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Taxing the Truth

If Australia's 2019 Federal election campaign will be remembered by economic historians for anything, it will probably be over a fascinating debate over taxation policy. The governing LNP coalition, after a six-year stint which has witnessed three leadership spills and three different prime ministers, announced a budget just before the election which would include tax cuts, and a promise to return the budge to surplus, which itself is a bit of a sticking point since they have managed to double the net debt in that period. In contrast, the opposition Labor Party has come out with a strong redistributive program, including significant funding for public transport infrastructure, subsidised childcare for low-income earners, extra public school funding, and renewable energy funding, etc. Interestingly, Labor also has announced a budget surplus that's more than twice what the Coalition has promised.

How they can make such a combination of projection and promises lies at the heart of the fiscal difference between the two parties. Unlike the Coalition, Labor intends not to pass on the tax cuts that are slated to those earning AUD$180K+ per annum, a decision that will save $77bn over ten years. Further Labor is planning on closing some amazing tax loopholes that are special to Australia, including negative gearing, capital gains, and full franking credits refunds. Explaining these very quickly:

(a) Under negative gearing, any expenses and losses made on a property can be offset against other income for tax purposes. This has meant that the Australian property market is increasingly monopolistic, and housing prices are increasingly unaffordable to others. Labor wishes to restrict negative gearing to new properties only, which should shift investments to increasing housing supply.

(b) Under capital gains tax, one normally pays a tax on the difference between the sale price of an asset and the purchase price of an asset. This includes most property, except when it is your principal residence which is exempt. Other capital gains however are subject to a 50% discount, allegedly to account for inflation. But because inflation is so low, it's become another source of "unearned income" for the investor class. Labor wants to reduce that to 25%.

(c) With franking credits, these are reductions in one's income tax where company tax has already been paid. This system of dividend imputation was introduced in 1987 to prevent "double taxation" and could reduce one's income tax liability in zero. In 2000, franking credits became fully refundable, meaning that they could reduce taxation into negative levels, i.e., the recipient received a tax refund, even though they paid no income tax. This becomes additionally enticing because superannuation income is not counted as taxable income, leading to a situation where many wealthy people on very high incomes, are receiving an income tax refund despite not having paid income tax. Labor wants to abolish the fully-franked system and return to the pre-2000 legislation, with the exception of pensioners.

These are substantial policy differences and it is unsurprising that they have been a focus of the election. Labor has taken a rather brave position by presenting big policy ideas and therefore a big target for campaigns of fear, uncertainty, and doubt. Unsurprisingly, some of the beneficiaries of current arrangements have been squealing like stuck pigs, even to the extent of one person being subject to social media ridicule as they whimpered that Labor’s policy was so unfair that it would reduce their ability to buy their ninth yacht.

Whilst it is all fine and well that policy positions are considered and debated, but what has become a feature of this campaign is the deliberate attempt by the government to mislead and lie. The treasurer, Josh Frydenberg, has persisted in describing Labor's desire to close loopholes and not pass tax-cuts to the highest income earners as representing some $387bn in new taxes. In addition, the government has persisted in claiming that Labor has a plan to re-introduce death duties (who have been subject to a run of fake news stories), which are not uncommon in OECD but haven't existed in Australia since the late 1970s. For what it's worth they are actually considered a relatively good tax by economists, who find themselves asking, rhetorically, Are any of the Coalition's claims of new Labor taxes actually true?. Even the Treasury had to tell the Coalition to stop lying when it came to negative gearing claims.

So extreme has been the campaign that consideration must be given in the next parliament for the introduction of advertising standards in elections. Remarkably, elections are one field of public life where such standards do not apply, and as a result, voters are often provided information which is neither true, factual, or even with honest intent, which of course reflects in decisions at the ballot-box. It is of little wonder that Australian are losing faith in democracy, with all the dangers of extremism that situation entails.

The time has therefore come that political campaigns in Australia should be subject to the same criteria of honesty that is required for other goods and services and to end false and misleading claims. This is not such a radical proposal and state at least, South Australia, has it on their statute books (section 113, Electoral Act, 1985. Penalties include fines for statements that are "inaccurate or misleading" with the requirements of withdrawing and retraction of such claims. For a brief period in Federal elections, in 1984, there was also a requirement for truth in political advertising, s329(2) introduced by the Australian Democrats. It was repealed the following year (p7-8) on the grounds that it could "seriously disrupt the orderly process of political campaigning". The South Australian experience, however, does not concur with this prediction.

