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Let’s talk tax

With Tony Abbott repeating ad nauseum that it will be anybody else’s fault other than his if the GST rises, you can be sure it will come up soon so, since it is impossible to get any truth out of the Coalition, it’s worth having a look at a few GST facts.

Firstly, it is incorrect to say the GST can only be raised with the consent of the States and Territories. The legislation requiring unanimous approval can be amended at any time by the normal parliamentary process. With a majority in the House of Representatives, Abbott would only have to get 6 Senate crossbenchers (or the Greens or Labor) to agree and he can do what he pleases.

If the carbon price was a great big new tax on everything, the GST beat it hands down. In the quarter after it was introduced the GST caused the CPI to rise approximately 3%. The carbon price saw a rise of about 0.7%.

In seven out of eleven CPI groups (i.e. Food, Alcohol and tobacco, Clothing and footwear, Housing, Household furnishings, supplies and services, Communication, and Recreation) the one-off GST effect was significant ranging between a minimum of 1.3 per cent (Food) to a maximum of 8 per cent (Clothing and footwear).

Around 47 per cent of the consumption of goods and services in Australia is covered by the GST. That is below the OECD average of 55 per cent and way behind New Zealand where 96 per cent of goods and services are covered by a consumption tax.

The GST raised $56 billion or 16 per cent of total Australian government tax revenue in 2013-14 and all of the money is distributed to the states and territories.

This implies that if we raised the current GST to 12.5% (and didn’t broaden the base) we could raise an extra $14 billion annually.

The effect on prices would not be huge. Something that used to cost $44 will cost $45, $88 will cost $90, $220 will cost $225, $1100 will cost $1125.

If the base remained the same, leaving out fresh food, residential rent, most health and education, then the regressive effect of a rise would not be as harshly felt by low income earners. Perhaps power and phone bills could stay at 10%.

When the GST was introduced several other indirect taxes like sales tax were abolished to help alleviate the price rises. When the carbon tax was introduced, the tax free threshold was raised by $12,200, which meant people earning $18,200 paid zero tax instead of $1830 (give or take low income supplements etc), a fact which seems to be ignored by those who screamed blue murder at the supposed $550 a year imposte from the carbon tax.

The scheduled increase in the threshold to $19,400 was abandoned with the carbon price, another fact lost on the axe the tax advocates. We could increase it to, say, $20,000 as compensation for any rise in GST, saving $342 tax with less people having to fill in returns.

Currently the top tax bracket (> $180,000) pay $54,547 plus 45c for each $1 over $180,000 (plus a 2% Medicare levy plus a temporary 2% debt reduction levy). Perhaps it is time to have a new top bracket with 55c for each $1 over $300,000. In the early 1950s the top tax rate was 75 per cent.

As far as the proposed reduction in company tax is concerned, data from the tax office shows Australia’s 900 biggest companies were able to claim deductions and exemptions worth $25 billion last year. Far from paying the corporate tax rate of 30 per cent, they paid an “effective tax rate” of just 19.3 cents in the dollar on pre-tax profits.

How about the superprofits being made by the banks or aren’t we allowed to mention anything to do with financial institutions who feature heavily as political donors and advisers.

If we want to help business let’s get rid of the 17.5% leave loading on annual holidays rather than penalty rates. Bring back the capped small business instant asset write-off to help with the costs of setting up and expanding business.

And as for scratching your head about what to do about tax avoidance by global corporations, every one of them says they are complying with the letter of the law . . . so change the freakin’ laws! They are not going to miss out on billions of dollars profit if they are forced to pay a few million in tax. Taking advice from the big four accounting firms about this is worse than letting the mining companies write the mining tax.

Obviously there are superannuation, negative gearing and capital gains tax concessions, and fossil fuel subsidies for any government serious about raising revenue.

I suppose it’s too late to campaign to bring back the carbon and mining taxes and the FBT on novated car leases and the billions in revenue that went with them.

It’s kind of hard to take Hockey’s taxation white paper seriously when Tony Abbott keeps repeating his slogan of “lower,simpler,fairer” taxes. I feel for you Joe.

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100 comments

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  1. Shelley

    I don’t feel bad for him at all, he lied his way into a corner and I’m quite enjoying watching him squirm!

  2. Rosemary (@RosemaryJ36)

    Kaye – why are you not a government (or better, Labor party) adviser?

  3. Kaye Lee

    Rosemary,

    I am waiting to be discovered. I have given up on the professional athlete plan, actress is still a possibility, but if someone would pay me to advise them I would consider it. My family would pay to have me stop advising them 😉

  4. stephentardrew

    In short Rosemary Kaye is too smart, by far, to fall for party political compromise.

    That is her strength telling it how its is regardless of party affiliation she will not compromise the facts.

    We desperately need independent thinkers with Kaye’s skill and unflinching integrity.

  5. Kaye Lee

    I could never be a politician, or at least not as they are today. Asking scripted questions, being told how to vote, being issued with the talking points of the day, unwavering public allegiance – I wouldn’t last through a party meeting let alone question time. In fact I wouldn’t even bother going to question time. There must be far more important things to do than strut on the stage hoping someone will quote you on the nightly news.

  6. Roswell

    I’d vote for you, Kaye Lee.

  7. Kaye Lee

    And that’s the silly thing Roswell….if only our politicians realised that all they have to do is be honest.

    In my opinion, Chris Bowen should come out soon with an honest tax policy, including the unpopular things, to get the electorate ready. If Abbott opposes his suggestions then he has to come up with a plan of his own and we can compare but give us the time to do so. This barrage of election promises in the two weeks before the election is silly. If there was a decent communicator in Labor ranks they wouldn’t have to “sell” it to us – explaining would do. The people are ready for the truth and there are only so many rich people when it comes to votes

    Politicians tend to be lawyers or union leaders who employ advertising gurus who tell them what to say and how – teachers are far better at getting the truth across at the appropriate level to engage the audience and would probably be cheaper.

  8. Pingback: Let’s talk tax – » The Australian Independent Media Network – Written by KAYE LEE | winstonclose

  9. Terry2

    It is obscene to hear that News Corp in Australia paid only 4.8% income tax on their Australian operations and, of course, they maintain that they are meeting all legal and accounting obligations .

    As you say, Kaye, if they are not breaking the law then the law itself is broken and we should demand that the Abbott government do something about it : Senate hearings this week should be quite revealing with News,Rio and BHP fronting.

    http://www.smh.com.au/business/rupert-murdochs-us-empire-siphons-45-billion-from-australian-business-virtually-taxfree-20150405-1meu0l.html

    .

  10. CMMC

    Abbott has hired News Corp photographer Brad Hunter as personal chronicler, ‘JFK in the Oval Office’ – type imagery. Abbott looking very somber in front of lots of flags, peering out at the rosegarden as he considers weighty things.

    The vanity of the man is staggering.

  11. John Armour

    It is obscene to hear that News Corp in Australia paid only 4.8% income tax on their Australian operations and, of course, they maintain that they are meeting all legal and accounting obligations

    It might be obscene Terry but don’t be mislead into thinking that expropriating some of those off-shored profits for taxes will “fix the budget” or fund public infrastructure, an almost universal belief.

