Warwick Mckibbin on paid parental leave and carbon taxes

From carbon taxation to fiscal policy, Warwick Mckibbin (Brookings, ANU, former RBA etc) often seems to be proposing innovatory policy advice without considering the underlying problem his proposals address or the practicality of their implementation.

In this piece in the AFR (paywalled) he posits the following

Australia is a prosperous economy in a region of great potential, but there are serious risks globally that should not be ignored. Although the US economy is recovering (sic) and will be a source of global growth in coming years, there are too many countries that have been growing based on excess liquidity and distorting monetary and fiscal policies.

Then he comes out with this piece of mumbo-jumbo

Given global uncertainty, the approach Australia should take is to be smarter in the design of spending and tax policies. In particular, the funding of spending initiatives should be robust to uncertain future outcomes in the global economy.

Just when is this not the case?

But having said it he embarks on an exciting new fiscal adventure.  He wants to define  some deficit spending as investment, citing paid parental leave as an example.  Doubtless the PM will be relieved to hear from an eminent economist that a policy he holds in considerable regard can be made immune from the normal fiscal laws. 

Arguing that paid parental leave brings productivity gains over time, Mckibbin suggests that parents be provided with a loan that they repay along the lines of HECS once their income surpasses a particular level.  One problem is that benefits from the productivity gain from HECS accrue to the student but any such gains from paid parental leave do not go to the parent.  Are parents therefore garnish their children’s incomes to recoup the loan?

More significantly, he is arguing for a different budget formulation, one in which the good spending does not count as spending and therefore is not really part of the deficit.  The good spending is that which adds to future productivity.  But is that not what firms from motor to miner always claim about the “investment” government makes in their future?  And is not any competent advocate for the less fortunate within the community able to argue for similar future payoffs?  Mckibbin’s brave new budgetary world would lead us a merry dance. 

Then, Mckibbin addresses  the carbon tax, a variation of which he has long proposed.  He now says Gillard was incorrect in her assumptions that all the world would follow carbon restraining policy, something that wiser heads (yes, that includes all of us writing on the Cat) always realized. 

He advocates creating a new carbon market involving vesting all persons and businesses with carbon credits that they can buy and sell, including overseas.  Administratively this runs into similar problems as the carbon tax.  Who is to be given the credits – if firms and individuals how do we account for double counting? 

If individuals sell overseas (and McKibbin envisages this) how is this different from Australia simply creating a new supply of money (or constricting the existing supply by raising interest rates) and making a donation to foreigners? 

What happens even if the credits are only tradeable locally? If the price falls to the very low levels that would currently prevail, can a government credibly say years later to those who sold that, in the event of the high carbon price Mckibbin previously expected, they would pay a premium price for their carbon incorporated goods and services, while others would be shielded by the credits they retained?

In a variation of this, Mckibbin is arguing that the Government’s Direct Action approach should assign emission levels to each firm, charging those that exceed their quota and compensating those who fall below it.  Akin to carbon trading, this would entail the creation of a vast new Taxation department and a code that would rival that of the Tax Code in length and complexity.   

Economists are wedded to markets based on property rights as efficiency providers.   But so few recognize that markets evolve for this purpose rather than are created by governments which have the foresight to see a looming scarcity and vest rights to the scarce product in advance. And then there’s the administrative cost of these synthetic markets.

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17 Responses to Warwick Mckibbin on paid parental leave and carbon taxes

  1. Tel

    More significantly, he is arguing for a different budget formulation, one in which the good spending does not count as spending and therefore is not really part of the deficit. The good spending is that which adds to future productivity. But is that not what firms from motor to miner always claim about the “investment” government makes in their future? And is not any competent advocate for the less fortunate within the community able to argue for similar future payoffs? Mckibbin’s brave new budgetary world would lead us a merry dance.

    They have been onto that scam already for years. Nothing new here.

    The reason accountants use “Mark to Market” for investments is to attempt to estimate the long term recoverable value of this investment … but such estimates are subjective and assessment of risk is difficult. We know about this, so risky ventures are floated on the stock market where individuals may bid against each other and absorb the level of risk they are willing to accept. Government asset valuations have been traditionally conservative for the very good reason that governments are not adept at dealing with high risk ventures.

  2. Tel

    http://accounting.smartpros.com/x71398.xml

    It’s nice to be able to change the rules when the results are disturbing, but anybody who thinks it changes reality is insane.

    And that about sums up the situation, but please read the whole article… Ketz is very clear and correct when he describes the problems we are facing.

  3. AP

    You ask “just when is this not the case?” Well, I think Warwick is talking about the design of the mining tax and the spending that was predicated on the “billions” of revenue it was thought to bring in, thanks to Wayne Swan’s genius. A classic example of a tax that was highly leveraged to the commodity cycle, funding non-cyclical spending. I mean, this tax was leveraged, then leveraged again, and leveraged again to the point where it was so leveraged to the cycle (and rightly so), it brought in no revenue! In all my financial models, the price of thermal coal had to stay above $160 per tonne (+/- $10) for any thermal coal project to be liable to pay it. (currently it’s around $80, and 10 years ago it was around $40).

