Cutting taxes for the wealthy is the worst possible response to this economic crisis

John Quiggin, The University of Queensland

Australia’s response to the health and economic impacts of the COVID-19 pandemic is rightly considered one of the world’s best. At their best, our federal and state politicians have put aside the sterile games dominating politics for decades.

It seemed possible these efforts might last, as politicians sought to find common ground and make real progress on issues such as climate change, industrial relations and inequality as part of the coronavirus recovery.

But as soon as the virus seemed to be receding, politics returned to the old “normal”. Policies are again being put forward on the basis of ideological reflexes rather than an analysis of the required response to our new situation.

There is no more striking example than the federal government’s reported plan to bring forward income tax cuts legislated for 2024-25. The idea apparently has backbench support.

Those cuts will benefit high-income earners the most. They include replacing the 32.5% marginal tax rate on incomes between A$45,000 and A$120,000, and the 37% rate on incomes between AA$180,000, with a single 30% rate up to A$200,000.

This is being proposed while the government begins to wind back income-support measures, such as free child care, with much more serious “cliffs” fast approaching.

This economic crisis is different

One of the most striking features of Australia’s initial response to COVID-19 was the speed at which the Morrison government abandoned a decade of rhetoric denouncing the Rudd Labor government’s response to the Global Financial Crisis.

In mid-March the government was floating the idea of a tightly limited response with a budget of A$5 billion. By the end of the month this had been abandoned in favour of the JobSeeker and JobKeeper schemes, estimated to cost A$14 billion and A$70 billion respectively. Other schemes brought the total to A$133 billion.

Despite the close resemblance to the Rudd stimulus packages, there was one crucial difference.

The GFC caused a collapse in the availability of credit, potentially choking off consumer demand and private investment. This was the classic case needing demand stimulus.

By contrast, the COVID-19 pandemic caused a shock to the production side of the economy, which flowed through to incomes. Millions of workers in industries such as tourism, hospitality and the arts were no longer able to work because of the virus.

The crucial problem was to support the incomes of those thrown out of work, and keep the businesses employing them afloat until some kind of normality returned. There were problems with the details of eligibility and implementation of the JobSeeker and JobKeeper programs, but the response was essentially right.

Have cash, will buy luxury car

The primary rationale for early tax cuts is that they will stimulate demand. But the economy’s real problem is not inadequate demand – particularly not on the part of high-income earners.

On the contrary, the problem for high-income earners is having a steady income even as many of the things they usually spend on (high-end restaurant meals, interstate and overseas holidays) have become unobtainable.

Among the results has been a splurge on luxury cars. Compared to June 2019, sales of Mazdas, Hyundais, Mitsubishis, Kias, Nissans and Hondas last month were all down. But Mercedes-Benz, BMW, Audi and Lexus were all up.

As Jason Murphy notes, this rush to buy fancy cars isn’t definitive proof the wealthy are looking to ways to spend all the money they’re saving. “But it is suggestive. Eventually the money has to go somewhere.”

The worst possible course of action

The continuing problem with the pandemic is the loss of income faced by millions of workers. By definition, anyone in a position to benefit from a high-end tax cut doesn’t have this problem. Equity would suggest that, far from receiving more income, they should be sharing more of the burden, if not now then in the recovery period.

---

Read more:
Cutting unemployment will require an extra $70 to $90 billion in stimulus. Here’s why

---

When the federal government legislated its tax-cut schedule in advance, critics including Reserve Bank governor Philip Lowe and Access Economics partner Chris Richardson pointed out the danger of promising future tax cuts based on projected growth. The same policy had failed ignominiously in the 1990s when the Keating government legislated tax cuts to be introduced after the 1993 election. After declaring the cuts “L-A-W”, Paul Keating was forced to withdraw half of the tax cuts when the budget deteriorated.

These criticisms have now been vindicated.

The decade of strong economic growth, starting this year, that was supposed to make big tax cuts affordable has disappeared. We will be lucky if per capita GDP is back to its 2019 levels by 2024-25, when the tax cuts are slated to kick in regardless of circumstances.

Once that happens, we will need all the tax revenue we can get to bring the budget back into balance and deal with the continuing expenditure needs the pandemic has created.

The government now seems to be headed for the worst possible course of action – cutting support for those hit hardest by the pandemic while pouring money into the bank accounts of the well-off.

---

Read more:
Forget JobSeeker. In our post-COVID economy, Australia needs a ‘liveable income guarantee’ instead

---

The inevitable result of such a policy will be a surge of personal and business bankruptcies, mortgage defaults and evictions. That will bring about the kind of demand-deficiency recession the tax cuts are supposed to prevent, superimposed on the continuing constraints created by the pandemic.

So far we have all been in this together. For high-income earners that means forgoing tax cuts promised in happier times and contributing more to the relief of those who need it most.

John Quiggin, Professor, School of Economics, The University of Queensland

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Cutting unemployment will require an extra $70 to $90 billion in stimulus. Here’s why

Shutterstock

Brendan Coates, Grattan Institute; Matthew Cowgill, Grattan Institute, and Tony Chen, Grattan Institute

After managing the first stage of the COVID-19 crisis so effectively, the government now faces a bigger challenge: getting us back to work.

The official employment figures indicate the scale of what’s needed. In the past two months number of Australians with a job has fallen by 835,000. Millions more are in jobs kept on life support by JobKeeper.

Employed Australians, total

Includes Australians regarded as still employed because they are on JobKeeper.
ABS 6202.0

The Reserve Bank’s latest public forecast has the unemployment rate peaking at 10% and then falling to 6.5% (baseline scenario) or 5% (optimistic scenario) by mid-2022.

In Grattan Institute’s latest report, The Recovery Book, released this morning, we argue this isn’t ambitious enough.

The case for ambition

The bank and the government ought to aim for something better, closer to 4.5%.

This is the rate it has previously identified as “full employment”, the lowest Australia can sustainably achieve without stoking inflation.

It would mean bringing unemployment down 1.5 percentage points further than it might otherwise fall over the next two years – to somewhere between 4% and 5%.

