I may be some little time …

I’ve been planning for a while to write a post arguing that the one thing Julia Gillard can do to (at least, potentially) salvage her place in the history books is to secure passage of the carbon price package (and preferably the other outstanding items left over from the Rudd era, such as the mining tax legislation and health reform), then step aside, and let the Labor party choose a new leader. I was going to wait until the package was passed, but for various reasons, I’ve decided it’s time to speak up on this.

I’ve been very critical of Gillard, but I’m probably less hostile to her at this point than the majority of Australians. On the other hand, her success in holding a fragile government together, and in securing agreement on some complex pieces of policy, suggest she is much more appealing in person than her public persona would imply. My limited contacts with people who’ve worked directly with her support this view, as does the clear belief of her supporters that, if only we could see the “real Julia” we would all like her.

Unfortunately, that’s no longer a relevant possibility. After more than a year in office, there seems very little likelihood that the negative view of Gillard, based on her public record, is going to change, no matter how many rebranding exercises she undertakes. Her last chance, a big bounce when the release of the carbon price package showed the spurious nature of Abbott’s scare campaign hasn’t come off. Moreover, despite her contribution to getting the package together, she can never get past her promise that there would be no carbon price under her government. Only with a change of leader can Labor sell the carbon price.

As regards the choice of alternative, my natural inclination is for Rudd, but it seems clear that his colleagues won’t go that way, and he is doing a good job as Foreign Minister. Wayne Swan has been a good Treasurer, but he is too closely tied to the coup against Rudd and the dumping of the CPRS. Greg Combet would be my preferred choice, but Stephen Smith would also be good.

Given a change of leader, and if they aren’t forced to an election early, I think Labor still has a good chance. Abbott is incredibly unpopular, considering the circumstances, and the hostility towards Labor is very much focused on Gillard personally. If the government can survive long enough to see the carbon price in place, Abbott’s scare campaigns will collapse completely.

185 thoughts on “I may be some little time …

  1. Phil Doyle :I make these points because it may help people understand why Abbot is so popular. In reality there is no difference between the two major parties for the working poor, But at least by voting Liberal you are not rewarding people who portray themselves as supportive of the battler when the opposite is true.

    Again, on the contrary. Both major parties portray themselves as supportive of the battler, the Liberals as much as Labor, even though they have no more idea about what the battlers’ lives are like and probably less.

  2. @sHx

    “Do you now realise why I feel so utterly powerless and helpless?”

    I think you’re trying to take too much on your shoulders sHx. Anyone would feel helpless who acted as though it were down to them alone to be right across the length and breadth of the 21stC. Tough enough that you’ve done the hard yards in order to better understand climate science than do all the climate scientists themselves and every national academy of sciences on Earth – kudos there! When one considers that you presumably also better understand medicine than do doctors, economics than the economists and businesspeople, automotive and aeronautical engineering better than your local auto mechanics and Qantas engineers, and to top it all can probably even get to grips with your Smartphone, well … it’s remarkable. I can understand why you’d be watching on in helpless frustration as those lying politicians screw around, understanding relatively nothing. But you might consider chilling a little more, leave some things to be grappled with by others.

  3. Further evidence of the theory that the ALP-GRN coalition is undermining Gillard-ALP’s legitimacy comes in the form of a Galaxy poll of the QLD electorate:

    There is also a growing fear in Queensland electorates about the role of the Greens in the Parliament. Almost two-thirds of voters – and 41 per cent of Labor voters – say the Greens have too much influence on the Government.

    QLD was the key to the ALP’s federal election victory in 2007. Likewise the ALP’s slumping fortunes in 2010 started in QLD, where Rudd’s excessively high resource tax scared alot of voters out in regional and rural electorates.

    Rather than, or as well as, changing leaders the ALP need to ditch the GRN alliance. It is toxic to the ALP’s traditional brand.

