A Public Choice case study: Senator Hanson and company tax

Picture: Kym Smith

Senator Pauline Hanson is considered something of a dangerous joke in polite Australian society — an Australian Nigel Farage to placate the “deplorables”. Public Choice theory on the other hand suggests that Senator Hanson’s latest backflip on tax reveals her to be a fairly astute politican.

Senator Pauline Hanson of the One Nation Party — the party of the “forgotten” and the disgruntled — has recently changed her mind on tax policy. Initially, in response to the plan outlined in the Federal Budget to significantly decrease corporate tax in Australia, she changed her mind on and promised she would not support corporate tax cuts. This week she changed her mind again, and asked for voters to call her office and offer their perspectives in the wake of a poll showing that 63% of Australians supported the Federal Government’s policy. To put that in context, that’s roughly similar numbers to the “Yes” vote in the Same-Sex-Marriage plebiscite last year which was described as a “landslide” and indicative of what all polite society thought.

This is important, because Senator Hanson is supposed to be a “principled” politician. She is of a minor party, which in Australian politics means she appeals to people disgusted with major parties due to their collusion on a particular point (or attitude) dear to them above all others. She also sits on the crossbenches of the Australian Upper House which is elected by proportional representation by State. The Upper House also has six-year terms (where the Lower House has but three). So the Senator has as close to what counts as the luxury of being able to follow her convictions in Australian politics.

And convictions she appears to have aplenty. Notoriously anti-immigration, anti-foreign investment, anti-establishment, anti just about anything you can name that polite society believes in, she’s something of an Australian Nigel Farage. In American parlance she might be said by polite society to appeal to the “deplorables”. So what’s she playing at here? Is the Senator really a principled partisan? is she a dangerous demagogue? Or is she yet another odious opportunist of the sort we (secretly) love to hate because it absolves us into the comforting blanket of cynicism? Well perhaps a bit of all three.

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We can make pretty good sense of Senator Hanson’s rapidly evolving position on corporate tax by applying some simple Public Choice theory. Public Choice sets aside questions of whether a politician is principled, demagogic or opportunistic, and supposes that politicians are people. And if politicians are people, they will respond to incentives.

There is much to commend public choice theory. Despite our quaint propensity to believe they are either principled hero of the good or determined enemy of all that is decent depending on our political prejudice, politicians are people just like other people. They don’t suddenly become angels and demons with omniscient foresight and strategic ability once they’re elected to parliament. They respond to incentives just like everyone else.

What’s the Senator’s incentive? Well, One Nation is far too small and relatively isolated from the major voting blocs in the Senate to actually affect policy. It is a rare thing indeed for the government to need One Nation’s votes to send legislation to the Governor-General for the Royal Assent. She doesn’t have the luxury of the lovely pension made available for ministers after they leave parliament. She doesn’t have access to the fabulous consultancy or “political affairs” positions open for Senators of the major parties after they’re sent down from Capital Hill to greener pastures. She’s famous for first coming into politics as the owner of a fish-and-chip shop. So the only real incentive the Senator has is to be reelected to hold her seat, her job, her pay and her perks (much like a backbencher in the major parties). Now that requires she hold at least (roughly) 17% of the Senate vote in Queensland after the distribution of preferences in the usual half-Senate election.

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Public Choice theory predicts that the Senator’s behaviour will neither be principled, nor demagogic, nor opportunistic. She, like every other politician, will respond to her incentive. That incentive is to do whatever it takes to hold 17% of the Senate vote in Queensland.

So let’s examine the curious case of Pauline Hanson from this angle. It makes perfect sense why she would advocate and hold to the policy platform she does even in spite of the heated rhetoric from both major parties accusing her of stoking base fears and pandering to racism. She has no incentive to win a majority by appealing to voters who are open to persuasion because it is cost-prohibitive against the major party organisations, she only needs to appeal to a particular, substantial, subset of voters in the “smaller” States (Queensland in particular) who are anti-establishment, particularly anti-immigration, and feel ignored by the major parties. Thus Public Choice explains Senator Hanson’s basic manifesto as a response to incentives.

