I am beneficent

Yesterday, to tremendously little fanfare, the Treasurer, Wayne Swan, released his Discussion Paper for the tax summit to take place in October this year. Find the document below.

There is not much point going into the full details of the document. Most of it is framework and fluff. And, really, given the extraordinary pressures that the Australian economy finds itself subject to in the new world order, very disappointing.

I’ll offer a few examples. Here are the discussion questions offered for Business Tax Reform:

Areas for discussion in the business tax session at the Tax Forum might include:

• What is the appropriate business tax system for Australia to maintain business tax revenue and economic growth?

• Are there ways to reform the business tax system that can assist Australia to meet the challenges of mining boom mark II and make the most of the opportunities from the shift in global economic weight from West to East?

• Should the company tax rate be lowered further, and if so, what other reforms within the business tax system might be used to fund this?

• Are there ways to further simplify business interactions with the tax system, especially for small business?

• Should there be more symmetrical treatment of tax losses?

• Should further consideration be given to potential longer-term directions for the business tax system, such as deductions for equity financing?

• Are there unintended or inappropriate concessions in the business tax system that could be removed to help fund priorities elsewhere?

Very short, very broad and completely lacking in macroeconomic ambition. The reason why, perhaps, is made clear a matching and even more spartan list, the Government’s Agenda for business tax reform:

Government’s reform agenda

The Government’s reforms to date include the following key business tax measures:

• lowering the company tax rate to 29 per cent from 2013-14, with small companies benefitting from an early start from 2012-13;

• replacing the Entrepreneurs’ Tax Offset with simpler and more generous depreciation arrangements that allow small businesses to immediately write-off assets valued at under $6,500 and the first $5,000 of a motor vehicle; and

• allowing designated infrastructure projects to carry forward losses with an uplift factor to maintain their value.

The Government will continue to monitor the business tax system to ensure it is as competitive and neutral to decision making as possible.

Perhaps a page is missing.

One point of interest, buried in the state taxes section, was a refugee from the Henry Review, the proposal to shift from stamp duty taxes on property to a broad based property tax:

Stamp duties on property conveyances and land tax

Stamp duties are levied on the transfer of residential and commercial property. They make up a large proportion of state revenue, raising around $12.3 billion — or 23 per cent of States’ own source tax revenue — in 2009-10.

The purchaser of a property is responsible for paying the duty and a progressive rate scale is applied to the sale price or market value (if higher) of the property being exchanged. The rates vary within each State according to the type of property (for example, residential or commercial) and between States. The average rate of stamp duty across States has risen over time from 2.45 per cent in 1993 to 3.25 per cent in 2005, largely due to the non-indexation of the scales in the face of property value appreciation.

Stamp duty applied to the transfer of property increases the cost of buying and selling a home and can have a number of implications for individuals and the economy. Many factors influence decisions about where to live, but these transactional costs can make it more costly for Australians to move location to find work, can make it more costly to upsize or downsize a home as family circumstances change, and can penalise people who move for non-work reasons.

Decisions on relocation of business premises to increase productivity can also be affected by higher costs, although there are clearly other factors that may influence these decisions. By suppressing the number of transactions undertaken in the housing market, stamp duties can also reduce the effective supply of housing.

Land is often argued to be an economically efficient tax base. Unlike more mobile capital or labour, which can avoid taxes by moving or reducing supply, the supply of Australian land will not change. The AFTS review discussed ideas for state land taxes, including whether there should be a broader application with an exemption for land that has a low value per square metre (for example, agricultural land).

I don’t object to this discussion, though I question the reasoning that enabling a greater number of property transactions will make housing more affordable. Only if a land tax also increases the supply of new homes.

But that’s enough griping. Given the void at the centre of our macroeconomic thinking on tax, I’m going to imagine for a moment that I’m an Australian overlord. Perhaps picture me as some kind of provincial Chinese Governor, replete with golden septre and ermine gown (even throw in a towering hat, a la the triple diadem).

In my boredom, I have become interested in tax reform. And although I miss my ancestral home of Hebei Province, I have become fond of my Southern gweilo. They work hard for my GDP statistics and make a fine barbie. It has eased the pain of my exile.

