The doctor is not in...

The release of the Grattan Institute's report on budget pressures on Australian governments has us all talking about taxation revenues and spending today. The report highlights two things - that we're not paying enough in tax to fund things at a level that we've become accustomed to; and that the majority of those things are actually education, welfare and health... Evidently it should be some time before we see a budget surplus in Australia.

Apparently we're getting more out of a trip to the doctor than we used to, and it's costing us. As the Grattan Institute's John Daley says:

The big driver, costing $30 billion, is extra spending on health. Contrary to popular belief the extra spending isn't being driven by ageing. It's that compared to 10 years ago, today's 60-year-olds see the doctor more often, have more tests, face more operations and take more drugs. We are getting something out of the extra spending, more people are staying alive, but the question is, who is going to pay for it?

The problem isn't entirely with who we tax and the way we collect our taxes, although this will inevitably feature in any discussion inspired by this report. Rightly so. But falling revenues are the symptom of our economy's bias toward market forces - it relies too heavily on private incentives to deliver social outcomes. When we look at that list above - education, welfare, health - we see things that a functioning democracy should regard as essential social services, the provision of which we all benefit from even if we're not frequent users of those services ourselves. They are the very basics required to ensure personal aspiration can reap its reward, no matter where you get your start in life. They are also necessary for a cohesive society that grows, develops and improves itself as each new generation of aspirant sets its mind to the challenges of the day.

But we can also see things that have undergone significant reform over the last couple of decades, particularly in how they are funded and delivered. There is a growing reliance, in each of these areas, for private forces to provide the service, and individuals to foot the bill. The government will reward your private investment - be it through a health insurance rebate, a discount for early repayment of your loan for tuition, or a co-contribution and preferable tax treatment to your superannuation - in order to reduce your reliance on government to actually deliver those services.

There's something missing from that list above, and that's housing. It is in the provision of housing that we can really see how our privately financed (ie market driven) service economy is creating some of our tax revenue problems. As we've argued before, our governments could achieve a great deal more through direct investment in rental housing supply, rather than the current approach of subsidising landlords, through generous tax concessions, who trade almost exclusively in second hand dwellings. 

But - and we've said this before, too - it runs much deeper than that. If you're building houses that people can actually afford to live in, you're not only building national wealth, you're building savings as well. You're building the foundation of a stable economy. From the outset, you're supporting jobs, but you're also supporting retail and service economies. You're building resilience and breathing life back into that aspiration we spoke about before. And when the nation is properly housed, we'll get far more value from our spending on education, welfare and health, too...