Projected unemployment with and without extra fiscal stimulus

RBA forecasts linearly interpolated between 6-month intervals. ‘Full employment’ corresponds to the RBA’s pre-COVID estimate, plus and minus one standard error band.
Grattan calculations, RBA May 2020 Statement on Monetary Policy; Lucy Ellis, 2019 Freebairn Lecture in Public Policy

The bank has passed the baton

With the bank’s cash rate already cut to 0.25%, conventional monetary policy (cutting the cash rate) has run out of steam.

Unconventional policy will help.

The Reserve Bank is advancing cheap money to private banks for onlending to businesses, buying government bonds to keep the three year bond rate near 0.25%, and has pledged to keep the cash rate at 0.25% for the next three years.

The bank can and should do more, but the rest will have to be done by government spending and tax measures, so-called fiscal policy, of the kind that has already been proved effective in suppressing unemployment.

We’ll need $70 to $90 billion

We estimate that reducing unemployment by 1.5 percentage points by mid-2022 would require additional stimulus of A$70 billion to A$90 billion over the next two years, equivalent to between 3% and 4% of GDP.

This is on top of the more than $160 billion committed to JobKeeper and other coronavirus supports to date.

Here’s how we make the calculation.

First, to reduce unemployment by that much we estimate that real gross domestic product needs to grow by about 4 percentage points more than forecast over the next two years.

The estimate is based on previous work by economist Jeff Borland. Jeff kindly updated his calculation with us for this article, finding that each one percentage point increase in annual GDP growth reduces the unemployment rate by around 0.38 percentage points.

---

Read more:
Why even the best case for jobs isn’t good. We’ll need more JobKeeper

---

Second, we assume each dollar of stimulus in a particular year increases GDP in that year by between 80 cents and one dollar (some of the rest is saved and some leaks overseas).

This estimate of “fiscal multiplier” is slightly higher than that used by treasury during the global financial crisis but is in line with recent academic work finding that stimulus measures are more effective when monetary policy is out of ammunition.

If the fiscal multiplier isn’t as high – or if the recovery is more sluggish than expected, more stimulus might be needed.

There’s little risk of overkill…

A few weeks ago Reserve Bank Governor Philip Lowe raised the possibility that the crisis had pushed the minimum sustainable rate of unemployment higher, from 4.5% to nearer 5%, on the face of it making a case for less ambition.

His concern was “scarring” – the risk that some of the people who lose their jobs will become so damaged they become unsuitable for future employment, meaning that employers looking for staff would rather bid up the wages of existing workers than employ them, fuelling inflation.

But, if anything, his concern is a powerful argument for spending more, and more quickly, in order to avoid scarring. There’s good evidence sustained high unemployment hurts the economy in the long term.

---

Read more:
The charts that show coronavirus pushing up to a quarter of the workforce out of work

---

And if the extra spending did fuel inflation, it mightn’t be such a bad thing.

Inflation has been below the bank’s target for years. If it gets above it and becomes a problem, the bank can dampen it by raising rates.

…and little time to lose

The extra stimulus will need to be announced soon: on or well before the federal budget scheduled for October. Fiscal measures take time to have their biggest effect.

We are facing a “fiscal cliff” when measures including JobKeeper and the enhanced JobSeeker payment are withdrawn at the end of September. To escape it, they will need to be wound down more gradually, as the international Monetary Fund warned last week.

There are plenty of ways to maintain support including further cash payments to households, along the lines of those in the global financial crisis showed were effective in boosting spending, as well as spending on things such as social housing, roads and school maintenance.

Fear of debt needn’t hold us back

Extra stimulus will mean extra government debt. But the Australian government can now borrow for 10 years at a fixed interest rate below 1%. Adjusted for inflation, that’s a negative real interest rate, making debt more affordable than it has been in living memory.

There will naturally be concerns that further debt will place a burden on younger generations. But they are the generations that will be lumbered with the costs of worse than necessary unemployment, some of it very long term unemployment, unless we act.

In the worst case, they’ll ask why we didn’t do more.

---

Read more:
No big bounce: 2020-21 economic survey points to a weak recovery getting weaker, amid declining living standards

---

Brendan Coates, Program Director, Household Finances, Grattan Institute; Matthew Cowgill, Senior Associate, Grattan Institute, and Tony Chen, Researcher, Grattan Institute

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Why cutting Australia’s migrant intake would do more harm than good, at least for the next decade

It’s easy to blame congestion on immigrants. But it’s really jobs that do it. People flock to where the jobs are, whether they are immigrants or not.
Shutterstock

Peter McDonald, University of Melbourne

Australia’s population is among the fastest growing in the OECD with an increase of 1.7 per cent in 2016-17.

In Sydney and Melbourne traffic congestion has become so intolerable many believe a cut to migration would provide time for infrastructure such as roads and trains to catch up.

Net Overseas Migration was 262,000 in 2016-17, one of the highest levels on record.

They are all compelling reasons to cut the size of the migration program, right?

No, not right. Not at all.

Our migration program is no bigger than it was

Including the humanitarian movement, the government migration program has been set at a near-constant level of a little over 200,000 since 2011-12.

In 2017-18, although the level set in the budget remained above 200,000, the actual intake was 179,000, including an unusually large intake of refugees mainly from Syria and Iraq.

The combined Skilled and Family Streams fell short of the levels set in the budget by 28,000. The reasons for this shortfall are unclear.

‘Net overseas migration’ is different to migration

Net Overseas Migration includes the government program but also other movements in to and out of Australia which both add to and subtract from it.

New Zealand citizens are allowed to enter Australia without restriction. Many people such as international students enter Australia on temporary visas.

Permanent and temporary Australian residents are allowed to leave without restriction.

---

Read more:
FactCheck: is Australia’s population the ‘highest-growing in the world’?

---

The net effect of all of these movements can change the recorded “net overseas migration” in ways that are inconsistent with what’s been happening to the migration program.

If, for instance, the Australian economy picked up and fewer Australians decided to leave for better prospects overseas, recorded “net overseas migration” would increase even if the migration program hadn’t.

The two have been moving increasingly independently since mid 2006 when the Australian Bureau of Statistics changed its definition of “resident”, making temporary residents more likely to be counted in the population and their movements counted in net overseas migration.

---

Read more:
International students impaled on (illusory) population spike

---

Over the past five years, the number of international students arriving has increased every year but there have been few international student departures.

Inevitably, the departures of students will increase in future years and recorded net overseas migration will fall sharply again.

