March 2005

                                Tax dollars keep the inner city dream alive

Our last editorial pointed out that a crucial difference between Labor and the conservative parties is that the ALP’s policies and pronouncements are out of kilter with (well to the left of) the views of Labor voters on many issues, whereas those of the Coalition much more closely reflect the views of their supporters – indeed, all too often of Labor supporters as well (see Katherine Betts's research in People and Parliamentarians).

This is not an argument for automatically aligning party policy with public – or even Labor voters’ – opinion, which may sometimes be ill-informed. Good government frequently demands holding unpopular positions and taking unpopular decisions, and the Howard government deserves harsh criticism for its persistent failures on this account.

On the other hand, it not only makes electoral sense – it is also in an important sense democratically honourable – to start with the presumption that the public have got it right. Take public spending and the size of government.

Labor aspires to represent ordinary people and the disadvantaged, where necessary at the expense of the wealthy and the powerful. Consider how these two constituencies typically live their lives: the former are generally modest and frugal, the latter all too often reckless and extravagant. Yet the spending policies of their respective “natural” parties are usually characterised (fairly or not) in opposite terms.

When Labor goes to the polls offering grandiose plans and big spending initiatives – particularly on “social capital” – it grates with many of our supporters. We have to be careful with our own money, they argue, but “our” party is profligate with our taxes. To make matters worse, they say, our taxes are often squandered on “social engineering” initiatives that are at odds with our values.

Fiscal prudence, we contend, should be a foundation Labor value, like compassion and sympathy for the underdog. There are a number of points worth making here.

First, we need to understand that expenditure is the obverse of taxation. To a person, Labor supporters oppose regressive taxation – taxes that fall disproportionately on the relatively poor – as also “tax expenditures” (rebates and deductions) that favour the rich. But Labor activists are often unwilling to apply the same logic to public spending: they refuse to acknowledge the extent to which many of their most cherished spending initiatives (university education is a classic example) disproportionately benefit well-off individuals and communities. In many cases the benefits are doubly regressive: for example, a new inner city public park that enhances local amenity also raises the area’s property values, thereby making it even harder for the less affluent to move in.

Second, economists well recognise that fiscal restraint can be traded off against monetary restraint: if budget deficits are lowered (or surpluses increased), there is less pressure on interest rates. Rising interest rates cost jobs and reduce most people’s disposable income, which hit the less well off hardest.

Third, research we previously undertook demonstrates that at least since the early 1990s there has been a clear and strong correlation across Australia between the average individual income of residents in a local government area (LGA) and the proportion of employed persons in that LGA who had public sector jobs. Public employment, on this evidence, is no longer primarily a career path for ordinary working people, much less a safety net for the disadvantaged. On the contrary, it has become the well-worn path to comfort and security for tertiary-educated professionals.

The following tables, based on the 1991 census, present our research in this regard:

These figures show that (apart from the top income quintile, which swaps places with the second from the top), the higher the proportion of public sector workers in a particular LGA, the wealthier the employed residents are on average; conversely, the higher the proportion of private sector workers, the poorer they are. The correlation is strong nationally and across all states and territories.

It is worth comparing these tables with findings in the ABS's Sydney: A Social Atlas, that "suburbs with high percentages of low income households were primarily concentrated in the west and outer west, in a band north of the Georges River and south of the Parramatta River extending south-west to Campbelltown and west to Penrith". Conversely, "areas with the highest percentages of high income households were located around the waterways of Sydney, especially the Sydney Harbour foreshores …" Unsurprisingly, according to the Social Atlas, "the distribution of people with university qualifications was similar to the distribution of high income households …"

While public sector employment has increasingly become the preserve of inner suburban university graduates, low and middle income earners have to face the rigours of life in the private sector market economy. The fact that this experience shapes their values may elude Labor, but it is not lost on the Coalition.

Voters are human: their votes can be “bought” by spending initiatives targeted to their values and their circumstances. (John Howard is the master practitioner in this respect.) But the experience of the Hawke government in the mid-1980s showed that restraint and sacrifice, equitably applied and honestly explained, need not be an electoral handicap. On the contrary, we believe that the extent to which Labor succeeds in identifying itself with expenditure restraint and smaller government, combined with close attention to the “equity impact” of public spending initiatives, will largely determine the party's longer term election prospects.

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