Other economics
The Reserve Bank’s non-decision
The Reserve Bank’s statement explaining its decision to leave the cash rate on hold can best be summarized “we don’t know wtf is happening and we’re frozen in indecision”.
The new board has inherited from the old board the dread that workers may not be sufficiently fearful about losing their jobs. They don’t know what’s happening with household consumption, and they don’t even know what effect previous changes in interest rates have had on inflation. They mention, indirectly, the risk of a Trump-induced recession, but make no mention of the risk of a Taylor-induced recession.
Although they state that “sustainably returning inflation to target within a reasonable timeframe is the Board’s highest priority”, It seems that they are determined to ignore the fact that CPI inflation is now within their two-to-three percent comfort zone, and are clinging to every possible rationalization for not lowering the interest rate.
Your taxes at work – the Per Capita Tax Survey
The annual Per Capita Tax Survey does what few politicians do. It matches our preferences for public expenditure with our attitudes to the taxes we pay for public services.
This is particularly important at a time when the two established parties are ducking the need to match our expectations for public expenditure with the need to raise public revenue, when there are only token moves by the Labor government to address widening disparities in income and wealth, and when the Coalition, trapped in their “small government” obsession, patronizingly proposes to cap taxes, and therefore to cap public expenditure, at an arbitrary percentage of GDP, regardless of people’s preferences.
In fact two thirds of Australians would like to see our government spending more. Our priorities are health (86 percent support for more spending) and education (68 percent support).
This survey finds that Australians want big business and those with high-income to pay more tax. That’s a common finding in such surveys, but what stands out in this survey is that 60 percent of respondents would be prepared to pay more taxes themselves to fund better health and aged care services.
That all explains why both the established parties are promising to spend more on health, if elected.
The proportion of people who believe they pay too little tax, however, remains at around 2 percent, and it’s hard to find in the survey a great appetite for reforms that would collect more tax.
Other than incremental tweaks, tax reform is off the agenda for the old political parties. Independent Member of Parliament Allegra Spender, however, is urging Australians to embrace tax reform and has written a well-researched and well-argued case for tax reform, and there is hardly an economist in the land who believes our system does not need a serious overhaul.
The survey has findings which may explain why reform is so difficult. When people are asked how taxes should be raised, the most popular response (50 percent) is for a crackdown on corporate tax avoidance, while support for other proposals is much lower. (Maybe people don’t realize that many of the mechanisms for tax avoidance are designed for, and used by, our pampered small business sector). There is only about 20 to 30 percent support for removing negative gearing concessions, cutting superannuation concessions, and introducing an inheritance tax, and there is even lower support for raising the rate of GST and implementing a land tax – all measures favoured by many independent economists.
This means, as it did when Ken Henry presented his review 15 years ago, that any review has to tackle tax reform as a package, rather than on piece-by-piece basis, so that people can see the net benefits without being put off by higher taxes in some areas, such as a higher GST.
Politically, however, the Coalition has demonstrated over the 20 years it has been in office since 1986. that it has no appetite for economic reform: in fact over that time it unwound the Hawke-Keating government’s reforms to capital gains tax. A Labor government is unlikely to pursue tax reform so long as there is an opposition, such as the Coalition in its present form, which misses no opportunity to raise deceitful scare campaigns in response to any reform. That’s why strong pressure from independents may be the only force for reform.
The enduring impediment to reform, exposed in successive Per Capita surveys, is that almost 50 percent of people surveyed believe that Australia is a “high-taxing-big-government” country, and another 35 percent believe we are a “mid-range taxing country”.
Per Capita presents a graphic showing that Australia is one of the lowest-taxing and spending nations in the OECD.
In showing that only 7 OECD countries have lower taxes, actually understates its case. If, rather than looking at all OECD countries, we look at only high-income OECD countries (countries with per-capita incomes > $45 000), only three countries have lower taxes than Australia. As can be seen in the graph below, two are tax havens, and the other, the USA, is running a fiscal deficit of 5 percent of GDP as a substitute for collecting taxes.
