Yesterday Malcolm Turnbull gave the Liberal Party’s budget response. And their grand plan for the country is to increase tax and increase spending.
But not just any tax & spending. Their plan is to increase one of the most regressive and paternalistic taxes (cigarette excise) and increase spending on middle-class welfare (health subsidies).
I can understand the politics of this. Given Rudd’s massive increase in government spending and the growing mountain of debt the ALP have already alienated people who believe in free markets and small government. So Turnbull presumably decided that he no longer needed to cater for the libertarian vote and decided to reach out to the paternalistic and populist vote.
But whatever the politics, it is poor policy.
Poor people already carry their share of the tax burden. While the lowest quintile (ie bottom 20%) earn only 0.8% of private income, they pay 5.6% of the tax*… in large part because of “sin” taxes on smoking, drinking & gambling. Instead of punishing poor people for their preferences, we need a government that is less involved in social engineering and more respectful of individual liberty. Taxes on smokers and drinkers already significantly exceed the marginal cost of higher health care, and drinkers & smokers deserve a tax break.
The health subsidy is defended as a means to decrease the reliance on the public health system. But this rationale rings hollow once you factor in the effect of the Medicare Surcharge, which effectively forces high-income earners to take out private health insurance. If you are opposed to the $100 billion/year of pointless tax-welfare churn (as I am) then you cannot support continued welfare for high-income earners. We need to reduce the amount of upper- and middle-class welfare in exchange for tax cuts. The Liberal policy of continued universal health subsidies means supporting tax-welfare churn and supporting middle-class welfare.
The Rudd government has been atrocious over the last year, and the Liberal opposition has done well to stand up to Ruddbank, stimulus hand-outs, internet censorship, ETS, alco-pops etc… but this latest position is not a step in the right direction.
* The lowest quintile earn 0.8% of income, pay 0.3% of income tax and 13.4% of other taxes, meaning 5.6% of total tax. This data is from the ABS Government Benefits, Taxes and Household Income report for 2003/04, published in 2007.