Senator Andrew Bartlett
Wednesday, April 06, 2005
 
Interest rates and Tax (and hitting the road)

The decision by the Reserve Bank not to increase interest rates has kept media-political debate firmly on economics. There seem to be diverse views as to whether this was a wise (non)move or not – John Quiggin and Ambit Gambit thinks it’s good, Henry Thornton isn’t so sure and this piece from The Age shows there’s plenty of other views amongst other economists, including people still insisting that the Bank got it wrong last month. This non-rise seems to have generated as much controversy as a rise would have, although perhaps with less heat. My gut feeling is that this diversity of views reflects the uncertainty and apprehension people are feeling. I think people are rightly worried that we may be heading for some serious economic unpleasantness and are unsure if we can avoid it, and if so, how. I’m not sure if we can, but putting all the responsibility on the Reserve Bank and the one lever of interest rates is silly, when the Government has control of so many other levers.

The tax debate is part and parcel of this and a piece in today’s Age by Tim Colebatch boils the whole debate down to two simple options – tax relief for higher income earners, or assistance and incentives for lower income earners. It is a bit more detailed than that, but basically it means stacks of dough being directed towards people at the top or at the bottom.

I was especially pleased to see this comment from Colebatch:
“Patrick McClure and his welfare reform taskforce told the Government in 2000 that welfare reform cannot be done by sticks alone: it just won't work. It needs more investment in people, higher spending in the short to medium term to save money over the long term.”

As I’ve written before, few things irritate me as much as the suggestion that the Government’s attempts to implement welfare reform have been blocked by the Senate. This claim is frequently repeated in The Australia, presumably on the basis that the Senate stopped one bad Bill that tried to kick a lot of people off the Disability Support Pension (a Bill we will probably soon see revived in some form). As Colebatch’s comments implies, this Government has never seriously tried to implement welfare reform, because it would have meant spending lots of money on poorer people and social infrastructre, instead of their preferred techniques of porkbarrelling and vote buying.

There is also a need to address the inequities and economic distortions of negative gearing and capital gains tax. There was a good piece by George Megalogenis in the Weekend Australian a couple of weeks ago about the impact these taxes have had on creating absurdly high housing prices, although as he notes, there is no stomach for reform in this area (from Labor or Liberal). I also wrote on this when interest rates went up last month. I guess I’ll have to keep being a voice in the wilderness on it for a while yet.

The tax debate also has to include the overall question of whether to spend significant extra money on infrastructure. It was pleasing to see Liberal Senator Gary Humphries argue the case for this approach in The Canberra Times a week or so ago, rather than following the lead of some of his colleagues pushing for tax cuts for high income earners.

I’m flying out to Birdsville tomorrow to attend a Western Queensland Local Government conference. It’s about as far west as you can go in Queensland, and it’s somewhere this city-boy has never been to before. I go there in the full expectation it won’t gain me a single vote, but I am looking forward to it and expect to find it informative and educational. Hopefully I can provide some useful insights for others attending too. I will be interested to see the adequacy of Telstra’s infrastructure out there, but it’s possible I may have trouble posting to this blog while I’m there. I return from there and go straight on to Sydney on Saturday to address the national conference of the Migration Institute of Australia, so there may be a bit of a pause before the next entry on this blog appears.

posted by Andrew Bartlett @ Wednesday, April 06, 2005 Permalink
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