Monday, May 14, 2007

If you pay more for something, do you expect more in return ?

This is a general question and I think most people out there wouldn't hesitate to answer yes.

If the price of any goods or service goes up, all rational individuals will reconsider and revise the amount of that good they will consume. This would even apply to basic needs like food and water and shelter.

Most people avoid doing any kind of rational analysis when they have no choice in the matter. When you are forced to buy something, and could face jail and fines for not paying, then its really an academic matter as to whether you are getting good value for your money.

Which is why the government can so easily get away with massively expanding taxes, and not really doing anything to improve what it delivers. This comes via Thoughts on Freedom:

Howard govt. costs 34% more than Keating govt.

With the latest budget figures now out I did a quick back of the envelope calculation to find that our Federal government services now costs us 34% more than it did a decade ago. That’s after adjusting for population and inflation and omitting the GST cost component.

1997 cost per capita was A$8437 (year 2007 dollars)
2007 cost per capita was A$11310 (year 2007 dollars)

In gross dollar terms the increase in the total cost of Federal government over the decade almost exactly equals the current total of all personal income taxes. Or to put it another way reducing all personal income tax to zero would leave the budget with the same gross revenue outcome as in Keatings day.

Do you feel like you were getting good value for money in 1997 ? What about now ? Does anybody think they get their money's worth ? Does anybody think ABOUT whether they get their money's worth ?
$11,310 per person is a lot of revenue. When you add up income tax, GST, stamp duties and petrol excise, its easy to see how the government can get rich quick.

UPDATE: A user in comments has issued a correction since the GST was not included in the above figures:
The story is actually worse than what Terje says because of the governments treatment of GST. Before 2001 the government had a wholesale sales tax (WST) and passed that money on to the states through FAGS (financial assistence grants)

I acknowledged it in the article but it is simple to include the effect so I probably should of taken the effort to do the numbers. Let me try and remedy that now.

GST according to the latest budget papers totals $40,000 million. So the corrected numbers would be:-

1997 cost per capita was A$8437 (year 2007 dollars)
2007 cost per capita was A$13238 (year 2007 dollars)

An increase of 57% not 34%.