    Taxes serve only to manage demand and as those off-shore profits were never destined to be spent domestically, the effect of taxing them is zero.

    This is purely an issue of fairness and equity and nothing to do with revenue per se.

    The same goes for the phoney GST debate.

    Whilst ever we’re talking about the GST we’re focused on “revenue” rather than “fairness”, which is how the government wants the debate framed, despite realising that any upward changes to the GST rate would be electoral suicide. The objective is to keep the debt/deficit myth alive.

    Off-shore tax havens – be sure we define the issues correctly

  12. Kaye Lee

    Previous treasurers have been advised by savvy public servants who protected them against the might of lobby groups. Hockey sacked these people (like Martin Parkinson) and employed people from the financial sector. His chief of staff used to work with his wife at Deutsche Bank. That’s putting the wolves in charge of the henhouse.

    As Martin Parkinson explained in a speech just before he was shown the door to the Treasury secretary’s office last December: “A lot of what this debate is about is people saying of government, ‘Take money from the citizenry at large and give it to me.’ ”

    John Fraser, appointed secretary to the Treasury in January, gave up his posts as chairman of UBS Global Asset Management, UBS Saudi Arabia and UBS Grocon Real Estate to take up the job.

    Is it any wonder that their solution is to lower company tax and raise GST?

  13. Wun Farlung

    To help business let’s get rid of the 17.5% holiday loading rather than penalty rates.
    I beg to differ Kaye
    Taking money out of consumer’s pockets isn’t going to help business.
    Taking away worker entitlements means less tax revenue and another nail in the coffin of permanant jobs
    If I was to be making the call I’d be going for a massive expansion in publicly owned, affordable public transport with a focus on outer urban and rural areas and resurecting FTTP NBN to start with
    If worker pay and entitlements are on the table so should management pay and entitlements be

  14. Kaye Lee

    If it was up to me I would increase Newstart payments by $50 a week because every cent of that would be recycled. Increasing profits and the wealth of a few just drags money out of the economy. Financial transactions may make a lot of money but they are hardly contributing to productivity. Flat wages growth is increasing the divide and decreasing demand so I agree about the purchasing power and multiplier effect of increasing wages….I just think the leave loading is one thing we can let go of for more productive payment or investment.

  15. Gilly

    This mob are the heaviest taxing regime in our history. Never has credibility, trust and confidence in Government been so heavily taxed.

  16. Kyran

    Your article is timely in the sense of the current thought bubble from our alleged leaders, but could go further. The tax industry is a multi billion dollar industry, which thrives on the complexities of the tax regime. The regime itself seems built on the notion “there should only be enough law to hold the loop holes together”.
    There are two articles on the Drum of relevance.

    “Surely we should talk about what sort of Australia we’d like to create before we discuss how we’re going to raise the revenue to pay for it.”
    http://www.abc.net.au/news/2015-04-02/green-have-we-got-this-tax-debate-completely-backwards/6365458

    “The Abbott Government committed itself last week to a “comprehensive and inclusive” review of the tax system.
    But the tax discussion paper it released to kick off the process does not find space in its 196 pages to properly canvass one of the major issues: the rising inequality of income and wealth in developed nations”.
    http://www.abc.net.au/news/2015-04-06/steketee-our-missed-opportunity-to-tackle-wealth-inequality/6372210

    I know any discussion of imaginative leadership under the current regime is fanciful, bordering on the certifiable. Regardless of the hysterical doom, gloom and nonsense screeched by this rabble, there are realities that favour a genuine simplification of the taxation system. This is a small (population wise!), wealthy country. Ms Lee, your recent piece “Imagine” seems a better starting spot. Thank you, take care

  17. Stephen

    An excellent, factual summary. Thank you

  18. Richard Leggatt

    Thanks Kaye, it’s nice to see a progressive arguing for an increase to the G.S.T. People have forgotten that the GST replaced a raft of other taxes which in many cases were hidden from view, and were sometimes up to 40%. That’s why, in many cases, prices dropped, entertainment equipment for example. And it’s not going away, so let’s use it to create a fairer society. Let’s use it to fund Gonski, let’s use it to subsidize Tafes and Universities and maybe subsidize dental health for lower income Australians. And much, much more!

    If we want the kind of society we are arguing for on these pages, we have to have revenue. I’m not saying we go soft on every other tax revenue issue, quite the opposite. But the G.S.T. is an important part of the revenue mix. A 2 ½ % (or even a 5% increase) (the world average is around 15%) would raise enough revenue to fund a substantial number of social programs, and it’s very hard for the wealthy to avoid it! Now, that might mean that someone on a low income, spending, let’s say, $10,000 pa. on GST compliant items would pay an extra $200 a year in GST. That would be easily compensated for by lifting the tax free thresholds on income under, say $50,000 a year and/or raising any welfare payments by $5 a week! (And frankly, it should be a lot more!) Private education exemption is costing us $3.3 Billion a year. Imposing a GST, and increasing it by the 2 ½ % would bring in over $4 Billion a year! And if Gonski was fully implemented, those lower middle class who send their Kids to private, could save some money by using what would, or should be, an excellent public system.

    Try going into any Dan Murphy store (or equivalent) and work out the quantities of wine they sell each year, I myself, am poor, but with expensive tastes! I just don’t drink wine anymore except under certain circumstances! Luckily, I have one or two well off friends that are willing to share with me! 🙂 Their default price point is in the $25 to $40 plus range, that’s a lot of extra 2 ½ percents! The wealthy spend a lot more in dollar terms than the less well off. Think about expensive cheeses and other luxury food items that are currently exempt (I looked at a cheese the other day that was $72 a kilo! Tax exempt! How progressive is that? Think about BMW’s and all those 4 wheel drives, and high end appliances! (I get upmarket flyers advertising inbuilt kitchen fitments such as deep fryers, halogen cook tops, etc. for $4000 a piece!) That’s another $100 in G.S.T. every time! No-one on a low income is buying these things. I accept that many progressives dislike the G.S.T. but the price of a civilized, equitable society is taxation, this is just one of many ways, I think, we can improve the bottom line.

  19. revolutionarycitizen

    Scrap the unfunded NDIS and Gonski commitments and taxes could stay where they were and we’d be back in surplus in no time at all… simples!

  20. Kaye Lee

    Donations to the four parties, including from associated entities set up to raise funds for their affiliated party, totalled more than $33 million last financial year. Nearly two-thirds went to the Coalition, less than one-third to Labor and just five per cent to the Greens.

    Mining and energy companies declared donations to the Coalition of more than $1.8 million in 2013-14, compared to its $453,000 contribution to Labor.

    Their contribution was dwarfed by the banking, finance and insurance sector, who threw more than twice as much money into the political arena. Of the $4.8 million banking and finance companies declared as donations in 2013-14, nearly 75 per cent went to the Coalition.

    http://www.smh.com.au/federal-politics/political-news/political-donations-mining-hits-back-at-labor-20150405-1372gf.html

  21. Möbius Ecko

    How is NDIS unfunded?