  4. The ALP is doing badly but it stands to reason that the more tribal ALP supporters would be of the view that it is actually some other parties fault. Blame the Liberals, blame the Greens but don’t blame the ALP. The Green coalition could be made to work if not for the fact that sections of the ALP leadership have more sympathy for the views of the Greens than for the views of their own constitutents. It isn’t the coalition with the socialist Greens that is the problem so much as the socialist greens within the ranks of the ALP leadership. For instance there was no need for Gillard to renege on her promises regarding the carbon price. She could have put it to the vote in 2013 like she said she was going to. The Greens would have bowed to this rather than support the Liberals. Gillard gave into the views of the Greens not because she needed them more than she needed to keep faith with the voters, but because she thought they represented a handy excuse.

  5. The iconic photo of Gillard and Brown signing the ALP-GRN coalition agreement has now become an albatross around the neck of the government. On a par with the photo of Suharto’s cringing before the IMF boss Camdessus during the Asian economic crisis.

    These images seep into the unconscious public mind and corrode credibility of leadership. What happened to Suharto is a warning to what may happen to Gillard.

    Perhaps the carbon tax implementation can turn things around. Its a long shot.

  6. The iconic photo of Gillard and Brown signing the ALP-GRN coalition agreement has now become an albatross around the neck of the government. On a par with the photo of Suharto’s cringing before the IMF boss Camdessus during the Asian economic crisis.

    These images seep into the unconscious public mind and corrode credibility of leadership. What happened to Suharto is a warning to what may happen to Gillard.

    Perhaps the carbon tax implementation can turn things around. Its a long shot.

  7. it isn’t a carbon tax a a fixed price for a limited period until it converts to a floating price.

    Why Gillard was advised to say it was a carbon tax one can only wonder. They really are strategic geniuses in the ALP!

    Once July has come and the sky hasn’t fallen in people will change somewhat.

    I think it also important to note things are nowhere as bad as people believe.
    At some stage people will come back to reality.

    however whilst the government is a reasonably good Government they have shown themselves to be at appalling at selling anything.

  8. KB Keynes :
    it isn’t a carbon tax a a fixed price for a limited period until it converts to a floating price.
    Why Gillard was advised to say it was a carbon tax one can only wonder. They really are strategic geniuses in the ALP!
    Once July has come and the sky hasn’t fallen in people will change somewhat.
    I think it also important to note things are nowhere as bad as people believe.
    At some stage people will come back to reality.
    however whilst the government is a reasonably good Government they have shown themselves to be at appalling at selling anything.

    ^^^ absolutely agree^^^
    Appalling at selling anything, yep and the mainstream media has seemingly taken every opportunity to distort and misrepresent.
    On a pet issue, housing costs and how to deal with that. I have had a reasonable read through the Agenda and notes for the upcoming national tax forum (1) (used to be a summit). I can not see anything that deals with addressing hosing costs through tax measures, WTF with that especially given that the Henry Tax review suggested some specific measures to deal with this. (2)
    In regards to the seemingly endless moaning about PM Gillards broken promise on the carbon tax, well get over it, like how is it a surprise, nothing stays the same, climate change is a moving, growing and evolving deal. Surely it is naive and dumb to expect our political leaders to say ‘nope sorry cant do anything about that cos I promised I wouldnt’. In fact my expectation is that political leaders will be proactive and responsive, essentially all they need to do is own up, give us the reasons for the change of mind, explain the imperatives, apologise if necessary. Come on we are all adults with at least half a brain, treat us like we deserve to be treated, at least try and assume that we can and will understand.

    (1)http://taxwatch.org.au/policy.asp?id=7
    (2)http://taxwatch.org.au/ssl/CMS/files_cms/Land%20and%20Housing.pdf

  9. p.s. The sky did not fall following the introduction of Work Choices but it was still a major political problem.

  10. TerjeP :
    p.s. The sky did not fall following the introduction of Work Choices but it was still a major political problem.

