Ken Henry on tax, inequality and capability

I made reference earlier this year to the tax review being undertaken by the federal government. It is being chaired by Ken Henry. A recent speech by Dr Henry titled “How much inequity should we allow?” might tell us something of the flavour that is final recommendations may take. It is worth a read in full but I thought I’d share a few snippets for consideration. Not a coherent summary just some snippets;

In the face of competition from countries with low company tax regimes, higher company tax rates could work to reduce overseas investment in Australia, which could reduce the number of jobs available, lower the demand for Australian workers and, in this way, lower wages. This is the reason why many economists argue that, in the long run, company tax affecting mobile capital is paid by labour — predominantly geographically immobile unskilled labour.

Not all redistribution policies are inimical to national income growth. Many redistributive policies seek to address market failures that reduce national income. For instance, capital market failures mean that those with low income are unable to borrow to properly invest in their own human capital despite high private and social returns.

However, the provision of public housing can discourage workforce participation to a far greater degree than rent assistance. As public housing tenants’ rent is linked to their income, their effective marginal tax rate is 25 percentage points higher than if they receive rent assistance, which is not subject to a separate taper. Further, a public housing entitlement is linked to a specific house and may be lost if a person needs to move for work or other reasons. Rent assistance, by contrast, is fully portable, which may enable recipients to choose housing that they prefer.

Perhaps a simpler way of distilling all three points is to say that rights are important and income redistribution worthy, but on their own they not enough.

7 thoughts on “Ken Henry on tax, inequality and capability

  1. isn’t this bullshit?
    Many redistributive policies seek to address market failures that reduce national income. For instance, capital market failures mean that those with low income are unable to borrow to properly invest in their own human capital despite high private and social returns.

    Aren’t student loans available and all sorts of student assistance?

  2. “isn’t this bullshit?”
    .
    Yes, it is bullshit. Of course, it depends on the lifestyle you want and hence the amount you are willing to sacrifice in the short term, which appears to be around zero for may Australians.

  3. I lived off noodles when I was saving for my car (and my computer, come to think of it…). Screw the people that want it now, they should be working for it :/

  4. Income redistribution could be viewed as a zero sum game, or not? It helps some at the expense of others, or does it?

  5. It’s clealry negative sum, Angelique, since it kills incentive… but even if it were zero sum – that’s hardly a reasonable defense of theft.

  6. Zero sum implies we all get the same utility from an extra dollar. I doubt this is true. I suspect there is some amount of redistribution that increases overall utility however I doubt it can be readily measured or that it entails tax rates as high as what we have these days.

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