Looks like we will be waiting a while for any meaningful or coherent tax reform
KEVIN Rudd has put the Henry tax review firmly on the backburner, confirming today that his $50 billion public health takeover plan is his top priority.
The Prime Minister said this morning he had not decided on a specific timetable for the release of the review, which was delivered to the Rudd government by Treasury secretary Ken Henry in December.
“I believe what Australian people wanted me to do is to get on with the business of delivering health and hospitals reform. Number one priority,” he told ABC radio.
“Each thing in its season, we’ve got to do one thing at a time.
“But in terms of specific timetables for doing it, no, I don’t have anything particular in mind.”(The Australian 04/03/2010)
My guess is the Henry report is going to suggest a range of necessary, but unpopular, changes. Rather than fight that battle now, Rudd will presumably go to the election with health reform his major focus and deal with tax reform later.
As Andrew Norton is fond of pointing out – health and education are ALP owned issues so making health reform (and perhaps MySchool) the focus of the next election seems like a good strategy for the ALP.
Listening to the radio just now the government is saying taxes may have to rise to pay for their reduction of waste and blame shifting in the health system. And they claim that they won’t back away from saying so. If the Liberals offer tax cuts we may get a long overdue test of the two Santa Claus theory.
TerjeP (say Tay-a)
4 Mar 10 at 12:37 pm
It is kinda fitting given Rudd’s self proclaimed greatest moral challenge of our time has to wait too.
DavidJ
4 Mar 10 at 12:39 pm
KR: The greatest moral challenge of our time is my re-election.
Infidel Tiger
4 Mar 10 at 12:41 pm
@Terje: I think the quote was that they won’t rule out tax rises to fund the health reforms. This is not exactly the same as saying they will rise. I expect the Libs will probably play up this angle unless it’s explicitly ruled out.
persoanlly I liked your suggestion in the other thread re: a HECS style system, however where this is going to fall down is that people typically impose the greatest health burden at end of life – when they are unlikely to be earning above the repayment threshold.
Thus you either have to write off large expenditures (putting a hole in the budget) or else take the repayment out of the deceased estate. Doing the latter might make economic sense but I can easily see it being labelled a ‘death tax’ – hence unlikely to be seen a politically feasible by either major party.
HeathG
4 Mar 10 at 12:46 pm
Heath – I agree that there would be an end of life hole in the budget that would need to be filled from general revenue so the tax cuts offered might be a bit more modest than would otherwise be the case. However in practice I don’t think the hole would be exceptionally large. In any case it focuses the charitable basis of government health care funding towards areas that are probably most in line with community expectations. Rather than tapping estates perhaps we could change the interplay between HECS and super. However this is probably political over reach and best left as a later refinement. Don’t kill good reform looking for exceptional reform.
TerjeP (say Tay-a)
4 Mar 10 at 12:58 pm
Heath,
I would agree that talking health is what the ALP want to do – they may have it wrong but it seems popular. Abbot is going to have to hammer them on the tax issue as hard as he can until the Henry review comes out. The fact that (AFAIK) there have been no leaks from the government on this makes it fairly plain that most of the recommendations are not ones they are happy with.
Andrew Reynolds
4 Mar 10 at 1:30 pm
SeeMS to Me that the health issues are
1. How do you allocate scarce resources (ration services) when through technological improvements and an aging population demand is increasing?
2. How do you manage efficiently a large business with many hundred branches around the country? This is where the NHS in the UK fails.
It has always bothered me that governments promise that services will be delivered through the hospitals then they hold the hospitals to a budget as if the hospitals were in control of demand.
I don’t know the answers but I am sure that switching to some kind of commonwealth management is likely to make it worse.
ken n
4 Mar 10 at 1:34 pm
Why can’t we have both tax reform and health reform?
Is Rudd saying he’s a workaholic but can’t find the time to d his job?
Semi Regular Libertarian
4 Mar 10 at 2:02 pm
I remember the good ol’ days when Rudd stated that he and his government can walk and chew gum at the same time. Then you have Rudd’s wife claim he only needs 3 hours of sleep each night. Can the CSIRO clone an extra KRudd?
DavidJ
4 Mar 10 at 2:30 pm
SRL The health announcements (but perhaps not the implementation will be good news. The tax reforms will be bad news.
There is an election coming.
ken n
4 Mar 10 at 3:15 pm
Joe Hockey attacks.
Fair point, I think.
C.L.
4 Mar 10 at 3:28 pm
Perhaps if they were only doing one thing at a time we would be better off. No way to do both the “education revolution” and the home insulation scheme together.
Andrew Reynolds
4 Mar 10 at 3:38 pm
The Commonwealth should butt out of educaton and health. This particulalrly the case when the useless ALP is in power. If they couldn’t run the insulation scheme, why would we let them anywhere near our hospitals.
