disasters can raise your taxes

Australians will be paying higher taxes to pay for the recovery from this disastrous flood season.  When you're the relatively small central government of a small country that's prone to big disasters, there are only so many ways you can self-insure against these things. 

I think about how this would play out in the US.  People would scream about the hardship from the disaster. The governor and president would promise relief, and by and large all those unexpected expenses would simply be piled into the deficit.

That happens, in part, because the US Federal government is so huge and opaque. It deals with such colossal numbers that even its deficits convey a liminal suggestion of boundless capacity.  The mysteries of managing the world's reserve currency, for example, just can't be explained by analogy to your family's budget.

Aussies just don't see their government that way.  They know how small it is, and they can see that its budgetary choices are like of a household at a larger scale.   

This is part of why I'm so obsessed with tools that make big public choices comprehensible, like the Los Angeles Times "balance the California budget yourself" tool, or, in my business, network planning games.  It's a reason why I don't mind if the California budget crisis leads to functions being pushed down to the local government level, as long as these functions scale to the local government boundaries and as long those governments can go to their voters for the funding they need.  One thing we've seen clearly in Calfornia is that people will vote for taxes for things that are important to them, and that they're more likely to support taxes that are kept close to home and devoted to a specific purpose.

People have got to see the choices.  They've got to understand government budgets on analogy to their family's budgets.  I don't see another way.


24 Responses to disasters can raise your taxes

  1. Nathan Williams January 25, 2011 at 4:09 pm #

    Well, like the US but unlike households or much of Europe, Australia can print its own money. That’s a really big difference – to my mind, it makes any comparison to household budgets somewhere between nonsensical and actively harmful, and I’d encourage you to not promote the connection.

  2. Jarrett at HumanTransit.org January 25, 2011 at 4:18 pm #

    Nathan.  Well, yes, most national governments can print money, which is why monetary policy is, as I said, an area of opacity.  But nobody is proposing to print money to pay for disaster relief.
    Your comment ridicules the post's perspective but doesn't refute it.  If you can't help ordinary voters understand government budgets on analogy with household budgets, then how on earth are they ever to understand the choices before them?

  3. anonymouse January 25, 2011 at 4:49 pm #

    In California, I feel like the state ended up taking on all those functions specifically because it became very difficult (due to Prop 13) for the local governments to raise the funding they would have needed to provide those services. Also, California is not like the typical modern household, because it’s been relying on funding the ongoing costs of its existing population with revenues from the growth in that population. That’s more like the households in agricultural societies, where a new child means more free labor, rather than a crushing load of future school loans.

  4. Cap'n Transit January 25, 2011 at 4:56 pm #

    I’m with Nathan, and I don’t intend to ridicule, simply to disagree with your premise that national budgets are like household budgets. In fact, I think that analogy is largely responsible for the United States’s inability to get out of this recession.
    If they aren’t proposing to print money to pay for disaster relief, why aren’t they? Inflation in Australia is at its lowest in a decade.

  5. David in Ottawa January 25, 2011 at 5:00 pm #

    If you’re looking to carve up the US into more manageable national chunks (i.e. into 5 or 6 countries), I’m sure Canada would be happy to take Alaska, Maine, Washington (after a change of name of course – if not, Point Roberts will do) and Northwest Angle off your hands…

  6. Danny January 25, 2011 at 6:38 pm #

    I disagree with the assertion that Californians are willing to raise their taxes for the things they believe in. They have a monstrous deficit and have had it for a long time coming, showing very clearly that Californians don’t really want the budget that they have. The simple fact that Proposition 13 hasn’t been repealed in 32 years (which would require a mere 51% majority, making it easier to repeal than it is to approve a budget) shows how unwilling Californians are to face higher taxation.
    Interestingly, Australia is a near perfect example of budget prudence. They are able to keep taxes low by refusing to pay for things they don’t want, and spending generously yet intelligently on the things they do want.
    Personally, I think the fact that they don’t have the cash on hand to deal with a 100 year flood is pretty laudable. It means that there isn’t some back-room machine funneling the money to favored political allies during the 99 years that there aren’t floods.

