In the light of the latest news of large-scale fraud in the for-profit vocational education sector, I thought I would repost this from CT (in turn a repost of an article in Campus Review, that’s no longer on the website).
I also found a response by Andrew Norton
We were talking at CT not long ago about universal basic income policy, and there were a variety of opinions about the desirability, political sustainability and implications of such a policy. But, before arguing about those issues, it’s useful to consider whether a basic income is feasible at all and, if so, what kinds of tax policies, and adjustments to other welfare policies, would be required to support it. I’ve considered the relatively easy case of a guaranteed minimum income, rather than a universal basic income paid to everyone, as advocated by Philippe von Parijs and others.
Having just given a relatively optimistic view of US policy on climate change, I’ve seen a string of signals that the Obama Administration is set to sell out on this vital issue, presumably on the advice of the same political experts who persuaded him to ignore the unemployment problem for most of his first term in office. The bad news
* Partial approval of the Keystone pipeline
and, worst of all, the apparent abandonment of the 2 degree target announced by U.S. Special Envoy for Climate Change Todd Stern
The radio is deplorable, but not significant in the greater scheme of things. Whatever the ad might say, the EPA regulations introduced under Obama are closing down lots of the worst coal-fired power stations. As regards the other two points, the best we can say is that nothing is locked in yet. Still, it’s more depressing stuff from someone who once promised Hope.
According to standard economic theory, the least distorting of all taxes is a land tax. This point can be pushed too far – for example, most land is improved to some extent, and that may be capitalized into land values. Nevertheless, given the financial difficulties of state governments, their failure to make use of this revenue source is an indictment, especially since they impose much more distortionary taxes on transactions involving land, such as transfer duties. All states exempt owner-occupied homes and primary producers from land tax, while taxing land sales and purchases across the board. The effect is to benefit existing landowners (except owners of rental housing) at the expense of new home-buyers and tenants.
It appears to be beyond the realm of political possibility to change this, but a government facing a supposed financial crisis, and looking for luxury items to cut, could start with land tax exemptions. As you might expect, Queensland has both a high threshold ($600 000) and a low rate (1 per cent increasing gradually).
None of the usual justifications for Queensland’s low tax effort apply here. Land tax exemptions do nothing to attract business to Queensland. They are a straightforward handout to landowners, mostly wealthy households with investment properties.
Unsurprisingly, this handout attracts zero critical attention from the Commission of Audit which states “Queensland has historically maintained a competitive taxation environment compared to other states.” This is entirely wrong as it applies to land tax. Since land is immobile, there is nothing competitive about low rates of land tax.
A new sandpit for long side discussions, idees fixes and so on.
Another Monday Message Board. Post comments on any topic. As usual, civilised discussion and no coarse language. Lengthy side discussions to the sandpits, please.
I’ve let my Monthly subscription lapse (will resubscribe as soon as I get a moment), so I can’t read the latest piece by Robert Manne, only the summary by John van Tiggelen, but the basic argument is simple, and widely shared. Climate change policy in the US has gone nowhere thanks to the intransigent opposition of the Republicans. I have a couple of comments
First, the policy situation isn’t nearly as bad as might be supposed, given the failure of the Waxman-Markey cap-and-trade bill, and the absence of any real push from the Administration. The fact is, that, in the current US situation, achieving coherent outcomes from legislation is just about impossible. Increasingly, the Obama Administration relies on executive and regulatory actions. In the case of climate change, the important ones are fuel economy standards for cars (CAFE), and EPA regulation of CO2 emissions and other pollution from power stations. Obama has pushed through rules requiring a near doubling of fuel efficiency by 2025. The EPA regulations effectively make new coal-fired power stations uneconomic and require the shutdown of many old stations previously exempted from the Clean Air Act. Reliance on executive action has all sorts of problems, and regulation is an inefficient way of reducing emissions. Still, if Obama is re-elected, the US can expect to see continued reductions in emissions over the rest of the decade. It’s important to observe that, even with the current limited policies, US emissions have already peaked and begun to decline. If Obama wins, the EPA and CAFE regulations will be locked in, and there’s the potential to go further, particularly in the context of an agreement with China.
Second, while its unfortunate that climate change has been entangled in the general craziness of the modern Republican party, this process hasn’t been costless for the Repubs. Given the state of the economy, they ought to be looking forward to a whitewash in November. Instead, Romney is expected to lose, and any Repub Congressional majority will be narrow and fragile. That’s not specifically because of climate change, but a result of the entire political approach taken by the Repubs for the last 20 years, of which delusional claims about climate science are just one example. Whereas until the 1990s, there was a steady drift of disillusioned leftists/liberals (both intellectuals and ordinary voters) to the right, the process is now going in reverse.