So, forget the near-record official net overseas migration figure of 262,000 – the underlying level of net overseas migration is more likely to be around 200,000. The underlying level of population growth is about 1.4%, and falling.

We’ll need strong migration for at least a decade

A new study by Shah and Dixon finds there will be 4.1 million new job openings in Australia over the eight years between 2017 and 2024.

Over two million of these new openings will be due to “replacement demand”, effectively replacing the retirements from the labour force of baby boomers.

There will not be enough younger workers arriving to fill the gap.

---

Read more:
Migration helps balance our ageing population – we don’t need a moratorium

---

In the absence of international migration and assuming constant age-specific employment rates, the number of workers under the age of 35 will fall by over half a million between 2016 and 2026, essentially because of the small number of births in the 1990s.

It means that without migration Australia would face a labour supply crunch unlike anything it has ever faced before.

Slowing or redirecting it won’t slow congestion

The mismatch of labour demand and supply makes this an extraordinarily bad time to cut migration.

The labour market is at its hottest in Sydney and Melbourne.

Investment contracts involving new employment are signed and the construction of the new transport infrastructure promised in these cities will only increase the demand.

Logic and economic theory tell us that workers move to where the jobs are, and jobs move to where the investors invest.

If, in some way, official migration into Sydney and Melbourne was restricted, the jobs in Sydney and Melbourne would still have to be filled and would go instead to workers moving from the rest of Australia or New Zealand or temporary skilled migrants.

---

Read more:
Three charts on Australia’s population shift and the big city squeeze

---

As a result the restriction would do little to reduce population growth in these cities. It would however, strip other states and territories of the workers they need. It would make the flow of the best and brightest from Adelaide and Perth to Melbourne even bigger.

Diverting, say, 15,000 permanent skilled immigrants away from each of Sydney and Melbourne in 2019-20 would have no impact on transport congestion.

Indeed, it might make it harder to build the required infrastructure, making congestion worse.

We’ll need it to ease a painful transition

Migrants will be needed in order to smooth the looming dramatic and uncomfortable changes in the age structure of our population.

Migrants don’t only do this because they are young; they also do it because, before they themselves grow old, they have had children and grandchildren.

Net overseas migration of 200,000 per annum would give us 6.8 million more people of traditional working age by 2051 than would no net migration, but only 400,000 more people aged 65 years and over.

It would place Australia in a better position to support its aged population than any other country in the OECD.

---

Read more:
Tasmania can’t only rely on a growing population for an economic boost

---

Official studies by the International Monetary Fund, the Productivity Commission and the Treasury find that migration significantly increases income per capita and the government’s budget position.

It does put pressure on Sydney and Melbourne, but some of it can be relieved through diversion of population and investment to the satellites of these cities.

---

Read more:
Migration is slowing Australia’s rate of ageing, but not necessarily in the regions

---

This has already been happening in Victoria. Geelong, Ballarat and Bendigo have each jumped into the list of Australia’s top ten urban growth centres.

The growth of Wollongong and Newcastle has been more sluggish but the NSW Premier has recently announced that NSW will be pursuing a strategy of better linkages between Sydney and its satellites.

Peter McDonald, Professor of Demography, Centre for Health Policy, University of Melbourne

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Research check: we still don’t have proof that cutting company taxes will boost jobs and wages

There still isn’t clear research showing company tax cuts will increase employment or wages.
Shutterstock

Ross Guest, Griffith University

If you read these headlines you might think we finally have proof that cutting company taxes will boost employment and investment:

• Company tax cuts work, according to first-ever ‘real time’ local study
• Small business company tax cuts boost jobs but not wages
• Half the Australian businesses that got a tax cut have banked the cash
• Company tax cuts lift  jobs growth, study finds

These stories are based on analysis of the 2015 company tax cut by consultants AlphaBeta. But the study, as well as some of the media coverage of it, show a worrying misunderstanding of how company tax cuts work.

Simply comparing companies that receive a tax cut with those that don’t isn’t the right methodology to conclude that the 2015 tax cuts created more employment or higher wages.

---

Read more:
There isn’t solid research or theory to support cutting corporate taxes to boost wages

---

Cutting taxes lets companies keep more of their profits, allowing them to invest in new equipment and premises for example. The company then needs to hire more workers to work with these new assets. The newly created jobs require businesses to compete for workers and this increased demand pushes up wages across the entire economy.

Suppose a retail company gets a tax cut and opens a new store. It advertises for workers, many of whom are already employed by a rival store that didn’t get the tax cut. The first company will need to offer the workers higher wages to entice them away. The rival store will need to consider matching the wages in order to keep the workers.

In other words, even workers in companies that don’t receive the tax cut should see a wage rise.

Going through the AlphaBeta report

In 2015, the federal government cut the tax rate from 30% to 28.5% for businesses with less than A$2 million in revenue. Eligible businesses saved around A$2,940 on average because of the tax cut.

AlphaBeta used transaction data from 70,000 businesses to compare businesses just below the A$2 million threshold to companies that were just above it.

The analysis looked at the differences between the two groups of firms in terms of whether they hired new workers, invested in their businesses, increased worker wages, or kept some of the cash as a reserve.

AlphaBeta chalked any differences between companies that received the tax cut and those that didn’t to the company tax cuts.

---

Read more:
The full story on company tax cuts and your hip pocket

---

As reported in The Australian, AlphaBeta found that companies that received the tax cut increased their employee headcount by 2.6%. The companies that didn’t receive the cut increased employment by just 2.1%.

This difference turned out to be “statistically significant”, meaning it is very unlikely to be the result of random chance.

As the Sydney Morning Herald pointed out, AlphaBeta also concluded that 51% of the tax cut was kept as cash, 27% went towards new investment, but only 3% was paid to workers in higher wages.

In other words, wages increased by just A$1.44 per week. This is not only a small amount, it was also found to be not statistically significant.

Problematic methodology

The main issue with this study’s methodology is actually noted by AlphaBeta in the report itself (and echoed in the coverage by the ABC and Sydney Morning Herald).

The problem is that we cannot draw any conclusions about the effect of company tax cuts on jobs or wages by studying a bunch of firms that received them and another bunch that did not, even if the firms are only slightly different.

This is because, as noted above, the effect of company tax cuts on jobs and wages take place in the entire labour market. An increase in demand for labour flows through to all business, and therefore, so do higher wages.