    Federal Budget 2013–14

    The Australian Government will provide $19.3 billion over seven years from 2012-13 to roll out the National Disability Insurance Scheme across the country.

    This brings the Australian Government’s total new investment in the National Disability Insurance Scheme to $14.3 billion over the period.

    The Australian Government will provide funding of $11.7 billion to the National Disability Insurance Scheme in 2019-20, the first year after the full national rollout. This is 53 per cent of the $22.2 billion total cost of running the National Disability Insurance Scheme, with the States and Territories providing the remaining funding.
    A national scheme

    The Government is committed to a full national rollout in 2018-19. As a result, 460,000 people with significant and permanent disability will receive the support they need.

    That looks like funding to me.

    And revolutionarycitizen can you tell us the long term cost of not having a disability insurance scheme?

    Didn’t the current government promise to keep NDIS and Gonski during the election campaign? So they must have known they was affordable and good programs.

  22. Möbius Ecko

    Latest Newspoll breakdowns are interesting on several fronts with Baird winning not helping the Federal L&NP with Labor polling strongly in NSW and in WA.

    The stand out though was the massive drops in Abbott’s approval ratings in WA and SA. WA down 17% to 25% and South Australia down 11% to 19% with his disapproval rating in South Australia at 74%. Wonder how much that remarkably high disapproval figure has Pyne worried.

    These breakdowns make a farce of the Abbott comeback.

  23. Jexpat

    Baird winning not helping the Federal L&NP

    This will actually be a hinderance down the track, as the Baird government is set to unveil and implement some very unpopular policies over the course of the next year or two.

  24. Jexpat

    revolutionarycitizen: Your comment evinces some difficulty in distinguishing between spending and investment.

  25. Kaye Lee

    Labor’s spokeswoman on disability reform, Jenny Macklin, who oversaw the launch of the scheme in the Gillard government, was quick to dismiss the proposal as a “disgusting and cynical attempt” to justify a new round of savage welfare cuts.

    “Any claim by the government that the NDIS isn’t fully funded is completely wrong,” she told Fairfax Media, pointing out revenue raised by the 0.5 per cent Medicare levy and the $6.5 billion saving in reforms to the private health insurance rebate. “The NDIS is fully funded into the future.”

    Of the $22 billion cost of the scheme once fully rolled out in 2018-19, about $10 billion will come from the states. The Commonwealth will continue to contribute the $3 billion it currently spends on non-income disability supports plus $9 billion of new investment. According to Fifield, the Medicare levy will cover only about 40 per cent of the new investment – or about $3.6 billion a year – leaving a significant gap.

    The disability sector was quick to point out that the Medicare levy was never intended to cover the entire cost of the insurance scheme and that , rather than being a drain on the public purse, the scheme was a revenue raiser with a multitude of economic and social benefits.

    Research commissioned by non-government disability peak body, National Disability Services, found that the scheme will increase the country’s GDP by between $18-22 billion once it is fully rolled out, as people with disabilities and their family carers enter the workforce. It will also create jobs, with the Treasury estimating the number of disability care worker numbers will have to double to accommodate the needs of the 460,000 people covered under the scheme.

    http://www.smh.com.au/federal-politics/political-news/ndis-funding-cry-of-blackmail-at-move-to-slash-welfare-20150102-12fg0m.html

  26. Kaye Lee

    “From January next year universities will be hit by a 2 per cent efficiency dividend, saving the Government $900 million.

    A 10 per cent discount on the upfront payments of HECS loans will be dumped at a value of $230 million and Student Start-Up Scholarships would need to be repaid once the student begins working.

    Tax concessions for work-related education expenses will also be capped at $2,000, putting the total saving at $2.8 billion.”

    Other taxes like the FBT on car leases and the tax on super earnings over $100,000 were also going to help pay for Gonski. But since Abbott gave up billions in revenue, he now has to find a way to fund his commitment.

  27. John Armour

    If we want the kind of society we are arguing for on these pages, we have to have revenue

    Revenue has very little to do with it Richard. Tax is not revenue. Believing that it is makes you just another recruit for the neo-liberal’s war on equality. You are unwittingly promoting an economic paradigm that is antithetical to your own interests.

    I would say “if we want the kind of society we arguing for on these pages” it’s imperative that we reject the catechism of mainstream economics and seriously engage with the work of economists like Bill Mitchell and Steve Keen.

    “Taxpayers do not fund anything”

    “At times some document from the past is discovered that no-one much has read or paid any attention to but which offers fundamental insights into the options facing governments operating a monetary system based on a fiat currency. We have available now one such document which I will discuss in some detail. The essential insight can be summarised by the title of the blog – taxpayers do not fund anything. So when you hear commentators and politicians and the like use terms like “taxpayers’ funds are being mis-spent” etc, you can immediately conclude they do not understand how the monetary system functions. At that point, it is advisable to ignore what they have to say – given it is likely to be erroneous as a result of the initial false premises. The problem is that the public policy debate is largely based on these false premises. As a result, the policy positions that emerge are typically inferior and in many cases extremely damaging to the fortunes of the disadvantaged.”

    The document Bill Mitchell goes on to discuss was the transcript of a speech by a Chairman of the Federal Reserve Bank of New York in 1945, titled “Taxes for Revenue are Obsolete”.

  28. John Armour

    “Scrap the unfunded NDIS and Gonski commitments and taxes could stay where they were and we’d be back in surplus in no time at all… simples!”

    Simples? Certainly is.

    Only an idiot would call for a surplus when we’re running a current account deficit and private sector saving exceeds investment.

    Google this:

    (I – S) + (G – T) + (X – M) = 0

  29. Lord Stockton

    “taxpayers do not fund anything”

    Mr Armour I have a Notice of Assessment issued by the ATO for each year for several decades that suggests quite the opposite. Don’t you have any? Or don’t you work?

    I have several Coles shopping dockets that are required by law to tell me how much GST I paid each week. Please check with Mrs Armour if she could show what SHE pays each week. Then let us know it is NIL.

    In fact Mr Armour. Governments primary source of tax revenue is paid by taxpayers- be they corporate, not for profit, or individuals.

    Have you ever tried NOT paying your assessed income tax? The ATO take a dim view of such people.

  30. Kerri

    While I cannot share your sympathy for Joe Hockey Kaye Lee, you have hit the nail right on the head with your observation “so change the freaking law!” It is ludicrous to take Abbott’s nonsense about “a good boss” or “a good father” as anything than an excuse to allow companies and individuals to continue to behave immorally because they are not breaking the law. Remember his comment after the Hepatitis berry situation? A good company would not want to harm it’s customers. Or words to that effect. What bullshit! Kerry Packer said “of course I am going to minimise my tax!” And that is spot on! While the opportunity exists to legally avoid paying your share, how many billionnaires are going to go out of their way to pay more tax than they are required to?
    You can’t criticise the wealthy for not doing their bit when Governments like this make it legal for them not to.

  31. Roswell

    Mobius, it astounds me that the Liberals are happy with the man’s leadership in the face of evidence that the electorate are absolutely appalled with him.

    I think this also tells us that Turnbull does not have any courage.