Now why would she at first abandon her policy of supporting corporate tax cuts in the first instance? Again Public Choice would suggest that this was a response to incentives, where that incentive was created by what Public Choice theory calls “rational ignorance”. Voters do not have the time nor resources to make sense of entire policy platforms. At best they probably only know a few key ideas about a party’s attitudes toward broad issues. Corporate tax is not nearly such an issue for One Nation as immigration is and so voters were unlikely to recall Senator Hanson’s prior commitment to it upon glancing through the headlines — as voters tend to do.

Furthermore, if the recent Queensland State election results showed anything, it was that support from One Nation had soared in that state (for which Pauline Hanson is a Senator) though it didn’t translate into seats (for Queensland’s being a peculiar state without any proportional parliamentary representation). But in particular seats, a substantial portion of that support seemed to come from Australian Labor Party voters as well as Liberal National Party voters. There appears to be an increasing split within the former between the inner-city soy socialists and traditional red-blooded workingmen, the latter being no friend of the globalists of the inner city. So it is entirely conceivable that the Senator perceived her incentive as to commit to opposing corporate tax cuts in order to at once appear fiscally conservative to disaffected LNP voters, but also a supporter of the “Fair Go” to disaffected ALP voters feeling “left behind” by the onward march of corporate globalisation.

However, what might have caused the Senator to drop this commitment soon after and signal her willingness to negotiate with the government for the passage of the corporate tax cuts? The answer lies in a piece of information released only this past week which surely changed the Senator’s perception of her incentives. That was the release of a poll showing that 63% of Australians favoured the government’s tax cuts, and a substantial portion of that in fact believing that the government hadn’t gone far enough!

To make sure the significance of that finding is apparent, the opinion poll released that day showed a two-party preferred split of 48% LNP — 52% ALP across the population. What that means is that there must be voters sympathetic to the ALP in favour of the LNP’s position on corporate tax cuts. A substantial portion in fact. Around two out of every three Australians is in favour of corporate tax cuts.

Now that surely must change the Senator’s perception of her incentives. If her incentive is to maintain 17% of the Senate vote in Queensland, it is difficult to believe that all of her potential voters in Queensland fall into the 37% of Australians who disagree with corporate tax cuts. So the Senator had a very clear incentive to update her policy position with the revelation of this new information — and indeed she did!

But Public Choice is not done explaining the case study of Pauline Hanson just yet, for the Senator did a curious thing as well as rescinding her commitment to oppose corporate tax cuts. She also made it very clear she would be eagerly seeking opinion from the public — something Australian politicians are not especially well known for inviting openly and eagerly. Why? Public Choice would explain this as an attempt to reveal the “true” incentives she faces better by simply asking her voters to tell her what they thought on the particular issue of tax cuts. Her political manoeuvring might allow her to figure better whether her voters in Queensland do fall predominantly within the 37% or the 63%. Depending on the particular passions and fury elicited (and only the most passionate and furious would have the incentive to make the effort), the Senator can update her position on corporate tax cuts to placate her voters if they have a strong preference either way, or obfuscate further if they reveal conflicting preferences.

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Love her or loathe her, the evolution of Senator Hanson’s position on corporate tax is certainly an interesting case study in Public Choice theory. Rather than simply being a partisan, demagogue or opportunist, the Senator can be simply understood as acting consistently with her incentives to hold her seat in the Senate by maintaining her vote. Her finding of a niche in the Australian political landscape she can fill, her response to a major government policy, and her reaction to changing information reveals her, furthermore, to be a fairly astute politician in this sense. She may be considered something of a joke in polite society, but Public Choice suggests she is fairly good in responding to the incentives created for her by the Australian political system.

Brendan Markey-Towler

Brendan Markey-Towler

Brendan Markey-Towler is an Industry Research Fellow at the Australian Institute for Business and Economics, and School of Economics at the University of Queensland. His current research focuses on the economics of knowledge and ideas. His work is particularly concerned with the interaction between economics and psychology, and spans behavioural and psychological economics, evolutionary economics, complexity and complex systems economics, microeconomic and macroeconomic theory, network theory as well as the philosophies of mind, time, and science.
Brendan Markey-Towler

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