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The Forum > Article Comments > A way forward for sustainable government finances > Comments

A way forward for sustainable government finances : Comments

By Paul Bailey, published 16/10/2014

It is time for a new political paradigm to address our chronic budget issues.

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Excellent. I agree with all this. But there is no suggestion how to get Labor to do anything other than it always does - relentless negativity. It was relentlessly negative throughout the Howard Government and doing the same again. They are totally self interested and not interested in what's best for Australia. They cannot be trusted with the treasury benches.

Whereas Howard, as leader of the opposition during much of the Hawke government supported good economic policy, and assisted the government to get good policy implemented, Beasley did the opposite as opposition leader and set the precedent for Labor's decade in opposition to the Howard Government and they are doing the same again now.

Just to deflect the cries that Abbott did the same in opposition, I disagree. He opposed Labors really bad policies and let all the rest through, including many that should not have been let through.
Posted by Peter Lang, Thursday, 16 October 2014 10:20:13 AM
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But it cannot be allowed to once again degenerate in the ever reliant, it's your fault, no it's your fault Dr no etc!
That crap just holds us were we are currently trapped; unable to get the bipartisan support we need to move forward, and get past this very dangerous place!
Every western economy rests on just 2 support pillars, energy and capital!
And given we have privatized both entirely, we are now paying through the neck for both, to the eternal detriment of the staggering punch drunk economy
! We need to wrestle our economic sovereignty from those who have patently purloined it, and with our incredibly obtuse help! Foreign invest is fine, as long as it doesn't come with problematic foreigners, ever-ready to slash and burn.
We have yet to offer self terminating thirty year self terminating bonds, to raise foreign capital, and I dare say, all we could possibly use, to (re)build the missing infrastructure!
The cost of energy needs to come way down, and the only way this is possible is through competition, and govt back at the wheel and in control of some of it.
Namely, thorium generators, and the wholesale production of domestic biogas> electricity.
A better (work smarter not harder) choice; than just sending millions of tons of waste into already hugely polluted oceans.
The byproducts of this production include free hot water/carbon rich fertilizer loaded with expensive phosphate and nitrates. Plus nutrient loaded water, very suitable for an algae oil industry, the waste product of, eminently suitable to underpin a viable and sustainable ethanol industry! And if govt is to invest in anything, it could do a lot worse than very profitable, economy building energy.
Want to wait for private players to do all this for us? Perhaps to the 12th of never!
Continued. Rhrosty.
Posted by Rhrosty, Thursday, 16 October 2014 10:57:00 AM
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After we've clawed back control of, the cost to us, of energy, we need to claw back control of capital.
And to reiterate, we have yet to offer self terminating thirty year self terminating govt bonds, to get us started in that direction!
The issuing authority nominates both the interest/tax impost, (very favorable) and pace of capital reduction.
And just what trillions tied up in hoarded capital is looking for, as a safe (safest) harbor.
Or perhaps we should just sit on our collective hands/handing diminishing preference to a smaller and smaller cadre?
Just so a very small self serving cohort, can very temporally occupy the treasury benches?
At least until the next GFC hits the world, which now has virtually run out of the ammunition needed to fight the next one!
After that, we need to embrace long over due tax reform, (real not Clayton's) which I've written extensively on, in past OLO posts.
So I won't go there again, when all you need do, is click on economics! [I'M ALREADY BLUE IN THE FLAMIN FACE!]
But only if you're are actually interested in a sustainable way forward for govt finances!
A brand new peoples' bank, (franchised) would negate any of the perceived negatives in genuine, long overdue, real tax reform and accompanying massive simplification; as well as creating the very instrument, needed to handle the brand new, guaranteed new surpluses, real tax reform would indubitably create!
We need to think of Australia as a corporation, welded to (yes we can) cooperative capitalism; and every man woman and child, a shareholder!
Posted by Rhrosty, Thursday, 16 October 2014 11:29:58 AM
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This author does not understand modern economic theory and neither does the Abbott Government.

Factory farming, automated machinery and technology generally has displaced a substantial proportion of the population from useful employment and those displaced now lack spending power. There is not enough active spending power to buy all the products the economy is capable of producing. Part of the answer to that problem is to rein in inequality by pushing taxation onto that section of the population who earn that much that they cannot spend it in the economy for any worthwhile purpose.

