Unlike most people, I find economics fascinating. It’s the science of it that first got me interested, which was back in high school. The thought that there were economic mechanisms that if enacted produced reasonably predictable outcomes was a wonder to me. I remember Keating – the man who made economics sexy for a while – talking about levers and buttons and stimulus as if it was a machine. As it became clear even in his time, it is far from an exact science, but that did little to diminish my interest – just the opposite. I came to believe that economics was a science in which human nature, sentiment and the voodoo of international affairs contributed their unpredictable elements.
I’m now at an age when I’ve experienced the application of economic theory for many years, and not just in Australia, but internationally. I retain my interest in it, but have formed my own views on it.
This is apropos recent economic discussion in Australia. I always welcome the conversation, even when it’s superficial, as so often it is. We should be talking about these things. Economic policy should be a matter we all take an interest in. It’s so easy in this political climate to bury our heads and take no notice, but if anything is ever to change than these serious discussions need to be common.
Unfortunately these discussions, as they are, are heavy on polemic and light on substance. And they are always contested, regardless of whether opposition is sincere.
A few weeks ago the company tax rate became a talking point. As tax goes, this is a bit of an old chestnut. The federal government wanted to reduce the rate to 25%, claiming it would make Australian business more competitive and attractive to investment. Most contentiously they claimed it would kick-start stagnant wages growth. The opposition ridiculed that of course, trotting out the line that the government only looks after the big end of town.
One of the arguments trotted out was a variation on the old, and long discredited trickle-down theory – in this case the argument went that if you give tax cuts then business will pass on much of that windfall to employees in the form of pay-rise. This flies in the face of experience. The credo of ‘shareholder value’ (a poisonous credo, btw) means that most gets passed to shareholders, rather than reinvested in the business, or to pay rises (excepting executives). Outside of the government you had such mediocrities like Jennifer Westacott and Tony Shepherd bleat on about it, a sure sign it’s rubbish.
As it happens I support the tax cuts now as I haven’t in the past, though not in the form the government proposes. With drastic tax cuts recently in the US and other parts of the world I think we need cuts to stay competitive. At the very least I think if cuts are to be implemented they should be tied to investment, and encourage wage growth (which is in everyone’s interest), but I would favour something bolder and more comprehensive than that.
Back in 2010/11 the then head of treasury, Ken Henry, produced a massive, detailed and bold proposal to overhaul Australia’s antiquated tax system. It was too strong, and too politically unpalatable for the mealy mouthed politicians of the day, and but a fraction of it was adopted. In the years since it is often referenced, and elements of it are coming into favour, and it is just the comprehensive approach we need.
I think the time has come that we must be bold, and look at left field, revolutionary solutions, rather than evolutionary tinkering. That won’t happen of course, because there’s no appetite for anything bold.
In recent days the Labor party has come up with a controversial policy to do away with dividend imputation and franking credits. It took a little while for me to get my head around this and form an opinion, but when you look at it closely it’s actually amazing to consider that this was ever implemented as a policy. It’s ridiculously lucrative, and extremely costly – and seemingly unnecessary. It’s complex, so I’m not about to explain it here, but fair to say I think this is a bold bit of policy initiative which – with some exceptions – I agree with. The country will be better off doing away with these hand-outs, and I think it’s inevitable they’ll be closed down, whether it be by Labor or Liberal. The only thing I would change is perhaps to incorporate a means testing element, or implement a threshold, as has been rumoured.
For me this would be a part of a larger taxation change that would allow for company tax rates to be cut, potentially to something less than 25%. Why not take the opportunity to get ahead of the curve, rather than forever chasing it? Together with some targeted policies addressing productivity, innovation, investment, in combination Australia would see a net gain to the bottom line, and a more agile economy.