Of course Negative Gearing has to go, along with other clever tax rorts and ripoffs!

Negative gearing was supposed to make housing cheaper and it might if it only ever applied to brand new, never ever lived in housing stocks?

And how can any inherently fair minded person, think that giving preferential tax treatment to millionaires super is anything but massively unfair!

And how many family trusts are actually true trusts, rather than completely opaque tax avoidance schemes?

Seriously, these schemes need to be jettisoned in favor of thirty year self terminating bonds.

Which should be the only tax free financial instrument in this country!

And as such, enable our 1.8 trillion dollar super funds to stay at home working for us, on our huge (thirty year) infrastructure deficit!

And given current budget deficits, there is a case for much smaller government.

I mean, can anyone really make a case for keeping a middle tier of double handling government/roadblocks in the path of progress, which only real effect is to make virtually all public service delivery, around 30% dearer?

[Which is what we'd likely save if we instead, opted for a direct funding model and much more local autonomy/voluntary unpaid regional boards etc.]

Seriously, we need more hospital beds, teachers and police persons; not double dipping, double handing, centralizing collecting and collating empire building fat cat public servants; bean-counters!

Better we eliminate potential waste with apples for apples comparative bench marking and best practice!

No one is owed a living, including the most powerful persons in the country!

And this official double handling comes at an annual cost to the taxpayer of around 70 annual billions, (management fees) and that is before so much as a single service is delivered, or legislation enacted.

We are, with just one exception, the most over governed country in the world!

Time to stop trying to justify it and the endlessly growing foreign debt burden it surely creates, and only for personal expediency?

[I'm alright Jack, the rest of you mug out there in Mugsville, can go visit the nearest taxidermist!]
Rhrosty.

Constitutional law expert, George Williams from the University of New South Wales, said the impact of the chaplaincy ruling was rippling through government.

"What the High Court has now made absolutely clear is the Commonwealth can only provide money for programs over which it has authority under the constitution,

The list of federal powers under section 51 of the Constitution "don't include the environment - there is no environment power, there's no general education power and health power".
He said it was possible the first tranche of Green Army projects was unconstitutional but it would require a challenge to prove.

Professor Williams warned the chaplaincy ruling "is going to have an enormous impact in a lot of areas".
"The Commonwealth was of the view for decades that it could spend money on whatever it wanted,

"It used that for a variety of legitimate through to pork-barreling reasons and moved into areas such as education and the environment, arts - all sorts of things without any visible power to do so. And now the High Court has hauled them back again, and this is a big problem for the Commonwealth."

there are any number of countries with small governments and low taxes.

Papua New Guinea, Lebanon, Ghana, Chad, etc.

Wolly B’s observation makes an important point, though perhaps not the one s/he intended. In rich countries like Australia, talk of “big government” or “small government” is in really talk about government that is a bit bigger or a bit smaller than we currently have, often used as a term of abuse rather than an accurate description of a party’s position. No major Australian party has, or would, advocate taking government spending to levels seen in Nigeria, Bangladesh or Sudan (less than 15% of GDP); or indeed in Libya, the Marshall Islands and Tuvalu (more than 60% of GDP).

By and large, richer countries have a larger percentage of GDP spend by government than smaller ones, but the relationship isn’t rigid and the directions of causality are not straightforward.

Many countries with higher government spending relative to GDP than Australia are comparatively poor (Mongolia, Equatorial Guinea, Republic of Congo) while some comparatively rich countries have smaller government (Switzerland, USA). Factors such as culture, history and resource endowment can also affect the relative size of government. In emerging and developing economies of Europe, which are mostly former communist countries, government spending is a much higher percentage of GDP (40%) than Asian emerging and developing economies (27%).

In short, there is probably a floor below which government spending is definitely too low, and a ceiling above which it is definitely too high, but between these I don’t think the absolute level of government spending matters much. How money is raised and spent, and on what, are the key issues, along with prudent budget management.

