Grattan on Growth

I’ve been asked a few times about the Grattan Institute’s new report Balancing budgets: tough choices we need. It’s a substantial piece of work, and isn’t driven by a partisan agenda or special interest lobbying. On the other hand, I disagree strongly with the implicit criterion for policy design. This is nowhere spelt out, but the analysis is clearly driven by the following rule: seek policies that maximize GDP growth, subject to the constraint that the poorest (bottom 20 per cent of) households should not be made worse off.

This is most evident in the recommendation to remove the GST exemption for fresh food and use some of the proceeds to compensate the poorest 20 per cent of households. Let’s compare this with the alternative of raising income tax rates for high income earners (say, the top 20 per cent). By design, neither proposal has much net effect on the poorest 20 per cent. But the food tax falls mostly on the middle 60 per cent of households, since the top 20 per cent don’t spend much more on fresh food than the middle income group. It’s true that the cost of raising money through income tax is higher (Grattan uses an estimated cost of 25 per cent of the gross revenue) than for a food tax (5-10 per cent). But let’s spell this out a bit. Suppose you need to raise $500 in net revenue (roughly speaking what you’d get from the food tax for a household spending $100 a week). Would it be better to impose the tax on Gina Rinehart (in which case, taking account of the economic costs of collecting the tax, you’d have to raise an extra $100 or so compared to the food tax) or on one of her employees. If you regard Rinehart as an extreme example, take the choice between taxing a university professor (definitely in the top 20 per cent) or a campus worker such as a gardener or cleaner (not in the top 20 per cent, but normally not in the bottom 20 either, since this group consists almost entirely of people on pensions and benefits).

The fact is that Howard’s tax cuts, mostly carried on by Labor, used the temporary proceeds of the mining boom to permanently increase the after-tax income of the top 20 per cent. That’s the biggest single cause of the budget problems identified by the Grattan Institute, and the first thing that needs to change if we are to fix those problems.

52 thoughts on “Grattan on Growth

  1. I was recently listening to a debate on the ABC involving one of the Grattan Institute luminaries. His rationalist assertion was that we should completely stop funding science research in Australia and simply by knowledge/patents in from overseas. (Never mind the dumbing down this implies, the loss of technical knowledge needed to keep the place going and that their poster children Singapore and China are going in exactly the opposite direction.) I followed this by having a look at their academic horsepower, diversity and backgrounds.

    My preliminary conclusion was that this is a lightweight bunch of self promoting quasi scholars (they need to to keep their income flowing) who while not necessarily party political are embedded in neoclassical economic groupthink and haven’t a clue about the need to understand their game theory/models need to support the real world by providing some bits of insight – not telling the rest of us how to live from the perspective of an unreality bubble.

    Along these lines it appears that the economic/managerial ideals they promote are happily starting to come back to bite their ilk to judge by this Salon article.

  2. These suggestions about putting the GST on fresh food (and other essential goods and services) ignore the likely health impacts. Lennert Veerman (at UQ, so JQ might know him?) has done some modelling of the likely health impact and found:
    “If the price of fruits and vegetables were to go up by 10% (the current level of GST), consumption can be expected to go down by about 5%.
    Our modelling suggests that, over time, this could lead to around 90,000 extra cases of heart disease, stroke and cancer; this might cost between $0.5 billion to $1.8 billion to treat, on top of a loss of 60,000 to 145,000 healthy life years. One healthy life year is the equivalent of a year in full health, and losses can be due to reduced quality of life while living with disease, or due to being dead.
    That’s a big health impact, comparable to a 10% extra tax on tobacco or a 30% tax in alcohol.”

    Somehow I doubt Grattan built that 0.5-1.8 billion + loss of productive working lives into their model. IIRC the Grattaneer I heard interviewed doubted there would be any health impact at all.

  3. Typo alert: deadweight less. Could be especially confusing to those unfamiliar with welfare economics concepts since “Gina Rinehart” is in the same sentence.

    On how to raise revenue – sure, you can raise income tax rates at the top, but there are other things that can be done. Cleaning up tax concessions, rebates and deductions would be a start (over $100 billion worth per year, according to Treasury); you could also have a serious carbon tax to raise revenue not just undo the externality. You could also tax traffic congestion.

