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.
We generally espouse the benefits of limited government. However, there are some occasions when more involvement by government is warranted.
When it comes to Indigenous businesses it is difficult to know what role the government should take and whether it should try and support Indigenous businesses – or get out of their way.
Under its new procurement policy, the federal government hopes to stimulate Indigenous entrepreneurship and provide more opportunities for Indigenous Australians to participate in the economy.
But while the aims are laudable – and supporting Indigenous businesses is preferable to sinking more money into yet another poorly designed program – there are always unintended consequences of any government action.
An article in the Australian this week warned of ‘black cladding’ businesses: those that pretend to be Indigenous in order to win contracts under the federal government’s procurement policy.
In many cases, Indigenous businesses are competing successfully in the open market without any support from government. A recent study of 120 Indigenous businesses leaders found on average their businesses had an annual revenue of $2.7 million and employed about 23 workers, of which approximately 60% were Indigenous.
In fact, sometimes when the government tries to support Indigenous economic development it can create an un-level playing field. Since the NSW Government established their own Aboriginal ranger led ‘Discovery Tours’ a private Aboriginal tour business, operating in the same area, has struggled to stay afloat and reduced its employees from seven to two.
However, there are occasions when governments could be doing more to support Indigenous economic development and are not – for example, the NSW Government’s decision not to build a $300 million rail project on Aboriginal land.
It is a difficult tight rope to walk. But the best thing governments can do to support Indigenous economic development is to create an enabling environment for private enterprise to occur by investing in education and removing red tape and restrictions on land use.
Thanks to a concerted and well-resourced campaign from teachers unions and vocal support from NSW education minister Adrian Piccoli, the ‘Gonski’ school funding model is back on the agenda. Advocates for the ‘I Give a Gonski’ campaign want nothing less than a full implementation of the model devised but never fully funded by the previous Labor government. Budget projections show this would mean an extra $7 billion a year in federal funding in 2019-20 from current estimates, and ever-increasing amounts thereafter, as well as substantial state and territory funding increases.
Federal education minister Simon Birmingham yesterday confirmed what his predecessor Christopher Pyne announced last year – that federal funding would increase from 2017-18 but that it would not necessarily hit ‘Gonski’ levels. However, the minister also said that the federal government will still require a guarantee from states and territories to maintain or increase their own funding to schools and be accountable for the use of the extra federal funds.
As far as many people are concerned, more money for schools is always a good thing. They are not concerned about where the money comes from and how the amounts are calculated. But yet to be answered is how such large school funding increases will be paid for when budgets are already stretched past their limits. Reports this week that if elected the federal Labor party would consider yet more tax hikes on cigarettes to fund the ‘Gonski’ model beggar belief.
It seems intuitively defensible to tax something ‘bad’ to fund something good, but it’s not that simple. So-called sin taxes are usually introduced to induce behaviours that have positive health effects. A tax hike on tobacco that has the effect of forcing people to quit or smoke less will mean less tax revenue and therefore less Gonski money. Smokers are predominantly low income earners. If the tax hike does not affect smoking rates, and the expected revenue is raised, it will be yet another case of taking from the poor with one hand and giving it back with the other.
It seems everyone needs to go back to school to re-learn their sums. Public debate over tax reform has shown a disturbing lack of maths knowledge.
Firstly, we had the Greens arguing that a carbon tax would raise as much revenue as a GST, but with only one third of the cost to households. But where else would the revenue from a carbon tax come from? Thin air? They can’t argue that the cost is borne by business – because then the same argument would apply to the GST. Either business bears the cost of both taxes, or households bear both costs. Either way, the total impact on households would be similar. And exports can’t fill the gap in the Green’s calculations, because Australia’s exports aren’t large enough.
The Coalition also needs remedial lessons. They have argued that tax reform must not increase the tax burden, and tax reform will include compensation for households that don’t pay tax, implying an increase in welfare spending. So taxes won’t increase, but spending will go up – meaning an increase in the budget deficit. But the Coalition has argued the deficit should be reduced. These calculations don’t add up.
Next on the remedial class list is the ALP, who have been arguing that taxes are currently too low compared to 2002, and there were too many tax cuts given in and around 2002. However, the ALP at the time, and more recently in 2011, argued that taxes were are at record highs. Taxes can’t be too low compared to a year when taxes were too high.
ACOSS is also on the list for extra maths lessons. They released modelling arguing the poorest households paid 13.4% of their income in GST. Working out the sums, this means that a household with income around $26,000 has consumption of around $71,000. This doesn’t make sense.
And finally, all tax commentators need to check their sums. The proceeds from a possible GST increase have already been spent multiple times on compensation; personal tax cuts; company tax cuts; reductions in stamp duties; funding for hospitals, education and infrastructure; and to reduce the deficit. This also doesn’t add up – everyone involved in the tax debate should also head back to class.