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    There Is No Such Thing As A Free Lunch

    By
    Dimitri Burshtein
    -
    1
    Milton Friedman

    Although commonly attributed to Nobel Laureate Milton Friedman, the expression “There ain’t no such thing as a free lunch” long predated him.

    In fact, it described the practice of saloons (bars) offering a “free” lunch to patrons who purchased at least one drink.  The luncheon was generally high in salt (cheese, salted crackers, nuts), enticing patrons to purchase generous volumes of high-priced beer.  If you weren’t paying attention, and fell for the trap, you wound up paying much more for the “free lunch”.  The exploitation of a cognitive bias leads to over consumption (eg cheap and poor quality food) and over payment (eg through purchase of excess beer). 

    Which brings us to Australia – the land of the free and home of the expensive.  Not free as in freedom, but free as in government delivered services including healthcare and education that are perceived to be free.  And as with the salty food, there is over consumption and excessive cost.  Like the free lunch, Australians do not get free healthcare or education.  Every single one of us pays; just in a different way.

    Healthcare is funded through the Medicare levy and general taxes at the State and Commonwealth level, including income tax and GST.  So, whether you are a billionaire or on welfare, you are paying taxes that fund healthcare. And because healthcare is presented as “free”, there is inevitable overconsumption and waste.

    Prof. Milton Friedman

    Referencing Milton Friedman again, he observed that there are essentially four ways to spend money:

    • You can spend your own money on yourself.
    • You can spend your own money on someone else.
    • You can spend somebody else’s money on yourself.
    • You can spend somebody else’s money on somebody else.

    When you spend your own money on yourself, you are very careful because you are looking for value. You won’t be as careful when you spend your own money on someone else, but you will look for value.

    When you spend somebody else’s money on yourself, you are more interested in making your life comfortable than achieving value, but you will at least expect to gain a benefit.

    Healthcare falls into the fourth category, of spending other people’s money on somebody else. There is no incentive to pursue value at all.

    While we pretend healthcare is free, in reality it is bureaucrats in offices spending other people’s money on others. That includes finding new ways to expand their domain. 

    Consider the Commonwealth Department of Health and Aged Care.  According to its 2021-22 annual report, at 30 June 2022

    • It employed 5,154 persons – up from 4,450 the year prior,
    • These staff cost $697 million – up from $559 million the year prior, and
    • Its operating expenses were $1.3 billion – up from $1.1 billion the year prior.

    All this and yet the department did not operate a single hospital or aged care facility.

    According to the Australian Institute of Health and Welfare (a government body), in 2020-21, total health spending in Australia was over $220 billion of which over 70% was government (Commonwealth, State, and Territory).  That does not sound very free. 

    A government commissioned review also found that perhaps 10% of the Medicare program was subject to waste and fraud. Why?  Perhaps because governments are spending somebody else’s money on somebody else.

    This is not to suggest that there would be no government health expenditure if this charade of free healthcare was ended.  It might however lead to a much more responsive and cost-efficient system.  Consider how much lower taxes could be, or how much higher pensions might be, but for the inefficiency and waste of Australia’s “free” healthcare system.

    We are told by Professor Duncan Maskell, the Vice-Chancellor (CEO) of the University of Melbourne,  that “one of the most important radical changes that could be made to facilitate this would be once more to make education free to the Australian domestic student”.  Australia already has an over-production problem of university graduates, and Maskell’s proposal would make it even worse.  Why?  Because universities would be spending somebody else’s money on somebody else.

    To make university education “free to the Australian domestic student” would require someone else to pay for it, including those who do not and will never attend university.  It wouldn’t be free; it would just be paid for by someone else.

    If Professor Maskell, who is reported to be on an annual salary package of $1.5 million, really wants to make university cheaper and/or free for students, he should first look in his back yard.  According to the Melbourne University annual report, in 2022 it had approximately 53,000 students and employee related expenses of $1.6 billion. That’s approximately $31,000 per student.  It would certainly make the cost of education much lower if Professor Maskell and all his staff worked for free.

    Taxing The Country Into Welfare And Disability

    By
    Dimitri Burshtein
    -
    0

    “We contend that for a nation to try to tax itself into prosperity
    is like a man standing in a bucket and trying to lift himself up by the handle.
    It is impossible.    ” 

    Those were not the words of an Australian Commonwealth Treasurer but rather of Winston Churchill addressing the House of Commons in 1925 arguing against a proposed increase in taxes.

    Winston Churchill. Economic liberal and twice UK Prime Minister.

    Almost 100 years after Churchill’s comment, Treasurer Chalmers presented his second Budget, in May 2023.  It showed yet another record amount of tax collected and sums spent.  For the coming 2024 financial year, the Government expects to collect $668 billion (25.9% of GDP) to fund $684 billion of spending (26.6% of GDP). 

    Of course, spending is higher than revenue so yet again
    there is a deficit to add to the national debt pile
    for our children and grandchildren to pay.