    There are many ways to raise the money to pay for Gonski, Disability Care, even more defence spending for those who are so inclined. All that is needed is the political will.

  4. I want to ask JQ a relevant question, because it concerns budget deficits and how to pay for them, that (warning) may contain elements of MMT. Perhaps more relevant to the US, but the Grattan institute’s insistence that deficits must not be allowed to grow, or else (undefined catastrophe) has me thinking it might apply here too.

    Recently, thanks to a speech by Larry Summers, there has been a lot of discussion of “secular stagnation” of the US (and by extension, a lot of the western world’s) economy, where, to use Krugman’s preferred framing, the nominal interest rate would be permanently at the ZLB except for a series of Fed-induced bubbles, which creating ultimately unsustainable economic activity by running up private debt levels. In Krugman’s preferred framework the answer would seem to be to run up public debt levels by deficit spending, simultaneously with QE expanding the base money supply to induce loans and inflation. However, Krugman acknowledges that political fear of deficits (cf Grattan) driven by rentier interests seems to make this impossible.
    My question is, in these circumstances why can’t the Fed (or other central reserve banks) fund governments directly to carry out their fiscal programs without creating public debt? Krugman et al acknowledge QE has had limited effect because the banks are largely just sitting on the new money reserves and not loaning them out, but think that if QE continues indefinitely it will eventually create inflationary expectations which will do the job in the long term. Instead of following this convoluted method, why not give the new money to people who will actually spend it, i.e. the federal government, either straight to the treasury or by buying up federal debt and cancelling it? I just don’t understand why this option is not in the toolbox of current mainstream Keynesianism (e.g. Krugman and JQ).

  5. I am less concerned about the nominal rates of taxation and more focussed on the effective rates of taxation for middle and higher income earners. The tax system is bleeding billions of dollars in negative gearing, superannuation and salary sacrifice concessions that are being used to quash marginal rates by dragging middle and higher income earners back down the assessable income ladder so that their top rate of tax paid is 19c in the dollar (disregarding Medicare)!

  6. Good comments about the policy criterion JQ. Mine would be:

    Provide policy options that achieve:
    1. Unemployment rate as % of working age population that does not exceed 5%
    2. Inflation rate does not exceed 4%
    3. Wealth (income/capital) of bottom 20% increases
    4. Wealth of middle 80% doesn’t go down.
    5. Wealth of top 20% can go down to achieve goals 1 to 4

  7. My policy criteria would be:-

    1. Get the government out of our lives.
    2. Get the government out of our wallets.
    3. Institutionalise these reforms.

  8. My policy criteria would be to deny water, police, medical, sewerage, incorporation, garbage, fire protection, title registration, free road access and disaster relief services to every person who expresses a consistent series of what purport to be a serious considered opinions about the uselessness of government. Given the proliferation of such people in recent times, the cost savings would be massive and expanding.

  9. Although I am against GST on essentials (fresh food etc). I think that taxing expenditure is a far more effective way to raise government funds than taxing income. This is based on the premise that it is far harder to hide expenditure than income and that the wealthy spend more therefore paying more tax. It is also harder for corporations to hide expenditure.

    My policy criteria would be:
    Increase GST on non-essentials (esp luxury items)
    Include GST on imports under $1,000
    Decrease income tax / company tax
    Simplify tax system to remove the tax concessions for the wealthy

  10. John, people who talk about fixing budgetary problems by simply raising the top marginal income tax rate really oughtta do some spreadsheeting using Table 3 of the Taxation Statistics, or perhaps just think through the revenue implications of a lognormal income distribution.

    I calculate raising the marginal tax rate on millionaires by 10 percentage points – a very hefty increase – would raise less than $2B a year, which is nothing in the big picture of budgets. And of course that calculation takes no account of the larger incentives for avoidance and evasion such an increase creates.

    However satisfying punishing rich bastards may be there are in Australia just not enough of them to pay the bills. If you want to raise serious money you have, like the celebrated bank robber, to go where the money is; that means taxing the middle class because the rich class has money but no people and the poor class has people but no money.