So we should not expect to see wages rising only in those businesses that receive the tax cuts. The finding that an increase in wages is small and insignificant is exactly what we would expect to see from this study.

Another problem is that we do not know whether the characteristics of the companies in AlphaBeta’s sample. Were some industries with particularly pronounced employment or wage increases over represented in one group but not the other, for instance?

Studying the effect of company tax cuts on employment and wages also requires a longer time period – sometimes years – and careful control of other factors affecting jobs and wages in some firms relative to others.

Blind review:

The analysis in this review is generally fair and reaches a sound conclusion regarding the AlphaBeta report. However, the logic behind company tax cut raising wages is somewhat simplified.

A cut in company tax lowers the costs of production and can flow to labour, capital (including equipment and buildings) and consumers. Economics tells us that who actually benefits from a tax cut depends on what is more responsive to the tax – labour, capital or output.

The lower production costs from a company tax cut can lead to greater output and lower prices as consumers buy more goods and services. This depends, of course, on how responsive consumers are to changes in price.

In the short-run labour is more mobile than capital, which is usually regarded as fixed. Therefore, in the short-run most of the benefit is borne by owners of capital (the companies) in the form of higher after-tax profits.

However, over the longer term, companies invest their after-tax profits in the business. So most of the benefit of the tax cut goes to workers though higher wages as the increased “capital stock” (such as equipment) makes labour more productive.

It follows that there is no reason to expect a significant increase in wages over a period of one or two years (as the AlphaBeta report covers). Indeed, such a result would be somewhat surprising. – Phil Lewis

Ross Guest, Professor of Economics and National Senior Teaching Fellow, Griffith University

This article was originally published on The Conversation. Read the original article.

There isn’t solid research or theory to support cutting corporate taxes to boost wages

Fabrizio Carmignani, Griffith University

The argument that cutting the Australian company tax rate will lead to higher investment and wages, more employment and faster GDP growth does not have solid empirical or theoretical backing.

A close look at the economic research in this area shows a lack of consensus. Different studies, looking at different samples of countries, over different periods of time, reach different conclusions.

And the predictions made by theoretical models are sensitive to the underlying assumptions and structures built into the models themselves.

Many of the issues surrounding tax cuts remain unsettled – such as the size or length of the impact, how it affects inequality and the relationship with other government policies.

---

Read more:
Qantas and other big Australian businesses are investing regardless of tax cuts

---

The recent International Monetary Fund (IMF) forecast for the American economy highlights some of the issues.

In short, the IMF acknowledges that the recent US tax cuts will have a positive impact on economic growth in 2018-19. However, this is conditional on the US government not cutting expenditure, is likely to be short-lived, and will come at the cost of increased government deficits.

In this light, corporate tax cuts seem to be a long-term pain for a short-term gain, which is probably not what we need in Australia.

Conflicting information

Let’s start with the point that is probably least controversial – that a reduction in the corporate tax rate will lead to an increase in wages.

Think of the output produced by a corporation as a pie. This pie is shared among shareholders (in the form of dividends), banks and other lenders (in the form of interest paid on loans), workers (in the form of wages) and the government (in the form of taxes).

If we reduce the government’s share then there is more for everybody else, including workers. And some data do suggest that wages increase when corporate tax rates decline.

Yet economists disagree on the extent to which wages would actually increase in response to a tax cut.

Some research suggests that this increase might be small, even in a country like Germany, which is often used as an example of the beneficial impact of tax cuts on wages.

Certain aspects of the German economy and industrial relations system make it more likely that German workers will benefit from corporate tax cuts compared to Australian workers.

In Germany, workers’ representatives sit on company supervisory boards, which monitor and appoint members of management boards.

This means German workers have a stronger say when it comes to sharing the pie. For any given decrease in the slice of the government, German workers are more likely to get a bigger slice for themselves. This is not necessarily the case in Australia.

It is therefore difficult to draw implications for Australia from studies that look at the experience of Germany or other countries with significantly different institutional arrangements.

Furthermore, the fact that wages should increase in response to a corporate tax cut does not automatically imply that other economic variables will also respond positively. For instance, the more wages increase in response to a corporate tax cut, the smaller the increase in employment is likely to be.

---

Read more:
The full story on company tax cuts and your hip pocket

---

This leads to an even more controversial question: what is the effect of corporate tax cuts on real economic activity, such as employment and GDP growth?

The trickle-down effect of corporate tax cuts rests on the idea that business investment would increase once taxes are cut, which in turn leads to the creation of more jobs and faster economic growth.

However, this line of reasoning neglects the fact that investment decisions in today’s globalised world are not necessarily driven by the corporate tax rate.

Many other factors come into corporate investment decisions, such as the quality of institutions, the proximity to important markets, and the cost of labour (wages).

Because of these other factors, the impacts of tax cuts on employment and growth can be small, short-lived, or conditional on other government policy actions, such as managing debt.

In a similar vein, recent theoretical work that incorporates more realistic assumptions about the economy (such as the distribution of entrepreneurial skills in the population) suggests that a tax cut only has a significant impact on economic growth when the tax rate is initially high.

This means that even within a given country, the effect of a corporate tax cut can change depending on initial economic and policy conditions.

Putting tax cuts in a broader context

Beyond growth and employment, the effects of corporate tax cuts should also be considered in terms of deficit and inequality.

From the point of view of the public budget, a cut in the tax rate has to be somehow financed. How?

A first possibility is that the tax cut pays for itself. This is essentially the idea that as the tax rate goes down, the increase in the tax base (e.g. pre-tax corporate profit) is sufficiently large to ensure that the total tax revenue increases.

However, an increase in the tax base would require a significant and sustained increase in business investment, which, as we have already seen, does not necessarily happen.

The government could increase other taxes, but this means the government would effectively be taking from one group of taxpayers (possibly workers themselves) to give to corporations.

Another option is to reduce some government expenditures. But this could also involve taking from one group to give to another. If the decision is made to cut social welfare and public goods like education and health, then more vulnerable segments of the population will bear the cost of lowering the corporate tax rate. This means more inequality in the economy.

Of course the government could decide to just let the deficit be. This would result in higher debt. But can Prime Minister Turnbull (or President Trump for that matter) accept that?

