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Summer 2003

Taxing Question - Jingle in your hip pocket today may become a clanger tomorrow

Federal Treasurer, Peter Costello’s recent announcement that the Government had accumulated a massive surplus of $7.5 billion triggered a debate about how the money should be used.

The issue is about whether the Government should provide tax cuts, or spend the money on improved services?

The surplus, which according to Peter Costello came as a complete surprise, has been accumulated on the back of record taxation receipts and significant under spending on health, education and social services.

There are two parts to the issue of under-spending.

Firstly, there is the money that was actually allocated that wasn't spent. Then there are the other surplus funds on top of this.

I think as workers in those industries, we should be angry that some $300 million allocated to health in the last budget has not been spent.

Likewise in education and social services.

Workers in the health and community services sector have been struggling with inadequate funding for the entire period of this current Federal Government. To acknowledge that this amount of money is left unspent is appalling.

But what are the arguments for and against tax cuts or increased spending of the overall surplus?

You would think tax cuts would put more money into your pocket. But does it? I doubt it.

Although you may initially have a small amount of money from tax cuts in your pocket, that jingly sound could be very short lived.

That jingle in your hip pocket today may become the sounds of a clanger tomorrow.

The money in your hip pocket may be very temporary, as it is quickly ripped out of your back pocket, with you having to pay more later because of the short term thinking of politicians aiming for your hip pocket nerve at election times.

Let's look at what is really happening here.

If the current trend in social policy continues, i.e. less money for public health, more pressure on people to take out private insurance, limiting access to public health services to health care card holders, higher costs for education etc, then much of the extra money from a tax cut will go on purchasing services you used to get from your tax.

If fact, you may be even paying more, particularly if they are being provided by the private sector, where there is a profit margin.

To avoid this, many people will, as a result, not use services. They won't go to the doctors if they can avoid it. Or they will leave it till they have to. Some will turn away from higher education and other training options because of the cost.

And, of course, as everyone knows, the economics of preventative health mean a dollar spent on health sooner means heading off demands for a lot more expensive treatments later.

In my view, the same applies to education. The more we spend today on education, the better off our society will be later, as our investments in a smart country start to pay off.

So there are issues about illusory money, and the timeliness of spending money.

And then there's the other aspect of tax cuts. Who benefits from tax cuts?

Obviously those who pay tax benefit from tax cuts. But, AND IT'S A BIG BUT, the more you earn, the more tax you pay, the greater the value of the tax cut.

Higher income earners, in fact, gain the greatest benefit.

Those people who do not pay tax, e.g. the unemployed, pensioners etc gain no benefit at all from a tax cut. Yet they still have to pay the higher costs for health care and education.

Now where is the fairness in that?

Doesn't this point to a situation where the lowest income earners get the least benefit, then forcing them into avoiding proper and timely health care and restricting their access to further education?

Workers in the health and community services industries are only too aware of the funding crisis facing these services.

Aged care is desperately in need of additional funds to maintain existing services and to meet the ever-increasing demand for new services.

The same can be said for disability services, public hospitals and dental care.

I think there are a lot of good reasons we should be looking at spending the surplus on services now, rather than waiting to give away tax cuts at election times.

Tax cuts may be the ultimate election sweetener, which Howard uses to win another election. But I would urge all Tasmanians to think carefully about what is the more equitable distribution of the surplus and what further tax cuts will mean to an already cash strapped social service system.

And remember one person's tax cut is another's loss of service.