You get what you pay for
While their philosophy remains to cut spending and lower taxes, the Abbott government are unlikely to produce an equitable budget.
As John Daley of the Grattan Institute put it,
“If you try to fix on the spending side, you only hit the bottom half. If you fix on the tax side you more or less hit the top half.”
Abbott and Hockey recently attracted the ire of the business community for scrapping the planned cut to company tax.
Increasingly, Singapore, where company tax is 17%, is attracting global corporations (and wealthy individuals) seeking to minimise their tax obligations. Business would like us to reduce our tax rate to something competitive.
What they don’t mention is that Singapore has scant welfare, no free health or pensions. Unemployment, aged care, disability and illness are all the responsibility of the individual or extended family. Many are forced to work into their old age.
While lowering corporation tax makes sense for nations competing with other nations to stimulate manufacture and service industries, for primary industries like mining, there is little need to compete. It is not as if Gina Rinehart can go and mine iron ore in Bangladesh if the tax regime here isn’t to her liking.
And given mining is such a small employer relative to the wealth it generates, a decent corporation tax is necessary if the nation wants to get any wider economic benefit.
Australia is one of two OECD countries (the other being New Zealand) that do not levy social security taxes. In contrast, social security taxes are a large source of direct taxation revenue (27.1% on average) for a significant number of OECD countries.
When it comes to personal income tax, Australia’s top marginal rate of 49 per cent is almost eight percentage points above the OECD average of 41.58 per cent.
However, it is by no means the highest. For those who are willing to exchange high income tax for excellent public services, Sweden (57 per cent) and Denmark (55.56 per cent) are much more appealing destinations than Australia.
While Australia doesn’t tax at the top rate until your annual income hits $180,000, these two Scandinavian nations start a lot lower – Denmark at $86,000 a year, and Sweden at $93,000.
Austria, Belgium, Finland, Israel, Japan, the Netherlands, Slovenia and Spain all have top marginal rates above 50 per cent. Interestingly, this group of countries plus Australia boast nine of the world’s 11 most liveable cities, as judged by Monocle.
This suggests that, as a rule, a high level of income tax corresponds to a high level of liveability.
If the people of Australia want protection for our vulnerable, health care and education for all, as well as improved infrastructure, then we must be prepared to pay for it.
Likewise, if businesses want to take advantage of a wealthy market in a resource rich, politically stable country with well-established infrastructure, then they must contribute their fair share.
You get the society you are willing to pay for.
35 commentsLogin here Register here
Pingback: You get what you pay for – » The Australian Independent Media Network – Written by KAYE LEE | winstonclose
Spot on Kaye.
Insightful and informative as always
A very informative well written piece.
We all need to be clear: lower taxes equal poor services – and this is not just seen in run-downs in Health and Education but in every level of Government service. No need to wonder why you get such slow response to your application or request; it’s because the number of people available to do the job of analysing and ticking off applications etc. has been reduced.
It’s a bit more complicated than that.
I note that Hockey et al realise that the ‘punters’ are really pissed off that the rich won’t pay their ‘fair share’ while they (the punters) have no other option.
It’s biting really hard.
Hockey will try really hard to demonstrate that he is doing something but the truth is his main supporter ‘Rupert’ would get caught in any effective close of the loopholes. In short it ain’t going to happen.
I love Slavoj’s crazy presentations which can be a bit off putting however he is one of the most important philosophers today. His take on local freedom and global apartheid is very enlightening. A communist who understands the death of communism yet sees a new framework of social critique based justice and equity. Some of his books and videos are complex and he tends to leap all over the place however he is well worth the effort for those interested.
Slavoj Žižek: Democracy and Capitalism Are Destined to Split Up
National budget not same household but all budget involve both
Bill Mitchell at the end of this article suggests we spread the word so I copied and pasted his conclusion. For a full text see link below.
Pity Joh and Co can’t read the facts. We seem to be paying for mugs.
“The question that needs to be asked but which we already know the answer is: Why does the IMF continue to advocate harsh labour market policy changes which would undermine job security and wages as part of a structural component of their so-called “growth friendly austerity” when their own economists have found that “labor market regulation is not found to have statistically significant effects on total factor productivity” and hence potential economic growth?
Answer: because they are ideologically motivated and advocate policies that they think advance the interests of capital.
