Economic policy

Everything old is new again (on the blogroll, anyway)

John Quiggin6 Comments

Restored to pride of place on the blogroll, the inimitable Don Arthur has returned to blogging.

I’ve also added The Drawing Board an Australian Review of Public Affairs, published by the School of Economics and Political Science at The University of Sydney. An article I’ve done on Labor’s economic policy should be published there soon has just (this minute) been published there.

6 thoughts on “Everything old is new again (on the blogroll, anyway)”

  1. John

    Did you have a reason for selecting 15% as the optimal health insurance rebate? If the rebate is too low then the public savings in health costs through encouraging people to take out private insurance will be less than the cost of the saved rebates.

    You didn’t mention the issue but the same argument applies to private school funding where you have in the past acknowledged demand elasticity — more people go to private schools because it is cheaper. Do you support Labor’s cuts to private school funding or will this be socially costly because it will divert resources to students in public schools who would previously have gone to private schools?

    It sounds like you oppose ‘unrestricted negative gearing’. Would you oppose the tax deductibility of the costs of investments throughout the economy or only for housing? Would you apply it to firms who borrow to purchase capital items and to consumers who buy equities? Would you apply the insulation idea inside firms so that interest costs could only be written off against incomes generated by the specific asets purchased by the borrowings?

  2. On unrestricted negative gearing, as I said in the article, changing this is a second-best alternative to a proper capital gains tax.

    On the health insurance rebate, I’m unconvinced by the claims that the induced use of private health care is cost-effective relative to an increase in public funding. The same is true, in my view, of subsidies to wealthy private schools – I broadly support a return to the pre-1996 model.

  3. Why then set a 15% health insurance rebate rather than a zero rebate? And I thought it has been your long-standing claim that private school demands were elastic, a claim I agree with, so there must be some level of subsidy that is efficient from the view of releasing resources to the public system. (A possible answer to my own question is that many private schools are operating with long waiting lists).

    I agree on the capital gains tax argument but isn’t this a first-best way of raising taxes. What I was raising was whether you would want to seek removal of the tax deductibility on investment properties alone. This seems to make things worse.

    I think the least distortionary tax regime would be to allow tax deductibility of the purchase costs on all housing, to tax all capital gains at the same rate and to tax the imputed income benefits people get from owner-occupied dwellings. As this last type of imputation might be difficult a second best policy is to disallow interest payments as a deduction on owner-occupied housing but to exempt such housing from capital gains tax. This rationalises the status quo.

  4. Harry, I agree with most of what you say on housing – in this piece I’m focusing on politically feasible improvements rather than first-best policies.

    On schools, I’d say that the big impact of public funding has been in maintaining/enhancing the viability of the Catholic system and other relatively poor schools. As you say, extra money for schools that already have waiting lists can’t do much more than transfer wealth.

  6. generally acknowledged as a class act
    Don Arthur is back in the blogosphere, as both Quiggin and Troppo are telling us loud and clear. Try this, on the politics of the front yard. I filched Don’s bio from Online Opinion: “Don Arthur has worked as a…

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