The Letter from The Cape Podcast
Episode 8
June 2, 2023

Hello, here is Episode 8 of the Letter from The Cape podcast.

Earlier this week I was in Perth presenting to a group of health care professionals - all highly educated, networked and passionate about their profession and the impact it can have on the well-being of our citizens.

The conference facility had a live polling capacity, which means presenters could pose questions and the audience could monitor in real time as the answers were unfolding on a large screen in the auditorium.

My questions were in fact proposals the first of which went like this.

"The Stage 3 tax cuts that overwhelmingly favour the highest income earners should be scrapped so that the federal government has more money to spend on health care and education."

True or False

Most chose TRUE and were wrong.

Even progressive people who care about improving the scope and quality of public spending on health care and education usually fall into that trap.

Underpinning their answers is a belief that somehow the Australian government needs our money in order to spend.

That somehow, if we abandon those Stage 3 tax cuts then the government will be able to redirect the funds they would forego as a reasult of the lower taxes into health care and education.

This belief is so pervasive that it has crippled the quality of the public debate about what we should expect from our governments and allowed governments of all political persuasions to take decisions that actually undermine the well-being of the present generations and certainly the future generations.

Many progressives feel warm at rallies chanting lets 'Tax the rich' or flooding social media with the same calls.

They mount elaborate moral arguments that the rich should pay more tax so that the less well-off can have better health care or child care or educational facilities or ... you name your preferred public wish list component.

The problem is that this entire debate is being conducted in the fictional world created by economists.

The entire 'Tax the Rich' mantra might make us feel good that we have seized the answer to our problems and we are going to make those rich bastards pay, but in chanting the mantra we are just expressing our ignorance and ceding ground to those who want less spending on welfare and more on procurement contracts for profit-seeking corporations.

Whenever you hear this mantra, remember the MCG scoreboard - it can post points on the digital screen whenever it likes.

Just as our national government can spend into existence as many dollars as it desires.

We should never conflate rising tax revenue with an increase the financial capacity of such a government to spend.

We pay taxes and are taxpayers but those taxes do not provide the government with any extra spending capacity.

In earlier episodes we learned that among other things, the function of taxes is to deprive us of disposable income so that we cannot spend as much on goods and services, which in turn, allows the government to conduct its spending program and use productive resources without creating inflation.

Remember that the productive resources available to a nation at any point in time are finite.

The role of taxes is to reduce our ability to command some of those resources so that the government doesn't have to compete for their use by inflating prices.

The point is that the tax revenue gained from abandoning the Stage 3 tax cuts will provide ithe government with no extra financial capacity.

The decision to spend on health care or education is a political one presuming that there are sufficient productive resources available - like doctors, nurses, teachers, builders to build infrastructure and all the other inputs that are required to provide these essential services.

It is the availability of those resources that may constrain government spending on health care and education, not its ability to purchase them if available.

We should never get sucked into the so-called 'zero sum game' narrative that we cannot have A if we have B because there is not enough money for both.

There is always enough government money if there are available resources.

Does that mean I reject the proposition that the 'rich' should pay more tax?

Of course not.

But I would never argue that we should raise taxes so the government can have more money.

It has all the money it ever wants.

Its spending is constrained by the available resources that it can bring into productive use without generating inflationary pressures.

At certain times, such as when the economy is at full employment - a rare occurrence in this neoliberal era - the constraints will be more severe.

When there is mass unemployment then there are very few constraints on government spending.

So why would I tax the rich more?

Simply as one way that we can reduce their power to influence the public debate through control of media, through funding of think tanks and lobbying organisations, through funding of political parties and all the rest of the ways that those with lots of cash can splash it around to get what they want at the expense of the many.

I will be back next time.

For now, see ya later and take care.