17
Apr
2014
Politically, Baird will not be a great change from O’Farrell. His reputation is that of a cautious man with an engaging personality, wary of ideological passion, not committed to any faction while clearly on the moderate wing of the party.

Michael Hogan, University of Sydney

No one could have predicted this week’s events in NSW politics. Barry O’Farrell looked secure in his position as the state’s Liberal leader and Premier. But his reign came unstuck over a bottle of wine that he had ostensibly ‘forgotten’, leading him to lie to an anti-corruption inquiry. A day after his testimony, as evidence mounted that he had indeed received an expensive 1959 Grange vintage, O’Farrell fell on his sword. New South Wales was plunged into political chaos.

Today, O’Farrell’s Treasurer, Mike Baird, became the 44th Premier of New South Wales. What does this mean for Australia’s most populous state? According to Michael Hogan, not much. Baird is a politician much in the same mould as O’Farrell: he does not seem ideologically driven, and is a relative moderate among Liberal ranks. While Baird is more religious and socially conservative than O’Farrell, he is not someone that bangs the drum for his Christian values. Hogan does not expect this to change now that Baird has inherited the top job.

Still, Hogan foresees challenges for the NSW Liberals. Baird is notionally aligned to the party’s left — as is his new deputy, Gladys Berejiklian. Both were elected unopposed to their positions. But that does not mean there will be no dissent. O’Farrell’s leadership was unchallenged having delivered a stunning Liberal victory at the last state election. Baird and Berejiklian do not have that same powerful mandate. Conservative Liberals may seek to undermine Baird’s authority, pursuing their own agenda against their leader’s intentions. 

Next year is an election year for New South Wales, and the Liberals remain in poll position to retain power — the state’s Labor party remains too vulnerable after its own corruption scandals. But as Hogan notes, the Liberals should probably expect to see their electoral base eroded significantly at the ballot box. With both major parties tarred with the ugly brush of corruption, the electorate will now be wary of both sides of politics in the state. The big winners could be independent candidates (particularly in rural and regional New South Wales, at the expense of Liberal-allied Nationals candidates). Should next year’s election prove unexpectedly close, that could deliver a highly unpredictable outcome that keeps both the Labor and Liberal parties on their toes.

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16
Apr
2014
Conservatives bemoan that not enough people are paying taxes. They insist that a minority of “job creators” and “makers” are underwriting the social benefits that go to the “takers.” Liberals cite the growing concentration of wealth and lament that the rich don’t pay their fair share. In this new Gilded Age, they say, the 1 percent should be paying far more of their annual earnings.

Ajay K. Mehrotra, Indiana University

A ‘progressive’ tax is one that imposes a proportionally greater tax burden on those with higher incomes — those most able to afford larger tax bills. It is premised on what economists call the ‘marginal propensity to consume’ — if you’re richer, you have more capacity to save money than those on lower incomes. And saving means you’re holding your money to consume in the future, thus reducing economic activity today. That’s not to say saving money is intrinsically bad, but it has the consequence of reducing economic growth today. Hence, at least in political terms, discouraging private savings at an aggregate level has the effect (notionally) of promoting economic growth today. Progressive taxation is also an antidote to economic inequality — it facilitates the redistribution of income from the ‘rich’ to the ‘poor’.

Ajay Mehrothra charts the history of progressive taxation in the United States. He notes that America’s dalliance with progressive taxes started in the late 19th century, as governments sought to build the modern state. It was premised on a notion that people had an obligation to promote a cohesive society — ‘ability to pay’ was a central consideration in trying to build a government of, for and by the people. 

Progressive taxation remains a core plank in many countries’ income tax systems. So, how does it hold up in practice? There is still enthusiasm for the premise among many in the United States. Famed investor Warren Buffet has forcefully argued that he should pay a higher tax rate than his secretary. But many conservatives bemoan the burden that is imposed on higher income earners. Progressive taxation can dull incentives to work harder, and move to higher income levels — the risk is that those with a potential to earn more may be discouraged if they see more of their money snatched out of their wallets by the government. With ‘means-tested’ welfare programmes — that is, eligibility for government aid dependent on income levels — progressive tax–transfer systems can create so-called ‘welfare traps’, which produce disincentives for people to seek higher income if this results in a net combination of them earning higher pre-tax income or losing some of their welfare entitlements.