In my wisdom, I decree the following to ensure infinite prosperity for Gweilo Province:

  • a huge resource rent tax, along the lines of that proposed by the curiously bright barbarian, Saul Eslake. Any resistance to the idea will be met with immediate export to the New Zealand front, where the war of resistance to my rule persists
  • a commensurate fall in other corporate tax rates
  • a sovereign wealth fund, that accumulates a portion of the extra revenues in an offshore account
  • huge new tax deductions for research and development and massive write-offs for equipment to boost manufacturing diversification and productivity (that will really upset my manufacturing cousin in Hebei!)
  • total abolition of negative gearing and taxes on savings

Then I will sit back and watch both interest rates and the currency fall to boost all of my competitive measures. My legacy will be the one-speed economy – fast – for my curiously adaptive southern barbarians.

Houses and Holes
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Comments

    • Oh that is frickin’ hilarious!

      Read it and weep Fanboy. If you don’t like it, there’s always New Zealand.

      Bring it on … and can we have alignment of the CGT and tax on savings as well please, or is that included in the “abolition of … taxes on savings”?

      • Read it and laugh – for it will never happen.

        The Beneficent One must respect history and recall to mind the fate of another with Imperial Tendencies, one who foolishly and without regard acted to extort undue taxes from a Glorious and Bountiful province…

        • it will never happen

          We can all fantasise about an alternate reality can’t we? Where evil (raping the Earth) is punished and good deeds (R&D) are rewarded?

          • Lorax, Emperor in Waiting

            May I humbly suggest your footbindings be removed. Such bindings have stunted your vision and led to a deep abiding displeasure that must be expelled, oh please for the sake of the Kingdom.

            You would do well the meditate on the beguiling pleasures of life, the comforts of your existence, the many rewards that truly do flow to ingenious creations.

            ‘Everything has its beauty but not everyone sees it.’
            Confucius
            Chinese philosopher & reformer (551 BC – 479 BC)

            With growing affection
            China Fanboy

  1. Whilst most of your wisdom would seem to have great merit and with only one coffee consumed may I add and disagree.

    Can you please add a proposal to equalize capital gains tax ie whatever the rate 0, 10 or 15%,eliminate any exemptions?

    Secondly, and whilst my humble opinion a SWF is no way necessary, can you please in your wisdom suggest, how it is to be managed, distributed and be protected from government theft?

  2. H&H, good list of decrees there.

    Imagine the baying of any real ‘overlord’ reading the above list now.
    On the topic of Labor’s ‘Business Tax Reform’ – why do politicans continue with this charade?
    Labor revealed its hand just over 12 months ago with their response to the Henry Taxreview. What was it again – 132 or 135 recommendations rejected (in dot point media release) and one idea accepted that was not even a recommendation in the first place.

    Labor is too populist to manage any meaningful change, Libs too self-absorbed to chose one.

  3. And I for one, welcome our new overlord of Gweilo province.

    If you could throw in welfare reform (e.g abolishing FBT A and B and ‘replacing’ with zero MTR up to $50,000 – i.e a PAYG tax payer pays no tax until they earn more than $50K a year) we would have some magnificient productivity gains.

    Oh and double GST to 20%, include online goods as well.

    If it pleases…..

    • GST on online purchases? The devil is in the details … will my 99c iPhone charging cord from HK be taxed? It would cost more to administer the tax on some items than it would bring in.

  4. What’s a week without a new tax from this government?

    I’d be happy if they could sort out the tax system, but I have no faith in them to do so. All I can see is more taxes that will make my life more expensive.

  5. A commensurate fall in all other company taxes. Unequal and unfair. Clearly you jest.

    • Fanboy, the non-resource companies pay a huge tax called inflation and artificial currency appreciation that goes WAY above the MRRT/state based resource rents that resource companies pay.

      Raising the RRT and lowering the corporate tax (including on the resource companies) balances this equation and then makes the whole economy robust to external change.

      Robustness is more important than profits.

      • Desert Dust and Digging Red Rocks

        Wouldn’t an easier start be to get the states to align the royalites. Then reduce state transfer payments.
        In the past state royalties began a race to the bottom, and have very few incentives to raise them now, as transfer payments get cut.

        Keep in mind that inflation and artificially high currencies have in the past had a number of other causes, most notably agriculture, interest rates and services (education/tourism/visas).

  6. Didn’t someone make the point recently that with Australia running persistent current account deficits, there is no surplus to fund a SWF so it would result in greater debt.

