Nobel Prize winning economist, Joseph Stiglitz, has urged the Abbott Government to abandon its austerity drive and increase public spending. From The AFR:
“Australia is in a very good fiscal position… I would have thought the focus should not have been on cutting spending, [and] fiscal stringency, but on investing more for the future”.
“I’d be advocating spending more, not less”…
“Spending money on health, education, making sure that the bottom half of your population, the children, have the nutrition, health and education to be more productive and live up to their potential, seems to me to be first order investments for any society”.
I have great sympathy for Stiglitz’ views. While it is true that the Federal Budget is facing intense structural pressures from an ageing population and declining commodity prices, this does not mean that important investments vital to the nation’s long-term future should be ignored.
A key example is well targeted infrastructure investment, which offers the nation the double dividend of supporting growth and jobs as the mining investment boom fades, whilst also expanding Australia’s longer-term productive base and improving living standards.
Australians should not fear going into debt to fund such expenditure as long as it expands the productive potential of the economy, allowing the debt to be self-liquidating.
Spending more on health, education and other important social programs can also be beneficial, but obviously requires an increase in taxes.
Of prime importance is ensuring that the tax base is broadened and based on more efficient and equitable sources. This requires a shift in the tax base away from productive effort (e.g labour) towards taxes on land, resources, and consumption, along with adequate compensation for the poor (in the case of raising/broadening the GST). It also requires the closure of egregious tax lurks that distort the economy and/or overly benefit the wealthy, such as negative gearing, capital gains tax discounts, superannuation concessions, and tax breaks on company cars.
An adequate tax take, and expenditure on vital programs, are vital elements for a civilised society, and should not be feared by politicians and the public alike.