Negative gearing and franked dividends are a load borne by the younger generation. Shareholders want the risk reducing advantages of limited liability incorporation which treats the corporation as a separate entity but they want the company treated as not being a separate entity for tax purposes. One solution to that problem would be to eliminate company tax (except for a tax on retained profits) and that would eliminate franking credits. Nothing much would be lost and the cost of domestic production would fall. That cost saving could be passed to consumers.

As an example of the effect of franking credits, neglecting levies, I have done the tax calculation on a franked dividend income of $250,000. The franking is $107142.84. Therefore tax has to be calculated on $357142. That calculation is:-
Tax liability = 54,547 + 0.45 X (357,142 - 180,000) =$134,288.

Deduct $107,142 and that means the taxpayer has to write a cheque for $27,146. That is an effective tax rate of 10.86% on an income of $250,000.

An average wage earner pays 35% on his last dollar! What is fair and reasonable about that situation.
Posted by Foyle, Thursday, 16 October 2014 12:59:42 PM
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It's another idiotic article reinforcing the myths that balanced budgets equate to fiscal responsibility and that any debt we run up will have to be paid off by future generations. Both claims would be laughable were it not for the tragic economic mismanagement of those who believe them.

Sovereign currency issuers like Australia have unlimited credit and we can borrow from ourselves. However big a deficit we run, we can even keep our net debt the same because borrowing from the RBA only increases our gross debt, not our net debt. And as future generations retain this option, there's no reason why they'd have to pay our debt off.

In practice we borrow from the bond markets instead but since the early 1990s the Australian government has had the (sensible) policy of only borrowing in Australian dollars, and those dollars all originate from the RBA. The real problem is our interest rates are too high, so banks borrow from overseas instead of from the Rba, and foreign speculators park their money in Australia. Both these things push up the short term value of the Australian dollar at the expense of its long term value.

And if the government runs a balanced budget, the private sector can't run a surplus unless there's an external surplus (and with everyone trying to export their way out of trouble at the same time, that's often impossible.) So if bank lending falls, as it did in the GFC, the best way for the government to respond is to run a big deficit (as Australia did) and the worst possible response is to implement austerity in an attempt to balance the budget (as you can see by looking at the dire economic performance of every country that tried it).

That doesn't mean that deficits are always a good thing. Sometimes, particularly when the economy is going well, it's better to run surpluses to keep inflation low without raising interest rates. But it's the economic result that's desirable, not which side of zero the balance is on.
Posted by Aidan, Thursday, 16 October 2014 4:43:31 PM
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Right on Foyle.
This is part of the problem with a two tier tax system, that taxes those on lower incomes, more savagely than those earning millions!
And then we wonder why there are post code poverty traps, and a homeless population exceeding 100,000!
Shameful in the supposedly second wealthiest economy in the world!
The more we complicate our tax regime with new/extra rules and regulations, the more we seem to assist tax avoidance/the creation of onshore tax havens etc. [Family trusts and generous tax concessions on super dooper super etc!]
We need a single stand alone expenditure tax, that treats all income equally, and taxes every cent of spending, as an unavoidable expenditure tax.
A rate of 18% initially, [adjusted for the savings created,] would would be an impost of just 11% in real terms; and raise some 380 billions from a 1.6 trillion dollar economy.
As the unavoidable nature of the tax welcomed every avoider back into the tax collection fold; the rate could be progressively reduced by around 13%, to just around 5% of all income/profits.
And even then, collect much more NET revenue (20%+) than that garnered by the current system. [And grows with the economy!]
This single system would replace all other tax collection methodologies, [including the ubiquitous cascading GST, and fuel excise, both of which are regressive anti business, anti wealth creation taxes, [that put a real handbrake on the economy,] and are a major part of the tax compliant cost, roughly around 7% (averaged) of the bottom line!
Yes we have a GST; but that can't be applied to international transfers and or, remittances.
Whereas, a bank collected expenditure tax can!
That's exactly what an unavoidable expenditure tax does!
And here we are talking about multiple tens of billions of avoided tax, all of which must be made good by those who currently pay all of our tax!
Posted by Rhrosty, Thursday, 16 October 2014 5:11:42 PM
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