Michael Keating

At The Australia Institute’s Revenue Summit on Wednesday I presented a paper that showed that the Federal Government’s future economic and budget forecasts are most likely wrong. Instead, I showed why a modest increase in the ratio of revenue to GDP will be necessary over the next couple of decades, if we want to maintain economic growth and a socially inclusive society. Below I summarise that paper. (more…)

The last decade has been characterised by economic stagnation in almost all the advanced economies. But President Trump and Prime Minister Scott Morrison are now promising a rosy future, with the US and Australian economies supposedly returning to past rates of growth. If the two leaders are right that will make an enormous difference, affecting many issues ranging from the mood of their electorate to the future capacity of their governments. But personally I remain sceptical that a return to a sustained higher rate of economic growth is likely, for the reasons given below. (more…)

President Trump’s protectionist policies have been widely criticised and rightly so. What is more surprising is the lack of analysis as to why America has a long-standing trade deficit, and the contradictory and self-defeating nature of President Trump’s overall economic strategy. (more…)

Last week the independent Parliamentary Budget Office (PBO) released a new report on Trends affecting the sustainability of Commonwealth taxes. The key conclusion is that taxation receipts are likely to trend down in future relative to GDP, ‘given current policy settings and recent consumption and structural trends’. On the basis of its detailed analysis of past revenue trends, the PBO finds that ‘there is a likelihood that taxes on consumption will continue to trend downwards, taxes on capital will be flat or trend downwards and an increasing proportion of labour income will be taxed concessionally through the superannuation system’. The PBO then concludes that ‘If these risks to tax receipts eventuate, and in the absence of other taxation reforms, maintaining Commonwealth Government revenue at recent levels as a share of GDP will lead to an increasing reliance on taxes on labour income through the personal income tax system’. (more…)

Last week the Government got its personal income tax package through the Parliament. The Government estimates that these tax cuts will cost the Budget $144 billion over the next decade. The Government has not, however, provided us with convincing evidence that the nation can afford this generosity and how it proposes to pay for these cuts while still returning the Budget to a sustainable surplus. (more…)

The Treasurer wants us to believe that the Government has a credible plan to restore the Budget to a surplus and cut taxes at the same time. This conclusion is based on the projections for revenue, expenditures and the budget balance incorporated in this year’s budget. However, both Ross Gittins and I have separately criticised the credibility of these budget projections. I also agree with Gittins’ conclusion that the ‘Treasurer’s unworthy intention is to leave non-economists with the impression that everything is under control and on the improve’, and even economists and econocrats can be left ‘with a false sense of comfort’ (Sydney Morning Herald, 21 May). In this article I now want to go further than Gittins and show why the Treasurer’s claim that the Government has a credible plan to restore the Budget to a surplus, while also cutting taxes, is demonstrably false.   (more…)

 The topic of economic inequality has become an area of strong research and academic interest , and Fair Share: Competing Claims and Australia’s Economic Future, by Stephen Bell and Michael Keating, published by Melbourne University Press,  adds to an illustrious group of authors who have tackled this complex subject from a range of perspectives. (These include but are not limited to British economist Anthony Atkinson; French academic Thomas Piketty;  Austrian historian Walter Scheidel;  American economist, Branko Milanovic; and Nobel prize winner, American economist  Joseph Stiglitz). (more…)

In this final Part 3 of my comments on the 2018 Budget I discuss what this Budget reveals about the Government’s values and priorities, and its performance compared to those targets. (more…)

This year’s comment on the Government 2018 Budget is in three parts. Today, I comment on the proposed tax cuts, which are the signature feature of this year’s Budget. I conclude that there are real doubts about whether those tax cuts are sustainable in the longer-run. The second part of this series discusses why tax relief focussed on low-income earners is desirable and then considers the change in policies required to make that tax relief sustainable. The final Part 3 of the series will consider the government’s overall priorities as revealed in the Budget. (more…)

This article summarises the analysis in a new book, Fair Share: Competing Claims and Australia’s Economic Future, which examines the interrelationship between the stagnant economic growth experienced by most developed countries over the last decade and the increasing inequality in the distribution of income. (more…)

This article considers the future Budget outlook and argues that the key issue for tax reform is how best to raise the additional revenue that will be needed. The article builds on Ian McAuley’s recent post arguing that well-designed taxes can actually improve economic resource allocation, and this article further argues that if the additional revenue is spent on tackling inequality this can increase economic growth.   (more…)

Changes in inequality and in the relationship between wages and productivity help explain the poor economic performance of many advanced economies in this century. Interestingly the Governor of the Reserve Bank indicated that Australia might be facing the same risks of inadequate wage growth, although he felt that ‘Australia’s monetary policy framework is better placed to deal with this world than some others’. (more…)

In Part 1 of this series, posted yesterday, the conclusion was that restoration of a sustained Budget surplus would require a combination of expenditure cuts and tax increases. This second Part 2 finds that the projected swing from Budget deficit to surplus requires a swing of 3 per cent of national income. It then explores the scope for expenditure cuts and tax changes to achieve this swing. The conclusion is that most of the required swing will have to be achieved by a net increase in taxation revenue relative to GDP. (more…)

The evidence suggests that Malcolm Turnbull just doesn’t have the fiscal room to responsibly offer income tax cuts, which means it was very irresponsible to raise expectations in this way. Part 1 in this series of two articles examines the relationship between taxes and economic growth, and the demands upon the revenue to repair the Budget. In the following Part 2, the scope for expenditure cuts and the future of tax reform is discussed. The conclusion is that Australia will need to increase the share of tax revenue relative to GDP.  (more…)