Here comes the challenge for policymakers. Undoubtedly, these things are all expensive and that is where the policy problems start to get messy, namely where to raise tax and other revenue to fund these if, as is necessary, the budget is in balance over the course of the business cycle.
A recent Per Capita Tax Survey showed that most people don’t mind paying tax to fund these services with the proviso that others in the community pay their fair share.
And this is probably at the nub of the whole political and policy issue. Australia’s tax system is reasonably fair, but there is room for improvement. For wage and salary earners tax is not only paid on incomes, but a further 10 per cent is slugged in the form of the GST, plus there is other tax paid when you buy petrol, cigarettes, alcohol or a luxury car. The overall tax rate for someone earning, say, $80,000 a year, is relatively high.
It can be argued that it is high because the tax system is not progressive enough. The top marginal tax rate applies to just three per cent of income earners. Lowering the threshold would capture more revenue from those earning multiples of average earnings. But lowering the top threshold is not on the political agenda, even though such revenue would help fund what voters want.
Another big issue is company tax and not only for Australian-based firms but to foreign entities that through a myriad of cute and complex tax arrangements end up paying effectively little or no tax in Australia. Through these loose tax laws, businesses are not paying their fair share, which annoys voters and creates other problems for the government as the move to budget surplus is thwarted.
At this point, the current government has been a poor manager when it tries to manage overarching policy issues.
The government has a platform to dramatically cut the company tax rate and it is funding this by cutting education funding, tightening up on health, raising the cost of university education, cutting trades training funding — some of the very things people want — plus borrowing at a record pace, putting the triple-A credit rating under threat. It is little wonder they remain well behind in the public opinion polls.
The good news is that history shows that the funding of services people want has been tackled with sensible policy changes.
Compulsory superannuation is reducing the number of people who receive the age pension. The Medicare levy raises revenue to at least partially fund the health system and disability insurance. The HECS (or HELP) scheme enhances access to university education while providing some cost recovery. The goods and services tax improved the efficiency of the tax system and collects a significant proportion of overall revenue.
It appears that the Labor Party understands the message. It is aiming to provide better services and is doing so by trimming the absurdly unfair tax concessions of negative gearing for established dwellings and reducing the capital gains tax concessions that overwhelmingly favour those on high incomes. While there is still a lot of detail to be fleshed out in the lead into the next election, it appears that Labor will fund its extra spending by these and other revenue measures including a hike to the top income tax rate.
Even this far out from the next election, it seems a winning strategy.
More revenue measures may be needed, but with the election still around two years away, the policy agenda of both sides of politics will slowly evolve. Suffice to say, the party that can argue for fair tax measures, to fund the things people want, will romp in.