They are going to take $50Billion from the States to fix the Health system run by the States? What a complete joke Captain Blah Blah anfd his union mates are.
Rococo Liberal
4 Mar 10 at 4:15 pm
Could the hospital take over be done for some states but not others?
If you are in NSW or QLD it might sound like a good idea. If you are in Victoria it doesn’t.
My, my, what a leak of the Henry Report would do to Australian politics. That would be so much fun.
Karl Kessel
4 Mar 10 at 4:41 pm
Of course these Trogs plan to raise taxes. How else are they going to pay for the crap they’ve done. The insulation racket will cost 500 million alone in terms of the clean up.
I hope they run on tax hikes and I hope Abbott will then run on the previous government’s record of eventually cutting taxes after they paid for the labors previous problem with debt.
Go Kev. Let’s have tax hikes “in due season”. The pathetic incompetent little worm.
JC
4 Mar 10 at 5:37 pm
“My guess is the Henry report is going to suggest a range of necessary, but unpopular, changes”
If I was the government I would be looking to appropriate superannuation. There is over $1T sitting around in the super funds for the picking. It can be used for “infrastructure” including “green” infrastructure and the hole in health or whatever… They may do it by offering longeivity annuities here is an article by Alan Fels and Co. suggesting this:
http://www.smh.com.au/business/one-way-to-secure-your-future–buy-an-age-pension-20090529-bq7i.html
… you just buy an aged pension in return for handing over your superannuation. So you can forget getting a decent lump sum super payment when you retire.
This would be unpopular, I suspect.
I am not sure if they require some constitutional changes or just need the timely support of the GG ? S56 ?
http://www.australianpolitics.com/constitution/text/56.shtml
I sincerely hope that I am completely wrong, but someone should confront them on this issue before the election unless of course you support such a policy, then you would keep your mouth shut.
I also personally think that such a proposal would have the support of both major political parties. It just such easy money and you could deliver all the promises and balance the budget.
Andre
4 Mar 10 at 7:36 pm
Yeah tax cuts during a terms of trade boom. What a super policy that was.
sdfc
4 Mar 10 at 7:37 pm
SDFC:
You’re actually 1/2 right. Howard should have taken a chainsaw to spending to allow the tax cuts through.
I agree.
JC
4 Mar 10 at 7:38 pm
Absolutely, easing back on the middle class welfare would have been a good start, though I’m not sure how that would have gone down in the electorate.
sdfc
4 Mar 10 at 7:47 pm
Credit Crunch Forrest wants to keep the middle class welfare of health insurance rebates.
I think it might be wise to see what the Henry Review says before commenting after all Catallaxian crackpots have not got many things right throughout the GFC.
They won’t raise taxes as they do not have to and never had to.
Net Debt will probably be revised to 8% of GDP which again shows how much the Catallaxian crackpots do not understand basic macro-economics after their shrill warnings over debt turns out to be as badly wrong as their predictions about the effectiveness of the Stimulus
Butterfield, Bloomfield & Bishop
4 Mar 10 at 8:04 pm
So SFDC, you think the surge in demand for metals is only temporary?
Time will tell I suppose.
If we know it is based on increased international demand, we also know by how much and that can be budgeted. Unless you’re saying that only Keynesian policy can be correctly budgeted – which is fanciful considering how unreliable and unstable the multipliers really are.
“Credit Crunch Forrest wants to keep the middle class welfare of health insurance rebates.”
Homer’s denying the credit crunch affected the Australian finance sector. What happened to RAMS etc? Why was there a direct RMBS intervention? Why was there 57% drop in the cash rate? etc etc….
Of course you’re merely smearing JC, ALP bot. Then again, it is the ALP who recently decided that a couple earning $199 999 combined was “middle class”. Well they may be right. But your smear is meaningless.
“I think it might be wise to see what the Henry Review says before commenting after all Catallaxian crackpots have not got many things right throughout the GFC.”
Well, you called the 2004 election way before due. You were dead wrong. The Henry review on the other hand is being progressively leaked. As for the GFC, we’ve got a lot right. Even dissenter SFDC finds a lot of common ground. We’ve even given props to Steve Keen, who we don’t entirely agree with.
The only crackpot is you.
“They won’t raise taxes as they do not have to and never had to.”
Except that they have increased the real level of spending. Fiscal theory of prices and all that…oh wait, you don’t actually advocate that – just bizzare and perverted version of it where 11 years of surpluses are actually 11 separate structural deficits.
