I used to say often during the great Peter Costello years that everyone would see what was happening but never understand why it worked. Public spending would come down – even in the midst of the Asian Financial Crisis – and the economy would simply go from success to success. Falling unemployment and falling taxes followed year on year. Not just a zero deficit but ZERO public debt. And on we would roll. Why it would work you cannot find in a single modern economics text (well, actually there is one). What you saw before your eyes was specifically ruled out by the economic theory everyone, including everyone at Treasury, is taught. Peter Costello did what he did in the face of Treasury opposition and set a standard for performance that no one is ever again likely to match.
So we have this from the paper today: on the Government trying to think through what to do on the economy.
As Coalition MPs speak out against a GST increase, Malcolm Turnbull and Scott Morrison are examining other ways to pay for an ambitious agenda centred on tax cuts designed to encourage workers and lift economic growth. . . .
“The only realistic option for very significant income tax cuts is by changing the tax mix, and that is why a number of people have advocated increasing the GST for the purpose,” Mr Turnbull told parliament.
The strategy is to increase the goods and services tax to pay for a fall in personal tax. The Peter Costello option, of cuts to spending, is off the table, not even being considered. How this change in the tax mix would create growth seems incomprehensible to me, since no matter how you slice it, no cuts to public spending are involved so no additional space for the private sector is opened up. But there was also this I found quite interesting.
The Prime Minister insisted yesterday that he had not made up his mind on a GST increase”.
Is this to be a captain’s pick? Is it not a cabinet decision? Are we to understand that an increase in the GST rate is up to Malcolm alone and the rest must merely fall into line?
I was given a great quote yesterday apparently from some European Prime Minister:
“We know what to do but we don’t know how to get re-elected after we do it.”
The problem here is I don’t think these guys even know what to do. If they think raising the GST is the answer, they have lost the plot.