    I don’t think you know what the sky is. Because the Government changed, given the power of the ACTU campaigning.

    If Abbott gets in – the floor will collapse. Minimum wages will be pushed down to global standards and the sky will heat up.

  11. Terje,

    workchoices was sen as a blatant attempt to reduce Trade Union power, as little of it it actually has and enhance employer power.
    There were plenty of examples of employers over-reaching their power.
    If they had introduced an IR act that almost copied the 96 pages of the NZ act then no-one would have noticed.

    On the other hand the the fear of an ETS is overblown. When I was in hospital i had a nurse telling me of the dreadful employment consequences of it.

    When I asked her what the employment consequences of the GST were she said it was negligible.

    I then asked if the ETS was going to raise less than a fifth of the revenue of a GST how was the ETS going to have a much greater impact than the GST.

    She had no answer.

  12. TerjeP :
    The GST raised no revenue because it replaced an array of other taxes.

    This was the hype – plus compensation. So what is the evidence for how it actually worked-out in practice? given that lower taxes on business just seems to have led to record profits for the likes of BHP etc.

    Revenue raised by GST is probably in the Budget papers on Treasury website.

  13. @frankis

    …leave some things to be grappled with by others.

    Yeah! Let others do your thinking for you. You just keep paying through the nose.

    That condescending tone has won legions for the Carbon Tax.

  14. @KB Keynes

    Motel bed tax. Wholesale tax on electrical goods. Stamp duty on mortgages. Financial Institutions Duty. And there just the ones I can recall off the top of my head. It did shift tax revenue from the states to the Feds but it was revenue neutral at the time of introduction. Revenue growth over time was supposed to see a decline in payroll tax which has only happened partially. However my main point is that your comparison between the GST and the carbon tax doesn’t have legs. The Gillard carbon tax is not revenue neutral. If it was then it could actually be a worthy reform irrespective of AGW. But it’s not. It’s an awful policy worthy of derision by the public at large.

  15. @TerjeP
    You say a revenue neutral carbon tax would be a good micro-economic reform, and that the only thing making Gillard’s tax bad is that it collects more revenue overall. To make your case, you’d have to show that the extra things bought by the government with the new revenue are a waste of money.

    I have an open mind about that actually. Could you take a stab at convincing me?

  16. Sam – they are a waste of money on the whole but over and above that there are dead weight costs of between 20 and 40%.

  17. How can that be? That sounds highly doubtful, do you have a source? Most deadweight loss from taxation doesn’t exceed 15%. You say this is actually a more efficient tax (dead-weight loss per dollar collected) than the average existing taxes. In any case, you really have to comment on the quality of spending that this tax allows, if you’re going to say the net effect of taxing and spending is negative.

  18. The “carbon tax” isn’t revenue neutral in that it actually costs the government about a billion dollars a year. The reason for this is the extra compensation for industry (specifically the money for the coal generators who have squeezed roughly a billion dollar a year out of the govt for the next five years.)

    You can check this in the fiscal tables at the back of the Clean energy future policy document. So Terje your implication that this is a money making scheme for the government is not correct.

  19. @Mike C

    It is tax and spend with the associated distortions and inefficiencies. I didn’t mean to suggest the government was going to hoard the money. It is I believe a budget neutral policy but that is not the same as being revenue neutral.

  20. @sam

    Sam – the following paper concludes with a suggestion that in Australia the dead weight cost is 24%. There are a variety of views in the literature regarding deadweight losses in the Australian context but I don’t recall seeing any as low as 15%.

    Click to access 4-2-NT-3.pdf

    However even if it is as low as 15% I still find it dubious to suggest that the intended public expenditure is 15% superior than the private expenditure that would have occurred otherwise. And the government has not even made a half hearted attempt to argue the case in these terms. They have just gone on about it being the right thing to do.

  21. @sam

    I offered one source but the link has put that comment in moderation for now. Hopefully it will get released soon.

