Too many say "the rich are greedy", but they're wrong. It is the so-called poor that are greedy. They have expectations of a livable hand-out, but have no conscience as to where that money is coming from.
It is the government that hands it to them, but it is the workers that pay it. Meanwhile, they sit on their butts, while we go to work and pass across our taxes in order to maintain their "greedy" lifestyle.
It's the "gimme society" and sadly it doesn't seem to be going away. Greed, glorious greed.
No such thing as a free lunch, it’s just fiscal illusion
TONY MAKIN THE AUSTRALIAN JUNE 06, 2014 12:00AM
THE very real budgetary problems the federal and state governments face stem from the phenomenon of fiscal illusion, the perception that government services are free.
Voters quite naturally want more government spending on measures that directly benefit them individually, yet have become increasingly blind to the fact that taxes have to rise at some stage to fund them. This is because governments face budget constraints, just as households do.
In other words, people fail to see that government spending eventually has to be paid for some way or another. Sound economic policy should always be consistent with the idea that there’s no such thing as a free lunch. Yet fiscal illusion leads voters to think there’s a buffet on the house.
Political parties are ultimately responsible for this blurred fiscal vision because they invariably promise new spending programs without simultaneously identifying who has to foot the bill.
Fiscal illusion therefore helps explain why the budget-making process is biased toward ever-increasing expenditure. The Gonski education plan, the NDIS and planned hospital funding to the states by the previous government are prime examples of this bias, as the future tax implications of these pricey initiatives were simply ignored when first announced.
It also means that forms of corporate and social welfare come to be considered “rights” when taxpayers are not properly informed of how much they are actually paying for them, or ever been given a direct say in endorsing them as such.
The size of the state in advanced economies would undoubtedly be much smaller if taxpayers were offered a plebiscite on proposed new government spending proposals in the lead up to annual budgets. Donations to charity and philanthropy would also likely grow to the extent that high income taxes have crowded them out.
Fiscal illusion has silently afflicted advanced economies for decades, though it should long ago have been diagnosed as a chronic condition, the early treatment of which could have prevented the public debt crises experienced in Europe, the US and Britain in the past five years.
If the state’s role were restricted to providing public goods that private markets would not normally provide, such as national defence, law and order, education, basic research and health services, as well as welfare for those who most deserve it, public spending as a proportion would be considerably lower, though nowhere near as low as the around 10 per cent of GDP levels in Western economies for centuries prior to World War I.
Greater fiscal transparency is required, with policymakers adopting the practice of explicitly specifying where funding has to come from for any new program. In addition the electorate needs further educating on the economic significance of the government’s budget constraint. On this score, the federal government would do well to follow the excellent precedent set by the Queensland government’s StrongChoices interactive website survey on the fiscal options it now faces.
That the electorate and lobby groups generally welcome new spending programs, yet react hostilely to suggestions of tax rises is entirely consistent with fiscal illusion. Mooted new taxes, or increases in existing ones, such as the GST, are invariably condemned, the more raucously, the wider the tax’s incidence.
Consequently, federal governments tend to take the easy option of relying heavily on relatively narrow, yet highly lucrative, tax bases, like high income earners or companies, for much of their revenue.
On the other hand, many households pay no income tax, with the well-documented top 20 per cent of income taxpayers covering two-thirds of the income tax take and the bottom 45 per cent paying no net tax at all.
Those paying income tax fall prey to another type of fiscal illusion, given the nature of the pay as you earn system. Depending on how one feels about taxation, the PAYE system is either one of the greatest fiscal devices ever invented, or a clever sleight of hand. The pain many employees would otherwise feel paying income tax directly from their bank accounts is anaesthetised under this system as employees never actually see the money transferred to government on their behalf.
To correct fiscal illusion, it is arguable that everyone should pay at least some tax and that taxes be highly visible, which happens of course with the GST. The GST, presently low by advanced economy standards, is clearly superior to income tax on efficiency grounds since it does less damage to economic growth via work effort and productivity effects. And just how inequitable broadening and/or increasing the rate of GST would be has yet to be empirically verified.
In the meantime, continuing to rely heavily on income tax as the main future source of revenue via bracket creep will make Australia even more uncompetitive by the standards of its Asian trading partners.
Another option is for the states to introduce their own indirect tax given the huge vertical fiscal imbalance that exists in the federation. Such a tax could effectively be the same as the GST, but be called something else, such as a 2.5 per cent Value Added Tax, VAT, or Expenditure Tax for the States, an ETS of a different kind.
If it were an initiative of the states, Prime Minister Tony Abbott would then not be breaking a promise to leave the GST alone this term of government.
Tony Makin is a professor of economics at Griffith University.
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