The budget that brings home the median voter?

Sometimes political science can feel a bit removed from the reality of politics. But in election years, it’s good to be reminded that the median voter theorem really does hold. The further behind a government thinks it is, the more it is likely to present policies that are very similar to those of its opponents. Was there anything in tonight’s budget that you would have been flabbergasted to hear come from the mouth of a Labor Treasurer? I can’t think of much.

Two measures caught my eye, however. One was the private tutoring voucher provided to kids who fail to meet literacy and numeracy benchmarks. Despite its prevalence (tutoring high school kids was the way that I paid my way through university), there’s very little empirical evidence on the impact of private tutoring on test scores. For example, this UK review suggests pretty mixed results. I’m all in favour of giving more resources to help kids who are struggling to keep up with class – but I’d like more solid evidence that private tutors will be good value for money.

The second measure that caught my eye was simplified tax filing.

The Government will provide additional funding of $20 million in 2007-08 to enable the Australian Taxation Office (ATO) to pre-fill electronic tax returns for around nine million taxpayers, with effect from the 2007-08 income year.

The ATO will pre-fill electronic returns with information on:

  • salary, wages and allowances, where the employer has lodged the employee’s payment summary electronically with the ATO;
  • dividend and interest income and distributions from managed funds;
  • payments from Centrelink, the Department of Education, Science and Technology and the Department of Veterans’ Affairs;
  • Medicare out-of-pocket expenses and private health insurance information; and
  • Higher Education Contribution Scheme and Higher Education Loan Programme details.

Taxpayers with additional sources of income, such as rental income, capital gains or foreign-source income, will need to augment their returns with that information, as would individuals whose employer had not lodged payment summaries electronically with the ATO.

This measure will make completing income tax returns significantly easier for the 80 per cent of individual taxpayers who use e-tax or lodge their returns through a tax agent.

I expect I had no impact on it, but I was rather pleased to see a reform that matches very closely something that I proposed in 2005 and 2007.

This entry was posted in Australian Politics, Economics of Education, Tax. Bookmark the permalink.

9 Responses to The budget that brings home the median voter?

  1. Damien Eldridge says:

    Andrew, does the median voter theorem hold when peoples preferences vary over more than one dimension? It has been a while since I looked at this stuff but I seem to recall that it didn’t. The following entry in wikipeadia suggests that this might be the case:

    http://en.wikipedia.org/wiki/Median_voter_theory .

    Specifically, this Wikipedia entry says:

    “Median voter theory, also known as the median voter theorem and the median voter model, is a famous voting model positing that in a majority election, if voter policy preferences can be represented along one dimension (i.e., if every voter’s political ideology can be pinpointed on a line), —.”

  2. Sinclair Davidson says:

    I did mean to congratulate you on this. Even if you had a minor impact, you’ve been advocating it for years and now its been introduced.

  3. Sinclair Davidson says:

    It has been a while since I looked at this stuff but I seem to recall that it didn’t.

    Tim Fry and I have a paper that looks at this using AES data. Hotelling works very well in practice (probably as a summary measure). Once we can locate people on a left-right basis, we can predict who they vote for.

  4. Equitist says:

    Dear Andrew

    I had high hopes that you would give a detailed assessment of the wealthfare v’s welfare inequities contained in the national Budget.

    In particular, I can’t find anything in the budget which analyses the false economy of siphoning tens of billions of dollars out in “Pre-Paid Pensions” for the already well-off (Superannuation Tax Concession) v’s the “Poor Man’s” Superannuation Co-Contribution.

    Surely Howard and Costello can’t be too concerned about intergenerational issues if they are taking such a fiscally irresponsible approach to funding the Superannuation excesses of people who would have been self-funded in retirement anyway?

    Isn’t it the case that some rich Aussies will be entitled to claim a one-off Tax bonanza of up to $300,000 this year? That is more than 25 years worth of pension in one hit – i.e. more years than a 65 year old male is likely to enjoy in retirement!

    Surely the $17.1 billion for 2006-07 would have been better spent on health and the education and training of our younger generations to maintain Australia’s prosperity?

    I’d also like to see some serious analysis done, as to the inherent gender inequities in the Government’s various wealthfare subsidies – especially in relation to Superannuation.

    I eagerly await some detailed Budget analysis from you!

  5. Panadawn says:

    I expect this budget, combined with the ALP conference disaster and Howards backflip on workchoices will reuslt in a 1 or 2 point swing back to the LNP in next weeks NewsPoll.

    It will be interesting to see if the BAS statement filing changes will have any real effect…

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  7. Equitist says:

    Dear Andrew

    Another thing that bugs me about the Govt’s Budgets in recent years is that they discriminated against separated parents and their children!

    They have deviously focused on reducing the Marginal Tax Rates of the welfare benefits of intact families – and made no significant change to those of separated families.

    Moreover, in doing so, the Govt has ignored the Child Support Review which highlighted the patent inequity of the interation between the Maintenance Income Test (MIT) and FTB Part A.

    __________

    This is an extract from the most recent Child Support Committee Review Report available at

    http://www.facsia.gov.au/internet/facsinternet.nsf/family/childsupport.htm

    11.2.2 Misalignment with policy towards intact families

    The MIT is not aligned with FTB in any coherent policy framework. For separated parents whose combined income for FTB purposes is below $32,485, the level of FTB Part A paid to the primary caregiver as a consequence of the MIT is much lower than if the parents were still living together.

    In effect, the Government is reducing FTB payments to the family following separation that it would have paid in full when the parents lived together. This appears to be inequitable.

