Tax incentives for the so-called rich

Watching Q&A last night was interesting and instructive, not least because Nicola Roxon was allowed to dominate. Still I won't wax lyrical about the bias of the ABC, well not tonight anyway.

What did intrigue me was a question from the audience that obviously wanted support for the view that tax incentives for the so-called rich should not be allowed. There was of a defense put up by Greg Hunt, not surprisingly and and an allusion to public monies for private education as well. Basically the argument runs that public support for private health and education nurtures a mixed system, reduces the burden on state health and education and promotes choice. With people availing themselves of private services (whether they are deemed to be rich or not) there is more money to be spent on those who must use or those that choose the state provided services.

Tim Wilson of the Institute of Public Policy, to his credit, argued a more philosophically pure view that all subsidies are bad, are likely to produce a skewing of resources, distort the system and thus produce poorer outcomes.

However Tim also skated across another key point. Whether it be private health or private education the relative rich have a claim on some proportion of the tax spend as they themselves pay more tax. Thus these people not only contribute more they can frequently also consume less of what the state provides to the obvious benefit of those who pay less tax but consume more of the state provided services. Thus some minimal subsidy can be justified if it promotes a lessening of demand on government and is thus a discouragement to avoid tax.

There was no time and probably even less appetite but these arguments logically lead onto the justification or otherwise of so-called "progressive" taxation, the system where the more you earn not only does one pay more in actual dollars but also a higher percentage of gross income. This is a sacred cow of our polity and hardly ever argued these days. I flag this issue tonight and will address it in my next posting. Any of your comments or thoughts will be readily received.

Best regards, Jonathan.