  11. @derrida derider

    What if you were a bit more ambitious and raised the rate for the top 1%, that is those earning more than $250K? You’d get more than $2 billion.

    The real action in soaking the rich though could be superannuation tax. You’ve people with huge sums in super who pay a ridiculous 15% on their super earnings, or nothing at all if they are over 60. In some cases the earnings – not the super balances, the earnings – are in the millions.

  12. @derrida derider

    DD, commenters who want to be snarky should read the post first. In particular, the sentence saying “Let’s compare this with the alternative of raising income tax rates for high income earners (say, the top 20 per cent)” With the exception of an illustrative reference to Gina Rinehart, I said nothing about millionaires – and even the Rinehart example was followed by a more typical one

    The top 20 per cent of households receive around 40 per cent of total income, so, as a first approximation, a 10 per cent tax on their income would raise around 4 per cent of national income or around $60 billion. Obviously, the actual revenue would be well below this, but it would still be many times more than $2 billion.

    Quite simply, if you use the term “middle class” to mean “people near the median”, it’s simply not true that this is “where the money is”. The top 20 per cent has almost as much income as the next 60. And, if you want to contribute to clarity you should really avoid using the term “middle class” to refer to the first of these groups rather than the second.

  13. @John Quiggin

    According to the ATO stats if you went get the top 20%, that’s everyone who makes over $70K, so it’s not just university professors, but lecturers too.

    In 2010-11 they collectively made $319 billion of taxable income. So of you want to tax another 10%, that’s only $30 billion, not $60b. It is still a sizeable sum, but it’s not just the rich that you are hitting.

    If you hit those making over $150K (the top 3 %) with a 10% income tax surcharge you’ll raise $12 billion. Worth doing, perhaps, but it is not going to revolutionise the public finances.

    Here is where the distinction between total income and taxable income comes in. There’s some good stuff in those tax stats. In 2010-11 there were five individuals with income of $1 million or more but whose taxable income was $60K to $70K. That is an impressive feat of tax avoidance!

  14. @David

    I probably would be tempted to cut my tax by 80% if I could, but since the opportunity has never arisen I can’t say for sure.

    The solution is to fix the law to take away the temptation. Easier said than done, of course.

    As for taxing expenditure, we already do, up to a point, with the GST. But there’s a limit to what you can get from the very rich by taxing their expenditure, especially these days when much of their extravagant expenditure takes place in the south of France, or wherever.

  15. Looking closer at the tax stats, I see that there were 70 people with incomes of more than $1 million but with taxable incomes of less than $6001, and a a further 120 people with incomes of between $500K and $1 million but with taxable incomes of less than $6001.

    I presume this must be some kind of rort available to farmers. You can’t do it by negatively gearing investment properties, surely.

  16. @Uncle Milton
    I would be interested to know which “tax benefits” are really the benefits being exercised. More importantly which benefits actually provide greater benefit than that to the tax minimiser. Seems. Crazy to earn $1m and pay little or no tax. Tax laws seem to be a case of cat and mouse (the ATO is the mouse trying to catch the cat) I agree it would be very difficult to change tax law to capture more. The wealthy must still spend money in Australia. Raising the GST to international standards makes sense to me, however this would more than likely just create new imaginative ways to minimise tax! The circle continues.

  17. I have a friend who I take to be rich. At least that is a reasonable inference from his making comparative remarks which bring to mind James Packer’s supposed utterance about the poor Packers only having a net worth equal to Bill Gates’s annual income. I think I can say with some assurance that the rich won’t lie down and take it if they see people who are going to receive full or substantial OAPs for 30 years voting in MPs to exercise their moral judgment that others should decide how a very large part of rich people’s income and assets are disposed of beyond matters which clearly serve their self-interest such as policing and defence (though police are more important now to someone living in Dandenong than Double Bay). Well of course that is what they do see, though they may express it more in terms of MPs buying their careers by promising to rob Peter to pay Paul, and the seriously rich won’t accept it, however much they may be willing to give money through their foundations and get applauded for it (like Richard Pratt) or quietly acknowledged (like Rupert Murdoch’s mother) because so many gifts were anonymous.