Among the many cuts introduced by the LNP government (which promised, pre-election to improve services), some of the sharpest are in the area of hospitals. According to this report[1], Royal Brisbane&Womens and Metro North face cuts of $130 million a year between them, with much more to come elsewhere. But, according to the Premier, we are on the verge of the abyss, and everyone must make sacrifices.
Well, not quite everyone. Despite the emergency situation, Campbell Newman has managed to find $110 million to upgrade the racing industry statewide, including more than $30 million for the Gold Coast turf club, to build “a slick new bar and upgraded foyer and lobby entry”. I’m sure that if RBWH had an extra $33 million to spend, they could find a better use for it than a slick new bar and foyer.
(Hat tip @BigBadWolf1950 on Twitter)
The most important single point in the Queensland Commission of Audit report (not a new one) is that Queensland is attempting to deliver the same services as the other states with a lower “tax effort”. To see what this means, let’s look at payroll tax which is both the biggest and (at least in principle, and with the exception of land tax) the least distorting tax available to state governments. The states were given the right to collect payroll tax back in the 1970s, in the hope that it would provide them with a tax base growing in line with the economy, and free them from dependence on the Commonwealth. It was never going to be enough, but the states made things worse by competing to provide exemptions, higher thresholds and so on, with the result that the tax collects less, and distorts more than it should. Unsurprisingly, Queensland has been the leader in this field. We have a payroll tax threshold of $1.0 million, about twice the level prevailing in other states, and a rate of 4.75 which is the lowest of any state. The LNP has promised a further increase in the threshold to $1.6 million.
The tax currently raises a bit under $4 billion, so raising the rate to 5 per cent would yield around $200 million a year. No one likes paying more tax, and a payroll tax is a tax on jobs[1], so raising the rate isn’t a step that should be taken lightly. Still, it seems clear that any job losses from a higher tax rate would be far less than those now under way. There are currently about 20 000 Queensland firms liable for payroll tax, and the average bill would increase by $10 000 a year. Perhaps some firms might respond by laying off an employee or not filling a vacancy, but surely most would not (and hardly any would lay off more than one. Cutting the threshold to $800 000, still much more generous than other states, would also raise $200 million a year.
If Newman took his hyperbolic rhetoric about a debt crisis seriously, the least he could do is ask his own supporters in medium-sized and big business to share some of the burden of fixing the problem, while still getting a better deal than anywhere else in Australia. Disregarding this rhetoric, we ought to have a serious discussion of whether the benefits of payroll tax concessions are sufficient to justify the lower standard of health, education, police services and so on now being imposed upon us.
fn1. The theory of tax incidence shows that, in equilibrium, a payroll tax is the same as a consumption tax, since both fall, in the end, on labour income. I’ve never been sure how much weight I should place on this result.
I was on Steve Austin’s radio program today, talking about my critique of Campbell Newman’s claim that Queensland was on the verge of the kind of debt crisis we have seen in Greece and Spain. At the end, Steve threw me a question I hadn’t prepared for, about a couple of claims made by Newman in the last day or so. These were
* Job cuts would not be needed if the unions would agree to a wage freeze
* Every 0.1 per cent wage increase implies the loss of 800 jobs.
Newman didn’t spell out his reasoning, but it seems clear that he is assuming a fixed fund available to pay wages. Given this assumption, any increase in wages implies a proportionately equal reduction in employment. So, we can easily check his arithmetic, starting from an estimate supplied by his own office that Queensland currently has just under 200 000 (full-time equivalent) public servants (using the term in the broad sense to cover teachers, firefighters and so on, in addition to administrative workers).
Looking at the second claim first, 0.1 per cent of 200 000 is 200, so Newman appears to be out by a factor of four here, or maybe a little less if part-time employees are taken into account. The first claim is a little harder to assess, but the announced cut of 20000 jobs amounts to 10 per cent of the existing total, so an offsetting wage freeze would need to hold wages constant over a period during which they would otherwise increase by 10 per cent. That would at least 2-3 years, assuming steadily increasing real wages, more like 4 years relative to an outocme that maintained the value of real wages. In practice, it’s very rare to sustain a comprehensive wage freeze for so long. Good staff start leaving and are hard to replace, morale is poor and so on. Then again, the alternative offered by the government isn’t doing much for staff retention or morale.
The big problem, as I said last time, is that long-term problems are being addressed with short-term panic responses. Although he is happily ditching promises made to public sector workers, Newman cites vague language about the ‘cost of living’ to rule out any re-examination of tax poloicy, even though most of QUeenland’s low tax effort reflects concessions to business rather than households.
John Quiggin 