Silly numbers

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Journalists are very good at challenging politicians’ evasive answers, but they often let people get away with silly numbers. Two Australian examples caught my eye recently, and made me stroppy.

First, an article in our local newspaper (the Advertiser, which has the distinction of being Rupert Murdoch’s first newspaper) quoted the Civil Contractors Federation (an industry lobby group) as claiming that SA Water could be sold for $13 billion. The story was also reported by the ABC and other news media.

SA Water is South Australia’s water supply and sewerage utility, still publicly owned. A private owner would require at least a 7% annual return on a long-term investment, so a valuation of $13 billion implies an annual net profit in excess of $900 millon.  SA Water’s total revenue in 2013-14 was $1,100 million.  The numbers just don’t stack up.

Second, ACOSS has put out a press release claiming that if the rate of GST (goods and services tax = value added tax) were increased from 10% to 15% low-income households would pay 7% more for the goods and services they buy*. Even if a poor household bought only goods and services that were subject to GST** the maximum increase would be (1.15/1.10) – 1 = 4.5%.  So ACOSS’s claim of 7% makes no sense.  But no-one has challenged them.

Footnotes

* Quotation from ACOSS press release: “An increase in the GST has a much bigger impact on low and modest income households because they spend more of their overall income to meet their living costs, in comparison to people on higher incomes who are better able to save. An increase in the rate of the GST to 15% would require people in the lowest 20% of the income brackets to pay 7% more, people in the middle 20% 4.2% more, and people in the highest 20% income bracket just 3% more of their income.”

** That would mean no purchases of basic foods, medicines, medical services, water bills, educational services, childcare and other exemptions.  See here for the GST-free list.

Fairness

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Australian politicians, commentators and interest groups have embarked on a public discussion about tax reform. The main focus is the GST (goods and services tax = value added tax).  Should the rate, which has remained at 10% since inception in 2000, be increased to 15%?  Should the base be broadened to include some or all of the 53% of goods and services that are GST-free?

There is one thing that everyone agrees on: whatever changes are made to the tax system, they must be fair. I haven’t heard anyone say, “What this country needs is unfair taxation!”  But I suspect that the concept of fairness is not universal.

The Australian Council of Social Service (ACOSS) describes itself as “the national voice for the needs of people affected by poverty and inequality.” In their eyes ‘fairness’ means not increasing the share of the tax burden born by the poor.  In a radio interview this morning an ACOSS representative expressed the view that no household with an annual income below $100,000* should have to pay more tax than they do now.

But some other people see fairness differently. They think that people who work hard, learn productive skills, practise thrift and invest prudently should, in fairness, be allowed to reap and keep the harvest that results from this pattern of behaviour.

What do I think?

  • We cannot continue running a fiscal deficit forever.
  • The cost of health care will continue rising faster than GDP as more ways are found to cure illnesses and keep people alive.
  • The cost of supporting and caring for old people and disabled people will also rise faster than GDP.
  • Richer people are better able than poor people to minimise the amount of tax they pay – ultimately by emigrating.
  • Multinational corporations will always find ways to avoid paying normal rates of tax in the countries where they make their money.

Putting all these thoughts together, I don’t see how anyone but the very poorest can avoid paying more, either through taxes or by paying the full price for things that they have been accustomed to getting free or at subsidised prices.

Footnote

* From official statistics for 2013-14 I infer that about two-thirds of Australian households fall below this threshold.