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Peter Costello is just like Santa on steroids

By Peter Saunders - posted Friday, 11 May 2007

What was the overall rationale driving Peter Costello's 12th budget? What fundamental objectives was he trying to achieve? What key principles informed his decisions? His big idea this year was the $5 billion endowment fund for universities. That's a lot of money. Interviewed on Tuesday evening, he boasted: "The endowment I set up tonight doubles everything the university sector has saved in endowments in the last 150 years."

Wow! So for 1 1/2 centuries, public-spirited Australians have been bequeathing universities money in their wills, establishing foundations, making gifts, then along comes the Government and makes all their efforts look puerile with one wave of its magic money wand.

Imagine you are an affluent philanthropist sitting down this morning to make your will. You had been thinking of leaving your alma mater a hundred grand, but what's the point now the Treasurer has weighed in with 50,000 times more than you were going to donate?


Three lessons can be learned from this showpiece budget announcement. First, government spending crowds out voluntary initiatives. If the Government makes huge gifts to universities, other people won't.

Second, there's no such thing as a free lunch. The more "intermediate institutions" such as the universities come to depend on government money, the more they will forfeit their autonomy. Slowly but surely, the Government is smothering civil society by taking on responsibility for more and more areas of life that we used to take care of ourselves.

The third lesson is that the Treasurer is so awash with taxpayers' money that he really does not know what to do with it. A couple of years ago he set up the Future Fund to soak up his surpluses, but this fund is now expected to meet its target ahead of schedule, so he needs to find another mattress to hide our money under. That's why he has come up with his universities' endowment fund.

But why take so much tax from us in the first place? Some economists say we may spend too much of our own money if taxes are reduced, and this can trigger inflation. But if that is why the Treasurer keeps collecting much more tax than he needs, he can achieve the same result by cutting taxes and requiring us to save the difference in our personal super funds. It would be far better for us to save our own money in our own accounts than for the Government to take it off us and put it in its own giant piggy bank. But the Treasurer seems reluctant to relinquish his control over our earnings.

There were some tax cuts in the budget, but rather than reduce rates, which is what serious tax reform demands, the Treasurer tinkered with the thresholds. Raising the 30 per cent threshold to $30,000 means most workers can keep an extra $16 of their weekly earnings, but this will gradually disappear with inflation unless the Government introduces automatic annual indexation of tax brackets, which it doesn't want to do.

Any tax cut is to be welcomed, of course, but $16 a week hardly justifies all those overexcited commentators speculating about an election-winning masterstroke. If the $6 tax cut three years ago was derided as buying only a sandwich and a milkshake, why should a $16 cut today be considered significant enough to buy an election? Would you sell your vote for $16?


Not that the Treasurer is relying solely on the income tax cut to see his party across the line later this year. The budget was also littered with his trademark, whimsical, random handouts. This year's bounty included a one-off $500 payment to age pensioners; a $1,000 lump sum for carers; and a curious extra back-payment for anyone who put money into the superannuation co-contribution scheme last year.

None of this makes any economic sense. If age pensioners need an extra $500, then the pension should be raised; if they don't need it, then why is the Treasurer giving away our cash unnecessarily? Payments such as these are intended to curry favour with target groups and earn their gratitude.

Like Santa in a department store grotto, the Treasurer in every budget plucks surprise packets out of his sack for selected recipients, then waits for the thank-you notes to roll in. This is the real objection to this budget. To answer my own opening question, it has no rationale; there is no clear objective; there are no guiding principles. Good governments establish a predictable environment so people can plan their lives and make rational economic decisions. But in this and previous budgets, money gets withheld or handed out capriciously, arbitrarily, unpredictably.

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First published in The Australian on May 10, 2007.

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About the Author

Peter Saunders is a distinguished fellow of the Centre for Independent Studies, now living in England. After nine years living and working in Australia, Peter Saunders returned to the UK in June 2008 to work as a freelance researcher and independent writer of fiction and non-fiction.He is author of Poverty in Australia: Beyond the Rhetoric and Australia's Welfare Habit, and how to kick it. Peter Saunder's website is here.

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