    So, yes, the 1 per cent will simply shift their assets and that will, eventually, mean that the countries they shift them from are more like Greece and those they shift them to are more like Hong Kong or Singapore. but you mention the 20 per cent and here perhaps you are a typical academic in not understanding the entrepreneur whose slight inferiority in IQ points compared to the typical academic (at least those at the big 8) is more than made up for in fierce attention to detail of what innovation may work and what may sell. By all means take away income from public servants, academics and most lawyers but don’t make it harder for the potential growers of our wealth (however measured it is going to involve the money economy and is going to require risktaking and diverse management skills) to accumulate capital.

    JQ, on the subject of whether the savers are to be commended and either rewarded or allowed to take their rewards I wonder where you stand in relation to the early Keynes, the Keynes of 1929 who had come to recognise how rich we all could become through technological innovation or those who think he condemned the excess savers who necessitated the government stepping in to create demand (and more than incidentally make up for the investment in infrastructure which wasn’t being done by private capitalists but was needed for future growth)?

  18. @Uncle Milton

    $30 billion is almost as much as the entire Grattan package. And sure, it would touch more than the rich, but not the middle class. Give whatever name you like to percentiles 80-97, but I agree with what (I think) DD meant to say, you have to tax them/us if you want to raise a lot of money

  19. @TerjeP

    My policy criteria would be:-

    1. Get the corporations out of our lives.
    2. Get the corporations out of our wallets.
    3. Institutionalise these reforms.

  20. @John Quiggin

    Someone on $80000 (well inside the top 20%) pays $17547 in tax. Tax them another 10% of their income and you are increasing their tax by nearly half. I don’t think it is going to happen.

  21. @Uncle Milton

    Comments threads aren’t a great place to do tax calculations. I would raise taxes the part of income that exceeds 70k. That means less revenue. OTOH, the best estimates of the optimal top marginal rate (need to look up) are around 70 per cent, so that means more.

    When I get a free moment, I’ll do the sums properly.

  22. I just want to go back to this statement and consider it.

    “The fact is that Howard’s tax cuts, mostly carried on by Labor, used the temporary proceeds of the mining boom to permanently increase the after-tax income of the top 20 per cent. That’s the biggest single cause of the budget problems identified by the Grattan Institute, and the first thing that needs to change if we are to fix those problems.” – J.Q.

    I agree. But doesn’t the statement itself show why change will never happen? If we can’t get a Labor government to do this what chance do we have? There is no party I or any of us can vote for that will implement anything but neoliberal policies on the economic front. Even the Greens have a neoliberal approach to economics.

    The interesting thing is the continued complete stranglehold of neoliberal policy on our society even after the GFC. Rudd took a non-neoliberal turn after the GFC (the stimulus) and he also wanted to tax billionaires’ super-profits. For this, Rudd was destroyed by his own party in a conspiracy between his deputy, reactionary labor and union officials and the mining magnates. It gives one little hope that anything will change.

    Don’t forget that the move of money from wages to profits has been going on for 40 years now. Along with that, the weakening of deomocratic government and strengthening of corporate and plutocratic power has proceeded steadily. These are solid, long established trends which show no signs of changing.

  23. @John Quiggin

    Here’s a start. If all you did was raise the marginal tax rate from 45% to 80% on the top 15% of the top 1% (the 8790 individuals with a taxable income of $1,000,000 or more, average taxable income $2.2 million) you’d raise $6 billion.

    where $6b = 8790*(0.8-0.45)*(2,200,000 – $180,000)

    Do the same to the 22,000 with a taxable income between $500K and $1 mill and you raise another $5 billion, and we’re still touching only the top 1/5 of the top 1%.

    Of course a lot of them would find a way to not pay, but still.

    So the money is there, though the politics of introducing a top marginal rate that hasn’t been sighted in two generations would be a big ask.

  24. Then stop living so long! The taxation base can only be stretched so far and the growth in health services is growing phenomenally at the aged end with most of a persons health costs accruing at the tail end of their life.