Mainstream political debate on bigger or smaller government is primarily a matter of degree, and talk of absolute “big government” vs “small government” mostly rhetoric.

_______________________________________________________

I do sometimes wonder if Tristan is a secret mole for the Liberal Party. I can’t imagine much at the moment that would cause the Coalition to win the next election, but a Labor policy to massively increase the tax on superannuation contributions might just do the trick.

Rhian,

I agree with most of what you say here, but not about the superannuation taxation. More than 35% of the benefits of superannuation tax concessions go to the top 10% of income earners, that is, the people who would save for their retirement in any case. This is not an effective use of public money.

http://fsi.gov.au/publications/final-report/chapter-2/super-tax/

Note that poorer people are little better off, and the people in the bottom decile are actually worse off because of the flat 15% tax.

Another problem is that there is no reasonable benefit limit, so that people can squirrel away millions of dollars in a self-managed super fund with only minimal taxation.

I would like to see a system where there is progressive taxation depending on how much an individual has accumulated in super, with a definite upper limit at which all concessions end.

Well Rhian then you're have to include Richard Denniss and John Quiggin as 'moles for the Liberal Party' as well - because they support very similar policies. Though I guess its tempting for those who want to impose a strict division of labour in the Party to see challenges from a rank and file level in that light.

The following are quotes I've provided in my PhD - concerning the fate of German Social Democracy in the interwar period. Relevant for what I see as the present conundrum facing the ALP and similar social democratic parties:

With “strict parliamentarianism”, “the well-informed parliamentary group and its view of policy was to replace the activities of the party as a whole” (Adler in Bottomore, pp 236-238).

Hence, Adler explains:

"Thus there was accomplished one of the most fatal changes possible in a living party, its outcome being the weakening in the mass membership of the readiness for action and responsibility. They were almost drilled to wait first for commands from above, so that they did not have a view of their own; and they regarded all those who formed their own judgements, or were critical, as destroying or splitting the party. (Adler in Bottomore, p 238)"

Rhian talks about there being little difference re: tax between economically advanced countries. So let's be clear what I'm suggesting. I'm suggesting progressive tax go up by 2.5% of GDP in the first term of an incoming ALP Government. 2.5 per cent. I'll explain more in the next post.... So from memory we're at about 30% of GDP going in tax and then to different forms of public expenditure... Compared with Sweden at about 50%... And I'm arguing to raise that by 2.5 per cent.

The sentence:
"The lowest earning household pays 24 per cent of its income in tax and the highest earning household only a little more at 28 per cent."

Come now, who is Tristin trying to kid. It wasn't quite clear who was saying this, the Age or ACOSS, but I hope that no one actually believed those figures.. a lot of work has been done on tax-transfer (as in dole, welfare payments) system .. go and look at the figures for income and company tax versus consumption tax.. there isn't any way consumption taxes could shift the tax system that much.. however, GST does have major problems because of the way it excludes fresh food. A wafu steak ordered at a specialty butcher does not attract GST but a Macdonald's hamburger (the food of the masses) does. Eliminate that exemption and you go some way to fixing the problem that Tristin imagines is occurring

And Rhian re: Superannuation concessions: At a rough estimate - If $20 BILLION of superannuation concessions goes to perhaps the top 10 percent wealth demographic - And the REST OF US ARE PAYING FOR IT - How is it self-destructive for Labor to address this? How is it self-destructive to address the material interests of the vast majority?

And what if that $20 billion goes towards tax cuts for low-middle income earners? Or goes towards a National Aged Care Insurance Scheme - so working class families don't have to sell their homes to provide care for their loved ones? What if it pays for a progressive restructuring of welfare for the sake of fairness - since we have one of the most unfair unemployment pensions in the OECD? What if some of it goes towards Medicare Dental. (finally!) And what if some of that money goes towards 'closing the gap' on life expectancy for the mentally ill? And public provision of communications, energy, water and transport infrastructure - when the alternative is privatisation and user pays which hurts those on low and middle incomes especially....

