Why we love a handout

I’ve been thinking a bit about tax today, mostly prompted by listening to a spokesdrone from the Business Council of Australia outline their submission to the Henry Review on Radio National this morning. Unsurprisingly he was arguing that the company tax and capital gains tax rates should be slashed and the GST increased, the same tune that the BCA usually sings, but it was enough to start me thinking.

There’s a lot of tax churn in our system, taking money with one hand and then giving it back to a particular demographic that’s politically useful. Possum Comitatus has looked before at the way that voters receiving Family Tax Benefit Part A impact the ALP vote but it’s certainly not the only game in town. Baby bonuses, first home buyer’s grants and funding grants to private schools are just a few more examples of people being handed back their own tax almost directly, albeit expensively, after multiple government departments have had to administer the payments.

In addition to handouts, our tax system also has a huge number of exceptions built into it so that people can claim certain expenses against their income tax. There’s a fairly good argument that can be made that we’d all be better off if we cut out tax deductions, government handouts and the cost of administering them, and cut everyone’s tax rate to offset it all. I’m fairly sure that if you put that proposition to almost anyone they’d tell you it was a great idea, however neither side of Australian politics seems to be rushing to embrace it as a policy. Why not?

You could argue that the ‘tax and spend lefties’ in the ALP aren’t interested in it because they have a fundamental addiction to stealing people’s money, but this doesn’t explain why the ‘small government’ Liberal Party didn’t do it during their eleven years in power. In fact, during the Howard years middle class welfare boomed seemingly counter to one of the traditional philosophies of conservative politics.

The simple answer is that everyone loves a handout, a windfall, free money. There’s perhaps no better example of this than pensioner lobby groups who argued after the 2008 budget that an increase in the pension equal to the Howard government’s annual pension bonus payment was not an acceptable policy change, there’s something that we like about receiving a lump sum payment.

But why are we so enamoured with getting a wad of cash rather than receiving the same amount of money, or potentially even more over a longer period of time? Certainly there’s an element of the desire for instant gratification, but I think that there’s more to it than that.

I think that a lot of us have simply lost the ability to manage our personal finances, tax time is an opportunity to undo all of the reckless financial decisions of the preceding year and go through the ritual paying off of the credit card balance. It’s no secret that many of us spend more than we earn, so without these little income supplements through the year plenty of people would be in a lot of trouble. Increasing people’s regular income wouldn’t fix the problem, it just changes the point at which they get over their heads, so in effect the taxation system has become a forced method of saving for people. While this is the case there is no chance of either major party making serious changes to the tax churn that people have not only come to expect, but have come to depend on.

If we are going to seriously reform our taxation system to make it more efficient and less complicated, we will also need to help better educate people about their personal finances. This is no small task, it took me ten years of working and making mortgage payments before I truly came to grips with our household budget, and it took the help of a professional financial planner to do it. There’s no ad campaign or series of brochures that’ll suddenly make the populace financially literate and so I fear that until we find another way to achieve it we’ll be saddled with the churning of our taxes.

16 thoughts on “Why we love a handout

  1. From where I stand, Dave, the best tax reform would be to increase to GST to, say, 30% and at the same time cut ALL income tax. I witnessed this in Sweden. Everybody seemed pretty happy about there being a level playing field, tax-wise.

    Yes,it is also my opinion that the dreaded “spending more than we earn” culture needs serious addressing. I applaud anyone who breaks the viscious cycle and becomes a sensible, educated consumer.

  2. Putting aside the fact that raising the GST is political suicide, a blanket increase in the GST is probably the most unfair tax system around. Folks on low income spend all of their money to live. Therefore all of their expenses are taxed. The richer folks don’t, they invest. Therefore they not only get the advantage of making tax free investments, they don’t pay any tax on the income made. You will soon see a vast class divide as the lower income earners will not break the shackles and the rich, well they will be fabulously rich.

    The argument for tax and spend is that the government can better target spending where necessary. This of course assumes no pork barrel spending. It also allows for the government to create incentives in differing areas of the market when necessary.

  3. Well, Lee, from what I witnessed in Sweden, your counter arguments against raising the GST and abolishing income tax sound very hollow.

  4. Off topic Dave, but when you get back from ‘Shitsville’ in the mountains how about a report on the ‘booming’ Falls Creek tourism as reported elsewhere?

    From what I can see on the web cams there’s hardly any one up there, or at Hotham, despite the amount of snow and despite all the hype the resorts are putting out.

    As for the weekend, well we get a pretty good idea of the amount of traffic going up & down as it passes our door. It was very quiet.

  5. Sorry jr, I overlooked your compelling argument that everyone ‘seemed’ pretty happy in Sweden. By the way, do you happen to know where I can sign up for the communist party? I watched the Beijing Olympics, and all of the locals seemed really happy.

    I know it was foolish, and probably a grand waste of time to bother mounting a counter argument to the indisputable ‘seems’ defence, but I thought what the hell and did a google search anyway. Seems that Sweden does have income tax (in 2004 anyway -http://www.researchinsweden.se/upload/External%20Documents/taxbrochure.pdf) – everyone pays a municipal tax (between 29 and 35% depending on here you live). The rich (people earning above a massive $46,000.00au) get to pay an additional tax of 25 – 30%. It gets better. If you and your children own more that 1,500,000 krona of capital ($242,000AU), you have to pay an additional 1.5% ‘wealth tax’. Everyone also pays 7% contribution towards state welfare.

    Now this tax system, like ours, is progressive, so it is not as bad as it seems. It does however, put the top tax rate well above 50%. This is in addition to gift, land and VAT tax at 25%. If you can convince the Australian population to contribute over 50% of the GDP in taxes, then maybe we wil all seem happy too. If the Swedes are happy I suspect that it is not because everyone shares the burden of income tax, but rather that most of the women look like Tiger Wood’s missis.

    Now I’m not saying that my arguments are not hollow, nor am I discounting your experience in Sweden. What I am doing is questioning which Sweden you went to?


    There’s Sweden and then there’s Sweden, but I’ll deal with that in a minute.

    The Sweden you use in your example has a tax system as you say, so my humble apology is offered on the basis that my information was up the creek.

    Now what else was there …

  7. I have the most pathetically polite bunch of commenters on the entire internet.

    Hello !!!!

    Look JR, if Sweden’s tax regime is so good why don’t you, Freda & Bjorn move over there permanently? Think of the free sex!

    As for G.S.Fckn.T. it is a tax designed to benefit the wealthy, full stop. Do you know that many top execs do not even pay it? What happens is this: As part of their salaries they get a credit card on which they purchase all their consumables that would attract GST. The employer pays the account … and then claims the GST paid as a credit! So that means the like of Sol’s grocery bill was subsidsed by the poor.

    GST is a blight.

  8. I’m pretty sure that the execs would have to pay FBT on the credit card payment. And just to keep Dave happy – Fuck you!

  9. Huh? I was agreeing with you, Lee! May the Swedish Vikings invade your home and rape & pillage you.

    FBT is paid by companies, not by employees.

  10. And even if the FBT is paid by the employee as part of his salary, he’s still escaping the GST net because the FBT would be on the net amount the company paid. The company is reducing its GST liability too. It’s a win/win/lose situation. The company & the exec win, the poorer people lose.

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