Posts Tagged ‘fiscal policy’

Terry McCrann thinks going ahead with the ETS is bad in the current economic climate:

The ETS is a tax and a tax specifically on energy. If increased taxation is what we need now, why then did the Prime Minister actually hand out $10 billion last week?

It seems to me that the impact of the ETS on overall fiscal policy would indeed be as he stated – if one assumes that all other revenue and expenditure streams are unchanged.

But doesn’t additional taxation coming in from the ETS simply mean that the overall budget position can remain the same just by changing other parts of fiscal policy? Several seemingly obvious options:

  • McCrann seems to have overlooked any of the compensation/redistribution elements to the Government’s ETS that would see the money go back out of the public coffers.
  • Perhaps the additional revenue could be frittered away/spent on worthless/worthwhile (delete as appropriate based on political ideology) Government initiatives such as keeping people healthy, making people smarter, looking after people who have fallen on hard times, etc.?
  • Perhaps another area where the Government collects money could be adjusted so they collect less?

In other words, the ETS is about creating a tax system where companies’ tax burden is determined, to some extent, relative to their environmental impact. On the other hand, fiscal policy is about the overall tax revenue relative to Government expenditure. The two principles appear to be largely independent of one another and yet both within the Government’s control – why assume that they would only act on one without addressing implications for the other?

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Another week, another attack ad:

The McCain campaign has announced it’s running yet another TV ad hitting Obama for his “celebrity” and for wanting to raise taxes.

The script:
ANNCR: Life in the spotlight must be grand, but for the rest of us times are tough. Obama voted to raise taxes on people making just $42,000.
He promises more taxes on small business, seniors, your life savings, your family. Painful taxes, hard choices for your budget. Not ready to lead. That’s the real Obama.
JOHN MCCAIN: I’m John McCain and I approved this message.

Wrong again:

When it says that Obama voted “to raise taxes on people making just $42,000,” that was on a non-binding budget resolution vote that didn’t actually raise or lower taxes.

According to Obama’s economic plan, he would raise taxes only on those making more than $250,000 per year, and would provide tax cuts to those making less than that.

And the Obama camp starts to respond in the right way:

Says Obama spokesman Hari Sevugan in a a statement: “This ad is a lie, and it’s part of the old, tired politics of a party in Washington that has run out of ideas and run out of steam. Even though a host of independent, nonpartisan organizations have said this attack isn’t true, Senator McCain continues to lie about Senator Obama’s plan to give 95% of all families a tax cut of $1,000, and not raise taxes for those making under $250,000 a single dime. The reason so many families are hurting today is because we’ve had eight years of failed Bush policies that Sen. McCain wants to continue for another four, and that’s what Barack Obama will change as President.”

The word “lie” needs to be used whenever it applies, and this was a clear case of intentionally false information from McCain.

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The Bush legacy

It’s not just about lowering America’s moral standing.

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Fiscal conservatism, hurrah. How about cutting needless bureaucracy and putting the savings into providing meaningful services to the citizens? And then spending any more that needs to be spent to make sure the services are up to scratch?

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How does someone as rational as this manage to exist in the environment of the GG?

The Labor leader can end the auction today by announcing no new bribes, and focusing, instead, on public spending.

Neither leader can be sure when voters will awaken from their apparent slumber and notice the politician making one announcement too many. It could be Rudd today if he goes too far.

Here’s a reform to think about: all future elections should set a time limit on spending – a bribes blackout period, so to speak.

Policies should be announced by, say, the end of week three of the campaign. This would leave the run home to the ballot box for persuasion only.

It would make more sense to hold the leaders’ debate after all the promises are on the table. Pollsters tell us that a significant portion of voters make up their minds only in the final fortnight. Surely this is the zone when politicians should be made to earn their living without the crutch of a handout.

It is, of course, tempting to throw all election policies into the one pile to come up with an even larger number. Tempting, but misleading because a global total would include both handouts to voters and public expenditure on their behalf.

In the present economic climate, the Reserve Bank is more interested in the cash that is going straight into people’s pockets because, on present trends, that money is almost certain to be spent. Public expenditure, by contrast, rarely materialises on time, making it less likely to trouble monetary policy.

This is Rudd’s dilemma. If he produces another handout today, he risks the unwanted title of briber-in-chief.

There’s nothing more that needs to be said, really – I hope Kevin Rudd is listening.

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The counter-announcement

Labor’s tax plan is out. I didn’t get to see the press conference and will have a good look at the detail later, but a couple of quick impressions:

  • The amount is not so far behind the Coalition ($34b vs $31b), so those who aren’t tuned in to the nuance should not be immediately disappointed.
  • They are actually eliminating a tax rate entirely – which means it has a better claim to being legitimate tax reform than Team Howard’s policy.
  • These guys actually seem to take education seriously – a nice change.

