Mirabile dictu: AFR demands low wage tax cuts

And the world turns! The AFR is now demanding low and middle-income tax cuts to lift demand:

  • We can’t rely on monetary policy forever. The RBA needs to rebuild its ammunition.
  • Fiscal must expand to help the RBA.
  • Tax cuts for income-earners up to $120k can help. A sure way to increase wages.

I agree. Ideally, this would be great. It helps address the growing inequality resulting from house prices.

However, there are a few problems.

Let’s face the facts. Any revived tax cuts discussion will not focus on low and middle-income earners. The conversation will immediately swing towards bringing forward Malcolm Turnbull’s horror high-income tax cuts currently slated for 2024.

Those tax cuts will do nothing for the RBA except make its job harder. Inequality and demand deficit will increase. House prices will probably increase with the rich income windfall as well.

Second, Australia has long pursued a public surpluses and private tax cuts model for growth. But it was funded by booms and busts in commosity prices that meant structural tax cuts kept running into cyclical turns in government revenue. The result was governmant’s secretly raising taxes, contributing to the general deteioration of public policy and probity. The following chart from Gerard Minack tells the tale:

The question is, do we really want to make that mistake again at the peak of the commodities cycle?

I am no starry-eyed devotee of government spending. I know the Feds are a pack of cunce. But, if we’re talking ideal fiscal outcomes that boost demand then we’d be better off investing in infrastructure – hard and human – that can add producivity to the economy for long term income gains.

We have a shortage. The investments become assets on the government balance sheet not just debt. And they are self-funding in the sense that they lift the tax take by expanding produtive capacity.

Moreover, infrastrcuture can be turned off more easily when the time is right. Its add to national building and the political wellbeing of the nation. Unlike tax cuts and secretive gouges.

Houses and Holes
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Comments

  1. Ritualised Forms

    Deep in whatever it is that passes for their souls the Torynuffs know that all the upper end tax cuts in the world arent going to bring about greater demand sufficient to provide a GDP buffer. But paring back the tax shaving of the most heavily indebted people in the world is likely to see them first retrench debt a tad more and then possibly spend more. But the whole idea would leave a nasty taste in their mouths. One of the potential means of bringing something like this about would be some form of welfare payment – a la Family Tax Benefit (so that it can be dressed up as some form of ‘family’ related thing – though it would need to go further) – working on a spend it somehow or lose it type of dynamic. Of course that would line them up superbly for their concerns about debt being passed onto future generations which they presumably will default to should they end in opposition, while at the same time enabling them to take it all away the moment they think they can live with the electoral consequences.

  2. A sure way to increase wages.

    So is a UBI. Yang said he’d pay for it by increasing the capital gains tax.

      • It creates a solid acceptable minimum floor efficiently and allows everyone to be entrepreneurs

          • Wrong …. capital will walk and redeploy to better hunting grounds … or wait till conditions are more favorable … read history.

    • Ugh …. some ill informed ideological opine based on ignorance about sovereign money and some absurd taxation funding scheme. A UBI sets up a permanent underclass, has been advocated in the past with reducing or ending targeted government expenditures for the underclasses, with that a reduction in democracy so the underclasses just don’t vote for increased UBI, its welfare by any other name but in this case your just back out in the market place of ***access*** to good and services whilst capital can now measure you for extraction to the cent in perpetuity.

      Hay here’s a thought … how about we set the price of labour with a JG, provide universal health and education, supply gov funded infrastructure which allows the flow of commerce without unnecessary taxation or tolls, and best of all let currency do its own thing without endless freebees to the haves ….

  3. I know the Feds are a pack of cunce. But, if we’re talking ideal fiscal outcomes that boost demand then we’d be better off investing in infrastructure – hard and human – that can add producivity to the economy for long term income gains.

    The answer to this conundrum is decentralised decision-making about the allocation of resources. The Feds should limit themselves to setting the broad policy parameters and leave the details to those who are equipped to handle them, eg…

    * Attach some window guidance to the TFF, thereby channeling credit into sound investments that create social value.
    * Tweak the laws to incentivise super funds to invest in regional infrastructure.
    * Fund universal childcare to unleash the latent productivity embedded in low/sporadic female participation.

    The Achilles’ heel of such policies is that they produce no ribbon cutting announceables and provide no opportunity for pork barreling.

    • The Feds have a legal mandate set by respective political agency which has been informed by orthodox economics going back decades, hence its a bit of a hash to lay all the blame on it.

  4. I know the Feds are a pack of . But, if we’re talking ideal fiscal outcomes that boost demand then we’d be better off investing in infrastructure – hard and human – that can add producivity to the economy for long term income gains.

    The answer to this conundrum is decentralised decision-making about the allocation of resources. The Feds should limit themselves to setting the broad policy parameters and leave the details to those who are equipped to handle them, eg…

    * Attach some window guidance to the TFF, thereby channeling credit into sound investments that create social value.
    * Tweak the laws to incentivise super funds to invest in regional infrastructure.
    * Fund universal childcare to unleash the latent productivity embedded in low/sporadic female participation.

    The Achilles’ heel of such policies is that they produce no ribbon cutting announceables and provide no opportunity for pork barreling.

  5. working class hamMEMBER

    Change the ridiculously outdated Aust taxation model from individual to family based.
    Every other subsidy provided by the Fed Aust Govt is calculated on a family unit metric, why is a dual income family so heavily favoured? Not only with a substantially less tax burden, but also gifted literally thousands of dollars via Family tax benefits and Childcare subsidies.
    Aust has one of the most discriminatory tax systems in the world when comparing single income vs dual income families.
    Any person who claims that an individuals tax cut is not fair, really needs to look into exactly how much tax is paid by PAYG employees in Aust.
    Actual labour in this country is taxed without remorse, investment on the other hand is given free rein, with loophole after loophole provided for tax avoidance.