There are few "taxed-nots" apart from the elderly

It's a sad day when economic commentators like me have to spend so much time explaining what's wrong or misleading about the things the federal Treasurer says, rather than backing up his efforts to educate the public on economic realities and helping him fight for sensible though unpopular policies.

To be fair, Scott Morrison did have useful points to make in his big speech last week, his first major contribution since the election.

But then he veered off onto reinforcing the mythology of the greedy well-off, who resent being taxed to help those less fortunate than themselves.

He announced there was a new divide in the community – "the taxed and the taxed-nots".

"A generation has grown up in an environment where receiving payments from the government is not seen as the reserve of those who unfortunately will be forever dependent on support or in need of a hand up, but a common and expected component of their income over their entire life cycle," he said.

"On current settings, more Australians today are likely to go through their entire lives without ever paying tax, than for generations.

"More Australians are also likely today to be net beneficiaries of the government than contributors – never paying more tax than they receive in government payments."

Get it? Here are you and I, working hard all our lives, having far too much of that income taken off us in tax. Yet out there somewhere, living in suburbs we rarely visit, is a growing army of bludgers who don't bother working, but find some way of conning the government into paying their way.

Now, apparently, a lot more of them will go their entire lives without paying more in tax than they get back in benefits.

This is self-pitying fantasy. It's not the disadvantaged we should feel sorry for, it's you, slaving away in Mosman or Brighton.

It's an imaginary picture of the world. It's the conspiracy theory you'd expect from One Nation, not the federal Treasurer.

It's built on a few simple tricks. It hopes you won't remember that Australia's social security system is the most tightly means tested among the developed countries, paying flat amounts that aren't at all generous – which is the main reason we pay less tax than most.

And it hopes you won't remember that we pay many more taxes than income tax. Personal income tax accounts for only a little over half the federal taxes we pay. Add in state and local taxes, and income tax accounts for 40 per cent of all taxes.

So the notion that people who don't work don't pay tax is silly. Even taking account of benefits received, next to no one goes through their life being "taxed-not".

It's true we spend almost $160 billion a year on social security – most of it going on pensions and benefits – which accounts for more than a third of all federal spending.

Official figures show there are about 5.2 million recipients of federal "income support". So who are these bludgers? People on the dole? They account for just 13 per cent.

Sole parents? They're 5 per cent. People at home being "carers"? Just 4 per cent.

I know, all those people faking bad backs on the disability support pension. Sorry, that's only 16 per cent.

So where are the rest of the people not pulling their weight and expecting us to support them? Well, half the people on income support are people on age or service pensions.

Oh. You mean the people who keep saying they're entitled to the pension because they "paid taxes all their lives". The people whose investment advisers helped them have lots of other income, but still get the pension.

And that doesn't count all the retired people paying no income tax on their income from superannuation, at present no matter how huge.

Nor does it count all those bludging parents getting the family tax benefit or those bludging mothers expecting us to help with the cost of childcare so they can go to work.

Family benefits and childcare subsidies account for more than a quarter of federal spending on pensions and benefits.

What, not quite so many lazy loafers as you expected?

The Australian Bureau of Statistics conducts a study where it attempts to allocate as many taxes as possible from all levels of government to each of Australia's 8 million-plus households, while also allocating as many cash and in-kind benefits as possible from all governments.

Morrison ought to look at the most recent study, for 2009-10, particularly page 41. It shows that whether we pay more to the government than we get back in benefits changes as we move through the life cycle.

It shows that, on average, single people of working age pay a lot more than they get back, as do couples without dependent kids.

Couples with a few kids pretty much break even or get back a bit more than they pay, but the people who really clean up are the retired.

Elderly couples are ahead to the tune of about $690 a week, on average, with elderly singles getting $475 a week, mainly because they pay little income tax but get huge health benefits along with the pension.

ScoMo isn't smart enough to know it, but in disparaging the "taxed-nots" he's really attacking the old.

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Our other problem: xenophilia towards foreign investment

There are few topics on which there's more irrational thinking than foreign investment. Trouble is, the illogic comes as much from economists and policy makers as it does from uncomprehending punters.

Sometimes I think the wonky thinking by the economic literates is an overreaction to the crazy prejudices of the economic illiterates.

The punters think we can decide not to sell off the farm – not to allow foreigners to buy Australian businesses – without that having any economic consequences. Without the decline in foreign capital inflow leading to slower economic growth and a slower-rising material standard of living.

Of course, there's no reason the electorate shouldn't decide to trade off less foreign ownership for a standard of living that's lower than it could be, provided people understand the price they're paying.

The econocrats go the other way, exaggerating our dependence on foreign investment and other capital inflow.

Econocrats have the knowledge that we're a "capital-importing country" burnt into their brains. They live in eternal fear that one wrong move could reduce the inflow to a trickle, stuffing us completely.

They preach the need for us to attract more foreign investment even while they worry that the dollar's too high – another example of how long it's taking economists to adjust their "priors" (long-held beliefs) to a world of floating exchange rates.

I can't think of a time when we've had too little foreign investment. Even when the dollar briefly fell below US50¢ in 2000 there was no obvious problem.

Another silliness about the econocrats' conviction that we can never have enough foreign investment is their assumption that prices – specifically, the rates at which various taxes are set – will be the overwhelming factor determining how much we get.

Treasury continually lectures us on how globalisation has made it easier to move financial capital between tax jurisdictions, thus making the quest for foreign investment far more "competitive".

This, we're assured, makes it imperative we have tax rates that are competitive with far less attractive investment destinations, including developing countries a fraction of our size, where cronyism and corruption are rife, and you can't be sure of getting fair treatment in the courts.

Only economists, mesmerised by their model – which ignores all factors that can't be measured in dollars – would be silly enough to imagine that decisions about where in the world to set up business would be made without reference to non-quantifiable factors.

That global companies such as Google or Apple would refuse to do business in Australia because our company tax rate is higher than Singapore's.

Yet the need to be more price-competitive in the quest for foreign investment is advanced as almost the only argument needed to justify a cut in company tax. That there'd be nothing in it for domestic shareholders is treated as beside the point.

John Howard's decision in 1999 to discount by half the rate of tax on capital gains was justified on the grounds that it would attract lots of investment by foreign fund managers. Never mentioned again.

In their revulsion against the public's "economic nationalism", the econocrats have gone to the opposite extreme of assuming all foreign investment is good and we can never get enough.

When it suited the world's big mining companies to come to Oz and engage in a decade-long frenzy to build more mines before China went off the boil, it never occurred to our policy makers to make the miners form an orderly queue.

Rather, we let them turn our economy upside down. We saw our job as ensuring the miners' frenzy didn't cause an inflation surge, using high interest rates and tolerating a hugely overvalued exchange rate to suppress the non-mining economy and allow the miners to get all the resources they wanted.

We did lasting damage to our manufacturing and tourism industries to allow the miners to have their rowdy party.

We're left with a huge, capital-intensive, 80 per cent foreign-owned mining industry that employs just a handful of Australians.

Its foreign ownership wouldn't matter so much if it was paying its fair whack of tax. But we let the miners con us out of imposing a sensible resource rent tax, and now we discover they're turning legal somersaults to minimise the company tax they pay.

The econocrats have become so defensive towards foreign investment they've forgotten the most basic reason for having and managing an economy: self-interest.

Foreign investment is a means, not an end. It's not our job to make our economy a playground for foreign companies.

We should welcome them and tolerate their self-interested, rent-seeking behaviour only to the extent that it leaves us better off.

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