  32. Florence nee Fedup

    That 17 1/2 % holiday leave made much sense back in when it was first introduced. I felt at the time, is should not been across the board.

    Most work in manufacturing industry, which bosses found cheaper to use overtime, instead of extra staff, That was true, even when overtime involved penalty rates.. Many work around the clock, involving shift work and penalty rates.

    When one went on annual leave, which at that time, generally meant over the Christmas break, one found wage packets greatly reduced, depending on the amount of overtime worked. Left most with trouble paying bills.

    Would be much fairer to average wages over twelve months for annual leave.

    Those who did not work shifts or overtime received windfall for leave. Those who received penalty rates. if lucky, received pay packet in line with what the receive during the year.

    It is my experience over 60 odd years, the worker only got what was fair. Had to fight tooth and nail for every penny.

    What they young do not realise today is one has to fight for it, then continuously fight to keep it.

  33. Aortic

    Here’s an idea Joe. Make all religions pay tax at the corporate rate (“under the Libs pretty negligible anyway, can’t upset Rupie ) and with the use of video conferencing technique make the backbench use this technique on sitting days. Save millions in accommodation and air fares.

  34. Florence nee Fedup

    Gonski and NDIS were fully funded. Both are essential and vital to ensure future savings. They are an investment in this country’s infrastructure and future welling.

    Cutting them, along with NBNCo and CEF suite of legalisation will lead to more spending, not less. Most of this mobs cutting, are not about saving but transferring debt to the voter.

    What they cannot lob off onto the private sector, they are dumping on the states.

    Same goes for all the community based NGO that they have cut off at the knees. Many have been reverse, such as legal aid and mental health services.

    Cutting essential services save nil, cost more in long run. If you decide you cannot mend that the leak in the roof, will lead to ceiling falling upon your head. Nothing saved. Cost fortune to fix.

    I

  35. Möbius Ecko

    http://tinyurl.com/kx6myq3

    Makes a complete mockery of the poll that supposedly saved Abbott’s leadership, also Newspoll. Also consider this unpopularity has come on the back of a series of back flips on unpopular policies and the MSM along with his cronies saying he’d been reborn.

  36. John Armour

    Lord Stockton,

    At no point did I say we don’t have to pay tax. That would be ridiculous.

    The point you seem to have missed is that the taxes we pay don’t fund anything. You either didn’t read my link or didn’t understand it.

    Amongst heterodox economists this is not even controversial.

    The purpose of tax is to manage aggregate demand.

    If the government didn’t levy taxes, after having having created currency (out of thin air) and spent it into the economy, our currency would soon be worthless.

  37. Richard Leggatt

    John Armour, in the real world, we have to deal with reality and to some extent with the political perceptions of the public at large. The general perception is that governments raise revenue via taxes and then spend the money raised to supply services. What you’re espousing is a to clever by half alternate perception that might suit those that like to believe they have an intellectually superior economic understanding of how things should be. The rest of us intellectual inferiors just get on with it.

  38. Möbius Ecko

    Richard Leggatt then why do governments print money, a term they use to inject cash into the economy, if they raise revenue through taxes?

  39. Möbius Ecko

    Report: Julia Gillard One Of The Best Prime Ministers In Australian History

    That must irk just about every male political leader or potential leader out there, most especially Abbott.

  40. Matters Not

    Richard Leggatt said:

    we have to deal with reality

    Indeed ‘you’ do! But you do realise that the ‘reality’ you create isn’t necessarily the ‘reality’ that others create. John Armour, and others, have a deeper understanding (perhaps) of how the system works. In other words, they construct a different ‘reality’.

    You go on:

    The general perception is that governments raise revenue via taxes and then spend the money raised to supply services

    Indeed! I don’t think you will buy an argument here. But you do go on:

    What you’re espousing is a to (sic) clever by half alternate perception

    Can you mount an argument that his argument is too clever by half? Or are you saying (like me) that I can’t understand the complete implications of same?

    As for:

    alternate perception that might suit those that like to believe they have an intellectually superior economic understanding of how things should be. The rest of us intellectual inferiors just get on with it

    A cheap shot! Writ large!

    It really makes you seem an ‘intellectually inferior’.

    Just for the record the MMT theorists aren’t arguing so much about how things ‘should be’ but about how things are. (Sort of).

  41. John Armour

    The general perception is that governments raise revenue via taxes and then spend the money raised to supply services

    Never mind that the perception is wrong?

    If we can’t discuss these contentious sorts of things here at the AIMN where do those who kick against the status quo go to exchange ideas?

    The issue of the purpose of taxation is not just a bit of esoteric navel gazing. The “general perception” you seem so ready to defend forms the nucleus of the whole neo-liberal contrivance that mostly afflicts those of us who chance and circumstance dealt a lousy hand. It’s more important than you realise.

    I’m “Left”, Richard, which predisposes me to question everything. Even so-called “self-evident truths”.

  42. Richard Leggatt

    Yeah you got me! I’m an intellectual inferior, I left school at 13, and I’ve worked for 52 years and not in economics. I reckon that makes me an ordinary Australian just trying to comment on issues that affect us everyday and I’m saying that for the ordinary Australian in the street, there is no point in talking about MM theories, It’s not the way Governments talk to us, and it’s not the way the ordinary Australian understands things. It’s pointless talking in a sophisticated manner if it’s of no use to the average understanding and will never be discussed in the mainstream media.

  43. Tia

    My question is ..is the GST a LEGAL tax? Last I heard, the GST tax had not passed as a “legal” tax, it was still underdispute between the tax office, the legal system and Parliament(?) that was a couple of tears ago, be interesting to hear if anybody knows about this!

  44. stephentardrew

    Globally Quantitative Easing is supporting the banks’ balance sheet covering toxic derivatives rolled over into the further financial speculation while none of the capital is invested in development and growth. Meanwhile rather than predictions of rate rises interest rates have remained low and are heading towards deflation. Ergo QE is causing deflation. Financial investors and banks are making profits from financial markets as ordinary investors returns are near zero. Austerity is not about debt reduction it is wealth confiscation e.g. tax on deposits as suggested by Hockey. Increase in GDP and corporate profits occur alongside increased unemployment, reduction in wages and standard of living reducing personal wealth as private debt increases with austerity. Off-shoring of profits further undermines and weakens the currency due to a lack of investment in growth. We escaped the financial crisis only for the L-NP to treat our economy as if we were a basket case like Greece Spain, Ireland etc. fooling people into believing we have a debt crisis when we don’t. Meanwhile having talked down the economy it is now shrinking and suffers from a lack of confidence at a time when further stimulus and investment in infrastructure would increase employment and stimulate the economy. I have a reasonable handle on MMT however the facts are obvious no matter what economic theory you wish to espouse because we are in crisis when there was absolutely no necessity for it. Labor’s economic policy was already reducing the debt and acting as stimulus while the L-NP reversed the trend through uncalled for austerity and refusal to move more of the burden towards the wealthy corporations and financial sector. Axing the resources tax and carbon price was an act of gross stupidity that simply increased the debt. Have we all noticed the debt has gone up dramatically under the conservatives? And they have the gall to say it is Labor’s fault.