The central economic challenge for Australia is to promote long-term, inclusive growth. Are we confident that this is what corporate tax cuts will deliver? Based on the economic research that I have read, the answer is no.

Fabrizio Carmignani, Professor, Griffith Business School, Griffith University

This article was originally published on The Conversation. Read the original article.

Five ways to kickstart the economy — without cutting company taxes

The Productivity Commission has recommended sweeping changes to how infrastructure is governed.
Shutterstock

Jim Minifie, Grattan Institute

The Productivity Commission has released the first in a planned series of five-yearly updates on productivity in Australia. The report shows that there is much the Australian government can do to boost productivity and living standards.

These include changing how government delivers or controls education and health, and how it manages infrastructure. Interestingly, for the Commission, policy to improve productivity in the private sector (primarily tax and regulation), while still important, plays second fiddle.

The Commission backs up its recommendations in these huge domains by a compendium of analyses spread over hundreds of pages in 16 supporting papers.

---

Read more: Why reforming health care is integral for our economy

---

The Productivity Commission’s review comes amid a period of slow productivity growth in Australia and around the developed world. Fifteen years ago, most economists expected that the internet revolution and the rapid shift of manufacturing to China would, for all the disruption they entailed, sustain strong growth in the rich world. But those hopes were dashed.

A wide range of research has identified many possible culprits for the productivity slowdown. These include mismeasurement, that “easy wins” such as universal education have already been used up, ageing, risk aversion, and a hit to investment and innovation from the global financial crisis.

One of the Commission’s background papers covers many of these contributors to slow growth.

Australian productivity has grown faster than in many other high-income economies since the financial crisis, largely thanks to the mining boom and to our having avoided a deep recession.

But productivity growth has not been strong enough to keep wage growth strong in the face of declining export prices and some broader weakness as the mining investment boom comes off. Getting policy settings right is urgent to reduce the risk that Australia slides into the stagnation that other high-income economies have experienced.

The recommendations

The new report identifies five priorities to revitalise productivity: health, education, cities, market competition, and more effective government.

The Commission’s estimates imply that its policies would eventually boost GDP by at least two per cent, with additional non-market benefits in longer lives and quality of life.

In health, the report recommends changing funding arrangements, cutting low-value treatments, putting the person at the centre of health care, shifting to automated pharmacy dispensing in many locations, and moving to tax alcohol content on all drinks. The Commission estimates that the value of these reforms is at least A$8.5 billion over 5 years.

In education, the report makes recommendations to build teacher skills, better measure student and worker proficiency, extend consumer law to cover universities, and improve lifetime learning, including better information about the performance of institutions. The Commission does not put a dollar value on these reforms.

---

Read more: Myth busting claims on the impact of the company tax cut

---

In cities and transport, the report recommends improved governance to stop poor projects being built, budget and planning practices to properly provide for growth and infrastructure, and policies to get more value out of existing and new assets (including road user charges, extending competition policy principles to cover land use regulation, and replacing stamp duties with land tax). The Commission estimates that these reforms would be worth at least A$29 billion per year in time.

To improve market competition, the report suggests a single effective price be placed on carbon, an end to ad-hoc interventions in the energy market, better consumer control of and access to data, and reforms to intellectual property to support innovation. The Commission estimates that these reforms would be worth at least A$3.4 billion per year.

Finally, to improve government, the report recommends that the states and the Commonwealth develop a new formal reform agenda that clarifies who has responsibility for what, tax changes, measures to improve fiscal discipline, and tougher accountability for implementation of agreed initiatives. The Commission does not put a dollar value on these reforms.

What’s missing?

The review’s omissions are informative, and some are glaring.

First, cutting company taxes is conspicuously absent from the proposals. It seems unlikely this omission is an oversight. It would seem, instead, that the Commission does not see a company tax cut as a priority for productivity growth, and is happy for government to make its own case for a tax cut.

Still, the report would have been stronger had it considered the tax mix more fully. There is credible case for a company tax cut, though it is not the only way to stimulate investment, it would take years to pay off, and it would hit the budget without increase in other taxes or spending cuts.

Second, the report gives short shrift to population growth. Governments are racing to keep pace with population growth in Melbourne and Sydney in particular, yet the report does not consider how population contributes to congestion, how it dilutes the value of natural resource rents, and how the challenges it creates for governments make it more difficult for them to deliver reforms that would boost productivity.

---

Read more: City planning suffers growth pains of Australia’s population boom

---

Third, the report does not give enough attention to reforms to improve market functioning. Many consumers in retail markets for services like energy and superannuation do not know how to identify good products, and so consumers often bear the costs of excess marketing or an excess of providers.

It seems likely that the Commission did not want to prejudge the subject of a current Commission inquiry on superannuation, but other markets have similar problems.

There are other gaps. The report does not give enough attention to macroeconomic stability, or even note the risks posed by the Australian house price boom. It does not mention the problematic National Broadband Network. It pays too little attention to the role of social safety nets in helping people manage risks and making the economy more flexible.

And finally, the report could have made stronger recommendations for better measurement. It is ironic that it finds the biggest opportunities in the health and education sectors, whose output is not measured with much accuracy.

---

Read more: Myth busting claims on the impact of the company tax cut

---

Overall, the report is something of a landmark, and the Treasurer deserves credit for commissioning it. It condenses much of the policy advice the Productivity Commission has made in recent years, and adds new insights (for example, on land use).

It provides credible, if incomplete recommendations for improving health and education, and cities and transport. It undersells the value of further reforms to private sector regulation and tax. But it underscores how much governments can do on the “home turf” of the things they control most directly.

Now it is up to Commonwealth and state governments to absorb its insights, integrate them into their agendas, and put them into action.

Jim Minifie, Productivity Growth Program Director, Grattan Institute

This article was originally published on The Conversation. Read the original article.

Latest Persecution News – 11 May 2012

Egyptian Judge Frees Attackers Who Knifed Christian

The following article reports on the latest news of persecution in Egypt, where Salafi Muslims who attacked a man, cutting of his ear in an attempt to force him to convert, have had all charges dismissed.

http://www.compassdirect.org/english/country/egypt/article_1532636.html

 

The articles linked to above are by Compass Direct News and  relate to persecution of Christians around the world. Please keep in mind that the definition of ‘Christian’ used by Compass Direct News is inclusive of some that would not be included in a definition of Christian that I would use or would be used by other Reformed Christians. The articles do however present an indication of persecution being faced by Christians around the world.