    Of the $684 billion of spending, it is estimated that $356 billion or around 52% will be spent on health and welfare.

    And within the social security and welfare line is the following:

    From a standing start around ten years ago, assistance to people with disabilities, ostensibly NDIS, is now the second largest Commonwealth government program.

    Over the life of the budget (FY23 to FY27), the average annual increase in spending on the aged pension increases by 6.5%, but the average annual increase in spending on the NDIS is 7.9%.  Both increases are faster than economic growth and the average annual increase in receipts (3.7%).

    Like much of the developed world, Australia is experiencing an ageing population. It could be reasonably expected that spending on aged pensions might increase, but so much for superannuation. 

    Yet given the rapid growth of NDIS spending, one might conclude that
    Australia is also experiencing a dramatic increase in disability. 

    Maybe there is something in the water.  Or perhaps the education system.

    Parked near the back of the budget papers is an analysis of real per-capita spending and taxing: per-capita to adjust for government activity increasing due to population increases; real to adjust for inflation over time.  And in these numbers, the true state of budget disrepair is evident.

    On a real per-capita basis, in the 2024 financial year:

    • Commonwealth receipts are expected to be $18,102;
    • Commonwealth payments are expected to be $18,479; and
    • Commonwealth net debt is expected to be $15,574.

    Impressive.  From an average four-person household, the Commonwealth expects to extract $72,408.

    But here is the interesting part.  Thirty years ago, in per-capital real dollars:

    • Commonwealth receipts were $8,866;
    • Commonwealth payments were $10,110; and
    • Commonwealth net debt was $11,364.

    So basically, in the space of 30 years, on a per-capita basis, we are paying double the amount of tax, the Commonwealth is spending almost twice as much, and debt is 4.5 times larger in real terms.  And 30 years ago was 1983-84, when Bob Hawke came in inheriting a national economic basket case.

    It is worth noting that the inclusion of historical real per-capita data in the budget papers is owed to the negotiation efforts of former Senator David Leyonhjelm.  Such important government finance transparency highlights the value of a strong classical liberal voice in Australian parliaments.

    Improved budget reporting. Legacy of former Senator, David Leyonhjelm.

    During the 1980 US Presidential election debate, Ronald Reagan asked the (rhetorical) question: “Are you better off than you were 4 years ago?” Here is a question for Australians.  Is Australian government better than it was 30 years ago?  Given the doubling of taxing and spending, are services better?  Is Australia safer?  Are we healthier or smarter?

    Perhaps Churchill was only half right.  A nation can’t tax itself into prosperity, but Australia is trying to tax itself into welfare and disability.

    This Tax To GDP Rate Is Mind-Blowing!

    By
    Dimitri Burshtein
    -
    0

    With the Commonwealth Budget due to be presented later today, Australians should reflect on the words of Winston Churchill, who wisely observed that “there is nothing government can give you that it hasn’t taken from you in the first place.”  Such clarity seems missing from our contemporary economic and public finance debates.

    There is a myth, even an attempt at deception, perpetuated by the tax and spend industrial complex that Australia is a low tax jurisdiction.  (Hint – it’s not).  And, based on this myth, that there is capacity for further tax rises in Australia to fund existing and new programs.  (Hint – there isn’t).

    In its recent report titled ‘Back in Black?’, the Grattan Institute presented a chart and commented that “Total tax collections across governments in Australia represented 28 per cent of GDP in 2019, about 5 percentage points lower than the OECD average of 33 per cent”.  The clear implication is that there is capacity for government to increase (tax) revenues.”

    Sadly, for Australian taxpayers, this is not an accurate representation.  Once other State, Territory and local government receipts are added, Australia’s tax to GDP rate represents approximately 36 percent.  When further adjusted for superannuation contributions, as other countries tax for social security, then Australia’s effective tax to GDP rate is approximately 40 percent.  Significantly above the OECD average.

    Add in the hidden taxes imposed by the massive and highly complex regulatory and compliance edifice that is pushed onto the private sector, and Australia’s tax to GDP rate starts to look very Scandinavian.  But without the competence and efficiency of the Scandinavian public sector.

    Those advocating for more taxes to fund more spending seem blind to the consequences.  The more national resources are transferred from production to government and quasi-government activity, the lower will be productivity and economic growth.  Given the MASSIVE expansion of government in Australia over the past 20 years, it should surprise no-one that GDP per capita is flat to declining.  Just at the Commonwealth level, spending as a percentage of GDP has increased from about 18 per cent in 1972 to about 23 per cent in 2000, to just under 28 per cent in 2020.

    What is required is a fundamental assault on Government spending, not new schemes to increase taxes. 

    It can start at the Commonwealth public service which has a workforce of over 250,000 public sector employees, despite the vast majority not providing front line services.  That includes 10,000 employees within the Departments of Education and Health and Ageing  Departments, which do not operate a single school, university, hospital or aged care facility.

    The wages and salaries of Commonwealth public sector employees totalled $24.5 billion in 2022 and would increase by $5 billion if the CPSU’s claim for a 20 percent pay increase is successful.

