Game-changers or random thoughts? Grattan’s take on economic reforms

The Grattan Report has released a report outlining what it thinks are the real game-changers in terms of economic reform.  It even contains estimates of the supposed gains to GDP, which actually look  small.  Also the methodology for arriving at these estimates is pretty suss.  (Hint: both costs and benefits need to be taken into account, as well as a GE framework.)

Michelle Grattan (gedit? no relation?) has a take on the report in The Age:

”If Australian governments are serious about raising rates of economic growth, they must reform the tax mix and increase the workforce participation rates of women and older people. This could contribute over $70 billion to the Australian economy. There is nothing else big enough to change the game over the next decade,” the paper says.

On tax reform, the paper proposes broadening the GST, which currently excludes 40 per cent of spending, to include education, health and food. The higher take would be used to finance cuts in company tax and personal income tax, to boost incentives.

On female participation, the paper points out that only two-thirds of women aged 15-64 are in paid work, compared with 78 per cent of men. While just 55 per cent of employed women are full time, this compares with 85 per cent of men. Our rates are well below many OECD countries. ”Female workforce participation can only change significantly if more mothers have jobs,” says the paper, and this requires reducing high effective tax rates and the net cost of childcare.

Of course, the issue of high EMTRs discouraging female labour force participation has been around for years.  There are a number of issues:
  • Even in the face of these high EMTRs, female participation has risen strongly in Australia, suggesting low elasticities.  (Investment is a key motivator for many women with small children staying in the workforce; the penalties attached to complete withdrawal are pretty high);
  • It is hideously expensive to do very much about the EMTRs in a fiscal sense – slow tapers cutting in at high income levels costs billions.
  • Viewed from a community well-being point of view, maximizing labour force participation does not really make much sense.  It is no free good to get more women into the workforce and the loss of home-based production needs to be taken into account.

A similar point can be made about older worker participation, which has actually increased most of all among the different age groups.  But there is no free good in forcing older people to stay longer in the workforce.

As to expanding the coverage of the GST, it is pretty hard to tell.  The compliance costs of the patchy current coverage are essentially sunk, so there would be no gain there.  Changing the mix of taxes might be useful but it is hard to think that any change to the game will revolve around a change in the tax mix but with the overall tax take unchanged or possibly higher.

The proposition that there is nothing else big enough to change the game over the next decade does not stand up to any scrutiny.  The real game-changer is productivity and it’s there where the agenda of free markets and deregulation become the key factors.

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48 Responses to Game-changers or random thoughts? Grattan’s take on economic reforms

  1. Jazza

    Exactly.

    WHY is productivity a dirty word to Labor(and Unions) and the overlooked Greens??

  2. Sleetmute

    Presumably Grattan Institute doesn’t want to go to IR because it would be too controversial and appear too partisan. Reforming welfare is probably also too controversial. Extending the GST is a fairly neutral idea and I remember Saul Eslake (formerly of Grattan) saying that the food exemption is actually regressive, so extending the GST to food would be win-win for a place like Grattan.

  3. John A

    increase the workforce participation rates of women

    I don’t care if you call me a misogynist, but I believe this is the primary cause of our problems with a disconnected younger generation, a disfunctional school system, the unravelling of our local community fabric and a loss of values across the community.

    We have too many mothers trying to juggle two full-time jobs – *properly* raising the next generation should be top priority.

  4. Poor Old Rafe

    Productivity down, strikes up, the Fair Work Act is really looking good!
    “Cheer up” they said, “things could be worse”. So we cheered up and sure enough things did get worse.

    Do Keynesians ever mention productivity?

  5. Token

    So, in 2000 the Lefties gelded the GST and demanded that it was critical for working Australians to exempt food & health from the GST.

    12 years later after the lefties have trashed the economy and wasted so much money their view on this exemption has changed.

    Not that I am surprised, this is the government that is imposing the most inefficient and inequitable tax Australia has seen since the disasterous Whitlam era, which will hit the poorest the hardest.

  6. Max

    Simple solution scrap the baby bonus and Allow women who have babies to carry forward 2 years worth of tax free thresholds that they gave up in having the kids.

    Same with oldies who have to re-train. let them carry forward their TFT just to get them over the High EMTR hump.

  7. Token

    increase the workforce participation rates of women

    My wife does not work and will not work again for a number of years due to the direct policies of this government.

