This text formed the basis of an article that appeared in the Sydney Morning Herald on 8 October 2007
Tax cuts nice for some but not impoverished students
Australia is the second lowest taxed country in the OECD. We are also the second worst-off in total government investment in physical and social (human capital) infrastructure. These two are related. In having five consecutive tax cuts from a low-tax position have we thrown the baby out with the bathwater?
Three diagnostics tell us. First, comparator countries in Scandinavia and Northern Europe have higher tax rates than us, and also higher income per head. This contradicts the mantra that low taxes are always good. Second, a key component of living standards is investment (both public and private) in infrastructure and skills formation. Our massive skills shortages from construction trades through to doctors, nurses, engineers, IT specialists and now even accountants tells us we have not invested enough. Third, student-staff ratios in Australian Universities are over 20. Compare this to 10 in China, 12 in Japan, and 5-10 in the US.
Australia needs much more investment at all levels of education. The under-investment in higher education has been off-set by the best piece of social policy in the last 20 years: the HECS scheme, which allows students to defer fees until income is earned. Fortunately, this has substantially reduced the problem caused by Australia having among the highest student fees for public Universities in the world. However, while students can defer fees, they cannot defer poverty. Students are struggling: caught between restricted earning capacity while studying and the massively increasing rents in most major cities, they are forming the core of the new urban poor.
The increasing poverty of our students is the ugly face of a low tax obsession. It has been inflicted by a generation who obtained free University education and almost universal scholarships. For this generation to now, in addition, give themselves large pre and post retirement tax cuts in the face of such poverty is immoral. Consider these tax cuts alongside the recent story of a student who has quit her education degree with one year to go. The reason: she is only eligible for childcare assistance for one year because she is a student. This is absurd. There are thousands of stories like this. Each one adds to our skills shortage.
As a first priority, Australia needs a financial support scheme which particularly targets low socio-economic students. This is better than a reduction in HECS because it gives students a choice: they can use it to lower HECS debt, or to relieve immediate poverty. It also allows an aspiration for post-secondary education for many who through no fault of their own cannot currently realise such aspirations.
To invest in our institutions and our people we need a tax base. This should not be a political left-wing versus right-wing issue. Business needs engineers, financiers, accountants and IT specialists in order to be internationally competitive; as much as the community needs doctors, nurses, teachers, plumbers and electricians. We will not get these with our current policy. When the next politician promises further cuts in taxes, replace "taxes" with "educational outcomes infrastructure and productive capacity" and see if the argument is still appealing.
We have much to be proud of in Australia and many things we can aspire to. But one thing we cannot aspire to is to have as high an income per head as many similarly sized countries in the OECD, who even without a resources boom, create a tax base in which to wisely invest in their institutions and their people.