    There is a transfer of wealth from poor to the rich with subsequent increase in inequality and poverty. We do not have a debt problem. With the current lack of inflation and low interest rates we could print money investing in infrastructure until industry takes up the slack through growth in private spending and confidence which would naturally reduce the debt.

    Meanwhile the ship is sinking while arguing about the minutia and not the main game. The L-NP have deliberately turned us into a feigned basket case simply to protect their corporate and financial masters, to increase the pool of low income workers, and to rip off ordinary Australians.

  45. Kaye Lee

    Tia,

    I hadn’t heard anything about that. The principal legislation in relation to GST is the A New Tax System (Goods and Services Tax) Act 1999 (Cth). As far as I am aware there are no problems with that legislation.

  46. stephentardrew

    Tax avoidance.

  47. Kaye Lee

    As to the debate about MMT, proponents need to be patient when explaining to newcomers to the idea because, as Richard says, it goes against natural instincts.

    The way I understand it, when governments (who have sovereign currencies) want money they issue bonds which people buy because they are a good stable investment. These bonds are created out of thin air. We pay a fixed price (interest) to have the use of that money for a fixed period. When the bond becomes due we can just issue more bonds. Taxation is used as a tool to control the amount of money in circulation. I think it is confusing when MMT says that taxation doesn’t fund government spending because clearly they do spend the revenue raised from taxation. I would rather say that government spending is not constrained by taxation.

  48. John Armour

    Richard,

    You’re using your lack of formal education to avoid engaging with, what is at heart, a very simple thing, but you say you are “an ordinary Australian just trying to comment on issues that affect us everyday”. Well, as issues go, this is a biggy.

    That you, like so many “ordinary Australians in the street”, are content to believe what is easily demonstrated to be nonsense, is a measure of how much wool has been pulled over our eyes.

    If you believe that the government needs our taxes to fund its spending, you must also believe that the government is financially constrained, like a domestic household, but have you ever wondered where money comes from?

    It follows that you must also then believe that the government has to tax, borrow, or sell assets to fund spending.

    You then have to believe that deficits are inherently bad things as eventually the government will have to sell stuff or raise taxes to pay for our “wants”.

    At this point, our current government and it’s neo-liberal minders have you exactly where they want you, meekly accepting that austerity, the cutbacks in welfare, privatisation of assets, ‘user-pays’ university education, high levels of unemployment, and all the rest of it, is a burden that we must accept or pay dearly down the track.

    Which class of Australians are most adversely affected by these sorts of policies?

    None of those beliefs I listed above however is true.

    The reality is that the government can “print” all the money it needs, the only constraint being that spending be kept within the capacity constraints of the economy so as to avoid inflation. Taxation serves this purpose. In the limit, every cent of government spending is taxed back and destroyed.

    A government that understands this can safely spend to take up the slack and keep ordinary Australians in work. This however is not in the interests of the neo-liberal ideology.

    Your reaction to my statement that taxpayers do not fund anything is typical, but understandable. As Keynes said, it’s not that the new ideas are difficult, it’s getting the old ones out of your head that is the difficulty (or words to that effect).

    Finally, you probably still have a nagging worry about “the debt”. The debt is just the accumulated stock of deficits and serviced by the same money creation process the government uses every hour of the day. Following the rules of double-entry book-keeping however, the debt is actually our (the people’s) financial asset.

    Whenever you hear fear-mongering talk about the deficit, or debt, just realise that you are being conned.

  49. Richard Leggatt

    Modern Monetary Theory Means We Shouldn’t Have A Progressive Tax System
    Forbes Magazine. Author Tim Worstall

    Just a small thought here about one of the implications of Modern Monetary Theory (MMT). Which is that if we do accept that this is the way the world should be run then we almost certainly should not combine it with a progressive tax system. Indeed, the implication is that it would require a deeply regressive tax system in order for MMT itself to work.

    Leaving aside all of the detail and nuance MMT is essentially the observation that governments can and do print as much money as they like. Quantitative easing, QE, is a perfect example of this. The money can be spent on real world goods if the government so desires. So why don’t we just do this? Why bother with all of this nonsense of governments taxing people to provide the money to do things, borrowing at interest from the banks and the rich and so on? Just print the money and spend it!

    There are some obvious objections to this. If it were all so simple then surely someone would have tried it before: to which the answer is no, not really, because this only works in a world of purely fiat money. And we’ve only been in one of those for 40 years or so. Well under the amount of time necessary to explore all of the possible policy space. Another might be that Zimbabwe did do exactly this and they ended up running out of the currency needed to buy the ink to print more currency. So perhaps it’s not quite that simple?

    The answer, in MMT, is that we do still need to have a taxation system but it’s not there for the purpose of raising revenue. Instead it’s a method of managing demand in the economy, of reining in that surging demand being produced by simply printing more money and spending it. If you like, the government creates money and spends it and then collects in some portion through taxation and destroys that money. In this manner we do indeed have a budget constraint but it is the acceptable level of inflation that provides it, nothing else.

    Now, my objection here is the incentives it provides to politicians. Currently their nuttier schemes are held in check by the fact that they do, in however desultory a manner, have to get the money out of the populace in some manner. If they can just print as much as they like they will (no, I am not at all cynical about politics, the political process nor politicians) and have enormous fun spending it. Their aim of, as ever, winning re-election by not taxing people too much will almost certainly lead to the level of taxation being lower than that inflation stymieing rate. Thus, I consider MMT, when confronted with political imperatives, to have a high inflation rate baked in.

    But leave that objection aside: what is the implication for the tax system under MMT? Currently, we insist that the rich should pick up a goodly chunk of the tax bill because, well, they’re the rich. It’s Willy Sutton’s “Because that’s where the money is”, or Adam Smith’s paying in greater than proportion to income. Or simply the moral point that those with lots of money should be paying more into the common pot than those without lots. None of which I have any problem with. Indeed, there are very few indeed who do: even flat taxers are in fact arguing, once a personal allowance is included, for a policy that increases the average rate of taxation as incomes rise.

    But all of this changes under MMT. Firstly, that moral argument that those with more should pay more fails. Because no one is in fact paying for government through taxation. That’s coming purely from creating new money. Secondly, a system of taxation designed to prevent inflation would look distinctly different from one designed to raise the revenue with the least hissing of the geese.

    For example, wealth is not inflationary: thus under MMT there would be no justification for taxing wealth. Indeed, incomes are not inflationary: thus don’t tax incomes. Nor are savings, nor income from savings. We’ve thus obviated pretty much the whole of our current taxation system: except for two things. Pigou taxes and consumption taxes: these would still meet the theoretical needs of our system.
    Pigou taxes for the obvious reason that we don’t impose them for their tax revenue: we impose them so as to change market prices and thus deal with externalities. The revenue is an after thought, a welcome one true, but still not the point at all. Which leaves us with consumption taxes: these are necessary in our pursuit of inflation. For of course it is the buying of things with that great flood of new money which produces the inflation in the first place. It is here that we would need to be collecting our inflation busting taxation therefore.
    And the thing about consumption taxes is that they are, by definition, regressive. At least if we accept Keynes’ idea of the marginal propensity to save they are of course. For those with higher incomes will save a larger portion of their incomes than those with lower. Thus lower income people will be paying more in that inflation busting tax upon consumption (say, a sales tax or a VAT) as a percentage of their incomes than richer people will be. For they spend a greater portion of their income on consumption subject to that consumption tax.
    All of which really rather amuses me to be honest. The people who support MMT tend to be over at the more progressive end of the lefty spectrum. Not entirely but it’s a definite tendency. And these are entirely the people who would be horrified at the thought of abandoning progressive taxation in favour of a regressive system. But as far as I can see MMT destroys the argument in favour of progressive taxation and, given that we only tax now in order to curb inflation, insists that we must move to an entirely consumption based tax system. One that will be, by necessity, a regressive tax system. I wonder how they justify this to themselves: or even, to be honest again, whether they’ve even noted this contradiction?