The real danger here is that the movers and shakers in Labor Unity will get cold feet and decide to only support a policy that takes us *backwards* on social wage and welfare, tax and industrial rights. A modestly progressive/reformist Platform is crucial if Labor is to actually stand for anything. And a progressive expansion of social expenditure by 2.5% of GDP is a modest platform - much more below which would have us relegated to tokenism and rhetoric rather than substance on policy.... Both in the Left and the Right people have to decide what we stand for - and whether a PERMENANT POLICY OF RETREAT is acceptable. Perhaps the Conservatives understand better than we do that determining the framing the terms of public debate and the broad policy parameters is actually more important than actually holding government itself. Something I learned in student politics many years ago - holding office without controlling policy is meaningless and a waste of time. :-(

Apparently Tristan is not the only socialists bleeding heart who failed arithmetic 101 in primary school. It appears Cassandra Goldie is equally bad when doing her sums.

Tristan please explain how Australian middle income people can pay only 20% or less tax, when the government expenditure is approaching 50% of GDP. You tell us we don't tax, or even subsidise all those nasty businesses, so where do they get it from?

Do they get all that extra money from the poor, or the dole bludgers?

Mate if you are going to get anywhere promoting your brand of bleeding heart thinking, you have to stop believing we are all fools. Try telling the truth some time, then put up a reasonable argument, for your ideas. If your beliefs have any validity you will perhaps win some converts.

While you set out to con everyone with half truths, & straight out untruths each time you sit at your keyboard, you will continue to get nowhere, & indeed, only become a laughing stock among real people who can see straight through all that spin.

Divergence

The reforms proposed in the paper you linked to look sensible. My understanding is that Tristan is proposing to remove entirely the superannuation concession. Politically, I think that would be a very tough sell, even if most of the benefits do go to the rich.

Tristan

My focus was mainly on your painting of the Coalition as “small government”. Whatever the rhetoric, historically that has not proved the case – government spending as a percentage of GDP increased under Howard, for example. Historically, it has fluctuated in a fairly narrow band, and it is currently close to its all-time high (37.5% in 2014, second only to 2009 when the post-GFC stimulus was at its peak).

I’m using IMF data on general government spending as % GDP for consistent international comparisons, taking 2014 data as “current”:

http://www.imf.org/external/pubs/ft/weo/2014/02/weodata/weorept.aspx?sy=1980&ey=2019&scsm=1&ssd=1&sort=country&ds=.&br=1&c=512%2C668%2C914%2C672%2C612%2C946%2C614%2C137%2C311%2C962%2C213%2C674%2C911%2C676%2C193%2C548%2C122%2C556%2C912%2C678%2C313%2C181%2C419%2C867%2C513%2C682%2C316%2C684%2C913%2C273%2C124%2C868%2C339%2C921%2C638%2C948%2C514%2C943%2C218%2C686%2C963%2C688%2C616%2C518%2C223%2C728%2C516%2C558%2C918%2C138%2C748%2C196%2C618%2C278%2C624%2C692%2C522%2C694%2C622%2C142%2C156%2C449%2C626%2C564%2C628%2C565%2C228%2C283%2C924%2C853%2C233%2C288%2C632%2C293%2C636%2C566%2C634%2C964%2C238%2C182%2C662%2C453%2C960%2C968%2C423%2C922%2C935%2C714%2C128%2C862%2C611%2C135%2C321%2C716%2C243%2C456%2C248%2C722%2C469%2C942%2C253%2C718%2C642%2C724%2C643%2C576%2C939%2C936%2C644%2C961%2C819%2C813%2C172%2C199%2C132%2C733%2C646%2C184%2C648%2C524%2C915%2C361%2C134%2C362%2C652%2C364%2C174%2C732%2C328%2C366%2C258%2C734%2C656%2C144%2C654%2C146%2C336%2C463%2C263%2C528%2C268%2C923%2C532%2C738%2C944%2C578%2C176%2C537%2C534%2C742%2C536%2C866%2C429%2C369%2C433%2C744%2C178%2C186%2C436%2C925%2C136%2C869%2C343%2C746%2C158%2C926%2C439%2C466%2C916%2C112%2C664%2C111%2C826%2C298%2C542%2C927%2C967%2C846%2C443%2C299%2C917%2C582%2C544%2C474%2C941%2C754%2C446%2C698%2C666&s=GGX_NGDP&grp=0&a=&pr.x=58&pr.y=11

