US tax guru Dan Mitchell criticises federal debt levy

DanMitchell2Cato Institute economist and former George H.W. Bush adviser Dan Mitchell gave a fantastic presentation tonight to the Queensland branch of the Economic Society on tax avoidance and tax competition. Dan is highly critical of OECD efforts to discourage member countries from competing on tax rates to attract capital investment, which he believes guarantees the perpetuation of fiscal laxity by spendthrift governments. Dan observed that the OECD’s efforts have been encouraged by the drop in tax rates around the world that has occurred since the 1980s as capital has become more footloose in a better connected and more globalised world.

To stimulate economic growth, Dan noted that one of the best policy moves Australia could make would be to cut our highest marginal tax rate, which, with the 2% debt levy, is close to or above 50%, depending on whether the taxpayer has private health insurance or not (see this PwC note). He was highly critical of the debt levy, which is supposed to be temporary. Dan noted, however, how temporary taxes have a habit of becoming permanent. I was pleased to hear Dan’s view on this issue, as I have previously criticised the debt levy:

ABC radio interview on the debt tax and paid parental leave

Incidentally, Dan Mitchell was interviewed on ABC radio by Steve Austin this morning:

Cato Institute’s Dan Mitchell

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Costello right to support drop in $1,000 GST-free threshold for online purchases

I’m pleased to see former Federal Treasurer Peter Costello backs retailers’ call to lower online GST threshold. There is the obvious level playing field argument that Costello makes. Also, with Federal and State Governments facing big challenges in repairing their budgets, it’s important to defend current revenue sources, particularly relatively efficient taxes such as the GST. The strong growth in online purchases has meant that a large amount of GST revenue has been forgone, revenue that would have otherwise gone to State Governments. To reduce this forgone revenue, the Federal Government should lower the $1,000 GST-free threshold that applies to items coming into Australia, a threshold that means a lot of online purchases don’t have any GST applied.

Of course, the Government will need to consider the additional administration costs of applying GST to a larger number of items, and it’s possible that the optimal threshold may be several hundreds of dollars, but the Federal Government (Customs Service in conjunction with the Treasury) would be best placed to undertake the required analysis.

An earlier post of mine on this issue was:

Reaction against retailers’ call for GST on online sales is over the top

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Palmer plan for State split could make sense if part of wider Govt reform

The Palmer United Party’s plan to split Queensland by creating a new State of North Queensland (Palmer MP calls for State split) is worthy of further discussion, particularly if consideration is given to a potentially wider, more valuable reform: the abolition of local governments. There is widespread recognition in the Australian community that, with three levels of Government, we are over-governed. We could reduce costs and duplication and improve service delivery if we created regional governments which would perform current State and local government functions, but over larger areas than current local governments. For example, a regional government looking after South-East Queensland may make sense as SEQ is effectively becoming a 200km City (see Tradies know what it means to live in the 200km City). Of course, any such proposal would require detailed analysis to ensure the proposed entities are economically viable. 

Earlier relevant posts of mine include:

Great new ANZSOG paper recommends two tiers of Government

Not another referendum on local government

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Speech to University of the Third Age Redlands on the Australian Economy

Australian_economy

This morning I addressed the University of the Third Age Redlands at the Donald Simpson Centre, Cleveland on the topic of The Australian Economy: Where we’ve come from, where we’re going. My prepared remarks are reproduced below. I varied the address in the delivery, but the main points are the same. Slides are available via SlideShare.

The Australian Economy: Where we’ve come from, where we’re going

Good morning. You may have seen it reported last week that Australia’s unemployment rate has increased to 6.4%, the highest rate we’ve seen in twelve years, and there is some concern over the short-term economic outlook. There’s certainly a risk that Australia’s dream economic run, of unbroken economic growth for more than two decades, may come to an end if housing construction doesn’t replace the economic boost provided by mining investment in recent years. But it’s too soon to tell how long the weakness in the labour market will continue, or whether it’s a sign of worse to come.

Over the last decade or so, Australians have typically been used to good economic news, or at least better economic news than in other countries. Since the financial crisis of 2008, the Australian economy has been a standout performer among the advanced industrialised economies that make up the OECD. Of course, this was not because our economy has been performing exceptionally, but because we avoided a recession unlike the US, UK and Europe.

Partly this may have been luck, partly good management. There have been arguments about the effectiveness of the short-term fiscal policy response – Keynesian pump-priming through the stimulus packages, incorporating the Rudd money, Pink batts, school halls, et cetera – but there is a lot of agreement that the Australian economy has been made much more resilient through reforms to our economy that have occurred, particularly since the 1980s.

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Unemployment rate is partly a policy choice – cut regulation to create jobs

Upon the retirement of Treasury Secretary Ted Evans in 2001, then Prime Minister John Howard noted:

Ted…has been a leading contributor to public debate, particularly issues of structural reform, such as the functioning of the labour market. He highlighted the importance of labour market reform in improving economic growth and productivity, with flow on benefits to real wages and living standards.

Ted will be forever associated with that memorable phrase; in one sense, we can choose the level of unemployment which we are willing to bear; when discussing economic and social constraints on reducing unemployment. (from the transcript)

As unemployment continues to rise during this period of below-trend economic growth, it’s timely to remember Ted Evans’s observation that, in one sense, we choose the level of unemployment through the policy settings and regulations we impose on the economy. Since unemployment started rising again, I’ve been writing about the need to vigorously pursue reforms that will reduce the cost of hiring people and eliminate regulations that prevent people from pursuing economic opportunities:

Reduce youth unemployment through improved regulation – e.g. of penalty rates, taxis

Minimum wage reduces retail jobs available for young people

After yesterday’s disappointing employment data, it’s imperative that we refocus our efforts on reducing regulations that make it costly or difficult to hire people.

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Unemployment keeps rising as sub-trend growth continues

According to ABS labour force data just released, Queensland’s unemployment rate is now 6.8% seasonally adjusted and 6.5% in trend terms (see chart below). In part, this must be related to the mining slowdown and the sub-trend economic growth we’ve been experiencing.

Unemployment July 2014

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Students to rally against bureaucratic inefficiency

photoWhile out at the University of Queensland today, I picked up the above flyer in the uni refectory regarding a rally against the new Tertiary Transport Concession Card (TTCC), which is designed to ensure only people genuinely studying can claim public transport concessions. I suspect this Card is designed to stop the “students in suits” problem – i.e. where former students use out-of-date student ID cards to claim concessions. While I’m generally against student rallies, which are typically either misguided or ineffective, this one appears to have some justification, as students appear to have been unnecessarily inconvenienced due to bureaucratic inefficiency in processing TTCC applications. As the flyer notes on the other side:

All tertiary students already carry student concession cards to prove that they are studying. Other states like WA and NSW have found solutions to fare evasion that don’t include forcing students to possess a third card that requires students to wait indefinitely after lodging an application. The policy costs the government money to cover administration, and it forces universities to spend student fees on processing TTCC applications instead of on teaching and learning.

Because of delays in processing TTCC applications by universities and Translink, students either have to pay full fare while they’re waiting for a TTCC or fare evade and run the risk of a fine.

What I find interesting about the planned rally is that the students don’t appear to be against the policy intent of the TTCC. The flyer appears to imply the Student Union might support an alternative approach to ensuring only genuine students get concessions, such as the approach in Western Australia, where the Transport Department and universities share data so genuine students can be identified on their Go Card equivalents. This sounds like a reasonable alternative and should have been considered by Translink.

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