Tax Those Who Vote Spendthift in the Australian Economy

Despite the demand for their bonds, the government is really pushing for a budget surplus. Or are they? Prime Minister Tony Abbott has ‘seemingly’ ruled out the age pension increase by saying pensioners will be better off this budget. Greg Canavan was enthusiastic about Treasurer Joe Hockey’s recent talk on pensions. He pointed out that it was a simple mathematical reality that the pension system would have to change, or it would swamp the budget. At the time, we were sceptical Hockey would walk the talk.

But while Abbott backs away, Hockey is upping the talk even more. He’s taken the unusual political direction of pissing all the voters off equally instead of just targeting a small enough voting bloc to get away with policy changes. This morning’s Australian Financial Review says he plans to raise taxes as well as cutting spending. Every Australian is going to be asked to contribute to the budget repair.’Not just the people who voted for the budget despair in the first place.

Anyone who thinks rising taxes is a bad idea hasn’t taken a look at what’s coming down the demographic pyramid. We should say ‘up the demographic pyramid’. Pensions are going to balloon sooner or later as the baby boomer bulge retires. Raising the pension age just means it will happen later. In a welfare democracy, someone has to pay. And taxpayers are the only victim we can see.

Of course, Hockey’s plans for budget pain will be foiled, watered down and Kludged before long. Kludging, as Steven Teles explains in his book Kludgeocracy, is rent seeking during the political process. Everyone with power will have to get their cut out of the new budget for it to make it onto the books. By the time any law gets through the Kludgeorcracy, it looks very different, and much longer, than when it went in. Before long, the budget will look nothing like Hockey’s vision. That’s why it’s more important to look at who is influential in the political process than what the media stories on the budget say beforehand.

So who does hold power in Australia? It’s the Superannuation industry we’re worried about. So much money in the hands of a union controlled industry. Hmmm.

By the way, our proposal for how taxation should work is rather simple. Tax rates should adjust for whatever the government spent. If you vote spendthrift, you should feel it in your pocket, preferably that quarter or month. Nothing like a dose of reality to make voters think twice.


Nick Hubble+
for The Daily Reckoning Australia

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Having gained degrees in Finance, Economics and Law from the prestigious Bond University, Nick completed an internship at probably the most famous investment bank in the world, where he discovered what the financial world was really like.

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