But then they are also incompetent and do not realise that entrenched unemployment is hardly an ideal environment to advance the interests of capital. Short-term gains from an existing output level might be possible but in the longer term these policies are just undermining the capacity of nations to produce.”
Another well written article Kaye.
“Moment please”, as Jiu Jitsu used to ask before he called Dick Tracy.
If we get what we pay for, why, when our pm at around $400G is the highest paid leader on the planet, is ta the worst national leader in global history? Including EVERYONE !!!!!!!!!
“If the people of Australia want protection for our vulnerable, health care and education for all, as well as improved infrastructure, then we must be prepared to pay for it.”
The problem with this statement is that it rehearses one of the more pernicious neo-liberal myths, that taxes fund spending.
If it ended there, it would be nothing more than a text book quibble, but it doesn’t.
It legitimises Hockey’s deeply offensive “lifters and leaners” argument, the “debt and deficit myth”, austerity, and the all the rest of it.
If the people of Australia want protection for our vulnerable, health care and education for all, as well as improved infrastructure, then we must resist with all our might the framing of this debate within the ideological constraints of the neo-liberal agenda, because it’s bullshit.
Taxpayers do not fund anything
An interesting link.
Keynes would be turning in his grave if he could see how far his creation, the IMF, had drifted from his ideals.
Clearly, the IMF economists don’t get invited up to the boardroom for drinkies with Christine and her cronies very often.
Probably not very welcome since they “re-discovered” the spending multiplier a couple of years back and put a big hole in the austerity argument.
So much for the swing to the L-NP.
Federal L-NP support is unchanged at 47% cf. ALP 53% (unchanged) according to this week’s Morgan Poll on Federal voting intention conducted over the last two weekends, April 11/12 & 18/19, 2015, with an Australia-wide cross-section of 3,314 Australian electors aged 18+. If a Federal Election were held today the ALP would win easily.
They don’t WANT a “fair and equitable” budget.
They and their off shore allies want something akin to a form of designed feudalism: we are the dumbed down serfs, kept fearful by Chicken Little stories about “the terrorists” coming to get us, they, the born to rule and their aspirational lackeys, want it all for themselves without question or interference, although nothing ever satisfies them
Stephentardrew’s example, the IMF, is the whole story in a nutshell.
As with the old Twilight Zone episode, when they say they want to “serve humans” they meanas in, a sort of stewed or braised form.
The fracas over the East West Link has shown up a working example in stark releif. Public and social infrastructure doesnt exist to provide a social good or some thing to do with a practical response to real world issues, but exclisively to provide “business opportunities” for the exclusive banking, construction and “development/growth”axis.
You may say it seems very much Cuckoo’s Nest but the lunatic Nurse Ratcheds running it all are as real as they lunatic, insatiably greedy (through lack of personal insight) and obsessively controlly, as the examples of people like Dutton and Robb should demonstrate.
Tony and the great international popularity stakes.
The society he is willing to pay for is wealthy, corporate, oligarchic and fascist endowed with an inbuilt propensity for masochistic self-destructive environmental vandalism.
Our doyen of ignorance and incompetence strikes again.
Australia’s Direct Action climate policy challenged by US, China and Brazil at the UN
So once again we get what we pay for clean earth or poisoned atmosphere. Seems our small minded PM would prefer the latter.
Well damn it look at that Tones there is a whole new world of pollution free energy waiting for you.
Shush the silence is deafening.
Jobs? What Jobs? RET what RET?
Back to mythical la la land so lets just keep that deficit on the move and the tin foil hats in place.
Australia could source 100% of power from renewables by 2050, report finds.
Gina has an abode in Singapore ….. probably a "lifestyle choice" funded by the Australian taxpayer.
For gods sake nobody mention Tinkler ….. who also happens to have an abode in Singapore.
A well developed and written article ….
A well developed and written article ….
I’m sorry Annie B, it’s not.
It’s based on a false premise.
It would’ve been better if it had focused on distributional fairness.
Instead, it addresses the non-existent issue of the government’s budget constraint, and in doing so does a disservice to the progressive cause, for the reality is that if we want better public infrastructure and the like, the only obstacle in our path is an ideological one, not a financial one.
If you want to know what I’m talking about, read last Friday’s article by Bill Mitchell:
Progressives who are neo-liberal
Not a single media commentator or outlet, including online, has picked up on a significant turnaround by Abbott.