Taxation and social welfare payments are rarely considered in a unified way — they essentially require ‘whole of government’ evaluations that are rare. Indeed, governments are reluctant to commission root-and-branch reviews that combine the effects of both revenue and expenditure. Changes on either side of the ledger will provoke political opposition. But good policy requires the consideration of both how governments raise revenue and how they spend taxpayers’ money. As politicians around the world understand all too well, there is much popularity on offer when proposing new spending initiatives, but considerable losses to be notched up from the people who are required to foot the bill. It may come as little surprise that there is greater enthusiasm for requiring a large bill for new policies on to as few people as possible. But the richer you are, the greater your ability to minimise your tax obligations — either through good accounting advice domestically, or your ability to shift your ‘on paper’ earnings overseas, and outside the reach of national tax collectors.

Mehrotra doesn’t address these issues, emphasising the long-standing ‘ideal’ that high-income earners consider their obligations to the wider community when paying their tax bills. But incentive effects are important. The wealthy also have a greater capacity to shift their wealth between different jurisdictions, thereby limiting their tax duties in any one country. Whacking the rich with new tax requirements is often popular. But those who earn more can afford access to better advice on how to minimise their overall tax bill. Public support, in other words, is rarely a guarantee of effectiveness. Sadly, as far as politics goes, ex ante intentions often matter more than ex post outcomes.

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15
Apr
2014
Failing to win government … represents something of a corporate failure on the part of the party. … Both major parties participate in what is now becoming a post-election ritual for the losing side.

Nick Economou, Monash University

Full disclosure upfront: Nick Economou was one of my politics lecturers during my time as an undergraduate at Monash University many years ago. I rate him highly for his sober analysis of domestic political conditions. His commentary for The Conversation today exemplifies why.

Last year’s federal election, which returned government to the Liberal/National coalition can hardly have been considered a victory for the now opposition Labor party. This month’s re-run of the Senate election for Western Australia has only reinforced Labor’s woes: in all likelihood, Labor will end up with just one of WA’s six Senate spots. The question is, why has the former government done so poorly?

Yes, last year’s election was a disaster for Labor. Arguably, Labor has fared even worse in WA this month, despite no longer enjoying the benefits that incumbency can deliver. The problem was only compounded by the fact that Labor’s lead Senate candidate in WA — Joe Bullock — has subsequently admitted that he not consistently voted for Labor. That confession left many Labor’s apparatchiks shaking their heads, and invited many WA voters to consider alternatives. The animosity he demonstrated towards Labor’s number two candidate, Louise Pratt, only made matters worse. Pratt is a lesbian, married to someone who underwent a sex change (from female to male). That was enough to provoke all sorts of public angst from the socially conservative Bullock as expressed to one constituent group, recorded in comments that have since been aired publicly.

Electoral defeat for Labor at last year’s federal election probably came as little shock at the time. But the WA Senate vote has provoked much soul-searching. Current federal Labor leader Bill Shorten is set to outline major internal reforms, particularly to increase local ‘grassroots’ candidate selection over the views of unions and national officials. In principle, relying on party members in individual branches can be more democratic. The problem, as Economou notes, is that party loyalists might not be reflective of broader community sentiment. After all, the most passionate local party members will tend to have strong ideological values. Most ordinary voters only care about which party has the capacity to deliver the best outcome for them — ideology is not a pressing issue.

Yet political parties routinely go through internal reviews, particularly after electoral defeats. Economou highlights this has been a tendency of both the Labor and Liberal parties. Wide-reaching party reforms get proposed, and leaders quickly jump on the bandwagon to appear ‘strong’. This is precisely the path Shorten has set himself on, by reportedly embracing greater grassroots party involvement over who should be elected to parliamentary positions. Economou essentially cautions that democracy isn’t all it’s cracked up to be. Politics requires leaders, not followers. Local endorsement of pre-selected candidates does not guarantee success in the wider electorate — sometimes, despite any apparent failures, it’s the central party office that is best placed to make that judgment.

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