    We’re not Norway…

    http://www.google.com/publicdata/explore?ds=k3s92bru78li6_&ctype=l&strail=false&nselm=h&met_y=bca_ngdpd#ctype=l&strail=false&nselm=h&met_y=bca_ngdpd&scale_y=lin&ind_y=false&rdim=country_group&idim=country_group:001&idim=country:NO:AU&ifdim=country_group:parent:&hl=en&dl=en

    • Yes – the point was made by Montgomery Burns/Breaking Bad aka Different China Fanoy.

      Had resulted in me completely changing my thinking on that one.

      • That’s a good point on Norway’s fund. But I wouldn’t be rushing to emulate Singapore’s decisions. You could make a lot of money investing against Temasek’s decisions.

        • Different China Fanboy

          Yeah I’ve made that point a few times. Hard to keep track of it cause I change my name each week 🙂

          I actually was thinking about it again last night when I heard the treasurer (wally walpamur) talking about the strongest terms of trade in 140 years. So one sector (primarily) is accumulating wealth but as a nation, if we run CADs, we are not accumulating wealth.

          Any SWF will have to be funded by either or both of the government and private sectors being further in debt than they otherwise would be.

          • I think this requires a guest post. It is also something intend to discuss at my blog. As I said before “what sovereign wealth”. Terms of trade is simply a ratio of prices, yet we still can’t export more than we import during this once-in-a-lifetime situation.

          • Different China Fanboy

            I’d like to see a guest post by someone who pulls apart the national accounts over an extended period and explains how e.g. Norway can strike it rich — so to speak — and run surpluses, yet we experience a once in a generation boom and still run CADs.

            What is the cause? Surely Norway import as many flat screen TVs per capita as we do. Are they just making shit loads more from oil than we do from iron and coal?

            Without wanting to blow my own trumpet I have never read or heard anyone else ever question this concept that we have “wealth” which could/should be diverted into a SWF. (people question a SWF, but the notion that we have “wealth” seems to be a given, erroneously IMO)

          • Good idea.

            I’m not 100% sold on a SWF – I prefer a CIS version – personal SWF, i.e superannuation.

            That is, the receipts from the MRRT are placed equally per capita into superannuation funds.

            It could encompass a new idea – that everyone have their own SMSF Number, just like a Medicare number.

            This is an account that you receive at birth, or on immigration and stays with you for life.

            I would vote that any proceeds of an MRRT first go to all Australians under the age of 18. The monies would be invested in savings accounts only (or Research Bonds) until age 18, then able to be invested as see fit (including, possibly, buying a house, starting a business, paying for education, maternity leave etc)

            Just an idea, and I welcome any guest posts to expand on these and other ideas.

          • Different China Fanboy

            Prince that idea might end up a bit like the guy who sold his cow for magic beans. Steve Keens explained how when the soviet union fell apart everyone got shares/vouchers/tokens, whatever you want to call them, in the state owned enterprises. Within a reasonably short period of time boris sixpack had traded his shares (for vodka?) to smarter punters and thus we ended up with multi billionaire oligarchs.

            The closest local analogy would be David Tweed “enticing” people to sell their shares.

            Thus I prefer infrastructure spend rather than giving every punter a few bucks.

  7. Why a SWF? As long as the AOFM needs to borrow approx. $700m per week on average there’s simply no money to put into a SWF!? Unless the SWF is used as a hedge fund to earn more than the ~5% interest that we are paying on the bonds.

    • outsidetrader

      I think the idea was that the Resources tax would be raising a lot more money under this “benevolant overlord” scenario, and that this additional windfall would be used to both sustainably cut the company tax rate and to create a SWF. I don’t think anyone was proposing that we borrow to finance a SWF.

      This higher resource tax coupled with a lower company tax rate sounds very similar to what was originally proposed by Henry. But then, it’s hardly surprising that a Treasury Secretary can design a better tax system than a politician 🙂

  8. Take me with you HnH, your lordship, to the province you describe.

    You can make me your minister for housing affordability and gambling regulation ; )

  9. Eliminating stamp duties in return for a broad-based land tax is a sound proposal. Why should a young growing family be penalised half a year’s income for the privilege of upgrading from a shoe box apartment to a family home? Similarly, why should an older empty nester couple be penalised for downsizing from a large under utilised family home into an apartment (freeing-up said home for a growing family)?

    The bottom line is that stamp duties severely distort the housing market by helping to create a mis-match between the demand and supply for various types of housing, as well as unfairly punishing people that need to move due to changed circumstances (starting a family, job relocation, downsizing, etc.). It is a highly inefficient and inequitable tax that should be abolished.

