Hi Shadow Minister,

Don't disagree with anything you've written.

I have no problem at all with corporate tax cuts; they will help stimulate business growth.

My original point, though, was that the benefits of corporate tax cuts will not flow through to the majority of small businesses.

Define small business any way you want and I'd suggest most of them are not earning anywhere near $2 million a year. The ABS definition (fewer than 20 employees) would capture the many, many small businesses which are single-person, or two-person operations - the so-called micro-businesses which bring in a few hundred dollars a month, virtually hobby businesses. And it would capture many other small businesses which employ a few people but still don't turn over $2 million a year.

I must say that I'm not sure how any government could stimulate such tiny businesses. They are so small that it would probably cost more to stimulate them than would be justified by any result.

Anyway, I think we are in total agreement on the main issues.

Cal,

The 33% that are incorporated make nearly all the company profit, employ most of the workers and are the most likely to invest.

The smallest 50% would more likely to invest with rapid depreciation.

Employment in both sectors would be boosted with the internship plan.

Secondly you are making the typical error that those with no formal accounting or economics frequently make. There is a huge difference between revenue and profit. A simple example, I buy $1m worth of goods repackage them and sell them for $2m. My revenue is $2m, but my profit after cost of goods, packaging costs and labour is probably closer to $200 000. Even then small businesses generally pay themselves the profit as a salary.

Calwest,

The Rudd government's spending kept us out of recession, but it was not grossly excessive. The money's not all gone (much of it was recouped through the tax system) and we have the things the money was spent on.

"How did the pink batts scheme deliver a nett benefit to the Australian economy?"
By reducing the amount of coal and gas the nation needs to consume.

"The over-priced school buildings?"
There's two issues here: the buildings and the prices. It's important to understand that they were not overpriced in the whole country. In WA they were excellent value, as the government thoroughly scrutinised all the contracts. They were quite good value in SA, Queensland and Tasmania. It's only in Victoria and NSW, where the state governments didn't have the capability to oversee the scheme themselves so contracted it out to the private sector, that the buildings were overpriced. There's an important lesson in this: we need capable government not minimal government.

As for the buildings, they reduced the constraints on the number of things the schools could do at once; this enabled them to function more effectively. And it's probably also meant that fewer school buildings have had to be constructed since the scheme ended than would otherwise have been needed.

"The NBN?"
Enables businesses to communicate much more efficiently: increasingly important in the era of Big Data. Also important for consumer services like TV, and great potential for future coordination of appliances to reduce energy bills. In its original form it's a great investment, and taking advantage of existing HFC also makes sense. But FTTN is an idiotic false economy. They fudged the value for money case for it by using a discount rate of 8% when the official interest rate was less than half that. Now it's less than a quarter of that but they're sticking with the dead end technology to retain the illusion that FTTP's a bad investment.

(tbc)

calwest (continued)
"Is there any level of spending which you would think would be prohibitive?"
I don't think there's an absolute limit, but there are some constraints:

Inflation is the first constraint. If too much money is going into the economy, it causes too much inflation. So if inflation gets too high, the government has several choices: put more money into the economy, take more money out of the economy (via taxation) or use interest rates to influence private spending and investment decisions. The fourth option is the generally inadvisable one of just putting up with inflation; technically a fifth option is microeconomic reform, but that's rarely fast enough to be used as a reactive measure. There are also a few options that should not normally even be considered as they're a bigger threat to the economy than the inflation itself. Those include foreign currency borrowing and price controls.

Interest rates are the second constraint. They're used to control inflation, but high interest rates increase the short term bias of business decisions. To enable businesses to make long term decisions to invest in the things that make them more productive, interest rates need to be low. Keeping interest rates ow means that in parts of the economic cycle, the government will probably need to run (and bank) surpluses. This does not depend on debt levels - it applies just as much if there is no debt at all.

Taxation is the third constraint. There are some situations where a tax cut would be better for the economy than a spending increase, particularly when taxes are high.

"As Margaret Thatcher said, sooner or later you run out of other people's money."
Government money is government money, not other people's money. The government may choose to return it to the people (or not take it in the first place) but doing so has economic consequences.

"BTW, I'm sure the RBA will be crushed to hear that you disagreed with their interest rate strategy."
Considering the damage they've done, that's what they deserve. But they really won't care.

I cant help but think about what Donald Trump recently said about the political class, and changing the argument to criticise bankers and economists.

"We can't fix the rigged system by relying on the very people who rigged it".

I think people who deal with financial matters are seriously over-rated bordering on incompetent.
I mean seriously, they deal in numbers, Add, Subtract, Multiply, Divide.
No matter what you punch in, there's only going to be one correct answer.
So how come they can never get it right; how come they don't see financial catastrophes coming and how come they can't build a foolproof system?
To me the system works about as well as it would if they'd just punched in random numbers, which makes them the weak link.

Governments don't create jobs, unless you count the increased jobs at Centrelink and Job Network providers.
Businesses create jobs, the only way government can help is to make businesses more profitable, and people more productive.

It seems as though companies will shop around for countries that offer the best deal, and if they aren't paying next to nothing they'll go elsewhere, and send the jobs elsewhere too.
They don't care how much the Australian worker has to pay in tax as long as they're profitable.
What they also don't realise is that if they ship all the jobs overseas then Australian workers wont have money to spend and all their businesses will fail.

But there's no big skull and crossbones saying we've gone bust.
With the Keynesian's thinking we can spend our way out of it, all we'll be doing in going further down the toilet with an economy 'driven by Centrelink and powered by government debt'.

And you can't sell the future labours of a nation to pay back a debt if there aren't any jobs.

We see a move to where companies pay nothing and workers pay everything.
In this climate we need the country as a whole to be more productive, businesses to be more profitable and we need to get people into jobs, and off welfare.

AC,

" think people who deal with financial matters are seriously over-rated bordering on incompetent. I mean seriously, they deal in numbers, Add, Subtract, Multiply, Divide. No matter what you punch in, there's only going to be one correct answer."

You seriously have no clue. There are so many variables and unknowns that not only do you need to know the maths, you need to know the markets.

Of course companies invest where they can make a profit. All companies are driven by investors such as pension funds etc that pull their money out of a company if it fails to make a profit. Do it several years in a row and the company dies.