Michael Keating

The ABC says that their decision to withdraw Emma Alberici’s article was because it represented an opinion for which there is allegedly no evidence.  In fact there is plenty of evidence that increasing corporate profits will not lead to any increase in investment or employment and wages if aggregate demand continues to remain weak.  Furthermore this evidence has been endorsed by the IMF, the OECD and others.  Can the ABC cite anyone or provide evidence to the contrary, other than the ramblings of Scott Morrison and the Business Council?  

The following is a repost of Michael Keating’s article of 18 January, Trickle-Down Economics and a Company Tax Cut. (more…)

The forecast positive impact of the Trump tax package mainly results from a temporary incentive to bring forward business investment. This is irrelevant to the cuts in company tax rates proposed by the Turnbull Government, and cannot be used as vindication for their policies. Furthermore, the Trump tax package fails to address the fundamental flaws in the US economy, and in the longer term, has a negative impact on US economic growth.   (more…)

Despite the evidence of the last few decades that ‘trickle-down’ economics doesn’t work, big business and its apologists in the media are calling for a company tax cut to stimulate investment. The reality, however, is that increased investment is principally in response to increasing aggregate demand. The required increase in aggregate demand in turn requires less inequality and faster wage growth, not bigger business subsidies.   (more…)

This Mid-Year review of the economic and fiscal outlook contains no new surprises. However, the balance of risks is  that the outcomes will  be worse than predicted. Clearly on the Government’s own projections, the nation cannot afford income tax cuts in the foreseeable future. Instead what this review reminds us, is just how threadbare this Government’s economic and fiscal strategies actually are. (more…)

The Productivity Commission’s findings regarding the effectiveness of Australia’s public services reflect the findings of many previous reviews. Fundamentally a change of culture is needed in favour of well-calculated risk taking and, I would add, greater independence based on the pursuit of evidence through comprehensive program and policy evaluation.  (more…)

This article, the first of two which discuss the Productivity Commission’s recommendations for more effective government, focuses on how to improve Commonwealth-State relations, and fiscal disciplines and accountability. The conclusion is that the Commission’s recommendations are for the most part disappointing. They fail to take account of the practical difficulties in better matching taxable capacity with expenditure responsibilities, and the extent to which governments are already held to account for achieving budget targets.  (more…)

The High Court has upheld the Government’s decision to use the Advance to the Minister of Finance to pay for its survey of attitudes regarding same-sex marriage, and notwithstanding that funding for this survey was unlikely to gain parliamentary approval.  Furthermore, the Court found that while the Finance Minister’s decision must be “formed reasonably”, he “is not obliged to act apolitically or quasi-judicially” in determining access to the Advance. My concern is that this High Court decision may have tipped the balance too far against parliamentary control of government expenditure, which is a key feature of our democracy ever since Magna Carta. The question we now face is what should and can be done to restore this parliamentary control, while still allowing governments to respond to unforeseen and urgent circumstances? (more…)

Electricity prices are a hot topic at present. Amidst the welter of claim and counter-claim as to what is the cause of higher electricity prices, there has been remarkably little use of the available evidence.   (more…)

This Budget represents a welcome change in direction. Forget the politics, it deserves to be supported. This latest Coalition Budget finally reflects a realistic appraisal of Australia’s fiscal needs.  (more…)

Budget repair was never going to be easy. That is one reason why it has taken so long with quite a few false starts. While some of the individual decisions in this Budget are debateable, overall the quality of the policy changes is good. Probably a greater concern is that some very significant policy issues haven’t been adequately addressed.  (more…)

The Government’s Mid-Year Economic and Fiscal Outlook (MYEFO) released yesterday contains few changes and no surprises. The critical question is whether the path back to surplus is actually credible, especially given the many failed promises in the past. This post examines the government’s economic forecasts that underpin the budget numbers and whether the government’s approach to Budget repair is really viable.

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Almost everyone agrees that Budget repair will only be possible if both the revenue side of the Budget is reviewed as well as the expenditure side. In that context, the tax concessions for superannuation have loomed as a prime target.

Indeed, the Treasury Statement of Tax Expenditures shows that the annual cost of the present superannuation concessions is almost $30 billion and rising. Furthermore, it appears that 37 per cent of the total value of these concessions flows to people in the top decile of the income distribution. (more…)

In a recent article in the Sydney Morning Herald, Ross Gittins pronounced that we are ‘staring at the end of the era of economic reform. It has ended because it is seen by many voters as no more than a cover for advancing the interests of the rich and powerful at their expense.’

Gittins then goes on to cite a lot of evidence that people are disaffected. Thus the size of the support for Trump in the US and Brexit in the UK, and to a lesser extent, the success of minor parties favouring more economic autarchy in Australia, all point to a threat to economic reforms aimed at deregulation and open markets. In addition, Gittins argues that the reform agenda has been captured by the supporters of small government bent on privatising those services that remain funded by government, often with what Gittins claims to be dubious results or worse.

But according to Gittins, ‘the reformers’ greatest failure has been [to] … ignore their reforms’ effect on fairness’. Indeed, ‘at a time when technology and globalisation are shifting the distribution of market income in favour of the top few per cent of earners they’re pushing “reforms” to make the tax system less redistributive’.

There is much that resonates in Gittins critique of the present reform agenda and why it is foundering. Nevertheless, I would like to offer a somewhat different perspective. (more…)

Taxation reform is a continuing and topical issue. With a new government and the need for budget repair I am reposting below an earlier article in the policy series by Michael Keating.  John Menadue

Oliver Wendell Holmes, the great American jurist, is reputed to have said, ‘I like to pay taxes. In this way I buy civilisation.’ However, in contrast to Holmes’ noble ideal, too often today we hear people railing about the burden of taxation, as though it is in some way an unfortunate even illegitimate imposition upon ourselves, our economy, and our way of life.

Lower taxation has been embraced by all political parties without any evidence that, given our already low starting point, less taxation will in fact lead to higher economic growth, let alone pay for itself. Indeed there is no evidence that the advanced economies with high growth rates of per capita income have lower levels of taxation. Nor have past cuts in our income tax led to faster growth, such as when the top income tax rate was reduced from 60 per cent to 45 per cent. (more…)