Conviction of Legislator in India Falls Short of Expectations

In murder of Christian, Hindu nationalist sentenced to seven years for causing ‘grievous hurt.’

NEW DELHI, July 2 (CDN) — Christians in Orissa state had mixed feelings about the sentencing on Tuesday (June 29) of state legislator Manoj Pradhan to seven years in prison for causing grievous hurt and rioting – but not for murder.

“Pradhan is not convicted of murder, but offenses of voluntarily causing grievous hurt by dangerous weapons and rioting were upheld,” attorney Bibhu Dutta Das told Compass. “Pradhan will be debarred from attending the Orissa Legislative Assembly unless the order of conviction is stayed by the Orissa High Court, or if special permission is granted by the court allowing him to attend.”

Kanaka Rekha Nayak, widow of murdered Christian Parikhita Nayak, acknowledged that the verdict on Pradhan and fellow Hindu nationalist Prafulla Mallick in the August-September 2008 violence against Christians did not meet her expectations. She said she was happy that Pradhan was finally behind bars, but that she “expected the court to at least pronounce life imprisonment on Pradhan and Mallick for the gruesome act that they committed.”

Das said he will try to increase the sentence.

“Pradhan spearheaded the riots and has several criminal charges against him – he cannot be let off with a simple punishment,” Das said. “We will be filing a criminal revision in the Orissa High Court for enhancing the period to life imprisonment.”

The day after Pradhan was sentenced, two Hindu nationalists were reportedly convicted of “culpable homicide not amounting to murder” in the burning death of a paralyzed Christian during the 2008 attacks on Christians in Orissa state’s Kandhamal district and sentenced to only six years of prison.

UCAN agency reported that Sushanta Sahu and Tukuna Sahu were convicted and sentenced on Wednesday (June 30) in the death of Rasananda Pradhan, a paralytic burned alive when Hindu extremists set his house on fire on Aug. 24, 2008. Church leaders criticized the lenient sentences.

Manoj Pradhan has been charged in 14 cases related to the August-September 2008 anti-Christian attacks. In seven of the cases he has been acquitted, he was convicted of “grievous hurt” in this one, and six more are pending against him.

Of the 14 cases in which he faces charges, seven involve murder; of those murder cases, he has been acquitted in three.

After a series of trials in which murder suspects in the 2008 Kandhamal district violence have gone free as Hindu extremist threats kept witnesses from testifying, the testimony of Nayak’s daughter, 6-year-old Lipsa Nayak, helped seal Pradhan’s conviction.

His widow, Rekha Nayak, told Compass that due to the severe threats on her life that she has received, she and her two daughters were forced to flee the area and go into hiding.

There were around 1,500 Hindu supporters present for this week’s verdict, a source in the courtroom told Compass on condition of anonymity.

“We had to leave the place before the judgment was pronounced and could not enter that area for three or four days after the verdict,” said the source, adding that prosecuting lawyers and human rights activists received the main threats.

Along with the seven years of prison, the Phulbani Court sentenced the Hindu nationalist Bharatiya Janata Party (BJP) member of the Legislative Assembly of Orissa from G. Udayagiri, Kandhamal to a fine a little more than US$100, as it did for Mallick. The verdict came from Fast Track Sessions Court I Judge Sobhan Kumar Das in the Aug. 27, 2008 murder of 31-year-old Parikhita Nayak, a Dalit Christian from Tiangia, Budedipada, in Raikia block of Kandhamal district.

Pradhan was also accused of setting fire to houses of people belonging to the minority Christian community.

“I have the highest regard for the judiciary,” Pradhan told Press Trust of India after this week’s verdict. “We will appeal against the verdict in the higher court.”

Cases have been filed against Pradhan for rioting, rioting with deadly weapons, unlawful assembly, causing disappearance of evidence of offense, murder, wrongfully restraining someone, wrongful confinement, mischief by fire or explosive substance with intent to destroy houses, voluntarily causing grievous hurt and voluntarily causing grievous hurt by dangerous weapons or means.

Dibakar Parichha of the Cuttack-Bhubaneswar Catholic Archdiocese told Compass that the judgment was “a good boost to the Christian community.”

“When the trials were on, the Nayak family faced terrible times,” Parichha added. “Pradhan and his associates threatened Kanaka Rekha, the widow of the deceased, right inside the courtroom of dire consequences if they testified about them.”

Archbishop Raphael Cheenath of the Cuttack-Bhubaneswar diocese issued a statement saying that the verdict had boosted confidence in the judiciary that criminals will be punished.

“People have been waiting for good judgment, and we have confidence in the judiciary that criminals will be punished,” Cheenath said, adding that the sentence will show criminals that the law will not spare any one. “One day or other, they will be punished.”

The Rev. Richard Howell, general secretary of the Evangelical Fellowship of India, told Compass that the verdict offered some hope.

“The fact that something has happened gives us some hope that more convictions would take place in the trials to come,” he said.

Calling the conviction “justice that was long overdue,” Howell said that not much can be expected from Fast Track Courts as no security is provided to witnesses.

 

Girl’s Testimony

During the 2008 anti-Christian attacks that followed the death of Hindu leader Swami Laxmanananda Saraswati, Lipsa Nayak’s parents and her sister had taken refuge in the forest to escape the fury of the Hindu extremists, but the rampaging mob tracked them down.

Lipsa, then 4 years old, along with her mother and then 2-year-old sister, Amisha Nayak, watched in horror as the crowd allegedly beat her father for two hours and then killed him by cutting him into pieces and burning him.

Rekha Nayak filed a complaint and a case was registered against Pradhan, Mallick and others for murder, destroying evidence, rioting and unlawful assembly. Pradhan was arrested on Oct. 16, 2008, from Berhampur, and in December 2009 he obtained bail from the Orissa High Court.

Despite his role in the attacks, Pradhan was the only BJP candidate elected from the G. Udayagiri constituency in the 2009 Assembly elections from Kandhamal district. He had campaigned inside jail.

On March 14, Rekha Nayak and her daughter Lipsa testified in court in spite of the threats. Rekha Nayak reportedly testified that when the Hindu mob demanded that her husband renounce Christianity or face death, he kept quiet, which led to his death.