    We certainly are a more health conscious population but obesity and lifestyle diseases like T2DM and financing a non working population that is heavily tailed at the aged end is a large burden for taxpaying workers to bear. Unfortunately, businesses will shift their operations or base to the lowest taxing nations so unless we are even remotely competitive with major trading partners, don’t expect a modest increase in company tax receipts, let alone another profits driven tax boom!

  25. We have to focus on having sensible marginal personaltax rates and eliminating tax driven concessions. It is crazy that medium and high income earners reduce their ‘gross’ income to low levels and pay single digit percentage average taxes on those gross figures.

    I really don’t want to get into a debate about incentives but I think there is a psychological level where people simply give up or start evading their legal obligations. Fifty percent has to be a starting point where people really give up, knowing that for each extra dollar they earn the taxman will take.

    Going back to the principles of taxation and looking at fairer taxation on income, wealth, consumption, gaming (big wins being tax free) needs to be part of a roots and branch review of the system.

  26. Sorry for the snark, John – it came out rather snarkier than intended (bloody internet – when will it start conveying tone propely). It’s just I’m tired of my lefty griends thinking there’s some magical way we can raise extra revenue without hurtings lot of people who don’t deserve to be hurt. They’re the mirror image of my righty friends who think you can seriously slash government without hurting lots of people who don’t deserve to be hurt.

    But then it has obviously had some good effect – people here actually looked at the data before pontificating further. And when you’re talkiing tax that’s pretty essential.

    Saez’ line about a high marginal rate on the top percentile is predicated on very sharply diminishing marginal utility near the very top of the distribution (probably because of the prevalence of positional goods and rank utility). It doesn’t follow from his argument that a high (say 70 cent) marginal bracket for the top vingtile would be optimal. In any case, his work is based on the (very peculiar) US income distribution, where the aggregate income of the top 1% (actually, the top 0.1%) is much more significant than in Australia.

  27. I like the idea of having an incrementing progressive tax bracket, so that instead of having discrete brackets at a given income, each new dollar of income would be its own tax bracket. A person earning $70,000 would pay a very trivially higher marginal rate of tax than a person on $69,999. The rate would continue to increase up to a figure 25 times AFTWE after which it would level out at about 80%.

    Any company employing someone on or above 25 times AFTWE (calculated by reference to the value of their salary package rather than their nominal gross income) would begin to sacrifice the deductibility of their business expenses on a progressive scale. At 25 times AFTWE, they lose 1% of the deductibility of the salary and then pro-rata 1% for every new multiple of 0.1 above that. At 35 times, they get no deduction at all for the salary package and thereafter a surcharge is imposed escalating at the same rate.

    I also agree that it’s time that other benefits — such as the overly generous tax treatment of super in the hands of high income earners, (defined as people in the top 20% of income earners) — get removed. We ought not to be getting tax deductibility of private health care either. An assets test ought to include the principal place of residence for the purpose of receiving a pension and the benefits. This too should be subject to a capital gains tax, payable on sale.

    As I’ve said before, the states and councils should be abolished and regional government replace them. The commonwealth could then impose user charges for roads based on TARE, traffic contention, vehicle emissions, driver profile and so forth and use these to fund regions, maintain roads or build/maintain public transport.

  28. @Fran Barlow

    I like the idea of having an incrementing progressive tax bracket, so that instead of having discrete brackets at a given income, each new dollar of income would be its own tax bracket

    The Germans have this. Their tax schedule is a quadratic equation.

  29. @Fran Barlow If your home is to be included as an asset and subject to CGT reasonably costs eg interest, repairs etc should be viewed as a tax deduction. Invariably the computations require more paper work and could give rise to avoidance schemes. Already housing is subject to GST.

  30. @TerjeP
    If you favour abolishing government completely, it would be clearer (and more honest) to say so directly; if you don’t, your stated criteria are inadequate to make that clear.

  31. @Ikonoclast
    You’ve made this claim about the neoliberal greens a couple time now. Do you have something specific in mind? They don’t have an extensive tax policy available but they supported a much more aggressive super profits tax, an increase (albeit of unspecified magnitude) in the marginal rates for those >$1 million and are quite willing to junk the absurd debt ceiling. All these things are pretty anathema to the neoliberal position

  32. @rog

    If your home is to be included as an asset and subject to CGT reasonably costs eg interest, repairs etc should be viewed as a tax deduction.

