David Alexander on Australia

by on December 14, 2010 at 2:39 pm in Economics, Political Science | Permalink

Australia is one of the most economically free countries in the world, and has for some time been among the smallest governments in the developed world, with low levels of tax and spending. Last year, according to the OECD’s Economic Outlook, Australia was the Thatcherite’s number one performer, with not only the lowest level of government spending of all developed countries but also the lowest level of taxes of all developed countries equal with South Korea).

Alexander also stresses that Australia both is and feels relatively egalitarian, while having a high level of ethnic diversity.  He writes to me:

One key to this is that Australia is the means-testing capital of the world, with the lowest proportion of transfers to high earners of any country; The second key is the very low taxes on low earners; This highly progressive tax and transfer system produces small and dynamic government – I call it egalitoryan – but it turns Hayek and Buchanan upside down.

There is much more here.

mark December 14, 2010 at 10:49 am

It stands to reason that if you have lower transfers to high earners,you'll have lower taxes, and vice versa.

But you have to wonder to what extent Aus is achieving this merely by liquidating and imosing excise taxes on natural resources.

Doc Merlin December 14, 2010 at 11:04 am

"I also tend to agree that a lot of Australia's economic success has less to do with the income tax structure and more to do with its massive reserves of natural resources and China's consumption of those resources. It will be very interesting to see how things hold up when China slows down."

Also, unlike the US, Aus ignores the greenies when it comes to resource extraction.

josh December 14, 2010 at 11:05 am

The ethnic diversity is new too. Give these things time. I hear they have hip hop now.

Lou December 14, 2010 at 11:17 am

ANWR is the definition of an uninhabited wasteland.

Millian December 14, 2010 at 11:28 am

Hmm, I imagine Americans hearing this feel the same way that I do, when politicians lecture us in Europe about how we should behave like Norway/Sweden/other countries with bountiful natural resources.

weeksie December 14, 2010 at 12:09 pm

@M so multiculturalism is having a large black population?

farmer December 14, 2010 at 12:39 pm

am i totally off-base when i recall huge beach side brawls where hundreds and hundreds of bogans indiscriminately beat up lebbos and abos just a year or so back?

Roy December 14, 2010 at 12:57 pm

ANWR is just as much, if not more of a wasteland than Western Australia, you are just seduced by the very transient cuddly megafauna, aka, the caribou. Who are under no threat at all from drilling.

Meanwhile strip mining an ecologically unique desert biome is ok, because it looks hot.

Personally I am for exoploiting both, but this fetishization of Alaska is really irritating

dearieme December 14, 2010 at 1:07 pm

This reminded me slightly of the direction the coalition government is taking in the UK – their announcement of withdrawing "child benefit" from the well paid, for example.

weeksie December 14, 2010 at 1:15 pm

"ANWR is just as much, if not more of a wasteland than Western Australia, you are just seduced by the very transient cuddly megafauna, aka, the caribou. Who are under no threat at all from drilling."

Based on what? Caribou migration would be heavily effected by additional pipelines, which is exactly what would be needed for large oilfields in ANWR.

Mining parts of the Australian outback is ok because it's so bloody large. Even big mines still leave the vast majority of the outback untouched. To top it off, the places where they are mining are hardly full of biodiversity.

Alex December 14, 2010 at 1:21 pm

strong means-testing + highly progressive tax rates = much flatter effective tax rates

Michael December 14, 2010 at 1:54 pm

Leaving aside significant caveats and omissions (some already mentioned in the comments) the article is good. The platypus model portrayed by David Alexander is something Australia can and should be prouder of than some clichéd nationalisms many Australians believe they should be proud of. Alexander worked for a basically good government, certainly a far better government than the present one. I just moved back to UK after 13 years in Australia. It was noticeable (and perhaps a function of the egalitarian ideology or merciless political code?) that Australians too reluctant to sing their own praises intellectually, and reluctant to mention international comparisons that really count. I continue to read The Australian and you won’t see this sort of analysis on their front page. Of course, when you live in a country lots of stuff looks bad in absolute terms. If it didn’t and if no one grumbled there would be no progress. Competition policy needs improving. Pseudo-egalitarianism in the education system and the workplace holds the country back.

But when I return to the UK and see the desperately dysfunctional ‘churning’ of taxes and benefits at really extreme levels (take housing benefit for example) it is easier to recognize the areas of relative superiority at intersections of Australian tax & benefit systems. Alexander neatly moves perceptions beyond mere anecdote.