  7. David in Vancouver January 25, 2011 at 7:26 pm #

    That California example you used Jarett is pretty fishy and I’m a huge fan of your blog.
    California is terribly governed and I think that its people share a huge part of the blame. Everyone always wants to blame the politicians, and I think the need for a 2/3rds majority to pass a budget is a huge problem. But the whole idea that so many financial decisions are put to a vote leads to so-called ‘special interests’ obfuscating the public interest for the sake of opposing just about any tax increase. Meaning California’s infrastructure (social and capital) and it’s finances are facing massive (dare I say) structural deficits. This form of populism may be democratic in a literal sense, but it isn’t good public policy. Unfortunately even that tool from the LA Times, which is laudable, will not have a particularly large impact on the public debate because it seems as if the average debate tends to degenerate to the lowest common denominator.
    I’m not going to say that Californians are any less reasonable than the average human when it comes to wanting their cake and eating it too (i.e. receiving services and not being willing to pay the taxes associated with them). And yes, they’ve occasionally been willing to vote for piddly increases in sales tax (i.e. LA County). But I’m strongly leery of giving the public a say in day to day financial decisions that are used to run their governments. If a government has to constantly “play politics” then it will never be willing to make political decisions that are unpopular in the short term, even if they’re a good idea in the long term.

  8. David in Vancouver January 25, 2011 at 7:28 pm #

    Oops, typo. Didn’t mean to misspell your name!

  9. Jarrett January 25, 2011 at 7:57 pm #

    Lively blowback!
    I’m certainly not claiming California is well governed! In fact, it’s been tied in knots by initiatives that say “cut taxes!” and others that say “spend money!” We know that.
    The question is how you’d move on from that. And I contend that (a) pushing authority down to local govt permits clearer conversations among citizens about what they value and want to pay for and (b) structuring questions so that there’s an analogy with the family budget is the only way to get everyone in the position where they can own the problem. So the question is not whether the analogy is fully accurate — it never is — but how to make the analogy as strong as possible, because without it, you just have “honest citizens vs big bad government,” and we know where that leads.

  10. In Brisbane January 25, 2011 at 9:28 pm #

    “I think about how this would play out in the US. People would scream about the hardship from the disaster. The governor and president would promise relief, and by and large all those unexpected expenses would simply be piled into the deficit.”
    Um, what did you do over there when Hurricane Katrina hit? Is that what happened? Please let me know if it was or wasn’t because I am on the other side of the planet, and I can’t find out from here.
    Government budgets are like household budgets? That sounds like something Margaret Thatcher would say. It might be an impossible thing to refute- a bit like trying to refute the proposition that apples are like oranges (apples are like oranges, they are both fruits, but then they are also different too) so you have this irrefutable unfalsifiable proposition.
    No household can print its own money, no household has members that have an indefinite life over which debts can be paid over, no household has the ability to borrow at such low rates or has such security of income or the ability to make laws or enact counter-cyclical fiscal policy either.
    Yes it is a bit like a household, but no it is not a lot like a household too.
    Personally, I feel that the levy is just there to help preserve the future surplus so that politicians can go around telling everyone how nice the balance sheet look come around election time.

  11. Agustin January 25, 2011 at 10:19 pm #

    I already mentioned on another post at this blog why I disagree with making the analogy between household and government budgets: the analogy is tenuous at best. We wouldn’t expect people to understand the electrical grid in analogy to their house’s wiring; why would we expect it for budgets?
    On the other point you made, Jarrett, in the comments section here — about downloading authority to local governments — we need to be very careful. Downloading services to local governments can lead to staggering differences from one municipality to another. (Witness the US phenomenon of school districts.) Large differences in quality of life between neighbours is bad for cooperation, and it’s bad for socioeconomic mobility, among other problems.
    It’s even bad for public transit! (Think about the upper class’ exit from inner cities in the USA over the last few decades. Or think about trying to run an LRT/streetcar/whatever through a rich neighbourhood in order to serve inhabitants of poor neighbourhoods.)
    Governing is complicated! We need to accept this, and elect intelligent and capable governors instead of those that placate us with promises of simple and easy budget management.