“Catallaxian crackpots do not understand basic macro-economics after their shrill warnings over debt turns out to be as badly wrong as their predictions about the effectiveness of the Stimulus”
Yes Homer, but in your world there can simultaneously be a liquidity trap, no monetary mechanism of inflation and room for Keynesian stimulus, to wit, you actually said the stimulus wasn’t very good as a stimulus package.
Semi Regular Libertarian
4 Mar 10 at 8:22 pm
No SRL I didn’t say the increase in demand for commodities was temporary but feel free to make stuff up anytime you don’t have a substantive point to make.
Are you aware of the inflationary impact of loosening fiscal policy when RGDI is growing strongly? No I didn’t think so.
Your last comment I know is to Homer but it really does reveal how little you know about how the economy actually works. When there is a liquidity trap there is no monetary mechanism of inflation because the drop in the money multiplier renders monetary policy ineffective.
I agree with much of what Steve Keen has to say, unfortunately for him he didn’t factor in to his forecast the huge fiscal stimulus and the slashing of cash rate to a near 50-year low.
Its a pity your constant complaining that the fiscal stimulus did nothing has been so thoroughly refuted by the data.
sdfc
4 Mar 10 at 9:36 pm
err Marky Credit Crunch Forrest was saying there was a credit crunch in the early 90s!
I am not denying a credit crunch here after-all it reduces the effectiveness of monetary policy hence the need for fiscal policy.
Oh Credit crunch Forrest believes everyone is entitled to the health rebate. That is called middle class welfare.
no there is a lovely looking graph in the budget papers showing you are wrong AGAIN about the surpluses.
golly those research skills again showing up.
No if there is a liquidity trap there isn’t the remotest chance of inflation. See US, Japan etc.
you are barking up the wrong tree . We do not have and will not have a liquidity trap.
There is one in US, Japan, Europe and the UK . this is why they are indulging in QE. They cannot cut rates any further.
go away and take your pills.
Butterfield, Bloomfield & Bishop
4 Mar 10 at 9:46 pm
Credit Crunch Forrest wants to keep the middle class welfare of health insurance rebates.
Homes, wrong person. I’ve never spoken about health care rebates.
JC
4 Mar 10 at 10:35 pm
“No SRL I didn’t say the increase in demand for commodities was temporary but feel free to make stuff up anytime you don’t have a substantive point to make.”
So when you use the phrase “terms of trade boom” and then imply that a tax cut is a permanently unfunded liability, you’re not implying that the growth in GDP vis a vis increased global demand is temporary?
You’re as clear as mud pal.
“Are you aware of the inflationary impact of loosening fiscal policy when RGDI is growing strongly? No I didn’t think so.”
Okay, explain how this works. You seem to be a big fan of Rubinomics/the importance of structural deficits, so explain this to me in terms of the fiscal theory of prices.
You should explain it to Homer as well. He thinks the stimulus is now contractionary.
“Your last comment I know is to Homer but it really does reveal how little you know about how the economy actually works. When there is a liquidity trap there is no monetary mechanism of inflation because the drop in the money multiplier renders monetary policy ineffective.”
…and if people have such an extreme preference to dispose of non cash assets, they believe that bankruptcy is lurking left, right and centre. Stimulus packages do not help here. The reality is the problem is simply won’t go away quickly, no matter how much unwanted public works are commissioned.
“Its a pity your constant complaining that the fiscal stimulus did nothing has been so thoroughly refuted by the data.”
It’s interesting that rates were cut by 57% and the ASX rose by 62%.
Semi Regular Libertarian
4 Mar 10 at 10:54 pm
Wow, SRL doesn’t understand how a change in the balance of payments between the household and public sectors in favour of the household sector can be inflationary at a time when household expenditure is growing at 8% pa.
Do you know what a terms of trade boom is SRL?
The fiscal theory of prices? What that the government can influence the price level by running deficits or balanced budgets? It of course makes intuitive sense but is irrelevant in this context. Let me put it simply for you, tipping more money into the private sector when demand is already elevated is inflationary, why this is so hard for you to understand I don’t know, but once again your objections to the premise are at odds with the data.
Over to the US and its liquidity trap. This is exactly where fiscal stimulus should be employed or are you arguing the first homebuyer tax credit hasn’t contributed to the stabilisation in the housing market? Are you arguing the cash for clunkers scheme and the sharp rise in motor vehicle output were just coincidence. Are you arguing the personal tax cuts have not supported household disposable income and expenditure?
That the stimulus is entering a contractionary phase is not open to much doubt, it is simple national accounting.
Your last comment is fairly pointless so one again I’m going to have to spell it out for you. DQ rise in GDP 0.9%, direct government expenditure contribution 0.9 pps. Should we go into the multiplier from increased employment? The business investment tax break? It’s tough dealing with real numbers isn’t it.