I have found it difficult to understand James Buchanan’s dogmatism about means testing. Universalism is a wonderful thing, and my own book is full of praise for it. But here in the UK universalism means everyone gets the same ‘benefits’. If you are thinking straight, if you talk in Hayekian terms and plan for a ‘safety net’ rather than ‘welfare’ or ‘redistribution’, then there is nothing un-universal or discriminatory about reserving the safety net for the deserving few. You have a non-discriminatory polity and fiscal system, perhaps with a flat tax, certainly with fewer or zero rebates and other redundant complexities, but you reserve a delimited (simple, transparent, and strict though potentially generous) safety net for those who genuinely need it. You don’t wastefully cream off everyone’s cow milk only to churn it back as bureaucratic sour cheese. Everyone accepts a ‘benefit’ — obviously — but few rich or middle class people would be willing to endure the stigma of falling from the trapeze into the holey *safety net*. Alexander seems carefully to describe the pros and cons of means testing, and to my mind quite reasonably says the advantages outweigh the disadvantages.

Michael G Heller December 14, 2010 at 2:01 pm

Drat, Michael just forgot to mention his authorial name.

Jayson Virissimo December 14, 2010 at 4:55 pm

"but it turns Hayek and Buchanan upside down."

I fail to see how any of this contradicts either Hayek or Buchanan. What am I missing?

iolanthe December 14, 2010 at 5:11 pm

"I think I saw less than 10 black people in 8 months of living in Australia."

Would be interesting to know where and when you were in Australia. Australia takes some several tens of thousands of refugees each year and because of where the conflicts are, we've been taking large number of Sudanese so have reasonably large populations of both in Adelaide, Perth and Melbourne. It is true that we have virtually zero non indigenous blacks before the 1990s. Courtesy of previous waves of refugees we have significant minorities of Vietnamese and Lebanese, both of whom have assimilated well and I assume the Sudanese will do the same in time.

Ken December 14, 2010 at 5:28 pm

sam: "They [New Zealand] don't even have a capital gains tax,"

Does that mean that they don't tax capital gains, or that capital gains are taxed as ordinary income?

I had a similar question about China, back when Gingrich was holding it up as a shining economic example based solely on the claimed lack of capital gains tax.

Doc Merlin December 14, 2010 at 7:13 pm

"Mining parts of the Australian outback is ok because it's so bloody large. Even big mines still leave the vast majority of the outback untouched. To top it off, the places where they are mining are hardly full of biodiversity."

ANWAR is more so a wasteland than the australian outback, and Alaska is insanely huge. Alaska is less densely populated than Australia and is has a more concentrated population.

DavidN December 14, 2010 at 8:33 pm

'[Australia is] one of the most socially puritanical of developed countries' – European . You can't be serious.

Drewfus December 15, 2010 at 4:26 am

Australia is becoming a little complacent.

http://www.theaustralian.com.au/news/opinion/no-t

Ted Craig December 15, 2010 at 5:33 am

Like Canada, a population smaller than California, mostly concentrated in one region, with lots of natural resources. Comparing the U.S. to either is pointless.

weeksie December 15, 2010 at 8:34 am

@Doc Merlin, a geography lesson is in order. Australia is massive, so is Alaska but Oz is way bigger. Australia is 7.69 million square kilometres, Alaska is 1.51 million.

All of the population of Australia is along small areas on the coast, the middle is almost entirely unpopulated because it is so hostile to human life. Look at a population density map sometime.

PJ December 15, 2010 at 12:11 pm

A few thoughts (from an Australian expat, long term US resident):

. Again, I'm confused as to how progressive taxation and means-tested benefits contradicts Hayek or Buchanan.

As a general political economy point, a parliamentary system of government concentrates decision making and diffuses the power of lobbies. Lobbies are growing more powerful in their influence on public policy in Australia but it is nowhere near as bad as the US or Europe. Fewer points of decision making can lead to more far reaching reform, as it has in Australia over the past 30 years. Governemnts can exploit that to put in place reform policies that work in the long term, which is why its private retirement savings system won't bankrupt the country, and its mixed public-private health insurance system – insurance is an individual responsibility in Australai – threatens to do less long run damage than Medicare here.

. On social puritanism, a bit of explanation. Puritanism in Australia is not so much exhibited by restrictions on traditional sinful behavior – Australia is pretty decadent when it comes to drinking, tolerance of nudity etc – but in a stentorian approach to regulation. Try buying tobacco in Australia, or exceeding the speed limit even marginally.

- December 16, 2010 at 11:48 pm

multiculturalism is wearing a red necktie on wednesdays, blue on thursday and tuesday, geenish on monday, and brown or tan (but not too pale tan) on friday.
no yellow, violet, orange, chartreuse, etc ties.

i recall reading that australians had resented the surge of post viet war refugees.
But hey, they didn't eat the last Tasmanian tiger.

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