    Unless they imputed rent as income where people claimed tax deductibility …

    To abolish the states and their associated councils would require a rewriting of the Constitution – and that will never happen.

    Never is a long time. Perhaps it won’t happen soon. That’s a political choice of course.

  33. How about “growth” in Europe?

    Spiegel Online writes:

    “But now, after the longest recession since the common currency’s inception, the euro-zone economy is showing signs of new life. According to Eurostat estimates, the 17 euro-zone member states showed seasonally adjusted growth of 0.3 percent in the second quarter of 2013. Significantly, Germany saw growth of 0.7 percent, but France, too, came through with a surprisingly strong figure of 0.3 percent. In Portugal, the economy grew for the first time in two and a half years — by as much as 1.1 percent.”

    Talk about revising down expectations! German growth of 0.7% is “significant”. France’s growth of 0.3% is “surprisingly strong”. OK, these are not doubt quarterly and would look a tad healthier if annualised but with the Euro economy bumping around on the bottom, 3 more good quarters still looks like a bit of a pipe dream.

  34. @Nathan

    OK, maybe I am being a bit unfair to the Greens. Let’s look at their (economic and related) policies in depth. My assessment is in brackets after each statement.

    Main Principles

    1. No tax cuts for the rich. (Too weak. Should be tax increases for the rich to take back the huge shift in their favour for the last 20 years.)

    2. High-skill green jobs (Sound policy. Do we get detail?)

    3. Zero-carbon industries (Sound policy. Do we get detail?)

    The economy must be equitable, serve the needs of everyone and provide the best chance to meet the challenges of the future. (Sound policy. Do we get detail?)


    The Australian Greens believe that:

    A prosperous and sustainable economy relies upon a healthy natural environment. Economies exist within, and are dependent upon, natural systems. Environmental stewardship is, therefore, central to good economic management. (Correct! 100% mark.)

    The pursuit of continuous material-based economic growth is incompatible with the planets finite resources. In order to provide for the needs of present and future generations, economic management should prioritise improving the quality of life rather than the production and consumption of material output. (Correct! 100% mark.)

    Human induced climate change poses the greatest threat to our world, requiring Australia, and all nations, to transform to a low carbon economy. The cost of addressing climate change now is far less than the cost of failing to do so. (Correct! 100% mark.)

    Measures of national progress should include indicators of ecological sustainability and social wellbeing. (Correct! 100% mark.)

    Equity of access to the essentials of life and the promotion of equality are central goals for a civilised society. (Correct! 100% mark.)

    The continued existence of poverty and growing inequalities of income and wealth undermine social wellbeing and democracy. Achieving social justice and eliminating poverty depend on greater democratisation of the economy. (Correct! 100% mark.)

    Governments have an essential role in regulating markets and ensuring that any externalities are reflected in market prices of goods and services. In a mixed economy, markets that function well and are fair, efficient and competitive, have an important role in the allocation of resources. (Correct, but beware that neoliberalism does not creep back into your thinking.)

    Deliberate and coordinated government intervention and, where appropriate, government assistance, is necessary to encourage a diverse and resilient Australian manufacturing industry and create more green employment opportunities in a dynamic economy. (Correct. Dirigisme is the way to go.)

    While government finances must be sustainable over the long-term, it is appropriate to stimulate the economy during economic downturns and save during economic booms. Government financing should be responsibly managed so as to minimise intergenerational debt. Government policies that guide investment should prioritise the long-term public interest not the short-term desire of companies to maximise profits.

    (There is some stuff that is correct in the above but insidious neoliberalism is indeed creeping back into their thinking at this point. The phrase “government finances must be sustainable over the long-term” rings alarm bells. Money and finance are notional, not real. Only the real environment, real resources and real products and services are real. Sustainability is only real when talking about real things. To talk in an incautious, unqualified manner about the sustainability of a notional process – government finance – is to make the mistake of reification; considering something abstract and notional to be actually real.

