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The Forum > Article Comments > Economic gloom for Australia? > Comments

Economic gloom for Australia? : Comments

By Murray Hunter, published 31/7/2015

It is therefore inevitable that the tax base must be widened and taxes increased if the government is to continue meeting its commitments.

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"It is therefore inevitable that the tax base must be widened and taxes increased if the government is to continue meeting its commitments'.

Wrong!

The problem instead is: (1) When Governments were awash with revenue stemming from the mining boom they spent the windfall. (2) Labor politicians are addicted to borrowing and ran up large deficits in what were then good times, and now (in opposition) are blocking measures to reduce the deficit. (3) Governments keep increasing their "commitments". Programmes like Gonski funding increases for schools, the NDIS, government funded Paid Parental Leave, increased spending on Child Care Rebates were all introduced when it was known that the funds were not there to pay for these spends.

The GST was supposed to reduce income tax and replace other taxes like stamp duty. Any relief in other taxes was only temporary so that all we ended up with was another tax and more Government spending.

If the GST is increased to 15% this won't be the last of it. New pork-barrels will be identified and in the fullness of time we will see proposals for a 20% GST or a reintroduction of death duties. Before we know it the public sector will be spending most of what we earn!

What we need is restraint in public spending and not higher taxes.
Posted by Bren, Friday, 31 July 2015 9:38:29 AM
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Bren is right. Politicians are addicted to spending OUR money. When they have gone through it all - purely for re-election purposes - their only way off topping up the pot is to increase taxes and add a few more if possible. Unlike the the rest of us, who have to tighten our belts and cut our spending.

The biggest problem with the economy - as always - is politicans.
Posted by ttbn, Friday, 31 July 2015 11:17:04 AM
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I agree completely with Bren, the last thing we need is any more hand outs. We need to reduce taxes & all government spending, particularly the ridiculous rates of remuneration to top level bureaucrats & quango members. Perhaps a top limit of twice a check out chicks award would be appropriate as the top payment.

We also have to at least stop the increase in all welfare payments, including allowances. If unemployed or pensioners can't manage in Sydney or Melbourne, they should move to somewhere where rents are cheap. I've heard Jandowae is nice this time of year.

Sorry Murray, but I am not sure why you are recommending an increase in immigration. It is the population growth that is destroying our life style, & causing huge requirements in infrastructure spending. We need more people, more tunnels/expressways like a hole in the head.

Most of us oldies can do sit down jobs way past retirement, & a large percentage would love to be still earning. What we don't need is more dole bludgers or short term people soaking up the wealth in the good times. We don't need more places like Perth, where there are more foreign accents than Ozzie ones, or like Fairfield, where it is hard to find an English speaker.

It may be good for the construction industry & bureaucrats, but it is a disaster for the general population.
Posted by Hasbeen, Friday, 31 July 2015 12:06:50 PM
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Self contradictory article displaying economic illiteracy! First whinges about the cost of living, then supports a GST rise which would make that cost much higher!

It has been grossly irresponsible of the Abbott and Gillard governments to pursue a short term budgetary surplus. Australia has unlimited credit; we don't actually need to balance our budget. Surpluses are often desirable to keep interest rates low without an inflation breakout, but short term interest rates are low enough already; it's long term interest rates that could be a potential problem.

Right now we need economic stimulus. At the moment, more government spending would result in more people employed and thus tax revenue (and conversely, cuts would result in less tax revenue so wouldn't make us any better off). The government should spend more now and ease off when the private sector is strong enough to employ more people.

We should focus on things that will boost our future productivity. This does include things like Gonski and NDIS, as well as new railways and roads, a proper NBN and electricity infrastructure.
Posted by Aidan, Friday, 31 July 2015 12:14:54 PM
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Aidian,
you have got it all wrong,
every dollar raised in revenue is paid back to the community at 60 cents (ATO) meaning it is very ineffective at boosting the economy.

