An Emotional Thing Happened on the way to the Forum

My AFR column today is on the psychology of tax reform.
The Psychology of Change, Australian Financial Review, 4 October 2011

In his book The Political Brain, psychologist Drew Westen argues that the marketplace that matters most in politics isn’t the marketplace of ideas, it’s the marketplace of emotions. Drawing on a plethora of anecdotes and research, Westen contends that reformers who trade solely on rational arguments are less likely to succeed.

So with the Tax Forum starting today, it’s worth momentarily stepping out of the enticing world of excess burden, elasticities and economic incidence; to consider how past tax reforms have drawn on emotion as well as economics.

Two of the most powerful emotions – fear and hope – have been on display in many of the tax reform movements of Australian history. The expansion of federal income taxation in the early-1940s was driven partly by fear of a Japanese invasion. Similarly, the stake that was driven through the heart of inheritance taxes in the late-1970s was the result of a fear campaign, made easier by the fact that thresholds were not indexed to keep up with inflation.

Hope has played a part too. In the Eureka Rebellion, miners rose up for the hope of replacing mining licences with a tax on gold production. In the mid-1980s, the Hawke Government painted an optimistic picture of how Australia could prosper with lower income tax rates, but with a tax base expanded to encompass capital gains and fringe benefits. Tackling climate change carries a similar message of optimism: if you want to generate the clean energy jobs of the future, the country with the highest level of CO2 per capita needs to put a price on carbon pollution.

So the next time you bump into a budding tax reformer, perhaps the first question you should ask her is: ‘Are you peddling hope or fear?’.

Another lesson from psychology is that we feel losses more keenly than gains. So it may be tough to sell a tax reform that provides diffuse benefits to many, but imposes heavy burdens on a few. This is perhaps one reason why cutting border taxes was historically such a vexed issue. When tariffs fell, hardly anyone switched their vote because the import price of school shoes had been halved, but footwear workers who would lose their jobs campaigned against trade liberalisation.

Loss aversion is further magnified in a 24-hour media cycle. Conflict makes great television, so it’s little wonder that the $14 billion pension increase in the 2009-10 budget received less media coverage than the $2 billion flood and cyclone reconstruction levy in the latest budget. To the best of my knowledge, Today Tonight is still yet to run a story on the $3900 that tariff cuts put into the pockets of the typical Australian household.

Particular features of our tax system can be traced to the power of psychology. One reason that Australian company tax rates were historically too high is that voters mistakenly thought that the burden fell only on investors. With a broad recognition that company taxes also impose an economic burden on employees and consumers, rates have steadily fallen. Similarly, the term ‘payroll tax’ sounds like something that’s paid by the boss – yet we know that payroll taxes effectively come out of workers’ pay packets.

Hypothecation is also a tribute to the psychology of tax. In principle, there is no reason to link taxes with particular spending. According to standard economics, revenue should be raised in the most equitable and efficient way, and spent on the most worthy programs. Yet as a Treasury paper by Sam Reinhardt and Lee Steel points out, hypothecated taxes date back to the 1813 promise by colonial NSW to spend customs duties on orphanages and hospitals. In 1945, part of income tax was hypothecated to social services. Since 1984, the Medicare levy has helped pay for universal health care (though it has never paid more than a portion of public health care costs). Hypothecation is rarely efficient, but it persists because it offers a clear promise: if you pay A, you will get B.

Psychologists shouldn’t be asked to design our tax system any more than economists should be deployed as therapists. But that shouldn’t stop those of us who want to improve the tax system from learning a few lessons from political psychology. Emotions, loss aversion and hypothecation are good reminders that it takes more than the left side of the brain to implement enduring tax reform.

Andrew Leigh is the federal member for Fraser. He is one of the government representatives at the Tax Forum.
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Pollie Pay

I was on ABC Radio National breakfast this morning, chatting with the razor-sharp Alison Carabine about politicians' pay. The decision is in the hands of the Remuneration Tribunal, but I thought it'd be worth discussing the economic evidence, which I tried to summarise in this 2009 AFR oped.

One of the frustrations I have about this debate is that it tends to operate mostly at the level of anecdotes and cliches (eg. 'pay peanuts - get monkeys', 'bigger honeypot - more bees', 'hey, wouldn't it be cool if the PM had a 7-figure salary?'). So while it's a risky discussion for a sitting MP to enter into, I figured it was worth adding some empirical evidence into the mix.

Here's the podcast. I also did an interview with 2UE's David Oldfield on the same topic, but alas, they don't have podcasts on their website.

Update: ABC 666 and the Canberra Times have articles on the same theme.
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Australian Youth Forum Nominations Now Open

Are you aged under 24, with a zest to represent other young Australians? Then why not apply for a position on the Youth Engagement Steering Committee for the 2012 Australian Youth Forum? Applications close 31 October 2011. Details here.
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Big Tent @ Mt Rogers

If your community group needs a marquee for a special event, you might like to borrow mine. Here it is in action at the recent "Mt Rogers explorer day".



And here's a summary of the event from the organisers:
Project Summary: Mt Rogers explorer day was developed as an information day for residents surrounding Mt Rogers to inform them of the beauty in their backyard, being Mt Rogers reserve.  Mt Rogers landcare group organised displays and giveaways, and Ginninderra Catchment Group (GCG) contributed $100 worth of plants as a lucky door prize. Mt Rogers Landcare group organised a guided walk and provided games including the horseshoe toss and egg and spoon race.

