Let’s repair the budget once and for all

Tue, 16 May 2017  |  

This article first appeared on the Yahoo 7 Finance web page at this link: https://au.finance.yahoo.com/news/1187922-051601764.html 

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Let’s repair the budget once and for all

Let’s once and for all repair the budget and start on a path of lowering government debt by hiking taxes on luxury cars, wine, petrol, diesel, beer, spirits and so-called ‘other’ alcoholic beverages.

Not only will a decent lift in tax in these areas fix the budget, it will be good for the general health of the population (less alcohol consumed), it will help the environment (less driving and a switch to other means of transport) and in the case of luxury cars, it will be fair (taxing expensive cars).

It can work.

As the dust from the 2017 budget slowly settles, it is apparent that there is a moral and political advantage from selectively hiking taxes. There is strong support for the 20 per cent lift in the Medicare levy from 2.5 to 3 per cent; the bank tax is seen to be a claw-back of some of the support that government has previously given to the big four banks; while the tobacco excise tax impost (admittedly delivered over many years) is set to deliver nearly 3 per cent of all revenue to the government and people should stop smoking in any event.

As things stand, there is a problem in that even with this brazen tax grab from the Turnbull government, the budget deficit is still substantial and gross government debt is on track to exceed $600 billion within three years and then it will hit a stonking $725 billion (which will be around $55,000 per household) by 2026-27.

Let’s start from a budget fact that in the financial year 2020-21, the government will raise $15.2 billion from the tobacco excise tax. That is a lot of money from the 13 per cent of the population that smoke.

The luxury car tax in that year, will by way of comparison raise a puny $720 million even though sales of luxury car are already at a record and are set to growth further over the next few years.
So $15 billion from smokers and $0.7 billion from luxury cars?

Come on!

Let’s ratchet up the luxury car tax so that an extra $1.5 billion per annum (or more) is raised by 2020-21. Who could argue against a bit more tax on those horrid Porsche Cayenne’s? The money could be hypothecated against road funding and public transport infrastructure in the big cities even though it would simply flow through to the budget bottom line.

The wine equalisation tax will raise $1.02 billion in 2020-21. Wine is so cheap now that the cleanskins and goons are often cheaper than bottled water. Let’s address the health and other issues that alcohol consumption brings and ramp this up by $2 billion a year. No nickel and diming here. The case to ramp it even higher is strong.

The petrol, diesel and other fuel taxes will raise $21.5 billion in 2020-21. With global oil prices and therefore retail petrol prices so low, in fact lower than a decade ago, a hike in the excise rate that delivers and extra annual return of $3.5 billion by 2020-21 would add only a few cents a litre yet give a lot of extra money to be hypothecated against roads and road safety of some other existing cost. Easy.

Bundling the excise on beer, spirits and other alcoholic beverage together yields a tax take of $6.1 billion in 2020-21. How about doubling the various excise rates to yield an extra $6 billion and all of a sudden, the budget numbers are looking rosy, the population will wear it because the revenue is hypothecated against roads and health spending and the political cover is that there are good policies.

These items together, proposed this way, would raise a hefty $13 billion per annum to the budget bottom line. This would go a long way to locking in the surpluses which in turn would feed into a lowering in the level of government debt.

The revenue could also cover spending on education, universities, roads, hospitals and age care, all big ticket items that are growing at a rapid rate.

All of this is, of course, a bit tongue in cheek but it shows how the current budget has been framed and seemingly received. Either tax hikes on ‘bad things’ are good or if they are hypothecated against an item – disability insurance – no one will dare complain. Let’s do more of it while the mood is thus.

With neo-liberal economics all but dead, who’s to say a further round in tax hikes like the ones suggested are unlikely or undesirable? After all, who would have thought that the Liberal Party would be imposing a bank tax and further hike in the income taxes via the Medicare levy in the current budget when, just a few months ago, such things were all but impossible?

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Probably no, but it is a question that will likely dominate the news over the remainder of 2017 and into 2018.

Australia has gone 25 glorious years without a recession, but the risks are building that late 2017 and 2018 will be glum ones for the economy. The extent to which the economy is stuck in the mud will depend on the extent of the housing slowdown, the impact this has on already fragile consumer demand and the policy response of the RBA and possibly the government.

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It’s the Economy, Stupid

Mon, 22 May 2017

This article first appeared on The Adelaide Review website at this link: https://adelaidereview.com.au/opinion/politics/its-the-economy-stupid-australia-turnbull-government/ 

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It’s the Economy, Stupid

Those in power, who are able to pull the economic policy levers, are unable or unwilling or simply unaware of what is happening in the economy and what needs to be done to get the economy back on track to stronger job creating growth.

At every opportunity, the Turnbull government is sweeping economics under the rug while it focuses on terror, laws on racial vilification, rhetoric about ‘hard working Australians’, a blip in energy prices and anything else that means the economy is not discussed. The ‘jobs and growth’ mantra is as sincere and meaningful as a US shop assistant saying ‘you’re welcome and have a nice day’ just after they serve you a miserable coffee.

The other economic policy heavyweight, the RBA, is fixated about house prices in Sydney and Melbourne and continues to leave Australia with some of the highest interest rates in the industrialised world and an over-valued exchange rate. It does this while inflation is entrenched below the bottom of its own target range, real wages growth stalls and the spare capacity in the labour market balloons.

To be fair, there is one economic policy issue that has a substantive proposal behind it – the cut to company tax rates. But the plan to reduce company tax rates is more like a Chinese Politburo 10-year plan and it is of such a scale that it will fracture an already vulnerable budget outlook. And, in any event, it looks like hitting the rocks in the senate as it is expensive, ineffective and unpopular. The key elements of the company tax issue will no doubt slowly but surely sink in the not too distant future.