  22. It me assure you it wasn’t revenue neutral.

    It raised a lot more revenue. That was its aim as it was all going to the States.

    If it was only revenue neutral the States would have never agreed even if a number but not all of their inquitous state taxes were to be eliminated.

  23. “Agenda” is a biased source. It runs a eco-rationalist ‘agenda’ deliberately presents cherry-picked data. It does not use the standard definition of DW loss, and adopts the biased ploy of comparing tax revenue to some project rate of return to cover capitalist returns.

    Taxes are used for unemployment, quarantine, public law, health, and education, which are not part of this calculation.

    If you tax some capitalism to fund other capitalism, then by definition, this will have extra costs – so what – this is NOT what the GST is about. Even if this argument was logical, presumably there would be a DW gain if we reduced the impost of capitalist hyped-up profits. A supply schedule would shift to the right, prices would fall, and jobs would rise.

    It is nicotine science in economics.

    I would expect the ‘News Weekly’ to cite “Agenda”, not more balanced commentators.

  24. I’m a bit out of my depth here TerjeP, but 20-40% doesn’t sound right. I realise that’s not an argument of course. Are there any real economists here who can contradict TerjeP?

  25. Chris – care to provide a source that argues it is 15% or whatever number you think we ought to be working with.

  26. Sam – if it helps I can russle up some “real economists” to support my view. However I’m not convinced that would settle the matter.

  27. @TerjeP

    The number is 0%. Whatever loss occurs in a newly taxed region/industry/market reappears and creates greater utility for others.

    As all capitalist markets possess a degree of monopoly, no nett deadweight loss is possible.

    Only particular capitalist profits will fall, but less than how they calculate true theoretical DW loss.

    At a guess ….

    1 less business lunch for Murdoch equals ten teeth fixed for the unemployed.

    1 less night at a casino for Packer equals 6 new units of affordable housing for the homeless.

    But more accurately …

    1% extra tax on BHP funds a hospital. Only BHP economists will see the DW loss, not the thousands of patients streaming through a hospital. I assume you can run a hospital on $200 a year. For BHP, the actual tax is a greater threat than the consequential DW loss.

  28. @TerjeP
    That’s right, one “real” economist you could find probably wouldn’t convince me. I’d like to know what the consensus mainstream economic opinion is on the dead weight loss from income tax in Australia.

  29. @sam

    Sam – there is no single figure that has consensus. You will find a range of views amongst those that have done research in the area. I think 20-40% encompasses that range of views. I could be wrong but given I’m the only one here willing to provide sources for claims I don’t feel like there is any serious challenge on offer.

  30. Terje,

    the GST replaced the wholesale sales tax plus a few, too few, inefficient state taxes.

    if you examine Taxation Revenue from the ABS you will see the GST gained a lot more revenue that the revenue lost by the forgone taxes.

  31. @TerjeP
    It depends on what we are estimating. Terje’s figures look reasonable to me for distortions at the margin but perhaps not on average. However I have seen a wide variety of estimates for this type of figure and am never really sure quite how they were estimated, if I am interpreting them correctly and which ones are the most accurate. So I am happy to be corrected.

    However as always in economics the deadweight loss needs to be balanced against the positive effects of government programs in redistribution. My feeling is that moderately heavy taxation with solid governmental support for low income households is well worth the cost, even though I don’t like paying it much personally.

  32. @TerjeP

    TerjeP :
    @Chris Warren
    Chris – 0% is an interesting claim. Can you provide a source that supports that claim.

    Easy – just look at any standard diagram for a monopoly market, or;

    any situation where there are positive externalities, or;

    situations where supply is relatively elastic and demand relatively inelastic.

    I suppose the real question is, where there are positive profits, whether an extra tax will shift a monopolists marginal revenue and marginal cost curve. If not then average total cost curve will not change so tax comes out of profits.

    But the problem for our DW loss scaremongers, is that they do not even know what the units are for this supposed loss.