  50. stephentardrew

    Great point Kaye.

  51. John Armour

    “The way I understand it, when governments (who have sovereign currencies) want money they issue bonds which people buy because they are a good stable investment”.

    The process actually works in reverse KL. Bonds are issued to remove excess reserves from the banking system so the central bank can manage the interest rate. It’s got nothing to do with funding government spending even though it looks that way. If bond issuance didn’t match deficit spending the interest rate would fall to zero.

    “I think it is confusing when MMT says that taxation doesn’t fund government spending because clearly they do spend the revenue raised from taxation”

    That implies a fixed stock of money that gets recycled which is clearly not the case. Thinking that way obscures the reality. Taxes are accounted for but have no further use.

  52. stephentardrew

    Apprecciate the link mars8.

    Job creators piffle.

  53. stephentardrew

    John Armour:

    Is there some sort of flow chart that could help clarify these issues and give some visual clues as to their logical connectivity.

  54. Kaye Lee

    I’m sorry John but I cannot understand that. If neither taxation nor bonds fund government spending then what does?

  55. John Armour

    “I’m sorry John but I cannot understand that. If neither taxation nor bonds fund government spending then what does?”

    It’s fiat currency, Kaye, which the government creates out of thin air.

    When the government creates a dollar, and spends it, it circulates in the economy until, nibble by nibble it’s eaten away by tax. In the end it all comes back to the government.100%.

    The idea that our currency is not “backed” by anything freaks some people out, but the gold standard had hair all over it.

    As I commented under an article by John Kelly a year or so ago, I said money creation was like a hydro-electricity scheme…government created “rain” from the sky, then dammed up before churning through the turbines to provide the energy to drive the economy, and then flowing freely to the sea (taxation).

    John said the analogy lit up a light bulb for him and off he went to write those two great articles on MMT, and more since.

  56. John Armour

    Is there some sort of flow chart that could help clarify these issues and give some visual clues as to their logical connectivity.

    I’ve got my own diagrammatic explanation Stephen which is really useful. I can’t post it here but will try to describe it in narrative form later when I’ve had time to think about it.

    Meanwhile, you could google “DIAGRAMS & DOLLARS: Modern Money Illustrated” by a US architect J.D. Alt who developed an interest in MMT.

    I think “New Economic Perspectives” had a short version on the website. While you’re there, find his “Real Dollars and Funny Money”. It’s a hoot!

  57. Kaye Lee

    I understand all that John. That is not what I am asking. When you say the government creates money out of thin air, I thought the mechanism they used to do this was issuing bonds.

  58. Richard Leggatt

    And the real question is….what’s the alternative? And how would you go about putting it in place? Or are you just suggesting that we ignore “Debt” completely. And as the article I posted intimates, how would you control inflation?

  59. John Armour

    Richard Leggatt,

    Nowhere in the MMT literature will you find prescriptive taxes. The position of MMT from my understanding is that the levying of taxes is a political issue and doesn’t buy into it.

    You’ll note the author of that Forbes avoids any mention of references or sources for his assumptions.

    He has picked a fight with a strawman of his own making. It is worthless.

    And BTW, the origins of the Zimbabwe hyper-inflation (and the Weimar Republic’s) had nothing to do with “printing money” but everything to do with the destruction of the productive capacity of the economy, the reverse side of “too much money chasing too few goods”.

    Knowing a bit of history is useful when discussing economics.

  60. Richard Leggatt

    I’m not trying to pick a fight now, I’m just asking the questions, what’s the alternative? And how would you go about putting it in place? Or are you just suggesting that we ignore “Debt” completely. And as the article I posted intimates, how would you control inflation?

  61. Florence nee Fedup

    I have noticed another perception in the community. People saying, once money is spent, it is gone., They see money as being finite, I assume can only be spent once. Debt can be good or bad. When it comes to government, I see debt as investment in building infrastructure for future growth. By the way, a damn lot more than building roads.

    I see no sense in having surpluses, if it means cutting back on essential services. we cannot grow , be a part of the Asian Century, without a highly educated and skilled workforce. Innovation and research. State of art communications which means fibre to the premises.

    It cannot be achieved without building a civil society, The growing gap between rich and poor, bigger cut of the pie can only leads to disaster.

    We live in a society, which needs an economy to sustain it. Not an economy served by society.

    As I just heard someone talking about what the reserve bank will do today. He said we are better off not having unemployment. Better off not having a recession.

    If this happens, it will mean spending more for the economy to recover.

    I kinda believe, a stitch in time saves nine.

  62. stephentardrew

    Richard: Google the article John Amour suggested will help clarify the issue. Well worth a read.

    “google “DIAGRAMS & DOLLARS: Modern Money Illustrated” by a US architect J.D. Alt who developed an interest in MMT.”

  63. Terry2

    I find this talk of MMT confusing at a time when governments are crying poor and see the sale of public assets – many of which are revenue generating – as a panacea to our problems.

    We frequently look to Singapore as a template for good economic management and in the context of private ownership of public assets they would rarely see that as a viable alternative but rather, the assets (particularly power generation and distribution) are held by the government owned Central Provident Fund (CPF) – which is the compulsory saving system for superannuation, healthcare etc – in trust for the nation and all revenues go back to the people through the CPF rather than into private hands.

    Surely, privatisation would be uncontroversial here if we ‘sold’ these assets to public entities such as the Future Fund or a national pension fund ?

  64. Richard Leggatt

    stephentardrew, Hi Stephen, I have now read the article, and in essence I do understand the principles of what is being said, what I'[m asking is, how will that knowledge help us? I got owned yesterday and to some extent, quite rightly, but I thought John Armours’ original post was pretty superior and patronising. Others took me to task, but Johns responses since have been polite and constructive, It has certainly caused me to stop and research, but I am still unable to determine how, if the concept works, we can deliver the political will to be prepared to be that bold?

  65. stephentardrew

    Richard change takes time and effort. All we can do is spread the word and hopefully bring about change before too much serious damage is done by left and right hanging onto a thoroughly discredited neo-con, supply side, economic rationalist paradigm.

    Unfortunately people resist change for no other reason than they are afraid things will get worse. Well they are getting worse because things have not changed.

    Decades of more of the same cyclical boom and bust is just straight out economic masochism driven by the doyens of power and greed.