    Of course, fiscal sustainability has a reality in one sense, namely as a social construct conditioned by ideological perception, political process and broad political legitimacy. That is the only sense in which the notion of fiscal sustainability of government is real. The fault lies in making “fiscal sustainability” a benchmark or goal when real sustainability is the fundamental issue. If we pay undue attention to fiscal sustainability as a goal in itself, the tail wags the dog.)

    Natural monopolies and essential public services should generally be in public ownership. Whether in public or private ownership, natural monopolies and essential public services should be subject to a regime of transparency, accountability and stewardship that ensures maximum benefit to the public. Not-for-profit involvement with the provision of essential services and infrastructure should also be subject to a long-term community benefit test. (Correct! 100% mark.)

    Government financing is the preferred mechanism for funding public infrastructure.
    A secure and expanded revenue base is required so that governments can fund a high standard of infrastructure and human services including education, health, transport, environmental protection and social security. Much of the additional revenue required should be raised by taxing polluting industries, resource extraction and economic rent. (Correct, but possibly not for exactly the reasons that the Greens think.)

    The taxation and transfer system should operate on a progressive, not regressive, basis.
    Tax revenue from the extraction of finite resources should be invested for the future or focussed on providing public infrastructure, rather than used to meet recurrent expenditure that does not meet these ends.
    The tax regime can be a powerful tool to transform the economy using appropriate incentives and penalties that reward socially and ecologically responsible effort.

    (All correct, I can’t complain about that.)

    Social services such as health, education and social care, should be available through universal access to high quality public and community services. (Correct! 100% mark.)

    Public assistance is generally best provided through universal service provision or targeted payments, rather than through tax concessions which often fail to assist low-income earners.
    (Correct! 100% mark.)

    Unemployment benefits, pensions and other government allowances should enable all Australians to live with dignity, provide an adequate income and be structured to avoid poverty traps. (Correct! 100% mark.)

    Co-operative and collaborative structures for the organization of work and the provision of goods and services can provide important community benefits. (Correct. We need worker cooperatives not oligarchic capitalism)

    Strong support for local and regional economies is important as they contribute to a sustainable national economy by providing diversity and resilience. (Sounds good but the devil is in the detail.)


    The Australian Greens want: (I agree with all this.)

    An economy that will reduce greenhouse gas pollution to an atmospheric concentration of 350ppm or less.
    The introduction of broad measures of genuine national progress including the production of a comprehensive national balance sheet that reflects this.
    A reduction in the inequities in the current tax and transfer system, including:
    taxing trusts as companies;
    removing fossil fuel subsidies;
    redirecting funding from subsidising private health insurance towards direct public provision;
    strengthening the progressivity of the income tax and transfer system across all income levels including by reducing effective marginal tax rates for low income workers, and increasing the marginal tax rate on incomes over $1 million.
    Taxation reforms that improve housing affordability by no longer rewarding speculation and reducing asset inequality.
    A shift in taxation that helps restructure the economy by rewarding productive activity that avoids pollution, degradation of natural resources and rent seeking.
    An end to subsidies and tax concessions to environmentally harmful industries. Instead, subsidies should be provided to aid the development of alternative industries and training to assist in re-employment.
    To increase the rate of minerals resource rent taxation and broaden the commodity base.
    The prioritisation of social and environmental goals in any reform of public service delivery. Where market-based mechanisms are used in the delivery of public services or goods, such mechanisms should not undermine the achievement of social equity and ecological sustainability.
    To increase the transparency and accountability of the Foreign Investment Review Board (FIRB) in making its decisions against the National Interest Test. The National Interest Test should be strengthened to incorporate national, ecological and social objectives.
    To provide direct industry assistance towards the energy efficiency and renewable energy industries, in order to spur research and development, overcome market inertia, create new long-term employment and rapidly decarbonise the economy.
    A simpler, more transparent superannuation system with fairer rates of taxation and ethical investment structures, which provides equitable retirement incomes, particularly for women.
    Better incentives for superannuation funds to invest in government securities and public infrastructure.
    Full accountability of government and corporations to the broader community, including implementing holistic accounting measures at all levels of government to incorporate social, environmental and financial impacts into policy development and assessment.
    Transparent and accountable public utilities and government business enterprises. Where public subsidies are provided, information on the full environmental, social and fiscal costs should be publicly available.
    The Australian Competition and Consumer Commission (ACCC) to have the powers and resources to prevent the formation of monopolies through ‘creeping acquisitions’, and to divest monopolies and oligopolies of assets if they are abusing their market power.
    Measures to reduce excessive executive salaries.

