Good and bad advice from Jeff Kennett

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.

This entry was posted in Budget, Economics and economy. Bookmark the permalink.

34 Responses to Good and bad advice from Jeff Kennett

  1. David

    Jeffrey Gibb Kennett has never been subtle. When he took over Government from the Cain/Kirner rabble Victoria was a basket case and he and his Government brought us back from the brink of Tasmaniaitis.

    Unfortunately my fellow Victorians [or a majority number thereof] voted the rabble back in under Bracks and then Brumby – Desalination plants, MYKI anyone?

    Unfortunately we haven’t replaced Brumby’s mob with a Kennett equivalent – just Labour Lite.

  2. Rabz

    No increases in any taxes whatsoever, under any circumstances.

    Just cut spending, you irresponsible, profligate morons.

    Why is this such a difficult concept to comprehend?

  3. johno

    Spot on David.

    Napthine is just Labor-lite.

    The Liberal Democrats need more support in Victoria to provide voters with a real alternative in the Victorian election next year.

  4. Tel

    Abbott would be an idiot to start messing with the GST. It’s exactly what he promised not to do and the lefty gotcha crowd would go off their nut. Learn to live with less, everyone else has to. Teach the public service to drop a notch on the self-importance scale.

  5. Baldrick

    All pre-election promises are on hold until the state of our economy is addressed.

    Sorry, but if they’re stupid enough to agree to them before the election then they must continue with them, not matter what … unless of course they want to be a one-term wonder!

  6. Tom

    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.

    Is it possible to give this idea its own soundtrack and chaser light show? The Australian federal government exists only to become larger. It should be less than half its current size — under $200 billion p.a., instead of $400 billion (bearing in mind outlays were only $219 billion in 2006-07 before the thieves got hold of it). As a general principle, the nearer government is to the people it torments, the better.

  7. candy

    With 1 and 6 he would lose the goodwill of the electorate and make it impossible for the government to function for any length of time.
    It’s strange he doesn’t see that, after the Gillard years and the Coalition Gonski debacle. He must be in some sort of bubble.

  8. David

    Why is this such a difficult concept to comprehend?

    Rather simple Rabz – if you have to earn the money by the sweat of your brow you are more careful how you spend it. The wankers in parliament just assume that the taxpayer is an inexhaustible treasure trove for them to splash around on thought bubbles.

  9. Tel

    The Australian federal government exists only to become larger.

    All governments exist only to become larger, if you believe in Evolution of course.

  10. johno

    7. We must introduce new taxation scales for those who earn high incomes until the Budget is back in surplus.

    Typical Liberal response – soak the rich.

    High income earners already pay too much tax.

    According to the ATO (see table 14), in 2010/11, the top 50% of income earners paid 88% of income tax revenue. The top 25% paid 69%, while the top 1% paid 18% of all income tax revenue.

    This is grossly unfair. Middle and low income earners need to pay their fair share instead of demanding that governments fleece the rich to pay for their entitlements.

  11. Andrew of Randwick

    Item 5: Is the expenditure pure government,, i.e. things citizens can’t do for themselves, e.g. defence, road building? Then keep.
    Is the expenditure providing a safety net, or an entitlement?
    If an entitlement does it have a clearly argued and defined benefit. If it is just for someone to have a more comfortable, rather than productive life then unfortunately it must be targeted for possible elimination.
    .
    But how does a government take on 100 special interest groups that are going to feel the pain and have access to a compliant MSM just waiting for a ‘victim’ story? Logical arguments can only get you so far…
    .
    P.S. The old trick of letting inflation eat away at constant dollar benefits won’t work in a low inflation decade.

  12. steve

    I would also change the voting system to one where only people that have paid more in taxes than they have taken in welfare can vote. The decisions should be in the hands of net contributors.

  13. Alfonso

    Abbott may well be the left’s socially conservative dhimmi…..but Blair is picking them off, sitting on the parapet for better vis.

  14. mareeS

    “Just cut spending, you irresponsible, profligate morons”

    Simples, as the meerkat says. We did it when the spouse exited the partnership and entered the rathouse. Halved the expenditure, ditched the debt, living happily on reduced income and no net outgoings.

    Best advice ever, Rabz.

