Opinion & Commentary
Polies teach us to pick our own pockets
Victorian families, rejoice! As a result of John Brumby's latest budget, all parents in the state are to be given $300 for each child starting primary school, and another $300 for each child entering year 7.
The first payments will be made before the state election in November, so parents will be able to show their appreciation in the usual way — through the ballot box.
This latest instance of politicians' generosity with other people's money will cost $182 million over the next five years. Every parent in the state will benefit, for the payments are being made irrespective of income and regardless of whether pupils are attending a private or public school.
Brumby told State Parliament the money was to "support families and highlight the importance of education".
Few of the lucky recipients of this beneficence are likely to pause to ask where the money is coming from. But they should, for most of them will be paying for their own handouts.
That $182 million will come from the State Government's receipts from GST, property taxes, stamp duties, payroll taxes, and sales revenues. But everyone pays GST every time they make a purchase. Many families also pay property taxes (home buyers pay stamp duties and tenants pay for land taxes as part of their rent). And almost everyone ends up paying for payroll taxes too, because, although these are levied on employers, they get passed on as reduced wages or higher prices.
What the Government is proposing, therefore, is to take your money from one pocket and (provided you have children of the right age), stuff it back into another.
Economists refer to this sort of policy as "tax-welfare churning" because, as in a butter churn, the money pours in, is swirled around the bureaucratic machine, and is then dispensed whence it came. Nobody ends up better off. If your child is of the eligible age, you might gain a bit this year, but you simply pay more in various state taxes next year to make up for it.
Indeed, in net terms, you will almost certainly lose over time, even if you have children of the right age, for tax-welfare churning is costly. It costs millions of dollars to collect taxes, and millions more to dispense the money to those the Government decides to favour. Also, the higher taxes required to fund more handouts depress economic activity (every additional $1 of tax raised takes at least $1.20 out of the economy). So, every time politicians decide to "help" some section of voters, they are reducing the size of the kitty from which they are taking the cash.
It's not just the economic cost of churning that makes such policies so objectionable, however. It's also the social and political cost. For the more the Government assumes responsibility for giving us money, the more we are encouraged to give up responsibility for ourselves.
Bit by bit, Australians are becoming ever more dependent on governments to give them things they used to provide for themselves. And, the worst culprits are not the states but the Federal Government. Payments such as the family tax benefit are now a major source of churning, for families pay heavy income taxes and then claw much of the money back in Government handouts. Brumby has simply taken a page from the Federal Government's election book.
Why does this matter? Because it fosters a craven attitude of dependency on politicians. Whenever we need anything, we are increasingly encouraged to turn to politicians to provide it. At budget time treasurers drip-feed us with shiny baubles; and at elections, parties compete to offer us goodies in the hope we will sell our votes to the highest bidder.
All this raises spending and taxes, but the biggest cost is counted in the loss of dignity and self-reliance as we scramble for the Government handouts. Our independence is being traded to politicians who are using our money to make us dependent on them. The only people who will gain from this transaction are the politicians, because, as their budgets swell, their powers of patronage expand. Everyone else will lose in the long run.
So thanks, Mr Brumby, but no thanks. Instead of dreaming up schemes for giving us own money back, concentrate on cutting taxes so we can keep more of our own cash in the first place.
Professor Peter Saunders is social research director at The Centre for Independent Studies.