  4. AP

    By the way, Does anyone know how much revenue the mining tax generated in the end? I reckon it might be a dollar sign with three zeroes and a decimal point thrown in.

  5. Kel

    I hope Mckibbin is off the public payroll.

  6. JC

    I like Mckibbin, I think he’s a good economist, but he needs to leave the ivory tower from time to time and join the real world.

    Lets get real here. Carbon market pricing or carbon taxes are basically a complete failure. The only thing that works is technological advancement in the way the US is doing with fracking- increasing supply of gas which causes at 1/2 the emission rate of coal. Emissions are a technological issue and should be treated as such.

  7. .

    I like the boy.

    http://www.abc.net.au/news/2013-10-24/mckibbin-accuses-swan-of-economic-vandalism/5044474

    I think he’s adrift since Gillard shafted him and had him leave the RBA board, a position which he was entirely suitable for.

  8. Andrew

    McKibbin, for his occasional warmist big govt crap, is STILL worth 100 Kouks. Had we listened to him, we wouldn’t now be Spain plus mines.

    Which is why The Goose expelled him from the RBA – can’t have someone claiming there’s no “economic miracle” going on. Didn’t get any criticism from the meeja either, in yet another national disgrace.

  9. JC

    Dot

    The Libs could do worse than throw Martin Parkinson, Heather Sellout and that chick Catherine Tanna off the RBA board and re-install Warwick along with three other suitable candidates. There’s no earthly reason why Sellout and Tanna are on this board. Parkinson should get booted because he thoroughly deserves it.

  10. Major Elvis Newton

    Whilst McKibben continues his advocacy for any form of “carbon” trading, market-based or otherwise, his warmist credulity remains on show and extends his zero credibility.

  11. Combine Dave

    You ask “just when is this not the case?” Well, I think Warwick is talking about the design of the mining tax and the spending that was predicated on the “billions” of revenue it was thought to bring in, thanks to Wayne Swan’s genius. A classic example of a tax that was highly leveraged to the commodity cycle, funding non-cyclical spending. I mean, this tax was leveraged, then leveraged again, and leveraged again to the point where it was so leveraged to the cycle (and rightly so), it brought in no revenue! In all my financial models, the price of thermal coal had to stay above $160 per tonne (+/- $10) for any thermal coal project to be liable to pay it. (currently it’s around $80, and 10 years ago it was around $40).

    Yes, but it was that evil Mr Howard that created the structural deficit to begin with (channeling the ALPBC).

    I am sure the world’s greatest treasurer would easily have solved Australia’s troubles without that burden around his neck…

    Btw; I wonder if Swany’s fiscal tour of Europe introduced him to the concept of the Laffer curve? Somehow I doubt it.

  12. JC

    Laffer curve?

    Wand thinks that’s the name of a street somewhere.

  13. Blogstrop

    Our budget was “stuffed” years ago by Labor. Expenditure proposals during their tenure received no strict examination by any of the so-called Guardians. The media so pervert the system that the opposition has to pretend to go along with stupidly excessive spending proposals in order not to be painted as hard hearted.
    System fail.

  14. Leo G

    Arguing that paid parental leave brings productivity gains over time, Mckibbin suggests that parents be provided with a loan that they repay along the lines of HECS once their income surpasses a particular level.

    What about a Child Welfare Intergenerational Contributory Scheme. Why should the parents repay the cost of government incentives aimed at facilitating the introduction of future taxpayers? The child gets the benefit, the child should have more of an obligation to repay,in part, than does the parent.

  15. Bruce of Newcastle

    He advocates creating a new carbon market involving vesting all persons and businesses with carbon credits that they can buy and sell, including overseas.

    Ah that would be “mani bilong skai”, or sky money as the PNG locals charmingly call it, raining down from scammer heaven.

    ‘Sky money’ from carbon cloudland

    I have dozens of bookmarked articles on carbon credit frauds. McKibben really needs to get out more.

  16. Wayneof perth

    I can’t understand why this Climate Change rubbish is still being progressed.

    Don’t they know that even Germany the home of apocalyptic greenism is already rejigging it’s policies and relying more on coal.

    Rather than argue the merits of different methods of reducing “carbon” we should be arguing for the complete dismantling of all direct or indirect imposts related to reducing our so called footprint.

    By arguing over methods of carbon reduction we are accepting the need to do it in the first place which I and I hope many others in the community reject outright.

  17. Andrew

    The Libs could do worse than throw Martin Parkinson, Heather Sellout and that chick Catherine Tanna off the RBA board and re-install Warwick along with three other suitable candidates. There’s no earthly reason why Sellout and Tanna are on this board. Parkinson should get booted because he thoroughly deserves it.

    Parkinson is gone when he leaves after the budget. No sackings – it’s only 4 months. Sellout is there as a business rep, hard to remove. Tanna has the advantage of a spare X chromosome, which was the primary criterion applied to selecting RBA members. Yes, I hope McKibbin gets another run (and wrote to him directly to say so at the time). But he would have to be strongly counselled about his warmism and shown the latest science proving that CO2 temp sensitivity is the same as it was last century – they haven’t repealed the laws of thermodynamics.

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