Prosecution and defense lawyers questioned Lipsa for more than 90 minutes, and she reportedly answered all questions without wavering. Asked by the judge if she could identify the killer of her father, she pointed to Pradhan.

So far he has been exonerated of murder charges against him for “lack of witnesses.” Christian leaders say that Pradhan has been intimidating witnesses because of his position as a member of the Legislative Assembly.

The government of Orissa has set up two Fast Track courts to try cases related to the violence that spread to more than a dozen districts of Orissa. The attacks killed more than 100 people and burned 4,640 houses, 252 churches and 13 educational institutions.

Trials are being held for 38 cases in which 154 people have been convicted and more than twice that many have been acquitted, as high as 621 by one count. Victims filed 3,232 complaints in the various police stations of Kandhamal district. Of these, police registered cases in only 832 instances.

“Nearly 12,000 people are accused in the riot case – 11,803 are out on bail,” said attorney Das.

Report from Compass Direct News

Pakistani Muslims Severely Beat, Sodomize Christian Barber

Brother of Muslim who insisted on having beard cut, seven others, break hair-cutter’s bones.

SARGODHA, Pakistan, April 28 (CDN) — A Christian barber in this Punjab Province city is still recovering from broken bones and other injuries sustained earlier this month after eight Muslims allegedly beat and sodomized him for cutting the beard of a Muslim.

Marwat Masih, 29, initially refused the request of 19-year-old Qandeel Cheema to cut his beard in Sargodha’s Gulshan-e-Bashir town on April 13, knowing that area Sunni Muslims believe the Quran prohibits it. But Cheema, a high school student, told Masih that he had lived and studied in Lahore and therefore wanted a more modern look, the bed-ridden and feeble Masih told Compass.

“I refused to shave his beard, but he showed me his packed bags and said that he would leave the town straight after the shave, and so no one would ever know that I had shaved his beard,” Masih said. 

Eyewitnesses told Compass that as Masih was cutting Cheema’s beard, the client’s older brother – local radical Muslim land owner Shakeel Cheema – was returning by tractor from his fields and, noting the family Jeep in front of the Marwat Hair Stylist shop, stopped in.

“When Shakeel Cheema saw me shaving his younger brother’s beard, he became angry and started vandalizing mirrors, the sound system and chairs, and he desecrated a wooden cross perched on the top of the front mirrors,” Masih said. “He also started beating my head with his shoes.”

Eyewitnesses told Compass that Shakeel Cheema shouted orders to his companions to tie Masih up and throw him into the wagon attached to his tractor, and that he ordered his younger brother to leave for Lahore at once.

Masih said that he was blindfolded with a black cloth and taken to an unknown place where he was locked in a room. An hour later, Shakeel Cheema and seven others arrived and began striking him with clubs, breaking his ribs, a wrist and leg bones.

“Shakeel Cheema said, ‘Now we are going to teach you a real lesson for shaving the beard of a Muslim man,” Masih said, and after a long, pained pause he related how Cheema and the seven others sodomized him. “I started bleeding and fell unconscious.”

His father, Laal Masih, older brother Hassrat Masih and other relatives had begun searching for him, and after midnight that night they found him lying half-naked and unconscious off the main street of Gulshan-e-Bashir town, his father told Compass. They immediately took him to Rural Health Centre, where doctors kept him under observation for two days and treated him for internal bleeding and the broken ribs, leg bones and wrist.

“We submitted an application to the Saddr police twice, but they took no action against Shakeel Cheema and his accomplices,” Laal Masih said. The family is appealing to Christian ministers and parliamentarians for assistance.

Still receiving threats of harm if they do not leave the area, family members also said they cannot afford the fees of a standard physician and have resorted to help from lesser trained doctors.

Police have refused to file a First Information Report against Cheema and his accomplices, who all remained at large at press time.

A shopkeeper next to Masih’s barbershop told Compass that the barber deserved the abuse.

“He deserves such punishment, as he did something that is forbidden according to the teaching of the Quran and the sunna [arabic word for the sayings or habits of Muhammad, the prophet of Islam],” said Muhammad Maqsood, who has a long, white beard. “Marwat Masih paid for his crime.”

Masih’s 36-year-old brother Hassrat Masih emphasized that Gulshan-e-Bashir town is inhabited mainly by radical Muslims.

“Therefore, almost all of them are against shaving, especially the beard,” Hassrat Masih said. “Having a beard is seen as holy practice because it is a standard prescribed for all Muslims in the sunna, or teachings or actions of the prophet of Islam.”   

Report from Compass Direct News 

Signs of Witness Intimidation Mount in Orissa, India

Fear factor results in transfer of rape case; meantime, 6-year-old girl says politician is killer.

NEW DELHI, April 2 (CDN) — Due in part to intimidation of witnesses in Kandhamal district, a judge this week granted a change of venue for the trial of men accused of gang-raping a nun during anti-Christian attacks in Orissa in 2008.

The trial will be transferred from Baliguda, Kandhamal to Cuttack, near the Orissa state capital of Bhubaneswar. Justice Indrajit Mohanty of the Orissa High Court on Tuesday (March 30) ordered the inter-district transfer of the trial. The nun, Meena Lilita Barwa, had argued that witnesses would be intimidated into refraining from testifying if the trial were held in Kandhamal district.

She also argued that Kandhamal’s intimidating atmosphere made it too dangerous for her appear in court there. Christians were hopeful that the transfer would lead the administration to review police and court processes in Kandhamal district.

Police have arrested 19 people for allegedly assaulting the nun on Aug. 25, 2008 and parading her half-naked through the streets.

Hindu Politician Identified as Killer

After a series of trials in which murder suspects in the 2008 Kandhamal district violence have gone free as Hindu extremist threats have kept witnesses from testifying, a 6-year-old girl has identified a powerful local politician as the man who killed her father.

In testimony at Fast Track Court No. 1 on March 14, Lipsa Nayak of Kandhamal identified Manoj Pradhan, a member of the Legislative Assembly of Orissa, as the man who cut and burned her father to death when Hindu extremists attacked Christians following the Aug. 23, 2008 death of a local Hindu leader.

