My AFR piece tomorrow will deal with the expenditure side of the Budget, but I also plan a piece on the tax side. My immediate reaction is the same as everyone else’s – these cuts are amazingly skewed towards upper-income earners, with no-one on less than $55 000 per year getting more than a $300 tax reduction. This is about 9 months worth of bracket creep for someone on $40 000/year, but it’s apparently supposed to last for the rest of this government’s term in office, given the allocation of future tax cuts to the top end.
I’ll try to have a more detailed analysis soon.
There’s more from Ken Parish, Andrew Norton and Flute
John Quiggin 
“I am one of the many unfortunates who has a six-figure amount tied up in Government Super.”
That gives a whole new meaning to the concept of misfortune.
Aren’t PAYE tax cuts always going to “favour the wealthy” given that high income earners in the PAYE system pay the most tax?
This always seems to me to be one of the stranger criticisms of tax cuts? The only way to make tax cuts neutral is to reduce the lower rates only which gives everyone the same quantum of reduction.
Provided the less well off get a tax cut, why does it matter that high tax payers get one as well?
Razor: it probably does not make sense to debate with an anonymous poster, but for what it’s worth:
1. the slush fund issue arises only AFTER the superannuation liability is matched – at which point the revenues from the fund become available to government for other purposes, just how they will become available has not been spelt out. but you should note that this will happen much sooner than the budget papers suggest, because if the revenues from Telstra sale go to the fund it will grow very rapidly;
2. despite what you may have gathered from reading the press, look at the budget papers instead and you will find the FF is not there to fund currently unfunded liabilities, the wording used is very careful, it is there to match them with an asset so they are offset. that is, it’s an offsetting entry in the balance sheet, but there’s no suggestion that it might (for example) buy out the existing superannuation funds;
3. the future fund and the revenues it generates is absolutely not “for the future use of the superannuants” (if it were the FF would represent a massive transfer of wealth from the taxpayers to Commonwealth ex public servants onsuperannuation).
4. as to why governments are moving to fully fund their superannuation, there is a large number of different reasons (its a complex policy area). The analogy with the States is misleading, the issue here is the Commonwealth, and at that level there is not unfunded liability problem. Future commitments are affordable on the same basis on which they are currently paid – the reasons why the government has moved away from a defined benefits to a funded scheme are to do with the merits or otherwise of defined benefits schemes.
Finally, I’m not sure why your posts need be so belligerent. My purpose in posting was to clarify what is actually going on, given I know a little bit about the area. I’m not against a future fund, it is a desirable mechanism where a government is running large surpluses – as it should be in its 15th year of economic growth – to do something with them. Other countries in similar circumstances (see eg Norway, Singapore) have equivalents. I am sceptical on the need to maintain government debt – one thing markets are good at is pricing things like debt and why we need government paper to assist in this is questionable: but that’s a subject for another time
“Neither party has been prepared to tackle negative gearing; I presume there are good political reasons for not doing so. Anybody care to explain what they are?”
Robert, restricting negative gearing is problematic for business startups and new ventures(high startup costs) and also discriminates against the salaried cf those who are self employed and incorporate. As an aside I believe the Hawke Govt stomped on negatively geared capital gain with housing only to abandon it about a year later after a flight of investors caused private rents to rise dramatically.
“I am sceptical on the need to maintain government debt – one thing markets are good at is pricing things like debt and why we need government paper to assist in this is questionable: but that’s a subject for another time”
Perhaps the subject is relevant to the discussion here
http://libertyunbound.com/archive/2005_06/bradford-save.html
And an experienced deputy sherriff in the boondocks has some scathing things to say about it to head office here
http://www.news.com.au/story/0,10117,15255768-31037,00.html
Razor, you said: “in good economic times governments should generate surpluses and reduce debt so that in poor economic times they can run deficits and improve the economic situation. ” This was in response to my suggestion that the current tax cuts are bad policy because future economic circumstances are unlikely to be as good as current circumstances. Could you clarify for me exactly how the tax cuts, which you appear to be supporting, are reducing government debt? To be honest, your reply seems to support me in saying that this round of tax cuts does not make good sense.
GOTF – I am not saying the tax-cuts are reducing debt, but the overall budget is in surplus, therefore reducing debt.
Steve Bartos,
1. So ‘slush funds’ are only an issue well into the future, if at all, because you are assuming that there is going to be excess assets.
