Jeff Kennett has a regular op-ed in the Herald Sun. Today he has a wishlist of things to get the economy moving.
I have always been a supporter of quick, decisive action to shorten the period of pain and arrive more quickly at a place of prosperity.
Yes – excellent principle.
1. All pre-election promises are on hold until the state of our economy is addressed.
2. Any promises or programs not yet commenced, including the paid parental leave scheme and reforms to education, will be deferred.
3. The trials for the national disability scheme will continue, but the objective must be how to deliver a compassionate and professional scheme at an affordable cost.
4. Industrial relations issues that are contributing to Australia being uncompetitive with most other industrialised countries must be addressed.
5. Every area of government expenditure must be reviewed to streamline the public sector and eliminate waste and duplication.
6. The taxation system will be simplified and the GST extended to all goods and services without exemption, while leaving the rate of GST at 10 per cent, or if the exemptions are to remain the rate must be increased to 15 per cent or higher.
7. We must introduce new taxation scales for those who earn high incomes until the Budget is back in surplus.
1 and 2 I agree with completely. 4 – the devil is in the detail. I would include the NDIS in those programs that be deferred until the economy is back on track. I would also not use terminology like “an affordable cost”. By definition all government projects should delivered at an affordable cost. The NDIS itself is so poorly understood in the community that the government could deliver any program and simply label it the “NDIS as promised”.
For 5 I agree, with the proviso that duplication be eliminated at the Federal level. Too many people take the view that eliminating duplication means getting rid of the States – my view is that we should get rid of as much of the Federal government as possible.
I like the idea of extending the GST to all areas currently exempt – but wouldn’t actually recommend any changes to the GST. I have written on this topic before.
In their monumental study The Power to Tax, Australian economist Geoffrey Brennan and Nobel laureate James Buchanan make the argument that the “low rate and broad base” tax arguments that economists often make are not necessarily efficient from a taxpayer perspective. Politicians cannot credibly commit to not increase taxes in future. Taxpayers know that politicians can and will overtax them and so they make it hard for politicians to raise new taxes.
So it comes to the GST. If we were governed by angels I would happily recommend a higher GST. As James Buchanan has argued, too many economists give advice to politicians ignoring the political realities and constraints of democratic governance – the GST falls well within that constraint.
Voters and taxpayers do not want Canberra to have too much access to easy tax dollars because they know full well the power to tax will be abused.
Where Kennett gets it completely wrong is on his 7th point.* Rather than raise taxes the government should be looking to lowering taxes.
The overall fiscal objective should be to be to balance the budget at a lower level of GDP rather than a higher level. Most analysis these days emphasises a balanced budget but fail to consider the second element of the size of government. The deadweight losses associated with taxation occur independently of the budget balance. Ultimately reducing the extent of government distortion in the economy means smaller government. Cutting spending while increasing taxation results in relatively more government.
* Unless he is suggesting a tax cut for high-income earners and not low-income earners. While I’m attracted to that idea, I suspect it wouldn’t fly in Canberra.