In opposition Abbott’s main argument against the carbon tax was that very few other countries were implementing one and no major polluting countries were. For Australia to “go it alone” on a carbon tax would cripple this country and put us at an untenable economic position. He stated at the time if the major OECD countries and polluters like China were to bring in carbon pricing he promised he would support it and follow suit.
Fast forward to today and a large number of countries and most major polluters have implemented or are in the process of implementing a carbon price of one sort or another and Abbott is still not bringing in one as promised. But it gets worse for Australia as recently the OECD highlighted Australia’s recalcitrant position on emissions pollution, making no bones about the fact they will not wear Australia not reducing emissions in line with themselves, and if Australia does not do its fair share then there will be economic repercussions for it.
Spot on Kaye – the neo-lib myth doesn’t stand up to the facts: where low tax/user pays philosophies prevails with its its survival of the fittest (richest) attitudes, the larger community pays the social cost. Nations operating from the premise of inclusiveness and egalitarianism provide higher education, health, and standard of living for ALL their citizens. Inequality just breeds instability. The North African migration exodus into Europe is a prime example on an international level: hundreds of years of colonial exploitation coming home to roost.
Great point, Möbius Ecko.
@ John Amour.
I read the link you provided, and they are admittedly ( by them ) a blog in its’ infancy. …. that does not matter much.
I found some comments on there helpful, and others no so much – the blogger seemed to back and forth at times in his comments, so it was not as succinct as I might have hoped for.
I still think that the article here had merit. … Perhaps the final line ” You get the society you are willing to pay for” was an un-necessary statement … basking on the old ‘ you get what you pay for’ mantra.
We pay ( taxes ) and don’t get our moneys’ worth in fact – – not under this governments projected ideals. But as some comparison to other countries and conditions, the writer ( Kaye L ) …. put forward some interesting facts, and some food for thought.
That’s just my opinion ……….
As usual Dear Leader fulfills his promise as a blustering braggart and the emperor without cloths.
Australian real unemployment still ‘stuck’ well above 10% in March
Now the fun really begins for the L-NP troglodytes. An example of what is to come for those who willingly destroy the biosphere.
From hero to zero.
Do not doubt the repercussions of denialism.
Landmark Dutch Lawsuit Puts Governments Around the World on Notice
In an attempt to bring more joy and happiness into your lives.
More uplifting news about the leader of ‘wait for it, all jokes a side’ the free (manacled) world.
Fast Track to Lost Jobs and Lower Wages
April 16, 2015
by Robert Scott
“it addresses the non-existent issue of the government’s budget constraint,”
To suggest that there are NO constraints on government spending is incorrect John. I am aware that we CAN produce money out of thin air but, as you are aware, we are constrained by our productive capacity which means we DO have to make choices about what we spend our money on. We cannot just flood the economy with money for everything we want. And the main focus of the article WAS about distributional fairness and what happens in other countries.
You never answered my question before – the money that the federal government uses to pay the states comes from a central bank reserve. Where do the deposits for this account come from if not from issuing bonds or taxation?
Scientists Zero In on Only Solution to Climate Crisis
I would never say there are no constraints on government spending. That will be just as silly as as saying deficits don’t matter. I was talking about the “government budget constraint”, which is a very different matter.
“We cannot just flood the economy with money for everything we want”.
Do you really think that’s an honest characterisation of what I wrote?
And honestly, how you can say your main focus was “distributional fairness” when your whole article, from the title to your concluding sentences, was premised on taxation as a financing operation.
“If the people of Australia want protection for our vulnerable, health care and education for all, as well as improved infrastructure, then we must be prepared to pay for it.”
I can see no ambiguity here.
I’ve no doubt you’re as concerned about distributional fairness and equity as I am, but I can’t see where you’ve mentioned it, let alone made it the focus of your article, as you claim.
There is no question that countries that provide high levels of service (public goods) have high taxes, but to claim that high taxes fund those services is to get the causality back-to-front.
Your subsequent comment makes it clear you understand that spending is not constrained by financial , but real considerations, however your article emphasises the former, invalid belief, and in doing so, helps embed the myth, and all the consequences that flow from it. That’s my gripe.
As to the question I never answered, I thought you would’ve answered it yourself about 5 minutes after posting it, so I never bothered. I assumed you had more than just a passing acquaintance with MMT and fiat currencies.
The short answer however is that the payments to the states are simply created.