    (My final summary. The Greens have actually changed this page a bit since I last read it IIRC. Previous statements about balanced budgets were much stronger and much more insidiously neoliberal in tone and import. Someone internally or externally has clued them into this, generated a debate (I would say) and they appear to have a made a conscious shift away from creeping, insidious neoliberal dogma. Conclusion: The Greens are now actually a lot better than I thought at least in overall policy and their clear understanding of the underpinnings of that policy. No matter, I did vote Green first in our recent federal election and did ensure preferences did not flow to Lab, Lib or other vile reactionaries.)

  35. Interesting fact;

    “105 out of the 206 sovereign countries in the World, did not publish any quarterly GDP data for the 2006?2013 period. The following 21 countries were also excluded from the table, due to only publishing unadjusted quarterly real GDP figures with no seasonal adjustment: Armenia, Azerbaijan, Belarus, Brunei, Dominican Republic, Egypt, Georgia, Guatemala, Iran, Jordan, Macao, Montenegro, Morocco, Nicaragua, Nigeria, Palestine, Qatar, Rwanda, Sri Lanka, Trinidad and Tobago, Vietnam.” – Wikipedia.

    The table referred to is Recession Period(s) 2006 -2013 by country.

  36. JQ, important point in the last paragraph.

    In general, I don’t agree with the argument that: It’s true that the cost of raising money through income tax is higher (Grattan uses an estimated cost of 25 per cent of the gross revenue) than for a food tax (5-10 per cent).

    I don’t agree in general because, with the exception of the exceptional circumstance of overfull-employment, the ‘costs’ are incomes for the people employed to raise the revenue.

    The notion of bottem 20% of income earners would need a bit of clarification. Would it include the people on new start and pensioners or not?

    Alternative ‘cost’ savings possbilities include abolishing the tax preferred status of Charitable Institutions (eg Churches, …….., the Grattan institute).

  37. @Nathan

    but it is true to say that each dollar is its own tax bracket.

    Not really. For example, all the dollars earned between $37,001 and $80,000 – $180,000 are in the 32.5 cent tax bracket and all those between $80,001 and $180,000 are in the 37 cent tax bracket. All those over 180k are in the 45 cent tax bracket.

    If there were, for argument’s sake, 42,999 equal tax increments (one for each dollar earned) between $37k and $80k and 99,999 similar and equal tax increments between $80k and $180k then that would be true.

    NB: I’m not suggesting that these are the thresholds I’d use.

  38. @Fran Barlow
    Yes, sorry you’re quite right. For some reason I was reading (and writing) bracket as rate (i.e. tax paid/total income) and vice versa.

    The German income scheme looks quite nice [1] (not really quadratic though) and still tops out quite flat and low. But the results end up looking quite a lot more progressive, in the sense that the marginal rate at ~$ 37k AUD is around 17%, wheras at 80k it’s 42%. From there it’s a lot less progressive though as it sits at 42% until ~370k AUD and then rises to 45% for everything upwards.


  39. @Uncle Milton
    In fact we used to do something close to this. From the late 50s to the mid 70s we had up to 30 tax brackets in an deliberate attempt to approximate a quadratic scale. This was apparently originally worked out by Trevor Swan (one of our most famous economists).

  40. @Nathan

    Well of course you can’t do a true quadratic scale or you end up with infinte marginal rates – you have to have it “top out”, plus you generally also want a tax free threshold. And yes, continental (not just German) income tax rates are suprisingly low because they depend so heavily on the VAT and on property taxes.

    Nope, to get it pure and elegant you need a logistic scale – a nice sigmoid curve will do the trick. Of course that may mean we have to improve maths education in high schools a little ….

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