It’s the economy, stupidPosted: January 13, 2013
In a recent Essential Vision poll, respondents were asked which three issues were most important to them in deciding how to vote at this year’s Federal election. The issue that was cited as the most important by the largest number of people was ‘management of the economy’ (66% of people included this concern in their top 3 and 47% as their first most important issue). Individual voters possibly have their own idea of what ‘good management’ of the economy entails. This should make for interesting debates about the differences between the two major parties and their priorities in this area. But unfortunately, before we can have these rational debates, we need to take into account the very common and toxic attitudes towards government’s management of the economy. If the Gillard government, for example, is going to successfully sell their credentials for managing the economy in this year’s election, they are going to have to find a way to understand and communicate with people who have the following attitudes towards government, taxation and the economy:
11% of respondents in the Essential Vision poll cited ‘controlling interest rates’ as one of their three most important election issues. The government obviously does not directly ‘control’ interest rates. Those who think they do clearly have a very limited understanding of the way the economy works. There are countless areas of government policy that might influence the strength of the economy, and in turn the Reserve Bank’s decisions to increase or decrease the official cash rate. But those who don’t understand the major effect that overseas markets, and world events such as the Global Financial Crisis, have on interest rates, should not be taken seriously in an educated discussion on this topic.
Terrified of government debt
There are many economies in the world which are grappling with an unsustainable level of government debt. Australia is not one of them. And fear tactics are not going to alter this fact. As of the end of 2012, Australia’s debt to GDP ratio was 22.86%. This compares with Japan at 229.77%, Greece at 165.3%, Italy at 120.11%, the USA at 102.94% and the UK at 82.5%. It is common for people who are terrified of government debt to also favour small government, advocating spending cuts to education, health and welfare. Funny coincidence that. But it’s important to point out to such people, who apparently can’t breathe easy unless they are living in a country that has a surplus, that a government’s debt is not like a mortgage with a bank which is going to repossess our country if we don’t pay our bills on time. As Paul Krugman explained in his recent article, The Big Fail;
“For an economy is not like a household. A family can decide to spend less and try to earn more. But in the economy as a whole, spending and earning go together: my spending is your income; your spending is my income. If everyone tries to slash spending at the same time, incomes will fall — and unemployment will soar.”
As we watch the European governments’ austerity programs continue to fail, it is time for the Labor government to talk proudly about the success of their 2008 stimulus package, implemented in response to the Global Financial Crisis. This package helped Australia’s economy to continue growing while most other developed nations plunged into recession. To call this spending a ‘waste’ and to say that the debt it incurred has ‘wrecked the economy’ is just blatantly wrong, and those using such language should be called out for their misrepresentation of economic fact.
Resentment of paying tax
Lots of people in Australia resent paying tax. This is, of course, unless the tax dollars are being spent on them personally. For example, tax payers who receive the Baby Bonus or the First Home Buy Grant don’t seem to complain that their tax dollars are being spent on middle class welfare. Some voters seem to think that the tax revenue they contribute should be directly reducing their cost of living, or supplementing the cost of services they use, including medical bills, their children’s education, the hospital they use, the roads they drive on – and nothing else. In fact, many seem to think that tax dollars which are spent on something that won’t directly affect them are a waste. Their reasoning behind this attitude seems to derive from a limited understanding of what a taxation system is supposed to do. The hysterical response to the Carbon Tax and the Mining Tax, which are both taxing companies, not individuals, shows just how irrational Australians can be about taxes. These people seem to be against lifting the tax rate, but they’re also not supportive of government spending cuts. Unless the spending cuts have no impact on them personally. For instance, they’re quite happy for the unemployed to receive a meager dole payment, unless of course, they are unemployed.
But what are taxes really for? Should they not be used to finance the activities of government to ensure that our society is functional and fair? As Oliver Wendell Holmes said:
“I like to pay taxes. With them I buy civilization.”
The more people earn, the more they have benefited from the tax-payer funded society in which they live. This is why it is fair that those who earn the most pay the most tax. It is also important to remind voters that a healthy, well-educated society provides a much greater opportunity for wealth for everyone. This is because an affluent society (without a huge gap between rich and poor) provides a better consumer base for the economy to thrive. It should be as simple as reminding people that they wouldn’t have a job if there wasn’t a consumer base that can afford to buy whatever product or service they earn a living by providing. As Elizabeth Warren so passionately points out, no one got where they are today without their tax-payer funded society getting them there. Next time someone tells you they hate paying tax, it’s worth reminding them of this.
Unfortunately just raising the topic of tax, government spending and debt in our current political climate is enough to send some voters rushing up Bullshit Mountain in an irrational frenzy of name calling and factless attacks. But if management of the economy really is the most important decision for voters, then the Labor government has no choice but to begin the conversation, and soon. Nothing says more about a government’s priorities than their policies around taxation, government spending and redistribution of wealth. Whereas you hear many cynical voters complaining that the two major parties are the same as each other, this is one area where the Labor party and the Liberal National Party are clearly poles apart. It’s time Labor stopped pandering to the whiniest voices in our society by avoiding any mention of the word ‘economy’. It’s time to successfully defend their economic record, and to outline their plans to use economic policies to carry out their vision for the country.