Balneus

Australian Lefty on Politics, Governance, Science and Info Management

Howard and Rudd prevent choice by voters

Posted by Dave Bath on 2007-10-24


While touting a philosophical preference for individual choice, Howard (and Rudd) have decided to limit the choice of individuals about what to do with 30-odd billion dollars.

The choice removed from electors is to spend that money on programs or infrastructure in the national interest to the benefit of all.  Such choices about expenditure are not available to individuals through mere tax cuts.

What would enable true choice for electors is the ability to hypothecate a proportion of that $30B to tax cuts and/or a selection of government programs.

As a rough example, imagine each elector had the ability to allocate 10 "points" across tax cuts, health, transport, education, science, defence, green energy, aid via the UN, or even individual programs nominated by the politicians such as Rudd’s "laptops for students" program.  Some areas could be "split", such as government-sector education versus private-sector education.  Another choice might indicate the money was to be set aside to improve the budget balance.

An elector might allocate 4 for tax cuts, 3 for health, and 3 for education.  These responses could be munged to calculate the dollars from the pool that would be given to the areas, above and beyond the allocations already set aside for those purposes by the government in the budget.

In the light of game theory, it is unlikely that tax cuts would get many points allocated to them compared to spending that benefits all, such as health and education.  Those on low incomes, realizing that their proportion of a tax-cut pool is much smaller than the benefit to a wealthy individual, would vote for those programs that gave them proportionally more benefit than the wealthy – e.g. state education or public hospitals, rather than funds to private-schools or health-fund rebates.

It’s fairly obvious that tax cuts would get no votes from those who pay little or no tax anyway, either because they are pensioners, or because they are wealthy enough to afford the best legal and accounting advice on tax matters.

I’ll admit this is only a straw-man version of a proposal for hypothecation of government spending by electors, and doubtless there are many rough edges to be addressed, like how the various options are developed, and avoiding pre-emptive budget cuts to health because the government expects a large hypothecation to be directed that way.

This approach also enables a new form of pledge from the major parties at election time: to increase or decrease the percentage of government revenue available for hypothecation by electors.


Notes:

  • By "straw man", I mean a very rough draft, in a series of increasing sophistication and robustness that goes through "wood man", "iron man" and "titanium man".
  • I’d be interested in hearing from readers any ideas as to what sort of categories could be included for hypothecation, how the categories could be put forward in a relatively apolitical way rather than merely nominated by the executive, and what might be the maximum percentage of government revenue that should be assigned to hypothecated programs.
  • To put the $34B promised by the Howard/Costello team into context, this is 3.4% of our trillion dollar GDP, about twice the budget surplus for the last year.  Looking at it this way, both Howard and Rudd are being exceptionally cavalier with the budget and should be considered fiscally irresponsible. (Budget balance is currently about 1.5% of GDP or A$14B.  Two years ago it was about 0.5% of GDP.)
  • If governments wish to introduce electronic voting, it would be reasonable to have it for the hypothecation component of an election, while leaving the election of parliamentarians as-is.  This would undoubtedly give psephological journalists more to talk about early in election-night coverage.
  • A useful spin-off is that candidates and sitting members would not only argue for election by using core and non-core bribes, but would engage in real policy debate by promoting one hypothecation category over another.

See Also:

  • "Economic Incentives and Tax Hypothecation" (2003) by Duncan and Jones of the University of York
  • Conscientious objection to military taxation (Wikipedia) discusses proposed (since 1972) US legislation, the Religious Freedom Peace Tax Fund Act, that moves taxes from military to UNICEF funding
  • Victorian Parliamentary Inquiry (1998) into Federal-State Relations discusses hypothecation.
  • VicHealth Funding Model (2006) discusses funding of an agency of government by hypothecated tax (5% of tobacco sales) since 1987, rather than the tax go into general revenue.
  • Tax price effects on attitudes to hypothecated increases (1998 – abstract) from the UK Institute of Fiscal Studies (1998)
  • Tax concessions or subsidies by Nicholas Gruen (Club Troppo 2007-10-23) discusses the difference between tax credits and direct subsidies, which addresses the issue of poor/rich selection of money in their pocket versus subsidising service provision directly, as well as compulsory super, which is a bit like an hypothecated tax (although on an individual basis rather than via a pool).
  • The Case For Increased Taxation by Michael Keating (in a paper published by the Academy of Social Sciences in Australia) discusses, among other things, hypothecation, including the following:

    Unfortunately the link between taxation and citizenship has been broken.  The result is a lop-sided debate about taxation, with governments under constant pressure to promise lower taxes with little regard for the consequences.  In the end these promises are frequently exposed as hollow, and public cynicism about the political process further increases.  …   Second, hypothecation or earmarking of taxes to finance specific expenditures can make it easier to raise those taxes as the connection between the extra revenue and how it will be spent is then clearly established.   …   By contrast neo-liberals have often supported revenue hypothecation precisely because it limits the power of government, especially when each tax, and its accompanying expenditure, is set by a citizens’ referendum.  …   It is now timely to reconsider these competing considerations with respect to hypothecation of taxes.


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One Response to “Howard and Rudd prevent choice by voters”

  1. […] Posts Howard and Rudd prevent choice by votersCentrelink gets bad audit reportPollies should give spreadsheets with pledgesReview of Citizenship […]

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