Will be back on tomorrow if your free, good-night.
sdfc
5 Mar 10 at 12:07 am
Wow, SRL doesn’t understand how a change in the balance of payments between the household and public sectors in favour of the household sector can be inflationary at a time when household expenditure is growing at 8% pa.
We had a resource price spike. The exchange rate and interest policy absorbed the effect of tax cuts. We had tax cuts during that time dumphy and it didn’t exactly send us into hyperinflation mode.
I think you’re making a mountain out of a cup cake.
Lastly one of the things that helped us absorb the crisis were the series of tax cuts we saw (fiscal stimulus remember)
SDFC, you’ve said often enough that you have a lot of respect for Austrian economics.
Can you please explain your position (being anti-tax cuts during that time) when Mises looked at inflation from a money supply question and as long as money supply is well behaved he essentially explained that we should ignore price fluctuations from a policy perspective to all intents and purposes.
I would go further and say Mises suggested it is vitally important that prices should be left alone to allow for signal effects and any attempt to tamper with the price mechanism ought to be viewed with hostility.
JC
5 Mar 10 at 12:29 am
“Let me put it simply for you, tipping more money into the private sector when demand is already elevated is inflationary, why this is so hard for you to understand I don’t know, but once again your objections to the premise are at odds with the data.”
What role did monetary policy play? Take out the money and then tell us what is left over. Then we can see if inflation driven by actual increases in demand is really that terrible after all. Signalling of scarcity isn’t entirely a bad thing altogether.
The fiscal theory of prices is entirely relevant. Being a dynamic model of a period of several years, it explains a lot more than a static model applied to several different data points. The notable thing during this increase in inflation was that Government spending grew to unprecedented levels as well, albeit in a series of balanced budgets that carried surpluses. I think you would also need to discount this as well as the monetary impacts before you are left with the actual inflationary impact of taxes. Notwithstanding some appalling micro policies re: land release etc and the money and ever expanding budget, actually revealing scarcity may have allocative efficiency benefits. Given the mining boom only ever accounted for 7% of GDP, up from roughly half of that, it is really a stretch to say that tax cuts during this time alone caused the unwanted inflation and it had only costs and no benefits.
“Should we go into the multiplier from increased employment? The business investment tax break? It’s tough dealing with real numbers isn’t it.”
It’s tough dealing with non-linearities, isn’t it?
Semi Regular Libertarian
5 Mar 10 at 11:27 am
SRL
Firstly let’s deal with monetary policy. I have said on this blog on numerous occasions that I thought the RBA kept the cash rate too low through the boom. I have cited the fact that the cash rate was consistently below nominal GDP growth as my major exhibit in arguing this point. No-one to my recollection agreed with me on this point so sorry if I downgrade your sudden conversion.
That does not have any relevance to the argument as to whether tax cuts were inflationary however, to coin an old phrase, two wrongs don’t make a right.
I’m at a loss as to why you don’t get the fact that tipping more money into a household sector where consumption growth is already growing well above trend is inflationary.
Price signals. Inflation is as much a psychological phenomenon as it is monetary, in other words it is sticky. Breaking inflation once it has taken hold is costly. This has been proved time and time again.
I’m glad you acknowledge economies are dynamic, nothing else you have said has indicated you understand this point. As far as I can remember the fiscal theory of prices basically suggests years of structural deficits are inflationary and that balanced budgets are required for price stability. However this does not explain the dynamics of funneling excess revenue from company profits into the household sector during a period of rapid income growth.
Your constant downplaying of the effect of a terms of trade boom is either disigenuous or suggests you have a poor understanding of the effect of a huge increase in national income on demand. While the appreciating exchange rate did mitigate the rise in export prices to some extent it was not a full sterilisation. RGDI in year on year terms averaged 5.1% between the beginning of 2005 and the end of 2008, real GDP averaged 3.2% over the same period. These are $A prices and I these figures suggest the boost to income was profound.
Your last comment was as usual pointless.
JC I’m gonna have to get back to you, my daughter is insisting I play some netball with her.
sdfc
5 Mar 10 at 7:37 pm
I’ve been dumped already.
JC It’s getting a little tedious explazining to you that the rise in the terms of trade and RGDI are ion $A terms ie the rise in the exchange rate is arleady accounted for in the numbers.
Tax cuts during a downturn help support demand, tax cuts when demand is running above trend are inflationary. The same goes with increases in government spending. They both end up as deposits in private bank accounts.
My agreement with Austrian economics relates to the dangers of credit booms, that is about it. Much of the rest appears to me to just dogma.
sdfc
5 Mar 10 at 8:00 pm
Acutally that is probably not quite true on reflection, their tossing out of general equilibrium theory is another point I agree with.
sdfc
5 Mar 10 at 8:05 pm