    My family has 2 very young children, and over the past 5 years we’ve seen childcare costs rise and rise due to:

    1. Pay increases to childcare workers at levels far beyond inflation and productivity

    2. Hefty regulation increases (the manual you need to read upon admitting children to a new centre is the size of a phone book)

    3. Change in the ratio of children to carers

    4. Ongoing cost increases on the inputs of the business primarily due to the Green insanity (initially the cost increases due to green energy, now the cost increases due to the carbon tax)

    The money she will earn by returning to work will not offset a day of childcare – with rebate & discount for the extra day.

  8. Pickles

    As the boss of the Vic teachers union ranted on the steps of parliament yesterday in melb:

    “we will not be divided by performance pay!”

  9. Poor Old Rafe

    What Token said, the regulation of child care is obscene, a great example of the dysfunctional nanny state, plus credentialism, capture by the New Class and every kind of political correctness.

  10. Matt

    Hefty regulation increases (the manual you need to read upon admitting children to a new centre is the size of a phone book)

    This is the killer. The government’s demand for “quality” childcare by turning childcare centres into de-facto pre-schools is crushing smaller centres who can’t comply without significantly increasing costs.

    Remember, it’s against the law to care for your neighbour’s children for a small fee unless you are “accredited”.

  11. Poor Old Rafe

    I appreciate that many single mothers would rather walk over hot coals than go back to work as long as they can stay on welfare but in a sane society groups of mothers with young children could take turns in caring for several of the tots and they take part-time work. Or play tennis or shopping or whatever….

    accreditation to care for other kidns, fancy that, you don’t have to be accredited to look after your own kinds, however many you have…

  12. Poor Old Rafe

    And to think that in 1971 I wrote an article in The Australian Humanist advocating good qualty pre-schools for the benefit of disadvantaged groups where the kinds don’t have a stimulating environment at home, so they get exposed to better language use, non-violent conflict resolution, reading books, etc

  13. Judith Sloan

    Don’t tempt them, Rafe. Maybe parents of the future will require a licence, having undertaken a government-approved training program.

  14. Poor Old Rafe

    Yes I could see that coming. But I bet they thought about it before I did!

  15. Megan

    The regulatory burden is ridiculous. I know of someone who was required to get a Working with Children card at a cost of $70 so she could visit her daughter and grandson when the daughter was looking after two other children in a family day care arrangement.

    The informal network of “you take my two this morning and I’ll take yours on Friday” that (a) stopped my children fighting with each other and playing within a group and (b) freed me to play tennis and study and my friend to attend classes and swim was the best thing that ever happened to us as families. Our children are adults now but we consider ourselves an extended family today, one that got its start in a pre-school car park.

    And a baby sitting cooperative of 16 families with 50 children between them, who connected by word of mouth ran for nearly ten years without a single disagreement. It’s ironic that at a time when businesses and organisations are calling for better teamwork, cooperation and collaboration we are bleeding the very same values out of our society.

  16. Token

    I appreciate that many single mothers would rather walk over hot coals than go back to work as long as they can stay on welfare but in a sane society groups of mothers with young children could take turns in caring for several of the tots and they take part-time work.

    This is what we are developing with some family so the women can keep working so they can ensure professional skills don’t get blunted and so they get time out. Luckily they are new Australians so they don’t automatically think it is wrong if the givernment is not involved.

  17. Winston SMITH

    “On tax reform, the paper proposes broadening the GST, which currently excludes 40 per cent of spending, to include education, health and food.”

    That’s the sleeper, Judith. This government is all about re – electing itself, and if they can say “The AbbottAbbottAbbott wants to tax your last can of baked beans”, it may stop some of the welfare waverers.
    I’m very sceptical.

  18. Token

    That’s the sleeper, Judith

    .

    I don’t get it, this sounds like sensible policy. Is this rope-a-dope type bait?

    Abbott, Abbott, Abbott should use this “reform” to correct the structural inefficiencies in the GST while increasing the revenue base.

  19. John Doe

    Poor old Rafe .Never was a title more appropriate.

    Productivity is up and industrial disputes is still very low.

    do you read the ABS statistics at all?

    The reason for lack of action on the labour market is the lack of evidence.

    As Saul Eslake said when he was there there is only selected anecdotes.

    Dasmed fins paper.

    good to se some-one pick Anne Hardings/Neil Warren’s proposals for the GST wayback in 1999.