    Continually repeating failure is just straight out dumb and moronic.

  66. John Armour

    When you say the government creates money out of thin air, I thought the mechanism they used to do this was issuing bonds.

    That’s certainly the appearance KL, but it’s not so.

    As I said earlier, the issuance of bonds comes after the fact of the spending.

    The reason is this: when the government deficit spends (spending>taxes), excess reserves build up in the banking system as the recipients of govt payments cash their cheques, the proceeds of which finish up (until they’re spent) in the reserve accounts commercial banks keep at the RBA.

    Apart from a small support rate the RBA pays on these reserves, they earn very little for the banks so the banks try to offload them to other banks for a better return.

    If the banking system overall has excess reserves, the competitive pressures to offload drive the market rate for these reserves towards zero.

    The inter-bank market rate is also the overnight or cash rate that the governor of the RBA gets paid to manage and keep in a tight corridor. To keep the rate on target, the RBA issues bonds in a swap for the banks’ excess reserves and by doing so, removes the competitive pressures driving the rate downwards.

    The government is effectively just borrowing back the money it just spent.

    Not exactly a simple story KL but you can probably see why the alternative story of bonds financing public spending is an easier “sell” whilst at the same time reinforcing the phoney debt story.

    When overseas buyers snap up our bonds on the secondary market, idiots like Barnaby Joyce scream about how we are borrowing from foreigners to fund the deficit when it’s nothing of the sort.

    The funny thing is that all this is quite discretionary. The RBA could just pay the banks a rate equal to the cash rate for their excess reserves and abolish bond issuance altogether. Blood would flow in the gutter at Martin Place however as bond traders (who have private school fees to pay) stormed the RBA looking for the governor.

    Here’s a good link that covers all this:

    Deficit Spending 101 part 3

  67. Lee

    Richard Leggatt, people on low incomes may not spend money on BMWs, but they sure are spending money in a myriad of ways that has GST attached. For instance, once upon a time there was a single household telephone. Now every member of the family has a smart phone. How much more is that costing the family than their single landline? Some of my work colleagues had a discussion this morning about how much they are paying for pay tv – over $100 per month. One woman from a family of three pays $1500 per quarter for her electricity bill. That blows my mind. I’m not sure if I could even manage to get my electricity bill that high if I tried. How many people do you know who own a computer (either PC or laptop) plus a tablet plus a smart phone? We live in a consumer society and people are consuming at record levels. All of these goods and services are attracting GST.

  68. Lee

    Warren Mosler has a very informative book and it’s available online for free here.

    7 Deadly Innocent Frauds of Economic Policy

    http://moslereconomics.com/wp-content/powerpoints/7DIF.pdf

    We’re being conned by our government and the only political party I’ve encountered who are telling us about MMT is the Australian Progressives.

  69. flohri1754

    Regarding elections …. a few general thoughts …. well, actually two …. about them in a “perfect” world:

    1) The government SHOULDN’T be allowed to make election promises. It should run on the record it has created while being the government. If, after two years or three years their record is dismal, that should be what they have to deal with … no promises for the future. That should be up to the party that has been out of power — they should have to lay out (and early) what their ideas for operating IF they are given the chance to be back in government.

    2) When an election is called, that is when the campaign begins …. none of this delayed election launch baloney. Mere media manipulation. An election date is set, and right then campaigning begins.

    In this “best of all possible worlds” ….

  70. Lee

    John Armour, is it correct that GST does not fund anything? I thought GST went to the states and they do need to have the money coming in so they can spend. Am I mistaken?

  71. Lee

    “I’m saying that for the ordinary Australian in the street, there is no point in talking about MM theories, It’s not the way Governments talk to us, and it’s not the way the ordinary Australian understands things. It’s pointless talking in a sophisticated manner if it’s of no use to the average understanding and will never be discussed in the mainstream media.”

    Sorry Richard, I disagree. We do need to talk about MMT because the government is lying to us. They have convinced ordinary Australians that we need privatisation and will be better off for it. In reality, their decisions are only of benefit to their wealthy party donors and the rest of us are being saddled with rising unemployment, loss of valuable social services and rising debt. The US government has been pushing the austerity model and look where they are today. 80% of Americans are now living in poverty or close to it. Without the knowledge of MMT and how we are being conned by the people we elected to run the country, we cannot fight back and demand better government that represents everyone, not just the extremely wealthy.

  72. John Armour

    Richard,

    Congratulations on persisting.

    At the moment there’s not much any individual can do except become an activist. You probably need to spend a bit more time getting on top of the subject before you’re comfortable cutting loose in, say, The Guardian or The Conversation.

    It’s not hard, but a lot of MMT is counter-intuitive and contradicts almost everything you hear and read in the media.

    Bill Mitchell’s blog is a fabulous resource with over 2000 articles in the archive. If your head can’t handle the sort of detail Bill gets into just yet, go to the MMT Primer on New Economic Perspectives, written by Bill’s colleague and co-author of their new textbook, Randall Wray.

    BTW, have you seen this article by Tim Worstall, the Forbes bloke, on the subject of one of MMT most well-known proponents, Professor Stephanie Kelton’s appointment as Chief Economist (Democratic Party) on the Senate Budget Committee. He’s still terrified of MMT, but he’s admitting more and more that it’s correct.

    He’s still banging on about Zimbabwe and the Weimar Republic.

    Watch Out, MMT’s About, As Bernie Sanders Hires Stephanie Kelton

  73. John Armour

    John Armour, is it correct that GST does not fund anything? I thought GST went to the states and they do need to have the money coming in so they can spend. Am I mistaken?

    It’s just a bit of sleight of hand. The ATO collects the tax, accounts for it, after which it is effectively destroyed.

    The Federal government then just credits the state treasuries with fiat money that is no different from grants, but on a dollar for dollar of total GST collected basis.

    Dedicating the GST to state government purposes was just part of the marketing of the GST. People weren’t able to accuse the federal government of a “tax grab”.

    It still leaves for the states any money they need over and above the GST to be raised from internal sources, such as stamp duty, because they are financially constrained, unlike the fed. They have to try to balance their budgets, or raise taxes to pay interest on loans (just like the Eurozone countries).

  74. Lee

    Ah.. ok. Thanks John. You’re always an informative read. 🙂

  75. totaram

    In all this talk of MMT, it’s worth pointing out that some confusion is caused by the fact that state budgets are different, as the states are not able to “print” money. It then boils down to arrangements between states and the commonwealth. If you have the (unnecessary) arrangements you have in the Eurozone, you get Greece and its current problems. But Australia can never be like Greece, because the Greeks gave up their sovereign right to create their own money.

  76. Wally

    “Perhaps it is time to have a new top bracket with 55c for each $1 over $300,000” Why not 75c for each $1 over $300,000? Considering the difference between the minimum wage and more than $6,000 a week I think the higher the top tax bracket the better. You cannot earn $6,000 a week from your own work it is only possible from leveraging so it is legalised theft in my eyes! And I am referring to wages/salary received by an employee from a company. Returns on money invested is different.

  77. Matters Not

    John Armour et al, while I understand that we have a fiat currency and can create money out of thin air, can you explain to me why we ‘borrow’ monies internationally?