    All eyes on team Chalmers and Gallagher today

    Treasurer Jim Chalmers and Finance Minister Katy Gallagher need to embrace the legacy of Paul Keating and Peter Walsh and undertake the hard but necessary work to bring Commonwealth Government spending back under control.  Better yet, they should learn the expression Just Say No.

    FREE! The Kerry Packer Classical Liberal Masterclass

    By
    Dimitri Burshtein
    -
    0

    Some thirty plus years ago, a fellow by the name of Kerry Packer appeared before a House of Representatives Inquiry into Print Media. 

    Kerry Packer. Appeared in the House of Reps Inquiry into Print Media in 1991.

    The context of the inquiry was that the owner of the main metropolitan newspapers and classifieds, Fairfax, had gone broke.  And with Fairfax having gone broke, Packer was trying to buy into the re-floated business. 

    This was a time before the Internet, when newspapers actually made money and lots if it from their classifieds business.  Fairfax’s classifieds business was referred to as the ‘rivers of gold’.

    There is a tale to tell here around Malcolm Turnbull who was previously Packer’s in-house lawyer and who, by this stage, had moved on and was representing the junk bond holders of the broke Fairfax.  But that is for another time.

    Businessman Kerry Packer with future Prime Minister, Malcolm Turnbull.

    For his masterclass in its entirety, see the video at the end of this article.

    There are some much younger looking folk in it, including one Peter Costello.  However, this is not to delve into the issues of media, but rather the diversion that took place late in the piece when Packer spoke about the risk to Australia from the constant meddling of Australian parliaments and the risk to investments into Australia.  It was a Packer masterclass and should be shown in every school and every parliamentarian induction session. 

    The more things change the more they stay the same.

    Highlight 1 – when Packer says to ALP curmudgeon John Langmore:

    “You seem to be completely unaware of the Constitution of Australia.”

    https://www.youtube-nocookie.com/embed/82W6RgYwQS4?rel=0&autoplay=0&showinfo=0&enablejsapi=0

    Highlight 2 – when Packer points out that in his lifetime, tens of thousands of laws had been passed but that Australia was not a better place for all those new laws.  He also suggested that for every law passed, another law be repealed.  Packer said:

    Every time you pass a law, you take someone’s privileges away from them.

    https://www.youtube-nocookie.com/embed/k9wZk_0n18k?rel=0&autoplay=0&showinfo=0&enablejsapi=0

    Highlight 3 – again when Langmore accuses Packer of minimising his tax.  To which Packer replied:

    I don’t know anyone who does not minimise their tax.
    If anyone in this country doesn’t minimise their tax, they want their heads read,
    because as a government, I can tell you that
    you’re not spending it that well that we should be donating extra!

    https://www.youtube-nocookie.com/embed/Dae_lPippGU?rel=0&autoplay=0&showinfo=0&enablejsapi=0

    Which brings me to superannuation wars 2023 when Treasurer Jim Chalmers and Assistant Treasurer Stephen Jones flagged yet more changes to superannuation taxes. 

    The proposal is couched in fairness, but the truth is that like drug addicts, the government is in desperate need of more money.

    Let’s be honest here.  There are some serious issues with the taxation treatment of superannuation.  As John Kehoe pointed out in the AFR:

    A retiree earning $100,000 a year in super fund investment returns typically pays no income tax, whereas a wage earner receiving the same amount pays $23,000 tax

    This is neither fair nor just.  But the Government’s problem, as with the same problem for the Coalition, is that they have no credibility when it comes to tax changes and tax reforms. This because they won’t do the work of demonstrating that what is currently being spent is being spent efficiently and effectively.

    Within the last six months, it was reported that some $6 billion per annum is lost to fraud in the NDIS and $8 billion per annum is lost to fraud in Medicare.  That’s $14 billion per annum, and not a word has been said or done about this.  No inquiry.  No policy changes.  No ministerial speeches.  No campaign from the opposition.  No major response from government.  Just business as usual. 

    Instead, piles of money and political capital are being expended to generate what will likely be less than $1 billion per annum of additional taxes.

    Talk about perverted priorities.

    There is much wrong and distortionary with the Australian tax system.  It is a train crash.  But until government does the fundamental and hard work of spending reform, tax reform will be seen for what it is.  Just an attempt to pump more water into a leaky bucket.

    According to the ABS, for the 12 months to June 2021, the 3 tiers of Australian government managed to generate $810 billion of revenue.  But they spent $970 billion or near half of GDP generating a combined deficit of $160 billion.

    Our governments don’t have revenue problem.  They have a spending problem.  Message to Labor, Liberal, National and Greens governments, as Kerry Packer said quite well and clearly:

    “you’re not spending it that well that we should be donating extra!”

    Here’s the Packer masterclass in its entirety.

    https://www.youtube-nocookie.com/embed/xOLbbkC1qq0?rel=0&autoplay=0&showinfo=0&enablejsapi=0

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