  15. Andrew of Randwick

    steve at 10:29 am
    Net contributors – by income quintile (per week) 2009-10.
    Benefits…….Taxes Paid
    $890……….$106
    $686………..$207
    $462………..$348
    $327………..$533
    $249………..$1029

  16. Noddy

    Jeff Kennett always fascinates me as ‘chairman’ of Beyond Blue.
    He did more for mental instability when he was premier than the Labor yoiks when he could have done so much.
    Like the rest of the politicians, put their hands on the ‘levers of Power’ and they become unstable, mendacious and untrustworthy.
    Perhaps our political representatives should be drawn by lot from the local government pool and only allowed one term of office… representation could not be worse than at present and look at the taxation it would save by abolishing State and Federal elections.

  17. AP

    a good way to save $100m per annum

    This is another government body with a serious issue with sex imbalance. This is the organisation that brought us Lara Bingle and tries to sell the outback and nature to Asians (Note to T.A. -Asians have no interest in going bush). It should be abolished. Put a tender out to a marketing company, $30m per annum global advertising budget. $400m saved over the forward estimates. And it would be a real saving, not the Wayne Swan “saving” ™.

  18. mareeS

    Noddy, Rabz et al, some of the most brilliant creative minds in business/politics/arts have been outright nutters. The one I live with was a media genius in the day, but now mucks about with boats.

    Jeff Kennett is in the same league, similar military and media career background. Both still brilliant, doing other things quite happily, and making a difference for people who are also a bit of the nutty persuasion.

  19. Robert O.

    There has been an increasing loss of power by the states since the Commonwealth took over the taxation role as a temporary measure in WWII. The relevant point is that all the legislation passed by parliaments virtually mandate more controls and loss of rights by citizens and more cost due to more employment for the administration of the paperwork and the slowing or abandonment of productive projects. Look at the environment green tape at a state and commonwealth level for any project which has gone from a 18 month process to a five year one. If it is a good project do it, if not don’t, but don’t stuff around for years making your mind up.
    Sydney needs a new airport and the business arising from this is very significant. Either put some more runways into Botany Bay or get rolling at Badgery Ck., or somewhere else, and put in a fast train to Central, but don’t spend years on environmental clap-trap, just take into account any real problems and alleviate them as part of the construction process.

  20. Andrew of Randwick

    AP at 11:07 am
    There are some big salaries there in Tourism Australia for government employees without the need to make a profit.
    Range…………………………..#……Average
    $0 to $180,000……………7…..160,809
    $180,000 to $209,999…..6…..198,413
    $210,000 to $239,999…..3…..257,140
    $240,000 to $269,999…..3…..266,213
    $270,000 to $299,999…..6…..289,210
    $300,000 to $329,999…..1…..313,529
    $330,000 to $359,999…..1…..341,270
    $390,000 to $419,999…..3…..403,603
    $420,000 to $459,999…..2…..441,349

  21. Dan

    It amazes me how much federal politicians get too far involved in state responsibility. Education, health… They get in there and start separate programs and basically just try and fuck over the state parliament. Before you know it, $60 billion is missing and the Project is nowhere near moving forward.

    I guess there is not much glory in being a cheque signing nincompoop. All that lawyering means you must make more laws I suppose. Although Shorten did his articles and basically quit straight after. A politicians life would be incomplete without the glory of drafting an Act. There is certainly no glory in BER, insulation or a tax on colourless odorless gases. Federal parliament should exist at its primary level as a house of review and oversight of state policy and programs. A giant productivity commission. You could probably dump the senate too. Turn the chamber into a beer hall. Have an appropriation committee separate to parliament.

  22. egg_

    Desalination plants, MYKI anyone?

    Should be retained as monuments to Govt stupidity.

  23. egg_

    5. Every area of government expenditure must be reviewed to streamline the public sector and eliminate waste and duplication.

    Step 1.
    Get rid of parasites.

  24. Andrew

    Surely raising and/or broadening the GST to simplify our tax system through further reducing the burden on profits based taxes and also removing inefficient state taxes is a good thing?

  25. Sinclair Davidson

    Andrew – follow my link.

  26. H B Bear

    The reason to oppose any increase in the 10% GST, irrespective of any theoretical arguments around broadening tax bases and the like, is that once it is increased once it will be easier to increase again and again.

