Good Policy Isn’t Always Enough

In politics, selling a tax cut is easier than selling just about anything else. Tax cuts are simple and simplicity sells. But tax cuts aren’t a universal remedy for economic ailments, the sole effective driver of growth and prosperity or capable of achieving targeted policy outcomes, like reducing carbon emissions.

Yet around the world the siren-song of tax cuts has helped conservatives lure voters and demonise their opponents. Why and how this happens matters, because it’s entirely possible that the easiest part of Dr Ken Henry’s job will be designing a better tax system for Australia. Selling it to the Australian people may well be a greater challenge for Dr Henry and the Rudd government.

What goes down, stays down.

I’ve seen first hand the challenge of selling a progressive position on tax while writing speeches for the 2008 Canadian election.

The New Democrats, Canada’s social democratic party, wanted to cancel scheduled corporate tax cuts that would have further reduced Canada’s already-low corporate rate. We argued that there were more important things to spend money on – like health care and taking on climate change.

Being accused of anti-business was difficult enough, but we also ran hard into the brick wall of conventional wisdom: we weren’t for more corporate tax cuts, therefore we were bad for the economy.

Labels like that make winning new voters challenging.

South of the border, then-Senator Barack Obama experienced similar accusations from his opponents.

Despite a plan that gave income tax cuts to some 90% of Americans, Mr Obama was accused of wanting to raise taxes because he intended to let President George W. Bush’s ‘temporary’ tax cuts for the wealthy expire. In office, President Obama has deferred ‘raising’ taxes on the wealthiest 1% of Americans to their Clinton-era levels.

In Australia we need look no further than Kevin Rudd’s ‘just a couple of billion less than Howard’ tax cut plan in the 2007 election. For the first time in a decade the Labor candidate was deemed equally credible on economic management.

Conservatives have dominated discourse on taxes at least since Reagan and Thatcher swept to power on the lower taxes mantra. Cutting taxes makes sense to fiscal conservatives: it puts more money in private hands, reduces government revenues and, consequently, shrinks government spending.

But its popular power is in its simplicity: it’s very easy to promise to hand back people’s money and very hard to justify spending it on their behalf.

The short attention span of most voters, the sound-bite news culture, and a lazy media often disinterested in detailed policy analysis compound the problem.

Simplicity in policy certainly helps simplicity in messaging, but many progressive policies are anything but simple. This makes outstanding messaging even more critical.

You lost me at ‘tax shift’.

Cuts and hikes are easy concepts. Moving brackets around isn’t too difficult either. But while often called ‘reform’, they are far less reforming than changes that substantially alter the structure of the tax system itself.

With climate change pushing to the fore, carbon taxes that do just that are being debated more often.

Carbon taxes aim to reduce greenhouse gas emissions by making it more expensive to use carbon. The cost to consumers is offset by shifting the tax burden. In the simplest terms, you pay more for your petrol but less tax overall.

Proposing such reforms is a risky business, as the Liberal Party of Canada can attest. The Liberals, Canada’s most frequent governing party, contested the 2008 election on the now-infamous ‘Green Shift’ policy that proposed instituting a carbon tax and delivering equivalent cuts to consumers and industry through tax cuts and credits.

But the system wasn’t that simple. Consumers had to reduce their carbon output sufficiently to achieve an equivalent saving in other taxes. That’s because income tax cuts were combined with incentives for home energy efficiency retrofits, renewable energy usage, and low emission cars. For industry it would be equally complex. The larger effects of the tax on the economy were hard to know with any certainty.

The Liberals failed to find a simple, concrete way to sell their plan.

But the message was easy for their opponents: They want to hit you with a new tax. The Liberals spent the campaign being relentlessly pounded with their own policy platform.

Ineffectual leadership and an inept campaign didn’t help the Liberals, but the Green Shift was the decisive nail in their coffin: they received their lowest popular vote in a hundred years.

So was it bad policy? Not necessarily, but it certainly was bad politics.

You say ‘crisis’, I say ‘yes, but opportunity too’.

The economic crisis has created an opening for a renewed debate on taxation. Leaders, the media and the public are more engaged on the issue and awareness of the need for an effective stimulus is focusing attention on public interest policy. Look, for example, at the remarkable level of scorn heaped on the Republicans for demanding little more than tax cuts to stimulate the US economy.

But before progressives pop open the champagne, know that we are not seeing a revolution in popular perception. What we are seeing is an opportunity to lay the groundwork for more openness and less constraint in the politics of taxation.

If public interest is to be better served, this opportunity must be grasped with both hands.

In Australia, that means more than hoping the Henry review is visionary in nature and broad in scope. Reform must make sense to the people who’ll be living with it.

The story needs to be about people: Why is this tax better for my family? How will my daily life change? Why am I better off with more taxes and more health care? If I say no to tax cuts from the other guys, how will my life be better?

Reform has to be real. Making it sensible and simple for Australians will be critical if the Rudd government wants to transform its credibility on the economy into real reform.

Main Points
•    Selling tax cuts is easy, but selling progressive tax policies is more complex and requires compelling messaging
•    Canadian and US experiences in attempting to abandon tax cuts and impose carbon taxes confirm it’s a hard sell.  It’s easy for oppositions to oppose any ‘new tax’ or ‘tax hike’
•    Whatever reforms the Henry Review proposes, they will have to be both sensible and simple enough to be sold to the Australian people – answering the question ‘how will this make my life better?’