Four really awesome, quite left-wing ideas from the Commission of Audit

1. Letting states raise income tax to pay for services.

States have responsibility for things people really care about, like schools. 

The Commission proposes dividing up the ability to levy income taxes between states and the federal government. (States lost this power in WW2). States would start off with a 10 per cent rate, which they could then move up or down. If implemented in Australia, there’s plenty of reasons to believe this would result in higher taxes and higher quality of services. People move house to access better schools all the time. State governments live and die on stories about ambulance waiting times.

Competitive federalism is a classically liberal idea. But these days one could argue the left, broadly defined, has as much claim as anyone to be the custodian of that tradition. Providing the right amount of government services efficiently is as much a left-wing idea now as right.

You give your money to the federal government they will only spend it on fighter jets and diplomats. You give money to state governments, they spend it on schools and hospitals, roads and transport. 

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The states have been, in the last 50 years, more red than blue. Anyone who doubted states leaned left before the last SA election got a big surprise when they gave Labor another chance. Putting more tax and spending power in the hands of a demonstrably more left-wing level of government will likely lead to more spending on – and better outcomes in – health and education.

If we had a lot of border towns, there would be big risks of distortion where states had different tax policies.  Luckily most Australian population centres are far from the borders. The Gold Coast (QLD) is the closest big town to a border, being 23km from Tweed Heads (NSW).  

This idea is the only really big game changer in the whole report. Every thing else is about levels of spending or ownership of entities. This one is about the fundamentals of our Commonwealth, and it is not a bad idea. Locating responsibility for expenditure and responsibility for taxation in the same level of government makes perfect sense. Of course commentators are opposed, and it will be, ahem, looming understatement, tricky to get off the ground.

2. Paid Parental Leave to clock out at incomes of $58,000, but keep the surcharge on the profits of big business. 

This week, Tony Abbott cut maximum wage matching for the PPL from $150,000 to $100,000. (I estimated this would impact the payments of around 5400 women.) The audit commission argues it should be far lower, at Average Weekly Earnings, or $57,460. But the tax introduced to pay for the scheme should be retained, it argues, and spent on child care.

No upper middle class welfare, and higher taxes on big business? It’s like Bob Brown himself wrote this part of the Commission’s report.

3.  Cutting a promised boost to Defence spending.

The Government, in its madness, has promised to boost defence spending to 2 per cent of GDP. Why 2 per cent? Not because that’s proven to be the level we need to keep the barbarians from the gate, but just because.

The Commission rightly argues we should choose our spending level based on strategic and fiscal need, not on easily memorable even prime numbers. (It then waters down the strategy-first argument by saying the government should prioritise: “reducing the staffing size of Defence headquarters in Canberra, including senior staff, to 1998 levels;”).Nevertheless, the government’s 2 per cent of GDP pledge is a shocker of an idea, and the Audit rightly sends it out on to the firing range where it belongs

4. Benchmarking the ABC.

Now, this one is a bit of a stretch. The government is clearly looking for opportunities to cut. But if you benchmark honestly, and compare the ABC to its peers, you’re going to find it hard to do anything but conclude they are very very frugal and represent a good return on investment.

This excellent analysis finds the ABC spends 14c per Australian per day. The BBC gets 39c per Briton per day. Canada’s public broadcaster also gets 14c a day, but it has advertisements. The ABC, is the runaway winner. The article adds that it is 4 per cent of the price of subscribing Foxtel.

The ABC gets $1.2 billion in revenue, which it uses to run 12 radio stations, a 24 hour news channel, two main channels, a kids station, an international station called Australia Network, abc news and opinion online, etc. Channel 7 has revenue of just over $1.2 billion, which it earns for running 7, 7Two and 7Mate. 

While the ABC pays its top stars up to $356,000, I have it on impeccable authority that ABC Melbourne journalists have to BYO teabags to work.

I cannot imagine how a benchmarking exercise would find anything other than great opportunities to invest in the ABC.