There has been some progress on the Federal level over the years. In times past, election costings were subject to a campaign unto themselves with governments using official treasury figures and oppositions using accounting firms of their own choice to cost their policies, which were somewhat less credible (and sometimes released very late in the campaign). In 2010, at the insistence of cross-bench MP negotiations on government formation, the Parliamentary Budget Office was established as an independent, statutory office, designed to give proper costings of opposition policies. It uses the same budget assumptions as Treasury, and as it results its costing carry the same weight. The days of oppositions having rubbery figures in Australia are over thanks to the PBO. Given that truth in advertising does work in some Australian states, that the PBO has proven that truth can work on a federal level, perhaps the suggestion that there would be an improvement in political discourse and decision-making if politicians were subject to legal sanction for deception is not so radical, and then ye shall know the truth, and the truth shall set you free.


The Guardian has also picked up on the issue as well with a couple of articles.

And from the ABC.

In Australia there is actually no law stopping lies in political ads or messages. There have been attempts to legislate for truth before, but politicians from the two major parties have argued it would be too hard to enforce and could undermine free speech.

But one Liberal MP, Jason Falinski, says this is not good enough.

"We definitely need rules in political advertising to make sure that people are not misleading the voters when it comes to making a decision about who to vote for," Mr Falinski said.

"We have truth in advertising across the board. It just doesn't apply to political campaigns.

Lying to people is easier if they don’t realize they’re being lied to and it’s legal to do so.

"The above graph shows that the 20% of the polling booths with the fewest people with a graduate degree saw a swing of nearly 7% to the Coalition. On the other end of the spectrum, the most educated fifth of polling booths- actually swung 0.5% towards Labor (two party preferred)."

Which means they were also more susceptible to a campaign of abuser security. "I know it might seem bad, but I'm your best option. It'll be worse for you if you leave me."

It's not intelligence but knowledge that is the rough guide here, which also implies availability of fact-checking resources.

The main issue that is being highlighted is that because we have no advertising standards in political campaigns people can, and have been, exploited by scare campaigns and falsehoods.
In such circumstances democracy is broken. Democracy relies on people making an informed decision based on facts.

It really doesn't matter to me where it comes from. I don't support deception on the basis of political partisanship, and I don't think you do either.

The problem is that it's getting worse, much worse, and it's a worldwide problem. We need the same protection in politics that we have in other goods and services.

Like any trade people with University degrees do have a skill, regardless of discipline. They're good at research, and good at fact-checking. It's their bread and butter.

The vast majority of Australians (84%) support new laws to ban political parties and candidates from making “inaccurate and misleading” claims, according to a new poll for the Australia Institute.

On Sunday the progressive thinktank released a discussion paper canvassing options for truth in political advertising laws, following reports of widespread misinformation in the 2019 election campaign and calls from MPs including independent Zali Steggall and Liberal Jason Falinski for new minimum standards.

The paper noted that truth in advertising laws operate in South Australia, where the Electoral Commission can request material be withdrawn and retracted and financial penalties apply, and New Zealand, where the media industry is self-regulated by an advertising standards body.

It argues that industry bodies including Free TV Australia and the Advertising Standards Bureau could regulate truth in advertising, preventing the Australian Electoral Commission from being drawn into the contentious political process of adjudication.

Australian Electoral Commission finds 87 cases of election ads breaching law

AEC received almost 500 complaints about election advertising, including protests over online campaigns, during 2019 federal election

The Australian Institute now has a petition.

In July the special minister of state, Don Farrell, revealed to Guardian Australia that Labor intends to legislate spending caps and truth in political advertising, as well as promote adherence to the one-vote, one-value principle by boosting the number of parliamentarians in underrepresented jurisdictions.

The reforms would be bundled together with Labor’s election commitments for real-time disclosure of political donations and reducing the disclosure threshold to $1,000, and legislated after the committee’s inquiry into the 2022 election.

In a submission to that inquiry the Labor party national secretary, Paul Erickson, warned that laissez-faire regulation of spending and donations had allowed “extremely high-net-worth individuals, groups and networks to distort the political conversation with levels of advertising that were previously inconceivable in Australian elections”.
In 2019 an $83.3m donation by Clive Palmer’s Mineralogy Pty Ltd to the United Australia party helped finance tens of millions of electoral expenditure prompting calls for spending caps.

The UAP fielded a similarly big campaign in 2022, while Climate 200 raised $13.2m from 11,200 donors, supporting a slew of successful candidates in formerly Liberal-held seats.

Labor also wanted truth in political advertising laws “to further enhance transparency and improve the integrity of federal election campaigns”, a move that Climate 200 backed.

The Liberals warned that real-time disclosure of donations may lead to “greater harassment and bullying of individuals and small businesses” who wish to help political candidates. Hirst submitted the “prospect and fear of abuse and intimidation … is real and credible”.