  20. johno

    I was gobsmacked when I read Grattan’s list of so called game changers. IS THAT IT! They clearly lack imagination. Still being a Labor government, taxpayer funded spin tank, we probably shouldn’t expect much more.

    The best thing about this list is that it demonstrates that the social democrats are running out of ideas about how to manage and fix their failing interventionist economy.

  21. jtfsoon

    The GST base should not only be broadened, the rate should be increased and then personal and company income tax should be gutted in return. This should be a no brainer. Opposing the broadening because of fears that we don’t get the tax cuts is self defeating. By the same logic we would never have introduced a GST in the first place.

  22. jtfsoon

    As Saul Eslake said when he was there there is only selected anecdotes.

    Dasmed fins paper.

    Hi Homer

  23. .

    Jason,

    I think we ought to have a TABOR, 2.5% LVT on UCV, 10% VAT with no exemptions and a 5% royalties rate (and no other taxes). We don’t want to tax anything too severely, but keep the tax mix to simple, efficient taxes.

    This should raise 15% of GDP as tax which would fund an efficient social democracy with libertarian leanings and which has eliminated waste and duplication of Government functions.

  24. .

    As Saul Eslake said when he was there there is only selected anecdotes.

    Dasmed fins paper.

    Saul Eslake said the Canberra fires would be good for the economy.

    Case closed.

  25. Infidel Tiger

    Looks like Homer’s grammarbot is on the Fritz.

  26. Helen Armstrong

    I didn’t see anything in the article about where these extra jobs are going to come from. It is all very well identifying low work participation segments of the population, but to extrapolate the amount of cash they would contribute to the economy without identifying where they could actually get a job, or how those jobs would be ‘created’ is to value a cake without knowing the cost and source of all the ingredients.

    I think the retirement age should become optional – you can opt out at a certain age, but not mandatory. I know this probably only applies to public service, as many private business people work past retirement age but with people living longer it makes sense they also work longer. (if they wish to and have the capacity to do so)

    I also do not think that we place a high enough value on Mums (or Dads) staying home with the children – not every one is a Gail Kelly and people should not be made to feel somehow lesser if they elect to invest their time in their children’s early years by staying at home to care for and nurture them.

  27. .

    I agree Helen.

    Why can’t I draw my super out before 55?It’s my money, isn’t it? Why do I get the unfair higher rate if I have enough to retire on. You are being punished for success and self reliance.

  28. Token

    Saul Eslake said the Canberra fires would be good for the economy.

    So he’s a big fan of Krugman then. Makes sense.

  29. The Goods and Services Tax (GST) could be broadened to cover all consumption. The existing GST excludes 40 per cent of consumption, notably education, health and fresh food. Removing these exemptions would increase GDP by $20 billion per year.

    That’s one hell of a Matzah Ball right there. I’m sure what he actually means is it would raise an additional $20bn in revenue, which is very different. It’s probably best for dildo lawyers like John to leave tax reform to people who know what they are talking about. This joker should be cashiered unless he offers a grovelling retraction.

    Daley really goes to town on industrial relations in that paper.

  30. Wayneofperth

    Judith

    Acronyms

    GDP ok

    GE ?

    EMTR’s?

    Give us non economists a break and spell out what they are please?

    Regards

  31. JC

    Homer

    You have basically been banned twice from here because your stupidity causes threadwrecking. Why do it to yourself a third time? Why? Why go through the pain of rejection?

  32. blogstrop

    It was possible in the 70s/80s to be paying off a house and have a stay-at-home mother on one middle-income. While we weren’t rich and had no money to spare for overseas holidays, it was fine. Now, forget about it.
    Homes cost a lot, and the ALP/Green sabotage of industry and energy costs simultaneously means it’s not getting better until there’s a big change in the way the country’s run.
    The Grattan report would have had more credibility if it didn’t say that IR reform would have little to offer!

  33. He later concedes this is $20bn by 2022 but his numbers still don’t stack up on the basis of the modelling for the Henry Tax Review.

  34. Judith Sloan

    GDP is the gross domestic product, a measure of the output of the economy.

    GE is general equilibrium, which takes into account all the interactions in the economy.

    EMTRs are the effective marginal tax rates which show the gains from working an extra hour after taking into account the withdrawal of government benefits and additional tax payable.

    Will try better, Wayne of Perth.

  35. Token

    While your’re at it Judith, why not explain the difference between endogenous and androgynous so we can pass it on to Penny Wong and the ABC.