Or the government needs to raise $160 million in tax revenue to stimulate the economy by $100 million

That is the ATO is so incompetent at collecting revenue it only has 60% to give government to pay for services (hospitals, roads etc)

Whereas lowering tax it the most efficient way to boost demand. Lower income tax (say an extra $10 a week) means $10 a week extra spent in retailing, food, entertainment or many other private enterprises, who because they are busier, will employ more people.

The effect is $1= $1.

I run a small business and we need to employ another person, yet I am paying over $50000 a year in indirect taxes (fees, levies, council rates, payroll tax, licence fees, registration, company levies) So drop these taxes and many thousands of businesses would employ more people.
Posted by kirby483, Friday, 31 July 2015 1:56:45 PM
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You wouldn't be Greek by any chance would you Aidan?
Posted by Hasbeen, Friday, 31 July 2015 2:37:44 PM
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kirby483,I'm baffled as to how you arrived at the figure of 60 cents in the dollar. WTF do you think happens to the other 40%? You seem to be implying that that's how much it costs to run the ATO, yet if you look in the ATO's annual report you'll see the real cost is about 1%.

The government doesn't need to raise a cent to stimulate the economy by $100 million. Stimulus spending is done by increasing the deficit. But having spent the money, the government will immediately get a lot of it back in tax, as every time the money is spent it boosts either profits or wages. And with fewer people unemployed, the government will save on social security payments.

You're right when you say that lowering tax will boost demand. But whether it's the best way of doing so is debatable – it does very little to improve productivity and it can't be targeted at depressed areas like government spending can. There is a strong case for cutting some of those indirect taxes, but it doesn't make sense for a business to employ more people unless the demand is there.

___________________________________________________________________________________

Hasbeen of course I'm not Greek. But if you look at Greece you'll see proof that government spending cuts when the private sector is weak result in economic decline.

Greece is stuffed! It has limited credit (unlike Australia) because it's in the Eurozone. Their government should've respected the referendum result and rejected the counterproductive deal that was being offered (and reintroduced the Drachma instead). As it is they've not solved any of their problems; merely postponed them for a few months.
Posted by Aidan, Friday, 31 July 2015 3:05:53 PM
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Business does not have confidence or trust in Abbott. The fundamental cause. We need an election to clear the air. The man is subject to saying anything one day and reneging the next.
It's useless upping the GST and lowering tax at the same time. People are very weary of cost shifting, and politicians that tell lies.
Hockey would not be keen to go through another budget, with an extra 100 billion on the books in 2 years so far, you can bet the budget will come in 50 billion extra.
Unemployment is guaranteed to rise sharply next year, no matter what happens this year.
Posted by doog, Friday, 31 July 2015 4:28:40 PM
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After self-funded retirees had the guts sucked out of them paying high income tax rates over their working lives, let's take effectively 5% of their saved nest-eggs by raising the GST from 10 to 15% and lowering income tax rates.

That's taking 50K from someone who's saved a million to get through 30-40 years of retirement without a pension (after recently decided changes).

Meanwhile pensioners and welfare recipients will receive something to compensate for the impost of an extra 5%.
Posted by Luciferase, Friday, 31 July 2015 5:27:46 PM
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Too much them and us and personal greed/greed is good, in most of the posts to identify what should happen.

We are not a them and us but a single nation.

Destroy discretionary spending by any means and you destroy many businesses operating just in the black!

All of whom are impacted by the treatment accorded to the least among us! The cost of living or just doing business could be halved if we could just eliminate the add nothing but his or her demands, profit demanding paper shuffling middleman.

And rather than getting rid of them we seem to be getting more and more of them and their inevitable brokerage fees?

Housing carries far too many passengers to once again ever be truly affordable. Tax and entirely unnecessary compliance costs are far too high to encourage entrepreneurial endeavor! We really do need to study the celtic economic miracle if only to understand what actually created it and what destroyed it!