The event was well attended, with up to 60 people throughout the day. GCG provided a BBQ lunch and information about other landcare groups within the catchment.  Thank you to Andrew Leigh Federal Member for Fraser (ALP), for the use of his marquee on the day, and a huge thank you to Mt Rogers Landcare Group convener Rosemary Blemings for her organisation of the day.

For marquee bookings, just phone 6247 4396 or email andrew.leigh.mp AT aph.gov.au
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Sky AM Agenda 26 September with Mitch Fifield



The video of my appearance on the Sky AM Agenda program with my usual sparring partner Mitch Fifield. Hosted by Ashleigh Gillon.http://www.youtube.com/embed/97pYYPeH3W4?hl=en&fs=1
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Republican Tales

No, it's not more porkies being told by the GOP, it's a short story competition being run by the Australian Republican Movement. Details below.

Entries close 6 November, and can be emailed in or posted to the ARM in Geebung (of Polo Club fame).
The ARM 2011 Third National Republican Short Story Competition is open and will close 6 November 2011

Entry: $11.99
Length: 2000-4000 words
First Prize: $500
Details at http://republicanfiction.blogspot.com
Email: fiction <asperand> republic.org.au

The theme for the Third National Republican Short Story Competition is 'Citizen or Subject'. Short stories will speculate on Australian republican futures. They don't have to be political thrillers or constitutional whodunits as long as they are an exploration of our future, our republican future.

Stories must be original and unpublished.

The 2011 judges are novelist Thomas Keneally, Professor John Warhurst (ANU) and Professor George Williams (UNSW).

Send entries to:
Australian Republican Movement
PO Box 87
Geebung Q 4034
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Boost for volunteers in North Canberra

Local community organisations on the northside of Canberra are among 4,600 across Australia to benefit from the Gillard Government’s $16 million Volunteer Grants initiative.

6 organisations will share in close to $18 000 to support the work of their volunteers and provide much-needed equipment.

Member for Fraser Andrew Leigh said the Gillard Government’s investment was delivering support to local volunteers.

“We know that volunteers give their time, energy and expertise to support our community,” Andrew Leigh said.

“The Volunteer Grants will support a range of local groups such as the Belconnen Men’s Shed, the Solid Young Fullas Aboriginal Corporation and Working Wonders incorporated.

“They will receive a grant of between $1000 and $5000 to contribute to their volunteers’ fuel costs and purchase equipment such as a new computer, or a barbeque.

“For the first time, the grants will also help cover transport costs of volunteers with disability who are unable to drive and need to use public transport or taxis as part of their volunteering role.

“Volunteers have helped to weave Australia’s social fabric. The Gillard Government has shown a strong commitment to the voluntary sector and I’m proud to be a part of these initiatives.

“Also, I’d like to remind people that they can nominate local volunteers for the National Volunteer Awards at the VolunteeringACT website, www.volunteeract.org.au.

“The Gillard Government is committed to supporting our army of volunteers and this year’s volunteer grants will help them to undertake their selfless work in supporting local communities.”

To find out more about Volunteer Grants 2011 visit www.fahcsia.gov.au or call 1800 183 374.
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Helping find lost superannuation at Sunday markets in Jamison

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Community Language Schools Day

The ACT Community Language Schools Association has asked me to publicise their language schools day on 22 Oct. Details below.
ACT Community Language Schools Association
18th ACT Community Language Schools Day
Displays, Cultural Performances and International Food

To celebrate Children’s Week, ACT Community Language Schools Association Inc will host our 18th Community Language Schools Day; this day gives the association’s 40 member schools an opportunity to share their experiences and achievements with each other and the wider community. Youth and staff will showcase the languages they are teaching and learning through performances, displays and games. There will also be several CaLD liaison teams from community organisations around Canberra available for you to meet.

Date: Saturday 22 October 2011

Time: 10.00 am – 3.00 pm

Venue: Dickson College

For any enquiries contact Jacqui on 6230 5191 or via email admin <AT> actclsa.org.au
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Reducing Crime and Incarceration

I put a private members' motion on the notice paper this week on the topic of crime and incarceration rates. Hopefully it'll be selected for debate in the coming weeks.
Dr LEIGH: to move:

That this House:

(1) recognises that:

(a) the Australian incarceration rate has risen from 117 prisoners per 100,000 adults in 1991 to 172 prisoners per 100,000 adults in 2010;
(b) since the Indigenous Deaths in Custody Report was released in 1991, the Indigenous incarceration rate has risen from 1739 prisoners per 100,000 adults to 2303 prisoners per 100,000 adults; and
(c) an increasing number of Australian children have a parent behind bars; and

(2) encourages governments at all levels to pursue innovative policies to reduce crime and incarceration rates, including:

(a) investing in early intervention programs to deter young people from crime;
(b) where appropriate, considering alternatives to incarceration such as weekend detention, periodic detention, restorative justice and drug courts;
(c) employing smart policing strategies, such as using real-time crime statistics to identify and target crime hotspots;
(d) establishing in-prison education, training and rehabilitation programs aimed at reducing recidivism and improving family relationships for prisoners with children; and
(e) implementing randomised policy trials (akin to the 1999 NSW Drug Court randomised trial) to rigorously evaluate the impact of criminal justice interventions.

Thanks to intern Jess Woodall for her help drafting the motion.

Update: Here's my speech in the debate, which took place on 21 November 2011.
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8/1 Torrens Street, Braddon ACT 2612 | 02 6247 4396 | Andrew.Leigh.MP@aph.gov.au