If you are doubtful, consider this: bond sales cannot fund spending because the purpose of bond issuance is to remove excess reserves from the banking system. If the proceeds of bond sales were spent instead of being written off, they would simply reappear as excess reserves in the next round of spending, triggering more bond issuance, and so on, ad infinitum.
Removal of excess reserves by bond issuance is how the central bank controls the cash rate.
A similar argument applies to taxation.
It is actually impossible for taxation to fund government spending.
A paper by Stephanie Kelton (nee Bell) might help explain:
“This paper investigates the commonly held belief that government spending is normally financed through a combination of taxes and bond sales. The argument is a technical one and requires a detailed analysis of reserve accounting at the central bank. After carefully considering the complexities of reserve accounting, it argued that the proceeds from taxation and bond sales are technically incapable of financing government spending and that modern governments actually finance all their spending through direct creation of high-powered money. The analysis carries significant implications for fiscal as well as monetary policy.”
Professor Kelton is the Chief Economist for the Democratic Party on the US Senate Budget Committee.
How I wish I could join this debate between John and Kaye. … But I can’t – being that I am / was woeful at maths and economics – forever. …. That’s the truth.
But this debate has taught me a lot …. and I am determined to try and understand and learn. ??
This question may be somewhat trite, considering the in depth analysis you have both made. But – I have a couple of questions, so that I might learn more.
How does the leader of a nation ( our nation ) plead soooo poor ( we have been left [ sob ] with a massive deficit by the horrid ALP – the Hockey mantra – ad nauseum ) …. and yet we can find funds to send war troops to fight ISIS ( when we said we wouldn’t ) …. and other lovelies like – intense personal security ( suped up cars with armoured protection installed, multiple expensive air-craft for flights for anyone on the front bench ), and – – – dud American aircraft which is not set to get off the ground for a long long time because of ‘ongoing problems’; and to spend an inordinate amount on ferretting out would-be’s in the case of Islam terrorism on our shores ( which has not been handled at all well, to date ) . ….
And how can we justify the spending of millions to rehouse ( read – imprison ) ,,,, refugees in Cambodia. ?? …… Where does THAT money come from ?
” Funds from $40 million in development assistance provided by Australia will be directed to implementing these arrangements.” – See more at: https://newmatilda.com/2015/02/25/australias-champagne-cambodia-deal-dump-refugees-turning-sour#sthash.t6V7cSPe.dpuf …. this report is only a couple of months old, and while a lot can happen in a week in politics, I have heard nothing that refutes this diabolical scheme, except it has become a little ‘chilled’ ?.
As far as I am aware, there are only a handful of refugees being taken to Cambodia ” to see if the system will work” … for gosh sakes – at a cost of $millions. … This government was taken for a big con ride on that one. …. Only 3 refugees agreed to discuss the matter of their transfer. …. This ridiculous ‘agreement’ has since been unravelling, but we will never recoup the millions spent on it in the first place ??
To a non economics / maths / fiscal stats. bod like myself, it would seem that there ARE no constraints on this governments spending – no matter where they think they might get the money from. …..
They just go ahead and do exactly what they bloodywell like, and to hell with constraints, economics, budgetary considerations, taxation ( or not ), and who will suffer – and who will not.
Well – we know who won’t suffer – …. the rich.
We know who WILL suffer – the poorer in the community.
( in the immortal words of a defunct would-be red-haired politician – – – – PLEASE EXPLAIN !! ).
– – – – – – – p.s. … If you don’t want to explain – that’s ok too. !!
You don’t need maths or economics to understand this stuff. You’re certainly better off without the economics, for, as Keynes said, it’s not that the new ideas that are so difficult, it’s getting rid of the old ones that is the problem.
Without getting into the accounting complexities that arise when talking about offshore spending (military purchases, overseas adventures etc) let’s just deal with the more general question of where does the money come from.
The short answer is that the government just creates it, out of thin air.
We used to have a gold standard, meaning that every dollar created by the government was backed up by physical reserves of gold, but that’s no longer the case.
The curious thing here however is that all the fear-mongering swirling around Labor’s “Debt and Deficit” is pretty much meaningless in the new currency regime, but somebody forgot to tell Joe Hockey.
Sadly, that ‘somebody’ also forgot to tell the Labor Party and the Greens.
That means that all the debate about government spending, deficits etc is being conducted in an unreal space, as if the Earth was flat.
