George Megalogenis has a long piece in The Weekend Australia defending Treasury.
I not sure what this even means.
On the contrary, the much-maligned Gillard government is positively Menziean in the way its regime allocates income between labour and capital. The wages share has been below 54 per cent for the past three years.
The government allocates income to capital and labour? But moving right along.
[Treasury] should spend more time in the real world getting to know business, business told it. It should help ministers better explain policy to the electorate while maintaining its independence, ministers told it. It should learn about implementing policy, not just developing it. And it should talk more to ministers, even as it is expected to write more for them.
Help ministers explain policy – that is blowback from the RSPT debacle. The day after the RSPT was announced then PM Kevin Rudd was asked on Radio 6PR to explain what a super profit was.
A super profit will be defined as if you’ve got a company … [that’s] investing a certain amount of money what you then do do is deduct their expenses.
What you then do do also is deduct further the amount which would be collected if for example they were investing their funds in long-term bond markets. In other words what would constitute a reasonable rate of return on investment.
On his second attempt Rudd offered
Which is you have the total investment of the company, the total earnings of the company, you deduct their expenses.
And then of course you look at what would be a normal rate of return for that company if it were investing its money elsewhere, and it’s only if they go in excess of that is a super profit tax imposed.
On the third attempt
It is calculated on the basis of a company in terms of first of all, their total level of investment, secondly the revenues they earn in a given year, thirdly you remove the expenses that they generate in a given year, fourthly you then take into account what that company would otherwise earn if they were putting their money, for example, into an investment on the long term bond market, and it’s only if they are profitable using that formula, and earning super profits, that you would impose this… tax.
It’s not foreign, for example, to all those folk who are currently operating up there on the Northwest Shelf, the Petroleum Resource Rent Tax has operated for the last 20 years and on that basis huge projects, like the Gorgon project, have come into being.
Later that day a Treasury official sent an email to Wayne Swan’s office saying,
Expressions like “tax is payable only after providing a normal return to shareholders” are best avoided.
But why? The Henry Review had described resource rent as follows:
Rents exist where the proceeds from the sale of resources exceed the cost of exploration and extraction, including a required rate of return to compensate factors of production (labour and capital).
So confusion abounded.
I have to say that I’m not convinced that it is Treasury’s job to explain policy to the public. That’s what politicians do – Treasury needs to explain proposals to politicians and it is up to the politicians to ask the tough questions – otherwise they get to look like idiots on radio and TV. That tough questioning hasn’t happened the past few years – the Rudd-Gillard governments have taken what they hear at face value. They have paid the price in poor policy outcomes. It is here where I disagree with George M – he manages to turn an op-ed about government policy failure into a criticism of the coalition
The Coalition should get over itself and learn to respect the economists.
The lesson of the Whitlam government is that whenever one side sees the bureaucracy as the enemy, it knows less about governing that it realises.
No – asking tough and probing questions of bureaucrats is not a lack of respect, it is a form of rigour. I agree that viewing the bureaucracy as the ‘enemy’ leads to poor governance, but so too does complacency.