of other people’s money will support women’s participation in the workforce. She didn’t explain the mystery of why paying people not to work will encourage them to work. 

There is no mystery of course about why people who have made the choice to have children want other people to pay for them; that’s a good racket to be on. Nor is there any mystery about the Abbott plan. It is yet another example of vote buying by politicians, promising people entitlements, while disguising who will pay for them. This ever-growing culture of entitlement, unaffordable now, will eventually become patently unaffordable, as it already has in Greece. In the meantime, it eats away like a canker at self-reliance, as people who are quite capable of looking after themselves become more and more dependent on the nanny state. It has already contributed to massive debt and plunging saving rates across the industrialized world; and there is no-one in sight, from the conservative side of politics, principled enough to stand against it and try to win elections that way instead of by resorting to tawdry bribery.

Peter Smith, a frequent Quadrant Online contributor, is the author of Bad Economics