The debate on the private health insurance (PHI) rebate continues. So I thought it timely to distract readers of the CoRE Economics blog with a fairy tale. This is a story of Pat, who lives in the land of Oz.
Now, Pat has a family and wants the best for her family. She values education and healthcare highly. Pat is middle class – not wealthy but able to make the choice between, say, a new car or sending her children to a private school. And she could buy private health insurance for her family so long as she and the family have cheaper holidays.
But Pat has a problem. In the land of Oz, people who put a high value on education and healthcare are required to pay extra taxation. So Pat faces a dilemma. With the extra tax burden she is not sure that she can afford the best school for her children. Similarly, while the thought of having her child wait for an operation due to, say, a sporting injury, fills her with despair, Pat is not sure that she can afford private health insurance given the extra tax burden.
Clearly this is a rather sad fairy tale. But it describes the situation in Australia.
The debate about the PHI rebate is a debate about taxation and about ‘paying twice’. Fortunately one commentator, Henry Ergas, seems to recognise this (albeit in the pay-walled Australian). Similarly, the debate about government funding for private schools is a debate about taxation and ‘paying twice’.
Every person who buys PHI or who sends their child to a private school saves the government money. By using PHI they reduce the government’s cost of funding the public health system. By sending their child to a private school (which can be the local catholic school just as much as an ‘elite’ grammar) they reduce the government’s cost of funding the public school system. These people still pay their taxes – to fund the public school system and the public health system – and traditionally they have received a ‘partial refund’ through government grants to private schools and through the PHI rebate. But make no mistake. These people, who have the temerity to value education and healthcare highly, pay twice. They pay for the public system through their taxes and they pay again for the private services that reduce their need for the public system.
What sort of society has a taxation system that penalises those who value health and education highly? Australia!
Of course, the wealthier families tend to buy PHI and send their children to private schools. But the elderly and those with young families also place a high value on PHI – whether or not they are rich. And plenty of families of modest means are working to send their children to the best possible schools – and forgoing cars, holidays, bigger houses and the like to be able to afford the fees.
I have no problems with having progressive (or more progressive) taxes in Australia. But let’s tax those who are rich, not those who happen to value education and health. Let’s not use poor proxies for being wealthy to set our taxes. And let’s not hide taxes in our health care and education systems.