Thanks by the way for taking the trouble to read that link to Bill Mitchell’s blog. It might not have answered your questions but hopefully it whet your appetite.
And here’s a link to a free on-line primer on Modern Monetary Theory written by Professor Randall Wray, Bill Mitchell’s collaborator in a new text book on economics coming out later this year.
And finally, Modern Monetary Theory is not so much a “theory” but a description of the monetary system we actually have. If the word “theory” has any pejorative overtones it should be applied to the fantasy world of neo-liberal economics our Treasurer and his side-kick inhabit.
I am not trying to challenge you, nor do I disagree with what you are saying. What I am endeavouring to do is to understand how this creation and destruction of money is accounted for rather than the conceptual reasons for taxation and bond issuance.
As for the article, when I say you get the society you are willing to pay for, I mean that decisions are made as to how to allocate resources. The real cost is the resources, not the money. But the government cannot pay for all the things we want (inject that much money into the economy) without withdrawing some from circulation through taxation (or bond issuance) – so it still comes down to the choice of what will we pay for and how we will then compensate for these extra funds.
In the Scandinavian countries I mentioned, the top tax rate kicks in a lot earlier but they provide very good social services. This is a redistribution, as is taxing mining companies who make a fortune selling something they don’t own with the profits largely going offshore, particularly when they employ so few people comparatively.
In the light of your responses to my criticisms I can only say that I think you missed an opportunity to make those issues the explicit focus of your article.
Unfortunately, I am sure most of your readers would’ve got the impression that the point of the article was that if you want better services you have to pay for them with higher taxes.
You would have set yourself a more useful task if you had explained that better services are not dependent on taxes, but the result of increased public spending may necessitate an increase in the tax take to keep a lid on aggregate demand.
You might have then explained that with our economy currently in the doldrums, there was little danger of that. In other words, we could enjoy greatly increased expenditure on public goods without any increase in taxes whatsoever.
If the unemployment rate is a good proxy for the output gap, it shows the economy is running well below its capacity.
In the case of the Scandinavian economies, higher taxes are necessary to moderate the spending impact of the income they get from exports (after savings are accounted for) and have little to do with the provision of public services. Most of them have run surpluses on their external accounts for years, Norway perhaps being the most celebrated example.
@John Armour ….
Many thanks for your reply; for taking the time to answer and provide links, to a better understanding. I have read the first link ( and subsequent queries / comments ) and will continue to the next two ‘essays’ when I can. The other link I will have a look at when I finish this comment.
The following will likely show my age ( !! ) … but I was always under the impression, that gold was the reserve upon which any government could ‘ make / print ‘ it’s money. …. Without ‘gold ‘ ( and other resources / reserves ), we wouldn’t have wealth, convertible into paper and coin money to be distributed as wages, compensations, assistance, funding et al. either on cards, as cash, as funds available, or direct into accounts – to be used or saved. [ Of course, that is a consumers’ simplistic view – I realise there is much much more to it than that. ]
The rest of it all is columns of figures on paper ? ….. that is the ” money ” that the government creates out of thin air ? … & that is ‘fiat’ money. ? hmmmm.
So gold does not come into the equation any more – yet the price of gold seems so important. …. It has almost quadrupled in value since the late 1990’s ? …. It is a purchasable commodity. …. ( India and China can’t get enough of the stuff – a Forbes forecast for 2015 !! ) …
While I believe what you have said, I also find it almost quite unimaginable . …. ” Fiat” – latin, means ” to be done or made” … it can be applied to a government decree ( Australia ?? ) … but underpinning that, we must have something to be able to back it all up. …. Ideally it would be to further tax the rich – and tax them hard, but this monstrous government won’t do that to their mates. …. They’ll have no compunction however, in further impoverishing the poor, the underprivileged and the ‘lesser than elite’ bods who are what makes up most of Australia, to ” bring our deficit under control ” [ phffft ] – the deficit they are ADDING to with their over spending of ‘thin-air’ dosh.
….. and by diminishing the opportunities for the young to go to universities because of their monstering of the University costs situation. …. I do hope the Senate stands up to them 100% – on everything possible.
Sorry to be rather rambly in this reply – I seem to have gone all over the place 🙂
Before I make this waaay longer than it already is, – I will end it by again saying thank you for your kind considerations in your response.
Much appreciated John …..