(sorry, that’s a horrible link but it should work)

I’d support measures to make the overall tax system more progressive as part of a program to get the budget back on track – by which I mean structural surpluses (a small surplus on average over the business cycle). But I’m not convinced by arguments that government is “too big” or “too small”; or that any major party is wedded to “big” or “small” government.

Gee Tristian, if only you had told those duds Gillard and Rudd, before 07,
Who knows we may have not seen so much wasted as we did, resulting in the mess we have now.

Dreams are cheap but the one thing that won't change if you get your wish for a change of government, is the bank balance, as it will still be at $0 and the debt will still be there costing us much of our collective taxes just to service, not repay because that's going to be left for future generations.

So where do you propose these fairy tale dollars are going to come from, remembering of cause while Morrison may have stopped the boats, he's still dealing with the fallout from Kevin 07 and it's costing billions, not only in ongoing costs, but in legal fees as well. You really do have quite an imagination there Tristian.

So, negative gearing gets yet another frown, so tell me something that no other opponent has been able to Tristian, if you get your wish and remove NG, where are the renters going to live? And, what do you propose we do for the increased number of homeless as rents will most certainly go up?

Of cause the building industry will also collapse and developers will no longer be in a position to land bank, again putting pressure on land prices, the key component of housing, although a slump in building may put downward pressure on prices, but then who's going to buy an investment with after tax dollars and return a net 3%.

Everyone complains about business not paying it's fair share, however there is one huge difference, while individuals pay their tax first, then claim back their deductions, business claims their deductions first, then pays tax. This causes a huge disparity in the numbers and the media loves it because they hate allowing the truth to get in the way of a good story.

Labor get back in, keep dreaming. You forget people have good (bad) memories of labors mess.

Hasbeen: Ok I was a bit out on my top-of-the-head estimate. Wikipedia has Australian government expenditure (at all levels - local, state, federal) amounting to 35% of GDP - or about $525 billion out of an economy of $1.5 Trillion. If we were at Swedish levels we'd be spending about *$230 billion MORE* than we are currently. Specifically I am suggesting raising social expenditure by $45 billion a year in the first term of a Labor Govt. Note the massive difference - which suggests my policy is quite modest and gradualist. Importantly our expenditure is well ahead of our revenue - So it's true we need to raise tax. But we don't need to do it regressively like Hockey is arguing. And it doesn't have to mean austerity if we have our priorities straight.

Tristan what we need to do is get rid of 45 billion from the budget, not add it. That is before the projected expenditure that the redhead left as a booby trap for future governments of the NDIS & Gonski. They both have to be scrapped, after cutting that 45 billion.

Then we just may have a chance of not leaving our kids up to their necks in our [read Rudd/Gillard] debt.

There is a pretty fair chance that the Greeks will drop their austerity programs after their new government takes power. It will be interesting to see what they do.

They could precipitate the finish for the euro, & perhaps the EU as an entity. If that actually happens we will be in real trouble for quite a while. Fear would cripple markets & investment.

I would not be all that surprised to see our welfare, including the age pensions have to be seriously cut. That could be by sleight of hand, not actually cutting payments, but ripping quite a bit of it back in taxes & charges. I believe we are now at, or just over the apex of the ridiculous welfare society. As with Russia & China, the collapse will ultimately lead to something more sustainable, but it will be at a much lower level than now.