    • +1 When we moved to WA, stamp duty was equivalent to 2 years rent.

      Stamp duty emboldens housing bubbles – because its one part of many “taxes” (particularly inflation) that REQUIRE capital gains as part of your investment process, instead of relying upon good old fashioned rental income…..

      • Prince,

        I agree with the idea of removing stamp duty on property transfer – BUT – one can’t help but wonder whether the elimination of same might not simply result in a corresponding increase in the asking price?

        It happens every time with FHOGs.

        If they are going to do it, they’d better do it quick, for two reasons.

        1. At present, with falling (oops!) prices, it would be way more difficult to jack up the asking price, and,

        2. Any procrastination in the changeover process will result in a lot of potential buyers sitting on the fence waiting for the despised stamp duty to go. In places like our beloved Qld, that could result in standing-room-only on the fences 🙂

        Of course, 2. could be a blessing in disguise in respect of affordability in the long run.

  10. Dear great overlord. Firstly I like your hair..

    Secondly I would like to see the measure that is used to set interest rates re-adjusted to include all items as they sit as an actual proportion of household budgets.

    In that way interest rates will naturally push against consumer driven speculative bubbles in the economy.

    If it pleases you, obviously..

    • How about just including house prices in the CPI basket, instead of imputed rent?

      Easy for the RBA to manage (particularly if they lower their inflation target to 1-2%) and easy to add – the ABS Capital City indicies should do.

      • I couldnt agree more, including housing in the CPI would as the democrats used to say “keep the bastards honest”. Its criminal that they dont already include it considering that a large percentage own their own home.

        Back to reality for a moment though, for as long as the states rely on the housing bubble for revenue and housing is arguably the largest driving force of our economy I cant see our Supreme overlord’s plan for no taxation on savings happening. The taxation on savings has driven god knows how many investors to invest in real estate which has been one of the driving forces behind the current bubble.

        You take away the double digit growth from housing and taxation from savings the housing market would fall apart within 18 months as investors would take their money straight to the bank and get 6-8% in a term deposit with little to no risk. The increase in deposits would also make off shore funding much less necessary for the big 4 therefore lowering the banks funding costs.

        In my opinion its a great plan that would cause the gatekeepers of the current economic system to fall and those who bought at the height of the bubble to have underwater mortgages. However in the long run it would mean affordable housing, lower interest rates, lower inflation (due to people saving more and spending less due to favourable rates and no taxation) and just an overall more resielent economy.

      • Princely One

        Had housing prices been included in CPI that past decade…where do you think we would be now. If you please.

      • Very interesting question. I haven’t done the empirical research, i.e to reweight the CPI based on the 8 Capital City ABS index to get a new “H-CPI”. It wouldn’t be that hard to do really….but time consuming.

        But let’s pontificate: if housing makes up say 30% of household income, and if houses have risen 7.8% a year on average in the last 10 years, than the additional cost to the household would be an extra 2.3% added to CPI.

        So instead of being slightly above the target band, the average inflation would have been circa 5-7% p.a

        Again, these are assumptions – I could be wrong, don’t have time to go over the data.

        But if the RBA was staring at 5-7% inflation, don’t ya think interest rates would be kept a lot higher? Say 10-12%?

        Then we wouldn’t have had a “one off structural adjustment” – and house prices may have risen only slightly (say 2-3% a year, still too high, but better than 7%) and we would likely not have over $1 trillion in residential mortgages….

        Again, its an unknown known, but an interesting question. For mind, I thought it was a no brainer to include housing prices (actual selling prices, not just imputed rent) in the CPI basket, but remember, CPI DOES NOT MEASURE COST OF LIVING. It measures “something”…..and its not inflation either….

        • Princely One

          Your initial view would appear to be in concordance with my own – harmonious tidings.

          Interesting to ponder.

        • +1 Excellent Comments.

          That said, the timing of introducing house prices into CPI should be delayed until after prices fall significantly. e.g. Falling house prices would lower CPI and may lead to lowering of interest rates.

          • Excellent point that we seemed to overlook. The government really should be considering some of what our glorius leader H&H has to say, it may mean short term economic pain but in the long run it means a stronger more prosperous Australia. Vote for H&H Dictator for life :p

        • Good insight. If land/house cost inflation in CPI calcs then there would be in effect a kind of feedback loop into land prices.
          RBA would be required by its charter to increase interest rates to moderate RE prices.