The Commission of Audit report contains some other ideas I regard as excellent, like cuts to industry assistance, better e-government and slashing the hell out of DFAT. It also contains ideas I oppose wholly, like restricting access to Medicare, and cutting the minimum wage.

The full set of Phase One recommendations is here. Use the comments section to let me know any other parts that catch your eye!

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thomasthethinkengine

Thomas the Think Engine is the blog of a trained economist. It comes to you from Melbourne Australia.

6 thoughts on “Four really awesome, quite left-wing ideas from the Commission of Audit”

  1. It also explicitly rules out the best ideas like proportionately taxing superannuation and reducing diesel excise which in and of themselves would gain the same level of savings as the entire 900 page audit claims to do. The whole thing is a political sham with some notable yet entirely undoable (from a political perspective) and therefore useless ideas. But so long as we’re talking about this we’re buying into the equally entirely bullshit “budget emergency” and will be relieved when they reduce copayments from $15 to $4, calling it “reasonable in the circumstances” while some ex-private school prefect, conservative dry gets to live out his life long wet dream. What. A. Fucking. Farce. The whole thing can go and get fucked.

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    1. Yes, the diesel excise! where the hell was that??

      Only thing I can think is that’s technically a tax exemption, so it’s beyond the scope of this report, which was 100% focused on spending. Hopefully the Budget makes some progress on super concessions and diesel tax exemptions.

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    2. Also agree that the timing of this report really primes people’s perception of emergecny, and shapes the agenda beautifully for cuts. Of which there will be many, I am sure.
      I even suspect they might cut enough in some areas that they can give back some surprise bonuses in other areas. little cuts to fees and charges so the budget is less gloomy than they are making out now.

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  2. The funny thing about blogs these days is a lot of the really awesome comment happens on facebook and reddit and everywhere but here. I thought I’d dump some Twitter to-and-fro here so people can see the kind of reactions this piece got…

    @jasemurphy : “Four really awesome, quite left-wing ideas from the Commission of Audit” http://t.co/VtBImaRAyc

    MattCowgill: @jasemurphy I completely disagree that giving income tax powers to the states would be “left wing” or have progressive results

    jasemurphy: @MattCowgill Because the competitive effects would outweigh the other effects?

    MattCowgill: @jasemurphy It would be a race to the bottom, yes, but not only that. At the same tax rates, the quantity & quality of public services…
    MattCowgill: @jasemurphy …be lower in Tas/SA than in WA/Qld.

    jasemurphy: @MattCowgill assuming returns to scale, this is true. I believe in returns to scale in health, less sure about edu.

    jasemurphy: @MattCowgill But permitting a state (e.g. Vic) to have higher tax and much better outcomes could be v.progressive (a la Scandinavia).

    MattCowgill: @jasemurphy Tas/SA have fewer high Y earners, smaller tax base. Their rev would be lower (at given tax rates) than their per capita share…
    MattCowgill: @jasemurphy …of national tax revenue, let alone their share adjusted for need.
    11:31am, May 02 from Web

    jasemurphy: @MattCowgill you’re right again. But is equality between states truly the only variable we are trying to optimise?
    11:39am, May 02 from HootSuite

    MattCowgill: @jasemurphy Not among states, but among citizens. People of equal means and need should have same access to services regardless of state.

    jasemurphy @MattCowgill good point, but could be used to centralise all service provision federally. No room for subsidiarity?

    MattCowgill: @jasemurphy My thoughts (from a few years ago): http://t.co/oJOj9byM3w

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  3. He’s no slouch in the political/economic sparring arena is Mr Cowgill.

    To be honest, I really didn’t look too much into the audit itself, it’ll go the same way as the one Howard did in his first term and won’t mean a thing in a couple of years. The ALP may get some traction out of it though, particularly as the Government doesn’t have any political capital to burn.

    Where do you post on reddit?

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    1. I post stuff in r/Australia and r/economics, sometimes r/business or r/politics. When a story takes off on Reddit, it really takes off.
      my username is TomasTTEngin

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