I think you should sit down & hold on, quite soon your world, & mine, will be upside down, & much poorer.

If we had not allowed the welfare community to get so greedy, we may have been able to maintain our conditions of the 70s for ever. Now it is unlikely we will end up that well off.

It has only been cheap energy that has allowed us to feather bed the welfare society. With the greenies, & ratbags like Obama trying to rob us of that energy, watch out the poor.

Hasbeen; I agree that the world could get messed up in a big way. But its not because of welfare. In part its because of private debt. US debt public and private is also a problem. But also there will be competition for the composition of the world order. China for instance is not going to passively accept a middling position in the economic world order. And GFC showed how potentially volatile the finance markets are - and that's not fixed yet either. On the other hand we will see the decline of the oil economy; and the rise of free and renewable energy.

The point of my article was not *only* to defend welfare. You suggest the welfare lobby is 'greedy' - but compare our welfare system with the Nordics and West Europeans... Welfare isn't the problem. Compare our economy with the Nordics. Active Labour Market Programs; intense lifelong learning and reskilling; active industry policies. By comparison Abbott let Australian manufacturing and especially auto wither on the vine. 50,000 jobs gone.

Also consider the potential benefits of a new mixed economy; including natural public monopolies and strategic (ie: not blanket)planning. As I argue in the article - consider the reduced cost structures - which benefit consumers, workers AND business... Resulting both from eliminating unnecessary duplication, as well as cheaper finance, and perhaps subsidies for the broader economy because of lower dividends.

And if there is going to be pain - why shouldn't the pain be fairly shared? Why should the disabled and job seekers be made to pay the price when we have millionaires having their retirements massively subsdised through the current superannuation concessions system? Why favour a regressive GST over progressive taxes? Why not have a fairer mix?

We already had one Great Depression. We almost repeated it with the GFC. Portugal, Italy, Greece and Spain have been in the kind of territory for a long while now. Straight austerity doesn't work. We need to dig ourselves out of debt as efficiently as possible. And that's via a full employment economy. NOT austerity resulting in massive, long-term unemployment.

Tristan and Hasbeen,

Nearly all money is debt; it is borrowed into existence and disappears when the debt is paid off. So there should be gradual, steady increase in the sum of public and private net debt. It's not a bad thing.

We're not up to our necks in public debt; at most we're up to our ankles. And our kids are NOT UNDER ANY OBLIGATION WHATSOEVER to pay it off.

Right now the private sector's reluctant to take on any more debt, so the public sector should be taking on more. Then the extra money the government puts into the economy will increase opportunity for the private sector, which will result in more private borrowing. When that happens it will be time for the government to cut back, but doing so sooner would be counterproductive.

Rhrosty, sorry for not reading your opening post earlier.

Negative gearing. Prior to NG, a land lord would not buy a house unless they could get a 10% return, simply because you could get up to 17% in the bank, although 6-8% was more realistic. So if NG was removed, sure house prices may come down to some effect, but fewer would be built and the banks would most likely revert to the 'don't bother applying unless you have a third deposit', which is how it was prior to the days of non bank lenders. So if houses dropped by say 30%, to say $300,000, buyers would need $100 K plus all legals, and that's just not possible simply because they cant afford 10% of $400K.now.

The other issue woukd be cost of land as it would be higher because developers would be less willing to land bank. Given the approval process is so drawn out, the out of pockets during this process, which are now funded by the tax payer, would then be added to the cost of the land.

Of cause if houses did come down to $300,000 for your average home, I can't imagine renters being in a position to pay $600 per week, and be able to save their $100K deposit.

So despite these issues, the building industry would collapse simply because even with commercial projects, the holding costs during construction are subsidized through negative gearing.

So I seriously doubt negative gearing will go.

