Ignorance a road block to reform

The government has been successful in passing its complete tax package, which will reduce tax paid at almost every income level over the course of the next seven years. It has done so in the face of opposition from Labor and the Greens, who among other things, objected to benefits being provided to high income earners.

There is evidence to suggest the voters’ view of the Coalition’s broader tax package is at least mixed. A Fairfax Ipsos poll from May suggested a majority of voters would have preferred the government pay down debt before giving tax cuts. A Guardian Essential poll found that while nearly 80% supported low and middle income tax cuts, only 37% of people supported the last stage that would also benefit high income earners.

Labor has committed to rolling back part of the package if elected to government.

While it may be tempting to simply write the opposition to tax cuts off as the politics of envy, there are also deeper issues at play here.

One big issue is simple ignorance. An exclusive YouGov poll of 1,000 millennials commissioned by the CIS found that 62% of respondents thought workers are worse off now than they were 40 years ago. Just 32% correctly identified that living standards for Australian workers have increased significantly in the past 40 years.

In fact, NATSEM modelling found that percentage growth in equivalised household incomes of the bottom two quintiles exceeded that of the top quintile between 1984 and 2010. Real incomes increased by 27% for the bottom 20% of households and 31% for the next 20%.

Even more troubling, 56% of millennials thought Australia currently spends less on health and education in real terms than we did 10 years ago. Only 30% knew that Australia now spends substantially more in both areas than we did 10 years ago. The remaining 14% at least admitted they didn’t know the facts.

In fact, according to 2015/16 data released by the Australian Institute of Health and Welfare last year, far from falling, real growth in health spending over the decade to 2015/16 averaged 4.4% per year.

Similarly in education, a 2017 Productivity Commission report noted that real per-student funding at the federal and state level grew by more than 15% between 2005-06 and 2014-15. And school funding is still increasing, even if not at the rate promised under the so-called ‘full Gonski’.

While these poll findings are limited to millennials, there are good reasons to fear this ignorance extends beyond just young voters. For example, there are widespread misunderstandings about what elements of the welfare system cost the most.

There is little doubt this ignorance extends to understanding the tax system as well.

Too many voters think the wealthy pay little or no tax, when the truth is the top 10% of income earners pay 45% of net personal income tax. Estimates of corporate tax avoidance released this week suggest $16 billion in profits are diverted offshore. Yet this represents just 7% of estimated corporate revenue.

The trick of reporting cost in nominal terms, often aggregated over a decade, is designed to make things seem worse than they really are and effectively prey on low income voters. For example, the reported cost of the government tax package is $144 billion over the next decade. This sounds like a lot of money, but it should be put in perspective.

Total annual tax receipts are expected to grow by more than $100 billion in just the four years between 2017/18 and 2021-22, even including the cost of the initial stages of the government’s tax cuts. Annual Income tax receipts alone will grow by more than $50 billion in that period.

Total tax receipts between 2018-19 and 2021-22 are just shy of $2 trillion, suggesting a 10-year revenue figure of at least $5 trillion. Suddenly, handing just 3% of that back to taxpayers seems miserly, not generous.

Reasonable people can still disagree on the appropriate scope of tax reform, or the level of spending on health, welfare and education that is appropriate for Australia. However, that doesn’t cover opposition to tax cuts based on the erroneous belief that governments have cut spending in these areas in real terms, while giving handouts to millionaires who allegedly don’t pay tax.

Advocates for reform on both sides definitely need to spend more time informing people of the facts.

Simon Cowan is Research Director at the Centre for Independent Studies, which this week released the paper Millennials and Socialism: Australian youth are lurching to left.