    • I could be wrong, but it looks suspiciously like he has his hair done in a PIIG-tail 🙂

  11. Make the local government authorities responsible for collecting the tax and delivering the services and getting rid of the middle tier of government that relys on royalties and stamp duties. Have the local government rewarded for efficency not for locking up developing land.
    Increasing land tax for non productive land , ie rural land that has no crop or herd, or developers land banking or speculators sitting on blocks of land for years.

  12. I have few comments:

    1. It is well know that “corporate tax rate“ is the marginal tax rate for the wealthy. Lowering corporate tax means lowering marginal tax rate for the rich.

    2. It seems that our government is aware that “housing party” is over and big stamp duty revenue driven by property speculations is going to fall as turnover falls. They also expect less tax from the wealthy (see No1). Broad property tax (USA style) will do what they want. It will create steady income flow that it will come mostly from the middle class not the wealthy (property price to income ratio is much higher for middle class households)

    Both points will be easy to sell to the public. First one will probably go with the “job creator” card. The second one will be much easier to sell to middle class using “rich will pay more because their house is more expensive”.

    Property tax will lead to massive downgrading by BB generation. This will hit higher end property prices but likely push up low end property prices. So, lower middle class people will suffer more as they do after every tax change because our corrupt government are working for the rich not for the majority.

    Well done again.

    • Providing interest on primary residence (PR) is tax-deductible, a land tax on PR may be palatable.

      • it would stimulate people to take as high LVR as possible even if have money?

        Paying interest to banks with taxpayers’ money is OK with you?

  13. The impertinence of these many enquiries is outweighed only by their calibre.

    And, as my great forebears, the Romans once said, when in Rome…

    I will therefore deign to answer your pathetic but endearing questions:

    1. I require a resources rent tax to be large enough to slow the mining boom at the margin and pressure the currency as well as reallocate much of the windfall revenues to speeding up other sector investment.
    2. The objective of the SWF is a reverse flow of savings out of Aussie dollars to pressure the currency.
    3. I would give the SWF a constitution that disqualified it from government seizure.
    4. Yes, I would also abolish capital gains concessions for property but phased in on a different time frame.
    5. I would used the savings to double capital gains offsets for business.

  14. There is economics, and then there is politics. Politics tends to win more often than economics.

    The GST of 10% is not going to change as it’s set at the threshold of tax avoidance. If it goes any higher it’ll push more people into the cash economy.

    Look at the list of invitees. The purpose of the ‘tax summit’ is to

    1) Remind the business community they’re getting a tax cut from the mining tax
    2) Remind the charity groups which side of the bread the butter is on.
    3) Bash the state governments for being inefficient.

    I doubt anything will come out of it. The Treasury is very jealous of their power to advice the government, and will shot down any proposal from the outside regardless of merits.

  15. Turn Kangaroo Island into the Isle of Man. Allow Richard Branson tax free residence status in return for an annual fee.

  16. The Treasurer’s paper is yawningly dull.

    As a literary work, its subtext is “We have been working hard on this and have the intellectual, moral and political authority here. But if you care to, see if you can come up with some hints that we have not already considered.”

    But just the same, reform of the tax system is certainly necessary.

    What is obvious, but is not mentioned, is that the tax system we have is the outcome of 100 years of political and judicial contests that have left the states with a lot of the spending demands but a dysfunctional tax base.

    So this is a problem. A big problem. I think a major reform would be for the Commonwealth to hand its fuel excise revenues to the States, in return for which they could radically reform Stamp Duty (ie, they could abolish it completely on the purchase of new dwellings and cut it by 80% in relation to the transfer of other assets).

    The Capital Gains Tax Exemptions/Negative Gearing Deductions should be revamped, so that investors can benefit from one but not both in relation to any property they purchase. Investors can choose at the time of purchase which regime they want to be confined to. This will help keep property prices from inflating over the long run.

    But most importantly, the tax applying to business income needs to be radically cut in order to encourage the creation of new enterprises and to foster business investment. The economy needs to be made more productive and more dynamic. This will rely on investment to improve existing businesses and in new-horizon industries. The single best way to do this is to improve returns to for success – by cutting business tax.

    The rate should be no more than 20% and preferably less than that.

    Finally, personal income tax rates for persons over the age of 60/65 (females/males) should be cut to a flat 15% (above $19k) in order to encourage older workers to stay in the labour market for longer. It’s good for them, good for the economy, good for the budget too.