Pradhan has been accused in nine cases of murder and in 14 cases of arson. So far he has been exonerated on the murder charges against him for “lack of witnesses.” Christian leaders say that Pradhan has been intimidating witnesses because of his position as a member of Legislative Assembly. Lipsa’s mother, 32-year-old Kanak Rekha Nayak, has said that Pradhan and his associates have threatened to harm her family if they identified him as the killer.

The Nayak family lived in Tiangia, Budedipada, in Raikia block of Kandhamal district. During the anti-Christian attacks that followed the death of Hindu leader Swami Laxmanananda Saraswati, Lipsa’s parents and her sister had taken refuge in the forest to escape the fury of the Hindu extremists, but the rampaging mob tracked them down.

Lipsa, then 4 years old, along with her mother and 2-year-old sister, watched in horror as the crowd allegedly beat her father, Parikhita Nayak, for two hours and then killed him by cutting him into pieces and burning him.

Prosecution and defense lawyers questioned Lipsa for more than 90 minutes, and she reportedly answered all questions without wavering. Asked by the judge if she could identify the killer of her father, she pointed to Pradhan, the MLA from the Hindu nationalist Bharatiya Janata Party (BJP) from G. Udayagiri, Kandhamal.

Her mother later told media, “They played with him for a few hours before cutting him into pieces and dousing him with kerosene.”

Accused as a primary suspect in the murder along with Pradhan is Kali Pradhan. The government of Orissa has set up two Fast Track courts to try cases related to the violence that spread to more than a dozen districts of Orissa. Maoists have taken responsibility for the killing, though Hindu extremists accused Christians in an effort to spark anti-Christian violence. The attacks killed more than 100 people and burned 4,640 houses, 252 churches and 13 educational institutions.

Christian leaders have denounced the legal process in the Kandhamal violence, saying not only that witnesses have been threatened and the intimidated but that police investigations have been negligent or corrupt.

“There has been no conviction in any case of murder,” said Dr. John Dayal, a member of the National Integration Council. “More than 70 people were killed, and trial is being held only for 38 or so of those deaths. Eleven murder cases have been tried with no one being indicted or sentenced for murder so far – because of terrible investigation by the police, a poor show by the prosecuting lawyers and shoddy judicial process.”

The 123 cases tried in the Fast track courts have resulted in 97 convictions and 323 acquittals, including several cases decided on Wednesday (March 31). Seven people in two separate cases were convicted of arson and rioting cases. Nata Pradhan, Jahala Pradhan, Ashok Mallick, Bapa Pradhan, and Udayanath Pradhan from Raikhala-Gadiapada village were sentenced for two years imprisonment for destroying the house of Birendra Nayak of the same village. They were also fined 2,500 rupees (US$55). In the other case, Ratnakar Pradhan and Parsuram Pradhan from village Tatamaha, Raikia block were convicted of riot and arson.

At the same time, Fast Track Court I Judge S.K. Das acquitted 20 people persons in three separate cases for lack of evidence.

“Witnesses are being coerced, threatened, cajoled and sought to be bribed by murderers and arsonists facing trial,” said Archbishop of Orissa Raphael Cheenath in a statement. Previously he had demanded that the cases of politically powerful persons such as Manoj Pradhan be transferred out of Kandhamal to ensure proper justice.

“We are deeply concerned about the high rate of acquittals in the Fast Track Courts,” Cheenath said. “Victims filed 3,232 complaints in the various police stations of Kandhamal. Of these, the police registered cases in only 832 instances.”

Orissa Chief Minister Naveen Patnaik filed a written admission in the Orissa Assembly in November 2009 in which he said 85 members of the Hindu extremist Rashtriya Swayamsevak Sangh (RSS), 321 persons of Hindu nationalist umbrella group Vishwa Hindu Parishad (VHP) and 118 persons of Hindu extremist youth wing, the Bajrang Dal, had been arrested for their involvement in the Kandhamal riots.

While the government says that situation is normalizing in Kandhamal, Christian leader like Dr. John Dayal give a different story.

“While it is possible to visit one half of the district of Kandhamal and discover only peace, it is the other half of the district which speaks of the continuing tyranny,” he said. “The bloodshed has stopped because of belated police action, but the miscarriage of justice and the lost peace continue to haunt thousands of people who have not been able to go back to their homes for fear of their lives. Thousands of children cannot go to school, especially the girls. What is worse is that many girls have been trafficked.”

The district collector banned all Christian organizations from coming to the district to bring aid to victims after the 2008 violence, he added, “and it took an appeal to the Supreme Court of India by the archbishop of Bhubaneswar for much needed relief to be given to the people in the then refugee camps.”

He expressed doubts about the government portrait of normalcy in Kandhamal.

“Even if the church does its best, only half of the 5,600 or so houses burned to the ground will ever be rebuilt,” he said. “The district collector and other officers of the civil and police system who are guilty of gross dereliction of duty continue to be in control. Thousands of men continue to be without jobs. Is this normalcy?”

Firebrand Arrested

On March 20, a controversial leader of the VHP, Praveen Togadia, was arrested as he tried to defy orders prohibiting him from entering Kandhamal. Togadia had played a major role in whipping up passions among the Hindus of Kandhamal after the killing of Saraswati.

Togadia had led a procession with the body of Saraswati through different areas of the district for more than 100 kilometers, sparking off or intensifying violence against Christians.

The government of Orissa came under heavy fire from civil society for allowing the procession, and on the latest occasion the local administration was careful to detain Togadia under the Section 151 of the Code of Criminal Procedure, which provides for authorities to make arrests to prevent potential offenses. Togadia was later released on bail.

Togadia termed the prohibition on his visit a “ban” that was “illegal and undemocratic.” In response to the “ban” on Togadia, the Hindu extremist Sangh Parivar and the BJP protested with a 12-hour bandh (shut down) in Kandhamal on March 20, while the VHP held demonstrations in Bhubaneswar, Berhampur, Bolangir, Sambalpur and Cuttack. VHP also blocked National Highway 217 for one hour and burned an effigy of Chief Minister Patnaik.

“The state government didn’t stop foreign missionaries from going to tribal areas of Kandhamal and other parts of Orissa,” VHP leader Swadesh Pal Gupta said. “They were being provided with full support and freedom. But when a leader who is an International Secretary General of VHP tries to go to Kandhamal, the government stopped him. We are staging a nationwide protest against this.”

Report from Compass Direct News