  36. Our two Remember, it’s against the law to care for your neighbour’s children for a small fee unless you are “accredited”.

    We were very fortunate to have our two looked after by the ‘Govt unaccredited’ next door neighbour ‘Aunty Anne’, a couple of days a week until they went to school. We paid her $15 a day in the hand with a packed lunch for the kids. They lots of important skills; how to play with small dogs and cats and put up with other annoying kids.

  37. Helen Armstrong

    Another thing that annoys me is forcing people who are here on a working visa to contribute to super. (Well, as an employer I have to pay it for them) They are not allowed to claim it back (less a portion for the government) until they have left the country, thus taking the money out of circulation in Australia and delivering it to another country.

    Wouldn’t it be better if working visa people actually spent the money in Australia? IE got paid the money in the hand here, and spent it here? It could be as simple as giving them a TFN with a letter code on it signifying that super is not collected for these people but is paid to them direct.

  38. Winston SMITH

    “That’s the sleeper, Judith.”
    “I don’t get it, this sounds like sensible policy. Is this rope-a-dope type bait?”
    “Abbott, Abbott, Abbott should use this “reform” to correct the structural inefficiencies in the GST while increasing the revenue base.”

    Perhaps I could have put it a little better, Token.
    What I’m getting at is the non GST bits were done as a concession to the Democrats to get the bill through Parliament. At the time, it was seen as a bad choice, but better than not getting the GST at all. I agree totally with that.
    It gives, however, the lying slapper something that will bring some of the wavering Left back into the fold.
    Imagine the SMH headlines – “AbbottAbbottAbbott is Going to Tax the Pensioners Last Tin of Tuna.”

  39. blogstrop

    There’ll be no proper reform, or even some steps forward to counter the steps back we’ve had, without political change. As Shanahan points out in The Australian, reform by the next government will depend on a determined change to the balance in the senate. Time that the coalition and interested parties commenced a campaign to change the senate vote, and to bring it home to the angry voters that the senate is where the real battle’s at.

  40. thefrollickingmole

    Heres a real “game changer”, we reduce the incidence of crime through real punishment.

    Has any economist modeled the loss of productivity and cost of all the “plastic policemen” aka security guards in Australia today?

    Worked out the increase in insurance premiums caused by criminality?

    All these are significant costs to society, yet theft is treated as an insurance problem by police if you are a small business.

  41. DC

    We need to address the furphy once and for all that women who raise their children at home are not “working”. Motherhood is a job. Therefore, we must:

    1. Change the GDP calculation forumla to include home-based production. We aren’t producing more or being more prosperous just because we send children to some sterile childcare centre instead of looking after them at home, or growing carrots in the backyard instead of buying them at a market.

    2. Abolish the baby bonus and all family payments. Replace them with income splitting. This will make it easier to survive off a single income, or 1.2 incomes etc. If welfare eligbility in other areas considers total household income then the tax system should too.

    3. If you subsidise something, you will probably get more of it. This is why the generous benefits for single parents and the unemployed to procreate are so dangerous to society. Lee Kuan Yew and Singapore understand this fact. We should only be encouraging reproduction by stable married families. Unmarried couples should receive no support; if they cannot commit to each other then they cannot be trusted to commit to their children.

  42. blogstrop

    if they cannot commit to each other then they cannot be trusted to commit to their children.

    Marriage has been undermined and written off as irrelevant by the same demographic who are these days adamant that it’s vital for the gay community.

  43. DC

    Which shows that the gay marriage movement is about cultural Marxism not human rights or equality. The gays marching along to this are just useful idiots in the march through the institutions.

  44. .

    DC

    1. Is imputed.

    I’m a useful idiot for Marxists? Loopy stuff.

  45. Gowest

    Lets see all the oldies and women have to work longer and harder so the rest of the economy can have a bludge?

    Anyway what is the point in raising more revenue for money wasters like the goose. Get stuffed grattan!

  46. LacqueredStudio

    What a load of wank. Pity ABS productivity data over the last 12 months doesn’t concur with your productivity-down bullshit, Rage.

  47. LacqueredStudio

    *Rafe.

    Freaken predictive text.

  48. .

    What a load of wank. Pity ABS productivity data over the last 12 months doesn’t concur with your productivity-down bullshit, Rage.

    Link please?

    It has been utterly pathetic the previous year, and pretty ordinary in the last 5-10 years.

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