  17. A property tax?

    If you think people are annoyed about a carbon tax, there will be open revolt if a property tax is introduced.

  18. “Adam Smith
    July 29, 2011 at 9:16 am

    Didn’t someone make the point recently that with Australia running persistent current account deficits, there is no surplus to fund a SWF so it would result in greater debt.”

    The two things – CAD and SWF – are not inconsistent. The Government can save some of its revenue (in a SWF) and the economy can still run a surplus in its capital account/ deficit in its current account.

    In fact, Australians have been saving and investing abroad (which is the same thing as having an unofficial SWF) all these long years.

    In any case, I am not so sure about a SWF. It is a form of hoarding by the State. If they have all this “surplus” cash, they are either taxing us too much or not investing it in our human and capital resources.

    I feel the need for a Personal Wealth Fund more than anything these days.

    • Different China Fanboy

      The government can set aside a pool of funds at any time and call it whatever it wants. I am not disputing that. But from a literal point of view this pool of funds doesn’t represent sovereign wealth if the country is running a CAD. By definition there is not sovereign wealth being accumulated when you are running CADs.

      We run CADs therefore the net government and private sectors are in deficit. So while the goverment can tax miners more or do this or do that it doesn’t change the fact tnat the net government and private sectors are in deficit.

      Norway, Singapore and so on run current account surpluses. Thats is why they have SWFs, as a nation they are accumulating sovereign wealth. As a nation we aren’t.

  19. Gavin R. Putland

    john cage: “Broad property tax (USA style)”, known in Victoria as capital-improved-value (CIV) rating, is an unmitigated disaster because it penalizes building. The arguments offered in favour of it are spurious, and are designed to conceal the agenda of suppressing construction that would compete with established property owners. See the opening section of http://blog.lvrg.org.au/2011/07/fraser-coast-circumvents-site-value.html – especially the part beginning “Fourth, rating the land value…”

  20. Different China Fanboy

    Regarding SWFs

    current account = (T – G) + (S – I)

    So with a CAD the right hand side must be negative. That means if money is set aside for a SWF we can write is as

    current account = SWF + (T – G – SWF) + (S – I)

    Since the right hand side is negative it follows that if money is set aside for a SWF then net government and private sectors will be further in debt than they otherwise would be. Why it works for Norway, Singapore etc. is that they run current account surpluses so the right hand side is positive.

    We run CADs so we are not accumulating sovereign wealth and therefore don;t have net sovereign wealth to put in a fund.

    for a related discussion see this:

    http://www.macrobusiness.com.au/2011/05/saul-reveals-all/#comment-29575

    • A SWF is just a fund that the government controls. You can have one even if you run a CAD. You invest the money in oversea assets so it will not cause inflation in the country, it helps push down the currency, and can be used as a currency hedge as well.

      • Different China Fanboy

        A government can put aside money and call it whatever it wants. I don’t dispute that. If this government does this it can choose to call it a sovereign wealth fund if it likes but it is actually a sovereign debt fund since it would be funded not from national wealth but from national debt.

        • Alex Heyworth

          It might still be a better thing to spend money on than a lot of things the government is borrowing for now.

      • Different China Fanboy

        Shorten would be better off thinking about how government support for housing bubbles benefits Australia.

        I don’t think Turnbull has a clue when it comes to SWF.

        Instead of motherhood statements about needing to save more or governments needing to return to surplus these blokes need to think about why we aren’t running a current account surplus at a time when we have a windfall mining boom.

        When Norways oil runs out they will have 30-50 years (whatever) of accumulated current account surpluses to carry them through. What will we have when the mining boom is over? We will have debt but no more profitable dirt to dig up. So for me the focus should really be on how we can start running surpluses during these years of the mining boom and start actually accumulating national wealth.

        IMO that needs to be the national discussion before any of this other stuff.

    • What about private sector
      (S – I )
      Are you saying that for a SWF even the private sector is in a surplus ?

      Is this the case for Norway and Singapore

      • Different China Fanboy

        The right hand side must be negative by virtue of algebra and accounting. That could means either the government part is negative (T-G, budget deficit) or the private sector part is negative, or both. If you remove additional money from the right hand side and call it a SWF, by definition the right hand side, ex SWF, must be further in debt than it otherwise would be. In aggregate nothing has changed

        (T + SWF – G) + (S – SWF – I)

        where SWF is the extra tax being raised relative to what would otherwise be the case. The whole point is that if a nation is running a current account surplus then money gets set aside for a SWF from the surplus. But when you are running a deficit then setting aside money just makes the remaining part of the economy more indebted. Simarly if we run a CAD and nutjobs succeed in having the government run a budget surplus then the private sector will get smashed.

