Bracket creep

John Quiggin10 Comments

The tax cuts announced in yesterday’s Budget essentially involve handing back bracket creep. But how much bracket creep? The threshold for the main (30 cent) tax bracket has been raised by 8 per cent from $20000 to $21600. If you take the common definition of bracket creep ‘inflation pushing people into higher tax brackets’ and assume inflation is running at about 2 per cent per year, that would mean the cuts gave back four years worth of bracket creep.

But, as the Treasurer is happy to point out, real incomes are rising. If the ratio of income tax to national income is to be held constant, tax brackets must be adjusted in line with increases in nominal income per person. At the income levels we’re looking at here, this basically means movements in average weekly earnings, which have been growing at 4 or 5 per cent per year lately, depending on the measure you use. So on this definition the tax cuts offset between eighteen months and two years worth of bracket creep.

The top bracket wasn’t adjusted at all, so those on incomes above $50 000 didn’t get much relief from bracket creep this time, however, you mention it. But they (or rather we) have done pretty well under this government, with big cuts when the GST came in and the halving of capital gains tax, as well as the absence of any serious attack on tax avoidance through trusts and companies.

Update 15/5 The last para of this post was completely wrong. All the thresholds were adjusted. The 42 per cent threshold was increased from $50,000 to $52,000 and the 47 per cent threshold from $60,000 to $62,500. Both are about 4 per cent, equal to two years inflation or one years wage growth.

Request for suggestions

John Quiggin11 Comments

I’m doing a book chapter on The Politics of Australian Economic Policy which needs “suggestions for further reading”, and one thing I need to suggest is a couple of good sources (preferably books, but reports or survey articles would do) giving a summary of the general case in favour of microeconomic reform in Australia and a positive evaluation of the reform experience.

I’d normally cite Productivity Commission reports, but I’d like something a bit less technical [the main audience is undergraduate political science students]. On the critical/sceptical side, I plan to suggest my own book Great Expectations and books by Michael Pusey and Fred Argy. Any other suggestions would be gratefully received.

Another question Thanks for comments and suggestions so far, which basically confirm my view that there isn’t a book of the kind I am looking for. I would also be interested in a book covering the period 1945-75 in Australia with a focus on economic policy from a political viewpoint. Perhaps I should follow the suggestion of one of my commentators and write it myself

Meet the New Europe …

John Quiggin5 Comments

Running about a month behind the Zeitgeist, PP McGuinness picks up the Old Europe/New Europe meme (the new European states will be pro-market, more friendly to the US etc). Oddly enough he picks on Vaclav Klaus, who recently became President of the Czech Republic, succeeding his former ally and more recent opponent Vaclav Havel.

In fact, Klaus’ career is an illustration of why the Old Europe/New Europe thesis is wrong on nearly every point, and McGuinness tacitly concedes as much.
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Shortchanging Iraq

John Quiggin1 Comment

Kevin Drum at Calpundit posts on the disarray in the reconstruction plan in Iraq. He focuses on the fact that postwar Iraq has been very different from what was expected by the Administration – many fewer refugees but much more civil disorder and much less enthusiastic cooperation with the occupying powers.

The big problem, though, is lack of commitment.
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Monday Message Board

John Quiggin24 Comments

For the first (at least the first functioning) time on the new MT weblog, it’s time for Monday’s Message Board. Post comments on any topic (no coarse language and civilised discussion only please). I’m still interested in feedback on the new site, suggestions for additional features and so on.

Update Be sure to read Observa’s account of his family’s brush with paedophilia. It will help to inform discussion of this difficult problem.

Excuses, excuses

John Quiggin14 Comments

Kevin Drum at Calpundit says:

But why do I get the feeling that most people who complain about traffic cameras are actually just people who routinely push their luck at intersections and are afraid of getting caught? Is it because their principled arguments always strike me as completely lame?

Yeah, that’s it.

I’d note that, in my experience, complaints about enforcement of road safety laws of all kinds come mainly from the political right, and, as Kevin notes, mostly from people who routinely break the law themselves.

By contrast, suggestions for more lenient treatment of burglars, drug users etc come mostly from liberals, most of whom are not prone to burglary or even (relative to the general population) illegal drug use. This, along with the Bill Bennett affair, leads me to the following gigantic overgeneralisation. Conservatives make excuses for their own wrongdoing, liberals for the wrongdoing of others.

Prestige in economics

John Quiggin4 Comments

Kieran Healy fresh from defending sociology against attacks from ignorant economists, returns fire with this sly dig in a post about the underrepresentation of women

Even the lower-status fields in Economics (e.g., those that involve looking at data of any sort, hem hem) require a very high degree of competence in formal methods.

Actually, Kieran is out of date here. The availability of large cross-section data sets and the development of new techniques for analysing them has led to a resurgence in the prestige of empirical methods accompanied by a decline in the status of abstract theory. Steve Levitt’s Clark Prize is the most recent example (of winners in the last decade, I’d say only Matt Rabin is primarily a theorist).

What remains striking is the ambiguous status of policy. Although quite a lot of high-profile economists are engaged in the policy debate, there’s still quite a strong undercurrent of academic disdain for such a grubby activity, especially when it involves being embroiled in controversy (Stiglitz, Krugman etc). The situation in Australia was quite different in the generation preceding mine, when the top economists were almost automatically those actively involved in making or criticising public policy (Gruen, Gregory and Pitchford, just to name a few of the ANU contingent), but we now conform to the global norm. For the general public, an economist is someone who shills for a bank, and within the academic profession, involvement in policy is at best an optional extra . As in many things, I prefer the attitudes and institutions of the past, to those of the present in this matter.

What I'm reading

John Quiggin

I’ve been reading lots of different things, but a couple of books illustrate the opposite ends of the spectrum of thought about the Internet and its possibilities.
Clifford Stoll’s 1995 Silicon Snake Oil was one of the first manifestations of neo-Luddism. An interesting example of a failed reductio ad absurdam is a critique of estimates of the growth rate of the Internet, where Stoll says

Just by counting network nodes, the Internet is now doubling in size every year. This growth rate can’t continue for long – at this rate, everyone on Earth will be connected by 2003. Impossible

Here we are in 2003, and while it’s not literally true that everyone on Earth is connected, it is true that almost everyone in the developed world has access to the Internet.
Stoll is similarly dismissive of prospects for a revival of public debate on the Internet, taking as his model the dying days of UseNet. He misses almost completely the impact of the Web. Of course, he does not anticipate blogging which, I think, has gone a long way towards fulfilling the early promise of the Internet. Imperfect as blogs are, they contain a lot of well-written and well-argued discussion of a wide range of issues that would have had very little chance of publication in the days before the Internet.

If Stoll was too pessimistic, this was nothing compared to the ludicrous overoptimism of the dotcom boom, chronicled in James Ledbetter’s Starving to Death on $200 Million a Year: The Short Absurd Life of the Industry Standard We have yet to see a really good book on this topic. (Thomas Frank’s One Market Under God, which I reviewed here is easily the best book on the 1990s boom as a whole, but is only peripherally concerned with the dotcoms.

Read Soon soon

John Quiggin

After a long period of relative quiescence, Jason Soon is back with a string of interesting and lengthy posts (made lengthier by the narrowness of his blogger template!). As he implies in one of them, his long-delayed adoption of a comments facility has been a major stimulus and has implied something of a change in blogstyle.