Posted by The comments section of the posts about Reinhart and Rogoff (1 and 2) have turned into something of a debate about Australian fiscal policy. I guess this was inevitable given that Swan is reported to have dropped the surplus for the entire outlook (at least that’s what I think he means!).
Some of the points had me wondering, so i went to check out the new report by the Gratten Institute, Budget Pressures on Australian Governments.
The net of spending and taxing policies is nicely displayed in figure 39 (page number 51 of the pdf) of the publication. This Government has indeed been very busy with fiscal policy: they found ~70bn of savings, and spent ~60bn of it. I’m surprised that there has been any structural improvement at all in the budget.
ricardian ambivalence 
But Abbott has dropped the surplus too, hasn’t it? I saw this movie before, in the old continent.
Presumably this analysis uses the govt’s assumptions about the mining and carbon tax revenues, and does not include the costs of Gonski and NDIS.
Another way to look at this though is that there is $40 billion in new spending in one year! If that had not of occurred then there would be a very healthy surplus indeed!
I’m sort of glad he has dropped it aren’t you. Given he doesn’t have any plans on raising more revenue and has a blood oath to repel certain aspects of revenue (rightly or wrongly) it would be scary if he was committed to delivering the surplus straight up. Not all that surprising either considering he could pledge that australians have to work a 7 day working week and still win the election in september.
Although I have been banging on about revenue I have to say it is rather annoying that this govt is committing big long term spending initiatives in the current climate…maybe gonski and or the NDIS could wait…but then again they would have nothing to talk about.
@ssec sorry if ive come across all pompous…I’ve enjoyed the to and fro.
Enjoyed too, I would not comment otherwise :) I like to discuss openly, it helps my thinking.
For example, RA is a AUD bull, I am a AUD bear, but so far no one has won yet! Although RA says he has got the carry returns.
And we also enjoy the to and fro on the subject.
Robin Hood indeed. Good to see Grattan highlight the growth in health and education spending. There’s lots to cut if politicians have the guts. Bulk-billing for 82% of consultations is a joke. Smaller class sizes for no measurable gain. Child care subsidies rising. DSP rates higher than unemployment.
Negative gearing. Capital gain tax discounts. Superannuation concessions. The list goes on and on and on. Family tax benefits A and B.
I disagree on CGT ‘discounts’. For reasons discussed here and elsewhere, I don’t think capital income should be taxed at all, as it’s a form of double taxation. Even if you disagree with that, the so-called CGT ‘discount’ was provided in place of indexing the capital base. Most investors buying-in 6-7 years ago would now be better off with an indexed cost base rather than the discount.
Ricardo, for lazy people like me, where is the best place to go to see a list of Cwth tax and expenditure items? Such as if I want to see the aggregate spending on DSP or university education or CGT revenues.
It took me 3 hrs to get the data and make the posts from the historical data section of the budget pdfs. I have the sense that tsy makes it deliberately hard. I think you will have to get it from budget paper 2.
Thanks, but that seems to focus on new measures. I think Paper 1 is looking good for it.
Sorry, was ‘shooting from the cuff’ on that one.
The problem I see is that to avoid paying a high tax rate, especially if you are above 30% rate, you buy one or more properties and make them negative geared, so you saved on taxes. Then for the capital gain you make the tax is discounted at 50%, so you are paying 22.5% max if for that year you fall into the 45% bracket. And you can sell one property every year if you have multiple properties. Not only that. If you sell close to retirement, you can put then up to 450k into super and earnings from that will be tax free under 100k p.a. 25k p.a. of contributions will be concessional at 0% tax. If you then organize all of this in a trust (or even multiple trusts), you can distribute your income to multiple members of the family. Basically you never pay the intended > 30% of tax rate.
Basically you try to stream all your income as capital gain instead of “distributions” and “rents” to access the discount just to pay a lower tax rate.
I would be in favor of a flat tax rate (let’s say 30%) but remove all concessions and loop holes.
RA, this is more money wasting from the Coalition too, you should make a post on it !
“New mothers would be entitled to take 26 weeks of leave and still receive their normal working wage, up to a maximum of $150,000 a year, including superannuation contributions.”
What???? Firstly, why new mothers only, what about fathers? Secondly, making up to $150,000 a year???? So someone on 35k receives 17.5k and someone on 100k receives 50k to stay home with their babies? Are some babies more valuable? This is more money wasting and completely ludicrous. If you want to have parental leave paid it should be a fixed amount for everyone. Apparently people on 150k need support from the govt to have babies! Talk about Liberalism.
Agreed, i am totally against paid parental leave in any form. Not sure what more i could say than that!
“Are some babies more valuable?”
That’s what Brendan Nelson famously said when Rudd means-tested the baby bonus! No, some babies aren’t more valuable than others, but some mothers’ time is more valuable than others’. The current paid parental leave policy was grounded in some dodgy analysis by the PC, which found that because children benefit from having their parents home with them, parents should be effectively paid a lump sum to stay at home for the first 18 weeks. How many mothers would go back within 18 weeks in the absence of the bribe is my question and how much incremental harm would that cause. I’m with Ricardo – no baby bonus, no paid parental leave – in fact, I would go further and say no unpaid parental leave. This should be a matter of negotiation. Plenty of lost productivity happens due to jobs being held open for 12 months on multiple occasions as women leave to have two or three kids.
Agreed, a flexible labour market is a better guarantee of employment for women than regulations that raise the cost of their employment.
“but some mothers’ time is more valuable than others”. Maybe… but that’s not for the govt to decide anyway. If that’s the case, I am sure that the private employer has paid well enough already. And if the time is that valuable, really, why paying the parents to stay home?
I think paid parental leave (if affordable in the budget) has its merits. It is a luxury obviously. Baby bonus for low income is OK too IMO. Must be means tested very low. But there are so many causes govt could use its money on.
But DEFINITELY I would not pay someone that is on 100K, 50K on parental leave to have a baby. Minimum salary seems the right choice IF you can afford to have parental leave.
So, you see, both sides are money waster…. the only difference is that the coalition will waste money on entitlements for people on the higher side of the income scale.
No, that’s for the market to decide, which is why it is neutral to pay a proportion of income rather than a fixed lump sum.
The idea here is to help families spend time with their newborns, and on 100K you do not need govt help. The help is the minimum wage which is a basic salary the govt can afford to give you.