What I do think may happen is a 'return to profit test' whereby any negatively geared asset has to be able to demonstrate a profit (become self funding) within a time frame, perhaps ten years. Of cause this would rely on growth, and given the lack of investors, and possible caution from the banks, this may not happen.

Sorry, negative gearing is here to stay in my opinion.

Continued.

Continued
As for family trusts, I have a couple myself and each are audited and no family member can draw an income without passing the eligibility test, with the exception of minors who I think can draw less than $1000 per year. My kids are now adults.

I also think any assets held in trusts, then inherited, should attract inheritance tax.

As for super, our super should never have been opened up to the profit/risk takers because we would have trillions in cash by now and own everything including Testra and our bank.

The whole point is we in deep trouble and most of it has been caused from the waste and mismanagement from the past two labor terms.

While the GFC may have been the trigger for their stimulus, it most certainly did not cause the waste and mismanagement that followed, nor did it influence what will most likely go down in history as the worst blunder from a PM ever, that being K Rudds removal of our border protection laws that worked so well. And if it is the worst, a very clise second woukd be his insulation debacle.

So while Morrison (our next PM in my view) may have stopped the boats, we are still paying the massive costs at the expense of our own tax layers and previous tax payers.

We will most certainly see GST on everything moving forward, even if labor regains office and that's only due again to labors debt.

It seems that whenever somebody wants more money for something they attack super. Tristan, along with many others, claim that super is just a big tax rort for the rich, but how much tax do we actually pay for super? I modeled it on a spreadsheet over 40 years and calculated tax as being 30% of your account balance at retirement.

Most people will have a much lower income in retirement and a 30% tax rate is totally unrealistic. While it's true that a few very rich do very well out of super, the average retiree has paid way too much tax. Any serious reform of superannuation tax would result in less revenue for the government, not more.

Aidan - I accept there is a positive aspect to public debt. It is necessary in order to invest in productivity boosting infrastructure and services. Ratings agencies undermining govts that invest directly in public infrastructure are actually hurting the Australian and ultimately the world economy because they deter public investment in that productivity improving infrastructure and services. BUT PRIVATE DEBT will come back and bite is in the bum. Private debt is not necessarily sustainable OR productivity enhancing. And sooner or later it needs to be paid back.

But re: Superannuation - its not so much superannuation per se I'm complaining about. Its superannuation CONCESSIONS in so far as they publicly subsidise the savings of the Wealthy and the well-off - let's say the top 10% or 20%.

Though there IS a problem with superannuation more broadly too - In that it privatises risk and reproduces inequality in retirement - hurting low income workers and women.....

Tristan, loans will obviously need to be paid back, but new loans will replace them, so there's no apparent reason why private debt can't continue to grow for ever (as a trend) as long as we have increasing productivity and/or falling interest rates and/or some inflation. Far from being a bad thing, our economy depends on it.

But when private debt isn't growing then (unless there's an external surplus) public debt will need to grow. Trying to do otherwise will fail, but will wreck growth in the process.

It depends how much private debt grows in proportion to the ability to service that debt. Debt can increase too much too quickly. Which can lead to a crisis of confidence and a more general collapse. But without debt full stop then things just don't get done. Without debt the productivity enhancing infrastructure never gets done. Also sometimes debt is needed to inflate an economy during times of low confidence; classic Keynesian counter-cyclical investment and expenditure. Really though we would be best off with a more robust mixed economy with aspects of planning which could iron out the economic cycles. We've learned that full planning doesn't work. But neither does laissez faire. We need a hybrid social democratic economy.

Tristan Ewins, private debt is not so much the problem as business confidence.

Big business borrows in the billions, which then employs medium business, who in turn employ small business who employ most of the 'on the grond' workers.

Now if big business can't be assured that interest rates are going to stay level, or that governments won't all of a sudden shift the goal posts, insulation and solar being two such examples, although they wernt so much big businesses that were effected, but many businesses today are cautious of government legislation, essoecially IR policy changes as these can be game changers when encountered mid stream.