We’ve entered the era of pocket money politics

We’ve entered the era of pocket money politics. Pocket money, in the sense of the small amount of money parents issue children on a regular basis with few strings attached, so they can buy discretionary items. The big-ticket items – housing, schooling, electricity, internet, food – are still covered by the parents and are largely invisible to the little freeloaders we have in our lives.

Voters are like children; always expecting a handout.Credit: Dionne Gain

Thanks to a growing culture of regular government handouts to “help with the cost of living” (and coincidentally the government’s polling numbers), Australian adults have also been taught to expect pocket money.

This coming week, Treasurer Jim Chalmers will hand down an early, pre-election budget. In Canberra lingo, the federal budget is often referred to as “political nerd Christmas”. It’s the most wonderful time of year for political types, who gather in the nation’s capital to overindulge as the treasurer hands out presents to lobby groups and voters.

Since the assertion and ascension of the Cost-of-Living Crisis (which feels like it should be capitalised because it’s gone beyond a phenomenon affecting voters to become an entity that attends every political deliberation), the budget is no longer the focal point of government largesse. Don’t worry though, kids; Christmas isn’t cancelled. It’s now Christmas all year round, as the Australian public has been conditioned to expect routine handouts.

Those government polling numbers are the key to why pocket money, now it has become a part of Australian politics, can never be withdrawn. A recent Newspoll found the overwhelming majority of voters – a thumping 83 per cent in total, which didn’t change much across any age bracket, region, education level or gender – believe governments should spend more to help Australians with cost-of-living pressures.

The survey found 45 per cent accept that government handouts raise interest rates. Which is astonishing, frankly. Despite understanding that getting more money from the government makes prices higher, many Australians still believe the government should be handing it out.

Treasurer Jim Chalmers will hand down Tuesday’s budget.Credit: Louie Douvis

The popularity of these handouts is so widespread that political parties have given up trying to oppose them on any grounds, including on the basis that they will actually leave voters worse off than if they hadn’t received the money at all.

Which they do. For a start, because prices go up as a result of government handouts. Chalmers tried to argue the opposite when he gave us a $300 energy rebate, claiming it would reduce inflation (there was some admirably creative accounting behind that claim and, if he’s ever short a quid, I’d love Chalmers to do my taxes for me). But as economist Steven Hamilton responded in The Australian Financial Review: “Energy bill relief increases people’s real disposable income and boosts aggregate demand. We can debate how far they push inflation but not that the direction is up.” It is. Higher inflation equals higher prices, just in case that needed to be repeated.

The other reason handouts leave us worse off is because of a phenomenon called tax churn, which Australian economists have all but given up trying to explain. I’ve dusted off a definition from a 2013 paper by Andrew Baker, who was at that time a policy analyst at the Centre for Independent Studies. “Tax welfare churning,” he wrote, “is the process of levying taxes on people and then returning those taxes to the same people in the form of income support payments or through health, education and welfare services.”

As Baker goes on to explain in the paper, the government takes money from us through taxes and then hands us back some of it as a service (for instance Medicare) or as “cost-of-living assistance” (otherwise known as an electoral bribe). But because it costs money to collect taxes – in the form of public servant wages, software and other infrastructure – the process of collecting it and then handing a portion back reduces the total amount of money available to both the government and the individual.

It also increases the number of people drawing their wage from a job operating the machinery of government. Data published by the Australian Bureau of Statistics at the end of last year showed that one in five Australian workers is now employed in the public service. That means they’re engaged in moving wealth around – reducing it rather than creating more of it. That’s not a criticism of the public service or the human infrastructure (we call them “nurses” and “police officers” among other things) through which Australia guarantees critical services. But if the proportion of people creating wealth shrinks in proportion to these roles, the nation won’t be able to afford to keep paying them in the future.

To keep paying, the government has to raise taxes or let them increase through bracket creep. That’s where your money is worth less (because of inflation) so you end up paying a larger share of your income into government coffers.

The treasurer has already signalled that this budget will include “substantial” cost-of-living relief. He’s also indicated there will be more handouts in the course of the election campaign. It’s unlikely any candidates who believe they’ve got a shot at another few years in parliament will dare argue with any of them. That Newspoll data has locked in a “promises made and matched” theme for the foreseeable future, with any dissenters on the wrong end of a political wedge that can and will be used against them.

And we, the public, gobble it up like turkeys voting for Christmas. The only difference really from the pocket money we give to our children is that pocket money politics is a transfer of wealth from the kids rather than to them, as we mortgage their future prosperity. The children, in short, are paying their parents pocket money rather than the other way around.

Parnell Palme McGuinness is managing director at campaigns firm Agenda C. She has done work for the Liberal Party and the German Greens.