        If on the other hand mining tax was collected and used for things like national infrastructure build rather than an investment fund, then this would see the money ploughed back into the economy and could be a way of reducing the gap between the two speed economy as well as providing things to improve productivity etc.

  21. Different China Fanboy

    On a related note, and this kind of addresses Alex Hayworths point:

    Exploitation and windfall gains from a non-renewable resource aren’t the pre-requisites for sovereign wealth and therefore for a SWF, e.g. Singapore. However given that one sector of the economy is making a killing from a non-renewable resource I don’t see a problem with the government of the day wanting to price the exploitation of the resource at a higher rate during a period of windfall gains.

    If a mining tax was directed, by legislation, only for things such as national infrastructure, public transport, removal of payroll tax etc. then I’d imagine that this would be in the net public interest. But what if it goes to pink batts, desalination plants, pork barrelling in marginal electorates, funding projects whose principals are directly or indirectly connected to people in power and promise them jobs when they leave politics, and so on?

    In other words in principle a mining tax, on windfall profits, is fine with me however in the hands of corrupt and incompetent politicians I’m not sure that we would be better off in the long run. So for me a vote for a mining tax is kind of like a vote of confidence in the ethics and competence of our political leaders and I would never vote for that.

    It is hard enough to get these people to administer properly what money they currently have without giving them more to piss up against a wall.

    • Although I joined the RSPT protest here in Perth, I was not averse to the being an additional tax on exceptional profits – provided it went into a well-considered carefully structured non political SWF. If proceeds of the tax simply went to general revenue I was strongly opposed to it for all the reasons you mention (I have said that here before).

      Now, I’m not in favour of any additional taxes. A SWF is not going to/can’t happen. Let State governments increase royalties should they wish and let the resource companies continue on. If they make marvellous profits that is their good fortune. Buy shares if you want a part of it.

      It is clear that there is no prospect that an Austalian government of either persuasion would do other than, as you say, piss it up against a wall.

      • Although I joined the RSPT protest here in Perth

        Jesus, I just lost my lunch.

        Do you go to “ditch the witch” anti carbon tax rallies as well, MC’ed by Alan Jones?

    • And another +100 this time. Same for CF.

      We had the discussion on SWF before, and I suggested part of the funds go to infrastructure, but I got shot down. There has to be a way, but??

        • Agree indo, but other than the overpriced NBN (which is doubtful IMO) what else are they doing?

        • Different China Fanboy

          correct. You’d have to run the numbers over funding infrastructure via deficits vs taxes. Which would be best in terms of growth, managing inflation etc.

          • You can get the Central Bank to buy your bonds and owe money to yourself. Probably can do it without interest payments. You dont need to send a tonne of iron ore to earn through exports inorder to fund your infrastructure.

            As for inflation I dont think there is a difference if you fund through magic money or if you find through export earnings. In both cases money has entered the economy , if there is any inflationary effects , I would expect it to be the same for both scenarios.

          • Different China Fanboy

            My understanding is that the inflationary effects would likely be quite different.

            If you fund via taxes the taxes act to dampen demand …notwithstanding that the money is returned to fund infrastructure construction etc. but the net money circulating hasn’t changed. If the economy was at or near capacity this would be the preferred option.

            If you fund via money creation the net amount of money has increased. If the economy was at or near capacity this would be inflationary and undesirable. If the economy is below capacity it would not be inflationary and would in that case be the preferred option.

            I’m not an economist but that is my understanding based on the MMT school of thought.

          • IMHO ,I think we are talking the same thing , you spend first and if there are any inflationary outcomes you just tax those flows and remove the inflation. According to MMT, Taxation is an inflation fighting tool and not a revenue source , especially because the government can create unlimited amounts of credit.

            I raise issue with the thinking that funding through an SWF has different inflationary outcomes compared to funding through deficits.

          • DCF, Indo – good discussion, and that covers it other than no political will. Thanks for the positive response.

    • Alex Heyworth

      “It is hard enough to get these people to administer properly what money they currently have without giving them more to piss up against a wall.”

      Hear, hear.