Value added and public spending

The video is on Value Added – which I did many years ago as part of my economics course. Much too long to watch but it’s there if you are interested. Alas, value added is virtually no longer even mentioned inside an economics course, and even when it is it is never dwelt upon.

This mishmash is how value added is defined at Google. This is about as close to what you might get in an economics course today, and then only if they are discussing the National Accounts. It’s never mentioned as part of macro generally.

1. the amount by which the value of an article is increased at each stage of its production, exclusive of initial costs. “the proportions of both total output and value added fell”
2. the addition of features to a basic line or model for which the buyer is prepared to pay extra. “value-added digital technology”

Value added was once properly understood as the difference between the cost of the resources used up in some production process and the revenue stream generated by selling the products that have been produced. It was about creating economic growth and higher living standards. Government spending is almost never value adding, and I include the word “almost” since occasionally, very occasionally, governments actually create more value then they use up. There is no such government anywhere in the world today.

I am reminded of all of this by the release of the Victorian budget and the shamelessly shallow response in the media. Treasurer goes all in on the Robin Hood approach to funding.

If you ever needed proof of how confident the Andrews government is of winning the next election, look no further than Thursday’s budget.

Handing down his seventh budget, Treasurer Tim Pallas resembled Robin Hood as he hit developers, big business and affluent home buyers with higher taxes to fund billions of dollars in spending on mental health, hospitals and schools.

Boosting taxes is rarely popular at the ballot box. But next year, the state government’s tax revenue will increase 13.2 per cent, with an average annual increase of 6.9 per cent over four years.

Justifying the tax grab, Mr Pallas said he was simply asking Victorians who had done well out of the pandemic – successful businesses and those lucky enough to hold on to their jobs – to help those who had suffered the most. It’s a strong argument.

This was once known as eating one’s seed corn. This is entirely using up your capital base with no replacement in sight. This has gone even beyond Keynesian moonshine, where they used to pretend that the problem they were solving was caused by too much saving. I guarantee you Australians are not saving too much, nor is anyone else. Now it is just spending for spending sake.

And let me thank Rodney for finding this video and alerting me to its existence on Youtube.

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15 Responses to Value added and public spending

  1. mem says:

    Value adding. Isn’t that what the government takes in taxes?

  2. Mother Lode says:

    and those lucky enough to hold on to their jobs

    Public servants?

  3. Rohan says:

    Looks like the recipe for The Great Reset to me. Send everyone broke through ruining the economy and ludicrous taxes and repossess their assets by fiat.

  4. Dan4eva says:

    So people will adjust their behaviours accordingly and the government won’t raise any where near treasuries useless projections.

  5. TBH says:

    So people will adjust their behaviours accordingly and the government won’t raise any where near treasuries useless projections.

    Yep, twas ever thus.

  6. Ed Case says:

    If you’ve got a lazy few Mil to speculate on houses or build another one to keep up with the Joneses down Portsea way, then even the Andrews Government is going to be hard pressed to find a more wasteful use for that dosh.

  7. Nob says:

    You sound much less ranty in that vid than you do in text on the Cat Steve.
    Good clear explanation.

  8. min says:

    Perhaps we should consider why Victorians need so much money to be spent on mental health .

  9. Richard says:

    1864 views on YouTube since 2013. Clearly not many have received the message. A nugget waiting discovery. Many thanks.

  10. Mike Ryan says:

    Outstanding piece, Steve.
    To see an example of how well Australia excels at value adding today, look no further than Australia’s IT Industry. In the global IT Vendor awards, Aussie and Kiwi companies consistently out-perform other theatres of operation – feature in the winner and nominees’ lists. We’re talking Microsoft, Cisco Systems, Oracle and every other IT solution provider. In many respects, this is a better approach to winning technology market share compared with the “Startup” and venture capital in general.

    1) Transferrable Skills – VA means investing in skills that add value to a career.
    2) Lower Risk – a ready market exists for your VA skills and allows start-ups and new projects to run concurrently, fuelled by the existing VA cash-flow. No VC capital needed.

    The Australian diaspora are high-achievers, globally respected thanks to other achievements in value-adding. Look at film, engineering and mining industries who epitomise the best value-adding and export their expertise for big profits.
    Are we providing the right education to bolster value-adding?

  11. Tel says:

    Boosting taxes is rarely popular at the ballot box. But next year, the state government’s tax revenue will increase 13.2 per cent, with an average annual increase of 6.9 per cent over four years.

    Keep that prediction, I bet they get much less than that, because no business just sits there and watches their profits get slurped away.

    Business will move, projects will get shelved.

  12. Craig says:

    The only reason the video is still up is because the communist nazi employees at Youtube don’t understand what the video is about.

  13. Lee says:

    “I contend that for a n̶a̶t̶i̶o̶n̶ state to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle.”

    Winston Churchill

  14. Spurgeon Monkfish III says:

    It’s a strong argument.

    If you’re an ignorant imbecile such as your (very) average Neinfax jis’mist.

  15. Pingback: Completing my short course in economics - The Rabbit Hole

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