So as to copy once and avoid repeating the other! we are clearly a large enough country to emulate the best practice success of nations like Singapore, Taiwan, korea, Norway, Sweden, Ireland and Finland.

Forget the politics, just focus on the best practise success and what created it; be it untrammeled free market examples or socialist co-ops/employee shareholders?

We need to embrace long overdue real tax reform and vast simplification! And with that long overdue pragmatism, we also need to embrace cooperative capitalism not rat eat rat extremism/exploitism, that just turns a nation against itself! We need to focus exclusively on what works best rather than vested self interest of set in concrete idealogues; or greed is good self ruining examples.

Nor should we accept the debt is good rationale of folks like Adian who have never seen a deficit they don't like?

There' a way to avoid the predictable economic gloom; it's just not what we are doing now! Or them and us, rationales.

If it's an economic lifeboat, we all need to take a turn rowing or baling!
We just don't need tax avoiding leaners.
Rhrosty.
Posted by Rhrosty, Saturday, 1 August 2015 12:41:08 PM
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Rhosty, your accusation that I've never seen a deficit I don't like is baseless. You don't know what I have and haven't seen! Nor do you know my likes and dislikes, and how they've changed over time as my understanding of economics improved. A decade ago I, like most people, was under the illusion that any deficit the government runs now will result in them having to run a surplus later.

What you mistake for a debt is good rationale is actually an understanding that money comes into existence as debt. In order to have more money, someone else has to have more debt.

It would be possible to totally redesign the economic system so that the government creates money without debt. But as that would fail to acknowledge there's an opportunity cost, it would IMO be inferior to the status quo. The problem at the moment is not the debt itself, but rather the assumption that debt and deficits are bad.
Posted by Aidan, Saturday, 1 August 2015 3:49:02 PM
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Luciferase, it's the biggest scam I've encountered in my life time, 'work hard and invest or save for your future and you will reap the reqrds', yea, pull the other one I say. is it little wonder there is so much fiddling of the books going on.

I have no issues with people having fallen on tough times getting a pension but, when the tough times have arisen from carelessness or wastefullness then I get snakey. But when a government that I didn't vote for wastes so much of our taxes that we have to miss out, I get pissed!

A simple small flat tax on every dollar spent is what's needed, but to simply make the tax payer pay more while businesses get a free ride is simply unfair, and I'm in business myself so I'm not being bias.

No amount of tax increases can combat financial mismanagement and they're all crooked just look at this speaker wasting so much of our money simply because she feels she is entitled to.

That woman has ensured we are still in the race for the bottom when it comes to politics.
Posted by rehctub, Saturday, 1 August 2015 4:40:00 PM
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I wont support any change in the GST without democracy reform.
I believe a balance of power should exist where if they make laws for us, then we make laws for them.
I want them to balance the books by law.
I want them to stop saying they have the support of the people when they don't - preferences should be optional - place a zero.
I want the end of the 2 party system - its just pass the baton.
I want a new electronic platform for voting and campaigning.
I want an end to buying democracy with campaign donations.
I want politicians to start using video-conferences and stop flying around the country in helicopters to fundraisers.
We should give them mobile offices, so they can do their jobs whilst traveling.
I want them to be put in jail with a 3 strike rule when they do the wrong thing, and I want the prison built in advance to remind them the people aren't joking and that they are here to serve us.

How long till the next 'travel rort' saga - will it be their fault or ours?

I don't even know what the Liberal and Labor party's stand for anymore.
Labor supports immigration - Why would the party who traditionally stand up for the Australian workers support immigration at a time when manufacturing in our country is dying?
Or conversely; Why would the party who traditionally supports business oppose immigration when immigration helps keep wages lower and provides overseas workers?

Its an upside down world, and inverted reality.
I won't support any more power or control over our lives and futures without us too having more power and control over their lives and their futures.
Posted by Armchair Critic, Monday, 3 August 2015 10:42:13 AM
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Getting rid of the woman that Tony had unequivical support for has gone, now Tony says she has done the right thing for Australia.