This should prevent the polls from being the story du jour, although it also gives Howard a couple of days to study it before the debate.

Obviously, being the first big announcement of the campaign for Labor, this is going to be covered everywhere. For starters, discussion is underway at Larvatus Prodeo and Blogocracy.

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Ken’s post at Road to Surfdom about the tax cuts and the neglect of public services (by the government and in the political discourse) is well worth reading, if you haven’t already. And the picture of Tip is a ripper.

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It’s pro-Howard editorials ahoy! at the GG this morning. From Janet Albrechtsen:

The Prime Minister is undaunted by a presidential campaign. Indeed, on the day the real election campaign began, Howard pinpointed Rudd’s weakness. As he said on Sunday when announcing the November 24 election, love him or loathe him, voters have always known where the PM stands on an issue and what he believes in. During the past decade he has earned himself a reputation as a conviction politician, tackling issues unfazed by the howls of opposition from some quarters. Witness his long-time involvement in the culture wars, his sponsorship of gun controls, the introduction of the GST, Australia’s involvement in the Iraq war, the intervention into indigenous communities in the Northern Territory. Each was pursued because of Howard’s conviction on these issues.

WTF?! The “never ever” GST? And the NT intervention, followed by the reconciliation pseudo-backflip? I’m surprised that she didn’t point out his commitment to climate change. And we’re supposed to like the fact that he has been an unwavering sycophant on Iraq? Apparently, having conviction is more important than being right and open to new ideas.

Then we have academics Sinclair Davidson and Alex Robson (the same authors who recently published a critique of the Australia@Work report in the GG) lauding the Coalition’s “tax reform”:

How should Labor respond to the tax challenge? That Peter Costello appears to have caught the Opposition off-guard reflects poorly on its own tax policy (or lack thereof). If Kevin Rudd really is the economic conservative he claims to be, he will embrace this tax plan and go even further to avoid any possible me-too criticism.

But this will be difficult. The Labor Party platform already includes a proposal to increase the superannuation guarantee by 66per cent (from 9 per cent to 15per cent). That this impost is to be jointly funded by employers, employees and taxpayers is little consolation. It is a tax increase, no matter how you look at it.

A tax increase intended to ensure that retirees have enough super to prevent a greater burden on the welfare system as our population ages? How daft – it sounds like Labor is showing “the vision thing”, which these authors say a government doesn’t need.

Finally, we have the editor-at-large. Larvatus Prodeo already has a spot-on commentary about this one – Kelly’s focus is entirely on how the Team Howard announcements have been received, or indeed is an attempt to shape the narrative of how it has been received. There is no consideration of the fact that these policies actually have societal implications. Here’s my (least) favourite example:

Claims that Howard should have spent the revenue on better services are ludicrous in political terms. Health and education are Labor issues, no matter how much funding Howard provides. Howard and Costello must play to their strength: the economy, tax and jobs. This is the only avenue to their election victory. If they cannot win the election on their strengths then, by definition, they cannot win the election.

So, Howard is entitled to neglect key social issues such as producing the healthiest and best-educated nation he possibly can, because they are “Labor issues”? Possum Comitatus used the Crosby-Textor data to illustrate the way that issues can “belong” to one party or the other, so I can appreciate the political reality of what Kelly is saying here, but that does not mean that the media should give the pollies a free ride on issues. The candidates will try to keep the message on the issues they want to talk about – the voters should be given an opportunity to hear about the good and bad aspects of their policies. Kelly, along with the rest of the GG’s editorial staff, is helping to sell the political message for Team Howard rather than helping to facilitate a substantive consideration of the issues.

UPDATE: Shanahan was up to his usual tricks today, this time spinning the Newspoll analysis of how the parties rate on key issues. Possum Comitatus has shown it for the load of crap that it is with a couple of quick regressions.

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George Megalogenis analyses the detail of the tax cuts:

But don’t buy the Government’s line that this is “tax reform”, because there is yet another shuffle going on.

Single people are, again, seeing some of their bracket creep returned to working families.

The switch can be seen in the number and type of tax cuts on offer yesterday.

The fundamental flaw in the Government’s tax scales remains the 30 per cent rate. It has been cut just once, in 2000.

The Government deploys LITO to ease the tax burden at the lower end of the income ladder, but leaves those singles on a little above average earnings going backwards through bracket creep.

Real reform would involve a step-down in the 30 per cent rate, but Labor can’t afford to do that.

George also states that he “Can’t see how these tax cuts won’t be offset by another interest rate at some point.” He suggests that Labor could say they will wait until the RBA meets next month to see whether they consider the Coalition’s policy inflationary. However, I agree with him that this is a risky proposition – if rates don’t rise, Team Howard can say “we told you so.”

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