  33. @NickR
    I’m specifically thinking of the dead weight loss from income tax. I suppose it would be different for different marginal rates. I can well imagine that part-timers and those on low incomes could be enticed into taking up the dole or something in response to a high marginal rate. On the other hand, would a heart surgeon really work more if the top marginal rate was lower? It seems to me most high income earners work about as much as they could already.

  34. @sam
    Sam, yeah I am also a little unsure about this stuff, but I suspect Terje’s figures are for an incremental dollar. As a result the average deadweight loss should be considerably lower, as you’d expect the distortion to rise with the tax. However when there is generous welfare low income earners can have very high effective marginal tax rates, and hence high distortions there too.

    You are also correct about high income earners having (potentially) low elasticities of labor supply. There is a not too controversial theory that suggests that rich people may have negative elasticities, as in if you tax them more they will work harder to be able to afford the yacht that the Jones’ have (backward bending labor supply curve). I think the empirical evidence on this is mixed (probably at best) but there is a super highly respected labor market economist David Card who seems to think it holds with some regularity.

  35. @NickR
    Deadweight loss only refers to the effect on the immediate economic actors and then only wrt the goods being taxed, and not for any indirect benefits they might receive. From a strict libertarian point of view there may be no other frame of reference worthy of consideration, but from the the point of view of a community or commonwealth there are corresponding benefits, “deadweight profits” perhaps, when taxes are used to generate other new economic activity and/or enhance the commons. (The same would of course be true when monopoly overpricing creates a deadweight loss – the profits would be reinvested and have other economic effects.)

    The idea of an unavoidable loss generated by taxation over and above the redistribution itself has a compelling attraction for some ideologies but it’s a carelessly incomplete reckoning.

  36. TerjeP :

    Chris – 0% is an interesting claim. Can you provide a source that supports that claim.

    Easy – just look at any standard diagram for a monopoly market, or;

    any situation where there are positive externalities, or;

    situations where supply is relatively elastic and demand relatively inelastic.

    I suppose the real question is, where there are positive profits, whether an extra tax will shift a monopolists marginal revenue and marginal cost curve. If not then average total cost curve will not change so tax comes out of profits.

    But the problem for our DW loss scaremongers, is that they do not even know what the units are for this supposed loss.

    Jim Birch’s “deadweight profits” is novel and interesting, but is it all money (ie actual $)?

  37. @sam

    Sam – work effort is one factor effected by taxation but as per your assumption I would also say it probably isn’t that significant for heart surgeons and the like. There is in fact some evidence that increased burdens lead some people to actually work harder. Perhaps we should tax heart sugeons at a higher rate than other people on similar incomes. Of far more importance in such considerations is how tax rates effect the structure of work. This is in my view more important in consideration of dead weight losses than any effect on work effort.

  38. @Chris Warren

    Chris – if deadweight costs are zero then we ought to be content to abolish all taxes and raise all revenue via a high uniform import tariff. Of course I don’t agree with your contention that deadweight costs are zero, especially given you cite no references for the claim.

  39. @TerjeP

    Abolishing all taxes and relying on import tariffs works under market socialism, but not under capitalism. Domestic capitalist profits need to be taxed even if there is no trade.

    However in general, it is felt that a public revenue base needs to be as broad as possible, so there will always be taxes on domestic activity and tariffs etc on foreign transactions.

    If you are finding it hard to see zero DW losses, then visit a library or try a Google search. It arises by definition if demand is perfectly inelastic and is covered in all first year undergraduate courses. It is a standard tute question.

  40. Thanks for that TerjeP. I’m suspicious about the high deadweight loss from company tax. It’s probably true for Australia alone because capital is highly mobile, but it’s not looking at the bigger picture. If the whole world set the same fixed company tax, the deadweight loss would be much smaller.

    It’s an argument for globally harmonized company tax rates, not for joining in on a race to the bottom.

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