  12. Jarrett January 25, 2011 at 10:33 pm #

    Local government differences cut both ways. Ultimately, my preference is to let some areas lag so that others can excel, because the alternative is central-government-enforced mediocrity everywhere.
    For example, if you want transit and urbanism to succeed, you really need cities that care about it to be able to act on it. Yes, that means creating differences with their neighbors. San Francisco wouldn’t have anything close to the quantity of transit it has if the decision about service levels were made outside the city. Seattle, which lacks the same control over its transit, struggles constantly with this problem.
    If you want to see uniform statewide policy on public transport, which cuts off local government from any control over service levels, come to Australia, where state governments make those decisions. I don’t think you’ll be impressed.

  13. Jase January 25, 2011 at 11:51 pm #

    This blog never hosted such passions.
    I’d like to say a coupla things:
    1. Jarret – your assertion Australians will soon be paying a higher tax because that’s what the Prime Minister wants ignores recent history. Not 12 months ago we lost a PM who wanted a big new tax. In the current minority government situation anything could happen.
    2. I would like to engage the esteemed Cap’n Transit on his argument the Australian Government should “print money”. I have not come across his argument in Australia and I think it’s worth reminding the good Cap’n, ourselves and any other observers of why we don’t do that.
    A number of good reasons.
    2.1 Legally indpendent monetary policy – Our monetary policy limits central bank interventions to buying and selling on the overnight cash market to set the interest rates.
    2.1.1 We limit interventions in monetary policy because they serve the broader goal of stable prices. (Printing money causes inflation, as you know). Stable prices allow Australians to save and invest in the country with confidence. That and a floating exchange rate allow for an small economy to maintain first world living standards by attracting plenty of international capital.
    2.2 Australia is at full labour employment, so adding to aggregate demand in the economy is not likely to have the same effect here as it would in the US. It would simply jack up prices, and have a negligble and/or unsustainable effect on employment.
    Apologies if this is too much eco 101 for everyone, but I thought the argument warranted it.

  14. Alon Levy January 26, 2011 at 12:25 am #

    Cap’n, I have to agree with Jase. I just checked, and Australia’s current unemployment rate is 5%. Deficits and money-printing may be wise in the US, with 9% unemployment, but not in Australia. So Australia is in a situation where the household analogy is valid, and the transparency of disaster relief fares is not bad policy.

  15. Felix the Cassowary January 26, 2011 at 2:28 am #

    In addition to Jase and Alon Levy’s point, Cap’n Transit was simply wrong when he claimed that “inflation in Australia is at its lowest in a decade”. A quick look at inflation over the last three and a half years at http://www.rba.gov.au/inflation/measures-cpi.html shows that far from being at its lowest level, inflation is only silghtly below the recent average.
    On local government, Jarrett asks us to compare Australia with San Francisco. I’ve always understood that if a city is administered by one local government, they have control, and otherwise (i.e. state capital cities) the state does. This makes a decent amount of sense in most states where around two-thirds of the states population lives in the capital anyway.

  16. In Brisbane January 26, 2011 at 3:09 am #

    “If you want to see uniform statewide policy on public transport, which cuts off local government from any control over service levels, come to Australia, where state governments make those decisions. I don’t think you’ll be impressed.”
    OUCH!!! Australian cities have their own successes.

  17. Jarrett at HumanTransit.org January 26, 2011 at 3:19 am #

    In Brisbane.  Yes, that was hyperbole, and I wasn't referring to Brisbane.  Mostly I was thinking of NSW. 
    But Brisbane proves my point.  You can get much better outcomes when a strong city government can engage with public transport.  I was very encouraged by the council consolidations that Beattie pushed through before he left.  They created coherent urban organisms like the Sunshine Coast council, which has been much more effective in forming views on public transport than its three predecessors.

