A couple of days ago, I was one of fifty signatories to a letter opposing the proposed cut in company tax rate and rejecting the general idea that Australia needs lower taxes. We got excellent coverage from the ABC, Fairfax papers and so on. But by far the most extensive was from The Australian. I counted at least four stories all with a prominent run on the website
* A straight new story, though of course replete with phrases like “the left wing establishment”
* The IPA attacking the signatories as the “fatuous fifty”
* Shorten also attacking the company tax cut as a recipe for “mayhem”
* A front page piece saying a tax increase is a lazy way of solving our problems
Not so long ago, the Oz would have ignored a statement like this (or stuck it in a short story on the inside pages) with the plausible justification that it’s just a bunch of lefties saying what lefties usually say. The fact that they felt the need to reply over and over is revealing, in two ways.
First, these stories and particularly the “lazy” story underline the fact that the government has run out of options in terms of fiscal policy. The spending cuts Abbott made early on, the biggest of which was to foreign aid, weren’t enough to offset his own indulgences, let alone improve the budget balance. And that’s before the much-applauded Defence White Paper which added billions in future expenditure for no obvious benefit.
Since 2014, they’ve been spinning their wheels. Every option that’s been floated has either been rejected by the Senate (responding to public opinion), vetoed by the backbench or simply abandoned. So, the only thing left is reliance on bracket creep. Thanks to low inflation and very flat tax scales, that’s a really slow process. In these circumstances, all it takes is the usual suspects (including me) pointing out the obvious (we need a tax cut like a hole in the head), and the Oz is in a total panic.
The other underlying problem is that the dysfunctional group blog is more dysfunctional than usual since the Turnbull coup. The News Corp tribe is split between Turnbull fans (most obviously Nikki Savva, but also Paul Kelly), lesser evilists who will reluctantly support Turnbull against Shorten (the official Oz position) and Delcons (delusional conservatives*) who are actively attacking Turnbull and threatening to vote against the LNP. In the resulting fervid atmosphere, every issue becomes an existential threat to Our Way of Life.
John Quiggin 
Hi John – What is your estimate of Australia’s Output Gap as a % of GDP?
so true, ” Our Way of Life,” whatever that is or ever has been!
I thought the optimal rate of tax on income from capital was rather low
Moody’s warn that they will pull the plug on the Ozs AAA rating blaming failure on tax reform contributing to increase govt debt.
Somehow the govt seems to think that cutting back on pensions etc will make up for the shortfall from their mining mates.
It wasn’t so long ago..2013…that the IMF conceded that they had taken dud advice from the necon lot and that adversity was a losing policy.
Despite all the upbeat chat from Turnbull we are still wedded to the economic illiteracy of the Abbott/Hockey govt.
If dyed in the wool Libs are having a problem with leadership perhaps this might give them pause.
> I thought the optimal rate of tax on income from capital was rather low
That very very much depends on what you’re optimising for.
Low taxes on income from capital means that profit-making lumps of capital grow fast, faster than you can grow lumps of capital from other sources: you get divergent situations, feedback, things growing without limit until they hit limits, and then the economy blows up.
If you’re running an equilibrium analysis — which you shouldn’t anyway, an economy is in equilibrium only when it’s flatlining, but “economists don’t understand the maths they use” is a topic for another day — then obviously, well “the economy blowing up” is a transient dynamic situation that your equilibrium analysis will miss. And if you’re optimising only for the sorts of things that show up in your equilibrium analysis, your optimal solution will be indifferent to transient effects.
Like, “does this blow the economy up?”.
I am intrigued by the Ozstrayan argument that a tax increase is the “lazy way out.” A way out is a way out after all. If you do it the “lazy way” then you are doing it with the least effort. The least effort is the most efficient way. So what the Ozstrayan is really saying is;
“A tax increase is the efficient way out of budget problems.”
Onya John Quiggin for giving it a dip. You like a league footballer at the bottom of a pack ferreting out the hard ball.
Great article, JQ, and thanks for being vocal and visible with your part in the 50. Its entertaining to watch the fur flying.
Good piece John, well done! The COALition remind me of o bloke coming out a pub after good session – crissed as a picket!! Can’t see anything, can’t hear anything and won’t remember anything the morning after.
This is the same mob that that were dumb enough to scrap 2 very necessary taxes and are now whinging like dumb and dumber. I seem to remember that neither Moody’s or the IMF saw the GFC coming. I’ll wager a slab of green ones that they won’t see the next downturn coming either!!
The Minister for Finance says that the government is going to increase revenue without increasing the total tax burden.
And for his next trick will he fill the bucket without filling the pail?
Is he over-qualified for his job?
@rog
“[A]dversity was a losing policy”: should “adversity” be (from the context of the article linked to by rog) “austerity”?
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If you want dramatic growth for your business, pay as little tax as possible. Please Mr Treasurer, can we all do this?