    This situation may be illustrated by the example of where a parent liable for child support has a taxable income of $32,484 and the other parent is on Parenting Payment (Single). They have one child, aged six, for whom child support is being paid, and the liable parent has no new dependent children. They are not splitting FTB Part A on the basis of shared care.

    If the two parents were still living together as a household, they would be entitled to $4,095.30 in FTB Part A, Which is maximum rate for one child of this age.

    Under the present Child Support Scheme, the liable parent would be paying $3,516 child support per annum for that one child.

    The Resident parent would be entitled to keep $1,150 of that sum, and 50 Cents in the dollar thereafter.

    As a consequence, $1,183, or about one third, of the payer’s child support goes to reimbursing the Government for FTB Part A expenditure that it would have incurred in any event if the parents had remained together.

    __________

    According to the CSA web-site, the FTB Part A savings for the Govt under the MIT was over 1/2 a Billion dollars in 2005-06! That’s one huge annual contribution to the National Surplus by socio-economically DISADVANTAGED families! This is unfair and unconscionable!

    The historical Savings and Costs are noted on this CSA publication:

    http://www.csa.gov.au/publications/facts_figures/06/ff06_8.aspx

    Savings and Costs

    7.1 Savings

    Savings to Government outlays are achieved as a result of the application of the maintenance income test to payments of more than base rate Family Tax Benefit (FTB) Part A. As at July 2006 payments of more than the base rate Family Tax Benefit Part A are reduced by 50 cents for each dollar of maintenance received above $1,215.45 per annum for a single parent with one child from a previous relationship. The threshold is increased where there are additional children or if there is a couple with both partners receiving maintenance.

    Table 7.1: Total Savings Assigned to the Child Support Scheme

    1996-97 $m 1997-98 $m 1998-99 $m 1999-00 $m 2000-01 $m
    318…………378.3….. ……419.2……….425. 01………380.4

    2001-02 $m 2002-03 $m 2003-04 $m 2004-05 $m 2005 – 06 $m
    423.0……….433.5….. ……458.0……….510. 0……….539.0

    __________

    See also:

    http://www.centrelink.gov.au/internet/internet.nsf /ea3b9a1335df87bcca2569890008040e/d2cbcb6d49d5cc04 ca25728e001205e0!OpenDocument

    Maintenance Income Test:

    This maintenance income test is effective from 20 March 2007. This maintenance income test applies if you are eligible to get more than the base rate of Family Tax Benefit Part A. Blind pensioners are exempt from the maintenance income test.

    Maintenance income-free areas (per year)

    Status Maintenance Received
    (per year)

    Single parent, or one of a couple receiving maintenance $1215.45

    Couple, each receiving maintenance $2430.90

    For each additional child $405.15

    Maintenance over these amounts may reduce Family Tax Benefit Part A by 50 cents in the dollar, until the base rate of Family Tax Benefit Part A is reached.

    __________

    This is an extract from the 2007 Budget which proves that the Howard Govt has DELIBERATELY & KNOWINGLY left the separated FTB Part A taper rate at 50% but reduced the intact FTB Part A taper rate to 30% in 2001-01 & then 20% in 2004-05:

    Australia has a highly targeted welfare system. The Family Tax Benefit system recognises that households with children face greater costs than those without. Family Tax Benefit Part A is directed towards those families with lower incomes. The necessary implication of targeting benefits is that as family income increases benefits are withdrawn. The alternatives are either not to provide these benefits (thereby leaving beneficiaries worse off) or creating a universal entitlement system with the higher spending, higher taxing and greater churning that such a system would entail.

    While Australia’s tax and targeted welfare systems necessarily create higher effective marginal tax rates, the Government seeks to identify and act where it can to reduce these and minimise their impacts. Over recent years, effective marginal tax rates have decreased significantly for families. For example, before 2000-01, families faced a 50 percentage point increase in their effective marginal tax rates from the withdrawal of family payments above the base amount. The New Tax System of 2000-01 reduced this withdrawal to 30 percentage points. In 2004-05 the withdrawal rate was reduced further to 20 percentage points.

    __________

    This financial discrimination is an outrage because it exacerbates the disadvantage of some of Australia’s most vulnerable children and their families (as evidenced by Payee income data on the CSA site)!

    It is high time that Economists took the Govt to task over this – in addition to its systematic intimidation, harrassment, demonisation and vilification of Single Mothers!

    I hope that you will be one of the first to do so, Andrew!

  8. Equitist says:

    P.S. To paraphrase George Orwell, I would go so far as to say:

    “Under the Howard Govt some families are much more equal than others!”

  9. Andrew,

    As I understand it, the National Literacy and Numeracy Vouchers will operate in a similar way to the existing Reading Assistance Vouchers. Schools will be able to use them to pay for additional teaching from existing Special Education staff. So the vouchers are not strictly for “private tutoring”.

    And I think your scepticism is a little over-stated: there is little doubt among educationalists that students with learning difficulties are better off attending Special Education classes in addition to (or in place of) some of their conventional classes. It’s difficult for teachers in conventional classes to give them the support they need.

    I think the main criticism of the $700 voucher is that $700 does not even come close to buying the amount of additional, high-quality tutoring that is required to help a student with learning difficulties.

    For instance, many parents, upon hearing that their child has failed the national reading benchmark test (which is only one test) will want to have their child assessed more comprehensively, to see what sort of learning difficulties they have (if any) and what sort of assistance might help. This sort of comprehensive assessment will probably set them back $500, which leaves them with little change from their $700 voucher. And that’s before even thinking about tutors or extra Special Education hours.

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