    Surely we can ‘fund’ economic growth ‘internally’ using our ‘fiat’ currency?

    If this ‘fiat currency’ is so liberating, and allows us to do virtually what we want then why do we have the economic malaise we seem to be experiencing?

    In short, why do we have to borrow?

  78. John Armour

    The short answer to your excellent question MN is that we don’t.

    Firstly, what most call borrowing (to cover the deficit) is not actually borrowing. It looks like borrowing but it’s actually a monetary operation where the central bank issues bonds to mop up excess cash reserves and keep control of the cash rate, the rate the RBA just left at 2.25% (because Glenn Stevens realises we are now ‘pushing on a string’) See my reply to Kaye Lee’s question yesterday (3.51pm)

    Secondly, the bonds are issued in our currency so it doesn’t matter who buys them. We pay the principle and dividends with keystrokes, not taxes. That doesn’t stop morons like Barnaby Joyce banging on about how we owe shitloads to foreigners and how we’re going broke. He hasn’t said that for a while now, at least not since the deficit has continued to grow on Hockey’s watch.

    That some 70% of our bonds are bought by off-shore entities is an expression of the regard foreigners have for our us and our economy. In the US, domestic buyers predominate (for US Treasuries).

    The “debt” is the accumulated stock of deficits and hopefully no government will ever try to “pay it off” because the debt is an asset of the people. Furthermore, simple accounting shows that without deficits, households can never save enough to pay down their record private debts.

    So when Hockey says a child born in 10 years time will inherit a debt of $20,000 (or whatever) he is talking total crap. The child actually inherits an asset, hopefully in the form of a new school library or a freshly minted teacher. Hockey has it exactly arse-about.

    A former Deputy Secretary of the US Treasury (Frank Newman) has written an excellent book calling bullshit on the whole debt myth (“Six myths that hold America back”). In a footnote he encourages readers to engage with MMT. There’s a YouTube of Newman you could google with Newman talking about his book.

  79. Matters Not

    Thanks John.

    Re the The six myths:

    1. Asian nations are bankrolling the U.S.

    2. Treasury issued securities crowd out the private sector

    3. If everyone tries to save more, the nation will save more, and investment,
    GDP, and employment will increase

    4. If the government reduces the deficit, then national saving and
    investment will increase

    5. Today’s deficits create great burdens of tax for our children

    6. If the U.S. does not get its deficit reduced soon, treasuries will face the
    same problems as Greece and Ireland.

    Certainly counter-intuitive.

    Found this link to be very helpful. Short article well worth a read.

    http://www.forbes.com/sites/kenrapoza/2011/12/05/author-examines-six-myths-about-u-s-economy/

  80. stephentardrew

    Thanks Matters Not interesting post.

  81. townsvilleblog

    As Kaye’s article was based on taxes I shall continue here theme and suggest that it is not personal income tax or GST where the problem lies. Rather it is the tax avoidance industry lead by Australia’s largest companies and multinational corporations who find their ways around our taxation legislation. It is here that Australia’s revenue problem lies with an estimated $8.4 billion each and every year being avoided. The workforce should have floating taxation percentages, as in when the CPI increases and wages catch eventually catch up the indexation of taxation levels should rise with CPI so that one would only go into a higher tax bracket if one were actually in a better position in life.

  82. Lee

    Income tax avoidance by corporations does not lead to a revenue problem because it doesn’t fund anything. This point has been raised in many blog posts here and also in the comments responding to the blog posts, including in the comments above.

  83. Terry2

    Lee

    I think you are saying that the ‘avoidance’ [of tax] doesn’t fund anything, aren’t you ? If so I agree. But surely, the non-avoidance (ie payment) does fund things ?

  84. Lee

    Terry2, are you saying that the extra money corporations keep instead of paying it in taxes does fund their own spending? Yes it does and it isn’t fair to the businesses and individuals who do the right thing. (By right thing, I mean complying with the spirit of the law rather than the letter of the law, where they are using creative accounting to avoid paying tax.) That is a completely separate issue, and in my opinion is providing a diversion from a more pressing issue at this point in time.

    I see the most important issue is that the tax these corporations should be paying isn’t funding any government programs. A government crying poor when the nation is sovereign to its own currency is an incompetent and lying government.

  85. Kaye Lee

    I have a question. When the federal government gives money to, say, the states, where does the debit show up?

  86. John Armour

    “When the federal government gives money to, say, the states, where does the debit show up?”

    At the Treasury’s reserve account at the RBA I’d imagine, with a balancing credit to the reserve accounts of whichever bank(s) handle the affairs of the states.

  87. John Armour

    @Terry2,

    “But surely, the non-avoidance (ie payment) does fund things ?”

    I know it’s counter-intuitive and defies “common sense”, but that’s the brutal logic underpinning sovereign fiat currency monetary systems, money backed by nothing. Created out of thin air, and like those manhole lids on stormwater drains say, “flows to the sea”.

    Actually, it’s backed by the fact of taxation: if you don’t pay your taxes in the state currency you go to gaol.

  88. jimhaz

    My gut feeling remains that Newman’s arguments, though probably technically true, leave out issues that would negate them in relation to Australia’s situation.

    I have no basis on which to argue this, certainly not the knowledge. They just seem too dependent on the current paradigm, where the US dollar is the world’s money exchange king, lasting forever.

    In any case I will never trust the arguments of a banker, particularly where they seem counter-intuitive.

  89. John Armour

    The reserve status of the US$, the size of the US economy, or even US “exceptionalism”, is irrelevant to the underlying principles, jimhaz.

    The currency arrangements, vis a vis bond issuance, debt, etc of Australia and the US are virtually identical. Same for Japan, Canada, and the UK.

    I’d ignore the “gut feelings” and take what Newman says a bit more seriously, because he is a banker, and right out of paradigm.

  90. stephentardrew

    Mobius Echo:

    I do like this from your article by Rebecca Rojer.

    Money scarcity is basically a political decision, as with Congress’s imposition of an arbitrary limit, the “debt ceiling,” on the amount of money that the federal government “borrows.” It’s largely motivated by those who would like to keep wealth concentrated in the hands of a few (who can personally benefit from the metaphorical printing press via government spending or direct access to the Fed).”

    Sound familiar.

  91. Kaye Lee

    And where do the deposits for Treasury’s reserve account at the RBA come from?

  92. Terry2

    I’m just hearing Andrew Robb telling Geraldine Doogue that the TPP agreement is being democratically negotiated : that according to Andy requires negotiation and signing off on the final agreement in secrecy and then submitting the deal to parliament to ratify – ratify in this context being to ‘rubber stamp’.

    No, Andrew, in a democracy you bring the final draft back and open up debate and discussion both within and without the parliament and then we, as a sovereign nation, note our reservations and amendments and if a satisfactory compromise can be achieved, we ratify.

    This lack of transparency is not supportable.

  93. Kaye Lee

    From ross’s link

    “the evidence suggests that the politically smart thing might well be to impose a pointless depression on your country for much of your time in office, solely to leave room for a roaring recovery just before voters go to the polls.”

    Beware the sweeteners

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