    Fortunately the mechanism of requiring State and Federal agreement across different electoral cycles means this can almost certainly never occur. Just cut government spending.

  27. johno

    Fortunately the mechanism of requiring State and Federal agreement across different electoral cycles means this can almost certainly never occur

    Unfortunately, this is a myth put about by Costello. The GST legislation is Cwth legislation and the Cwth Parliament can change it any time it wants. The States have no legally binding control over the rate.

    When Howard introduced the GST, the Cwth signed an agreement with the States that they would get all of the GST revenue in return for abolishing certain taxes. Part of that agreement was that the States would be consulted about any change in the rate. This was included to get the States to sign up to the agreement as they were concerned the Cwth might LOWER the rate, meaning they got less money. If the Cwth did that, they could withdraw from the agreement and raise their own revenue by reintroducing some of the taxes they had abolished. There is nothing in the agreement that will legally require the Cwth to get the States to agree to an increase. The Cwth can make any unilateral changes it likes.

    Given that it is a Cwth tax that is used to fund the Cwth’s untied grants to the States, the Cwth has less incentive to increase it that do the States. The States want a higher rate as in means more untied money for them. The Cwth doesn’t want to increase the rate as they will receive the flak for increasing taxes, but will not be able to use the extra money to pursue its own political ends.

  28. Harry Buttle

    How about a 20% additional tax on public servants, exempt frontline providers, but aim to make a career in PS management financially unattractive.

  29. Ant

    Rabz has it right.

    Govt short of money? Then spend less, idiots. And if that means throwing out a swag of over-remunerated pissant public servants, then tough. They should never have been employed in the first place. Why the hell should productive people be squeezed even harder to keep the gravy train rolling for one single bludger?

  30. vlad

    Cut the ABC’s budget to (a very generous) $250 million per year.

    That would save us a fair chunk out of a billion a year and still enable the ABC to do everything it’s there for.

  31. JohnA

    Andrew of Randwick #1124883, posted on December 27, 2013 at 11:33 am

    AP at 11:07 am
    There are some big salaries there in Tourism Australia for government employees without the need to make a profit.
    Range…………………………..#……Average Comment

    $0 to $180,000……………7…..160,809 High average; what’s the real minimum?
    $180,000 to $209,999…..6…..198,413 Mean near median, OK
    $210,000 to $239,999…..3…..257,140 Something askew here

    For all the other bands the mean is well above the median, meaning they are either ALL VERY GOOD or overpaid and not worth it.

  32. wreckage

    The States want a higher rate as in means more untied money for them. The Cwth doesn’t want to increase the rate as they will receive the flak for increasing taxes, but will not be able to use the extra money to pursue its own political ends.

    Sounds like an excellent system.

  33. James B

    Abbott must learn from Kennet: be fucking radical.

    Say fuck you, I don’t give a shit I said 12,000 public servants, I’m firing 60,000 and they’re not getting any compensation payments either. Axe the NDIS and block grant all health and education funding to the states. End all federal environmental regulation, end all federal industrial relations legislation, cut spending by 30%, end the dole, half the disability support pension, set a target to repeal 70% of all legislation passed in the last 50 years.

  34. Notafan

    On the GST issue, everytime anyone suggests the private import threshold be reduced from $1000 to $20 or $30 or $50 there is a stacks on the mill response about the ripoff prices charged by Australian retailers and how the writer will continue to buy their bike accessories/ski boots etc offshore. Then there is the high admin cost argument.
    The fact that Europe (including the UK) and North America (and China) protect their tax bases and have managed the admin cost issue with much a lower de minimus is ignored. As a small business retailer if it is still cheaper for someone to buy from overseas I say go for it. Australian retail can go the way of Australian manufacturing.
    If however removing the threshold means Australia can avoid, even in the short term, an increase in the rate or a broadening of the base to include fresh food (and education and health) why not do so?
    I would rather see fresh food remain untaxed than discretionary consumer goods such as bike accessories and ski boots continue to remain untaxed for some buyers.
    Wouldn’t an increase in the rate without a removal of the current threshold increase the flow of funds off shore?
    It is a consumption tax, isn’t it?

Comments are closed.