Ideas@TheCentre – The Centre for Independent Studies

Ideas@TheCentre

Ideas@TheCentre brings you ammunition for conversations around the table.  3 short articles from CIS researchers emailed every Friday on the issues of the week.

Universal income would cost the earth

Simon Cowan

30 October 2015 | Ideas@TheCentre

2644d604-dcac-41f0-831e-49c2c061c09aOne of my favourite aphorisms is ‘if something looks too good to be true, it probably is’. A government provided universal basic income (UBI) — a regular, non-means tested, cash payment for everyone — is like the Nigerian prince offering you a fortune: the government isn’t giving you money, they want you to take it from you.

Simple arithmetic proves just how unworkable a UBI is. Let’s look at two possibilities.

First, since there is no realistic chance of significantly cutting payments to those on welfare now, assume everyone gets an UBI equal to the current pension. The 2011 census counted 16.5 million Australians 18 and over. At an annual payment of $22,500, the UBI would cost $370 billion ($215 billion more than the current welfare bill).

Those on Newstart, Youth Allowance and Parenting Payments would get a $12 billion increase in welfare due to the difference in those payments rates with the pension, as would most receiving Family Tax Benefits. Everyone else would get a bigger tax bill.

Bigger government, more inefficient taxes, and $200 billion in churn is worse than the status quo.

Alternatively, assume all current funding for social security and welfare is converted to a UBI. The 2015/16 budget allocates $154 billion to social security, which — when divided among 16.5 million Australians — gives a universal income of just under $9,500 a year.

This represents a 30% income cut for those on Newstart, while pensioners would lose nearly 60% of their income. Politically this would be impossible, so supplements would have to be introduced to top these people up to their previous income.

Either you are back to scenario 1 or these supplements are means tested, in which case all you have achieved is to basically replicate our current welfare system (with its administrative costs) PLUS a $9,500 a year payment to millions of people who don’t qualify for (or need) welfare.

That a UBI is a bad idea in practice shouldn’t be a surprise: as a general rule, universal payments and services cost more, grow faster and are much harder to cut (eg health and education). That’s why the Greens love them and that’s why anyone who believes in smaller government has to limit them wherever possible.

Wowser redux

Helen Andrews

30 October 2015 | Ideas@TheCentre

75ecf07a-9692-4ac5-ae40-356985ce63c3Ever read a news article that seems to be from an alternate universe? The Guardian‘s coverage of a recently FOI-ed government report on alcohol advertising felt like that.

For good reason: The ‘shelved report’ in question was produced by the Australian National Preventive Health Agency, which was abolished over a year ago. ANPHA was finalising the report when the Abbott government pulled the plug.

By writing up the story now, the Guardian is giving us a glimpse of an alternate universe where ANPHA was never abolished.

The report’s headline recommendation is that alcohol advertising, which is already heavily restricted, should be banned from one of the few occasions where it is still permitted: daytime sporting events that are broadcast live during weekends and public holidays.

Why? Because “exposure to alcohol advertising …. influences adolescents’ awareness of alcohol brands and their readiness to adopt alcohol consumption as a normal activity.”

Is alcohol consumption not a normal activity?

More importantly, if this purported brainwashing is so harmful to adolescents, then why has the proportion of 12-to-17-year-olds who abstain from alcohol gone up since 2010, from 64% to 72%?

The dressed-up wowserism in this report is a perfect demonstration of why the Abbott government was right to abolish ANPHA and entrust preventive health policymaking to the Department of Health instead. Ideologically motivated semi-science like this does not deserve a government imprimatur.

Busting tax myths of Deloitte

Michael Potter

30 October 2015 | Ideas@TheCentre

50349336-b31d-4d9d-825b-d32752c64d4eDeloitte Australia’s  Mythbusting tax reform report has made a useful contribution to the tax debate, but is misguided in a number of areas.

Deloitte confirms that super tax concessions are nowhere near as large as many commentators argue. I’ve created an interactive graph that shows the Budget cost of the Age Pension compared with the budget cost of superannuation tax concessions under two benchmarks: the income tax benchmark, and the expenditure tax benchmark.

The natural conclusion of this is that it is unwise to slash these concessions — but this is what Deloitte is recommending. If there aren’t large problems with the taxing of super, then it isn’t clear why the system needs as large a change as Deloitte proposes.

Deloitte estimates its changes to the tax on super contributions will increase revenue by $6 billion — and unhelpfully call this tax increase a ‘reform dividend’. A tax impost isn’t a reform dividend. Australia gets a reform dividend if growth increases, and large tax increases won’t generate this growth.

The Deloitte report usefully busts the myths that negative gearing is a tax loophole that is driving property prices through the roof and (correctly) argues negative gearing shouldn’t be removed solely on the basis that rich people are using it.

However there is an inconsistency in the report: it argues the Capital Gains Tax (CGT) discount should be wound back particularly because the discount is more often used by the rich. Consistency would argue that it is poor policy to remove

any tax concession simply because the rich are using it.

Deloitte is also correct in arguing that there should be a CGT discount (to reduce the overtaxation of saving).  But the report does not justify why the current approach is too generous or why their proposed discount of 33⅓% is an improvement.

Deloitte’s report provides some useful analysis for the tax reform debate, arguing that taxes should be lower on saving, and tax rules shouldn’t be changed solely because the rules are used by the rich. However, neither of these arguments justify their proposals for changing the tax treatment of super or capital gains. In busting some myths, they have generated some of their own.