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Henry Thornton - Politics: A discussion of economic, social and political issues A Tax By Any Other Name Date 31/01/2011
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Because politicians know voters don't like tax increases, Julia Gillard won't be imposing a flood tax. Instead, as she announced last week, there will be a temporary "levy."
By John Roskam Email / Print

(Henry Thornton and the IPA are currently offering a joint subscription of $80 for a year's membership to both Henry Thornton and the IPA. Visit Henry's Shoppe to sign up.)


Because politicians know voters don't like tax increases, Julia Gillard won't be imposing a Flood Tax. Instead, as she announced last week, there will be a temporary "levy."

The fact that voters usually oppose higher taxes hasn't stopped the Prime Minister - all that has happened is it has forced her to think of a name for the impost that doesn't have the word "tax" in it.

As the radical pamphleteer Thomas Paine noted as long ago as 1776, often when ministers are intent on doing something the public might not like, ministers don't change course, they just find a more clever way of doing it.

"For the fate of Charles the First hath only made kings more subtle - not more just."

It's not because of the floods that we've got a Flood Tax. It's because of the Rudd/Gillard Government's spending profligacy that we're now in the situation that the Federal Government can't afford the estimated $5.6 billion needed for the reconstruction effort.

The Flood Tax is estimated to raise $1.8 billion. To put that amount into perspective, Labor's plague-ridden school hall building program cost $16.2 billion. If the money wasted on the school building program had been saved there would be no need for the Flood Tax.

The cash bonuses paid during 2009 - the $950 payment for people to spend in shopping malls - were worth $12 billion.

Total spending by the Federal Government for the current financial year (2010/11) is about $355 billion. And then, of course, there's the $40 billion for the National Broadband Network (NBN).

Anyone who's going to be paying the Flood Tax, that is anyone earning more than $50,000 a year, is entitled to ask how hard Prime Minister Gillard and Treasurer Wayne Swan looked when they searched for alternatives to a Flood Tax.

Aside from raising the money for flood recovery, there's the matter of how effectively any of this money is going to be spent. Based on the Rudd/Gillard Government's track record, there's no cause for confidence - $5.6 billion of infrastructure spending provides ministers and departments with 5,600 million different ways to squander that money.

However, one good thing could come out of the Flood Tax. People will now be forced to directly face the consequences of the Rudd/Gillard Government's financial mismanagement.

Until now debates about the Federal Budget have been fairly esoteric to most of the electorate. Voters have been able to leave it to the economists to argue about the impact of the Budget deficit on interest rates, and whether the Budget should return to surplus in 2012-13.

Now all of that has changed. The Flood Tax is going to directly hit the hip-pockets of tens of thousands of families who regard themselves as middle class.

Some of those 'working families' might start asking some basic questions. Such as, for example, why it is the Federal Budget is in deficit in the first place.

It wasn't the Global Financial Crisis (GFC) that plunged the Federal Budget from a healthy surplus into a massive deficit - it was the deliberate policy decisions of the Labor Government, urged on by a panicked Treasury Department.

As we know, most of the Rudd/Gillard Government's stimulus spending was unnecessary. And this is not a statement with the benefit of hindsight. A handful of economists said at the time that the size and kind of stimulus spending was not needed.

As Sinclair Davidson identified last year (2010) analysis of the economic performance of the countries in the Group of 20 (G-20) since the Global Financial Crisis reveals no statistically significant relationship between the size of stimulus packages and economic recovery. 'Working families' might also ask why taxes are increasing if the Australian economy is as strong as the Gillard Government says it is.

It was only on Tuesday this week that in response to the World Economic Outlook statement of the International Monetary Fund (IMF), Treasurer Wayne Swan talked about his "confidence in our own economic outlook" and how "Australia's strict fiscal discipline" would place the economy in a better position than those of many other advanced countries.

The same 'working families' paying the Flood Tax are those already struggling under the weight of higher food prices and bigger power and water bills. And a "carbon price" (to which the Prime Minister is still committed) is yet to come.

It would be a brave and subtle government that attempted to introduce first a Flood Tax and then a Carbon Tax. It wasn't so long ago that the Labor Party made great play with the slogan that it would look after "working families."

Originally published in the Australian Financial Review, 28 January 2011,

John Roskam is the Executive Director of the Institute of Public Affairs (IPA).

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