When you think you are confused, you are probably right.
Posted by doog, Monday, 3 August 2015 10:47:27 AM
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Armchair, you don't seem to have thought through that list of things you want. Making preferential voting optional would delay the end of the 2 party system, as the major parties tend to put each other last.

Balancing the books by law would be catastrophic for the economy. It would remove the government's ability to invest in our nation's future. It would exacerbate economic cycles, and more likely than not they'd find the law impossible to comply with as cutting spending would result in declining tax revenue.

And it's austerity, not immigration, which destroys jobs.
Posted by Aidan, Monday, 3 August 2015 12:04:33 PM
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Murray, you state that “It is therefore inevitable that the tax base must be widened and taxes increased if the government is to continue meeting its commitments.” As others suggest, you have this the wrong way round. Here’s a letter I sent to The Australian on the topic on 30/7:

“The first thing to recognize in any tax debate is that activity in the non-government sector is subject to competition which drives customer responsiveness, productivity, cost-effectiveness and innovation; and that government does not face these positive incentives (“Raising the GST is not the answer to the states’ woes,” 30/7). Yet that protected government sector now accounts for 38 per cent – three-eighths – of GDP: a huge proportion of our economy is not subject to the pressures which drive better living standards for all.

“The question is therefore not how to fund an ever-increasing role for government, but how to redefine and reduce its role so that it is less of a drag on the community.”

Maybe more later.
Posted by Faustino, Monday, 3 August 2015 5:15:57 PM
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Hey Aiden,
I must admit I'm not very well learned in the area of 'cause and effect' of financial mechanisms and of fully understanding an economy.
I sometimes make ill-informed or ignorant comments without fully understanding the repercussions of what I am suggesting.

My comment is based on an ignorant 'the principle approach' rather than a true understanding of how things work.
(At least I admit it)

The principle that you don't spend what you don't have.
If you can't afford it, then go without.
That you don't borrow for something that decreases in value.
And that its only ok to borrow for something that increases in value or if you get a return greater than your borrowing costs.
That things never get any cheaper so all you can do is earn more.

Why not create a foolproof system where we stop wasting money on stupid unnecessary stuff and work to pay off debt permanently and always have more money coming in than whats going out?

Why is it good to spend what you don't have?

As for voting and democracy, I think about things that might strengthen fairness and democracy as opposed to systems that dilute or erode it.

- But I admit I never said my ideas were well advised or well thought out.
Posted by Armchair Critic, Tuesday, 4 August 2015 10:08:12 AM
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Hey Armchair,

When the government has more money coming in than going out, it means it's taking more money out of the economy than it's putting in. Sometimes that's a good thing, as too much money in the economy results in inflation. But too little money is even worse, resulting in mass unemployment. And ultimately the money has to come from somewhere, so if you reduce public sector debt you end up with the private sector in more debt. Google "sectoral balances" for more information.

Efficiency of government spending is a separate issue. Obviously more efficient is better, but there's very little agreement on what constitutes "stupid unnecessary stuff".

And our voting system is one of the most democratic in the world. The only thing that keeps Australia dominated by two parties is that most Aussies vote for one of two parties.
Posted by Aidan, Tuesday, 4 August 2015 12:24:06 PM
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Broadening the tax base means the many pay more so the few can pay less. Calls for broadening the tax base therefore originate from the few, even though significant numbers among the many are conned into listening to them.

The current GST was introduced by the Howard Government, bribed by party contributions from the few, in order to fund a 17% reduction in the corporate tax rate. The few - the leaners who pay little or no tax and who include global corporations that pay none at all - have been clamouring for a 50% increase in the GST paid by the many, right down to the most impoverished people in the country who don't even have a home to sleep in.

The Victorian government is a road block stemming the greedy tide for now, as it is honouring a pre-election promise not to support the latest GST grab. Strength to its elbow!
Posted by EmperorJulian, Tuesday, 4 August 2015 1:16:35 PM
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