2. I believe you are splitting hairs. The Treasurer has stated that the fund is there to cover the unfunded liabilities of commonwealth superannuation. Either he is a liar or I need my hearing checked. How it is accounted for is up to the government. They may not be able to buy out the fund, for the same legislative reason I can’t roll out my money – there is no mechanism, and therefor ethey need to offset.
3. Disagreeing at 2. means we disagree at 3.
4. If there is no problem then why does the government see a need to fund the unfunded liabilites?
As for my belligerence, I don’t have a problem with people having opinions, but it gets up my nose when their opinions are based on false information or deliberate misrepresentation. For example, Gordon’s comment “Flute, the future fund is just a method of pumping public money (via a couple of intermediaries) into the stock market.” is a load of crud and needs to be rebutted. If he had facts to support the statement I wouldn’t mind, but he doesn’t. Or do you think things like the Dan Rather Memogate should just be allowed go through to the keeper because “it might not have been original but is was true”. (I paraphrase and take some license in assuming that you, as a journalist, know what I am talking about.)
Razor, you’re having a laugh. You constantly rebut statements with nothing more tangible that God’s fart. He who is a a glass house…. For example you slagging off Gordon for saying “Flute, the future fund is just a method of pumping public money (via a couple of intermediaries) into the stock market.â€?
Why don’t you go take the effort, like other commenters and read what The Great Costello said, read the budget papers, then resume your position on your high horse.
Steve Bartos, is Stephen Mayne of Crikey.com wrong? – “Given the Future Fund is to fund the liabilities of the old CSS and PSS superannuation schemes”
Razor: yes, Mayne is wrong. There is a subtle – but vital – difference between funding and offsetting liabilities.
PS of course, I should have said, the quote you attribute to him is wrong. I can’t tell if it is in context, accurate etc.
Who to believe? Mayne, who is no friend of the government, or Bartos, who appears to want to put a negative spin on the Treasurers publicly stated purpose of funding the CSS and PSS liabilities.?
According to Mr Flute’s own website he refers to himself as “…a former speechwriter for Michael Foot.”
My apologies if any sensible person, with any decent understanding of economics is offended.
Steve Bartos – from p25 of the Budget Overview – “The future fund aims to offset the the government’s largest liability, its unfunded superannuation obligations.” So you are correct to say it is an offset, but your argument is that it will then be used for other purposes, such as pork-barrelling, is drawing a very long bow. I can’t see what is wrong with any excess funds being available to the government. Perhaps then the money can be spent on infrastructure.
My preference would be to keep re-investing and growing the capital to reduce reliance on taxation. Imagine that future for Australians where taxation wasn’t required because an investment portfolio was paying for them. It is possible, because Australai is relatively small on a Global scale and a well invested global portfolio could fund the Australian Government. GE alone is about the same capital value as the Australian Stock market!
Thank you for an entertaining day.
It must be terribly hard being lefties and relying on the ALP to attempt to get back into power. No wonder we have so many mental health issues.
I’ll be off then.
Regards.
“I’ll be off then”
Off, he certainly is.
What a tosser.
Michael Foot was an icon, and his speeches were first class if I may say so.
He was a hapless water buffalo who should have never been in Parliament.
Has there been a worse Oppo Leader in the UK?
This budget is based on Reagan’s “supply side economics”. We have a saving problem; therefore set up a “future fund”; give tax cuts to the well-off because they’re more likely to save than consume.
That shows how out of touch with reality Costello and his advisers in Treasury have become. We have an investment problem, which is far more severe than our saving problem. The equation S = I (in a closed economy) tells us nothing about the quality of that investment.
How about the last 3 Homer?
not a patch on foot.
I still remember the chairman having to say that Foot spoke for the party.
He should have kept to writing biorgaphies which he was good at!
Sometimes parties don’t look at the outside world for an influence on the decision on leadership or cabinet positions. Foot was a bit of a folk hero, but completely unelectable.
Agreed on both.
In other words Foot was no shoe-in for PM! (sorry, I’m chanelling Homer)
that soxed me in the mouth.
you need to polish up your routine!
[…] nt in the budget I have found comes from frequent commentor and I think economist PML on John Quiggin’s blog: Costello’s system is narrowly targett […]
Budget Commentary from Blogosphere Economists
We’ve mostly been talking about the politics of the budget here at LP, but there’s some extensive commentary on the Budget at Quiggin and on the tax cuts at Andrew Leigh’s place. Well worth a look for the economists’ perspective….