  18. In Brisbane January 26, 2011 at 4:22 am #

    And Perth? They seemed to pull off public transport without major dramas…

  19. In Brisbane January 26, 2011 at 4:25 am #

    Yes NSW it seems has tried to do everything humanly possible to make a hostile environment to PT- no smartcard, no integrated fares and so on.
    However, they do have the highest mode share on PT in the nation I am told.
    I think the smaller councils around Syndey and Melbourne should merge into super councils like Brisbane. You get direction that way.

  20. TLP January 26, 2011 at 5:35 am #

    Here in Pennsylvania, we’re still paying the Johnstown Flood Tax — from 1936! — at 18% on every bottle of liquor in the state.

  21. Agustin January 26, 2011 at 9:33 am #

    Jarrett – I don’t think we need to swing to the extreme of “central-government-enforced mediocrity”. Clearly there is a place for local governments to set some policy.
    But this post has been about the big picture: about Australia’s and California’s budget woes. In that context, it is easy to get carried away pushing authorities to local governments. All I’m saying is let’s not get carried away.
    We have a difference of degree, not kind.

  22. David in Vancouver January 26, 2011 at 1:15 pm #

    While centralized control from a federal or sub-federal government isn’t ideal when it comes to land use and transportation policy, too much ‘local government’ control and you can’t have regional coordination. Nimbies will consistently attempt to override anything that’s a regional good if it inconveniences them.
    Neighbourhing municipalities haven’t been in the business of cooperation for very long, so I’m reluctant to give them much control over much of anything. Frankly, I’d prefer overall mediocrity (if that’s the term you insist on using) to a few ‘have’ locations and large tracts of dreary, decaying and dying cities and inner suburbs. Frankly, I think urban regions that don’t have huge tracts of failure compete better on the world stage than those that do, even if those regions have fewer locals of “excellence” and more locals of stability (assuming said stability isn’t enforced stagnation).
    Admittedly, governance is a balancing act, especially when you have metropolitan regions that are starkly divided on the basis of class, race, and geography (i.e. urban, suburban and rural). So I’m not advocating mega-cities or anything. But this seems like a given.

  23. Nicholas Barnard January 26, 2011 at 10:22 pm #

    Looking at the themes here there is such a difficult wire to walk between having services provided at a national or state level at some level of equality and at a local level with significant heterogeneity.
    I think the best analogy is to think about how people spend when they’re using a credit/payment card, versus using cash. Studies have borne out that people spend more when they’re not physically handing over cash. (Or it may be when they’re putting it on credit versus debit.) You can argue that this is because there is not as clear of a visceral connection between handing over paper money, versus seeing it tallied on a statement at the end of the month. Similarly if you’ve got a large national budget putting “one more thing” onto it isn’t that meaningful and you don’t feel a need to make the tradeoffs.
    I take pause though about pushing things too far down to the local level. I’m finding this situation in Akron:
    to be quite interesting. Having differences such as schools etc distorts markets and land use in odd ways.

  24. Richard February 6, 2011 at 12:23 am #

    Since we live in a land of droughts and flooding rains, it does not do any harm to remind people this comes with a periodic cost of infrastructure repair. Living within our means has been pretty well ingrained and has stood us in good stead when elsewhere there has been economic discomfort. Better to have a small levy, and it IS small, to contribute to the current repairs while the events are still fresh in our minds, rather than put it on tick, in case another one is around the corner.
    As it has proved to be with Cyclone Yasi which has come and gone since the other comments on this story were made.
    Besides it has given the nation an insight into the character of the Leader of Opposition, whose policy is to leave no opportunity for base politics unexploited. We have a song, which some treat as an alternative national anthem, its chorus includes the words “I am, you are, we are Australian”. But it does not apply to the Opposition whose loyalty must be seriously questioned as it seeks donations to support a campaign to oppose the levy.