Budget countdown

To get you in the mood for the budget the government has kindly offered us a sickening “behind the scenes” look at Wayne Swan’s preparations, complete with mothers day flowers and a heart-warming pink-bats story. Enjoy:

Detailed comments can wait until after the budget has been released, though I want to pre-emptively make an important distinction. Tax increases are NOT the same as spending cuts. And tax cuts are NOT a type of government spending. Many commentators fail to make this distinction.

As a so-called “neo-liberal”, I want them to keep the promised income tax cuts and also introduce some spending cuts, with one obvious option to reduce middle-class welfare.

17 thoughts on “Budget countdown

  1. So Rudd reckons the stimulus saved 485 000 jobs. Every three months, Rudd reckons he add 485 000 jobs to our economy? We’d have zero unemployment before football finals if that was true.

    “Mr Costa also criticised Mr Rudd’s essay in The Monthly magazine, published in February, in which the Labor leader gave an analysis of the causes of the global financial crisis.

    “I lost all respect for the prime minister after his essay in The Monthly,” he said.

    “Having went to the election telling us he was a fiscal conservative, he decided to become a neo-Keynesian, neo-interventionist, which is fine but it doesn’t lend you to believe he has the underlying philosophical belief you need to take these hard decisions.””

  2. Mark, the forecast for Rudd’s “saved jobs” came from the same department that forecast a $20Bn 07/08 budget surplus. In the current environment Treasury forecasts have as much credibility as that from the local astrologer.

  3. You can do all the economic analysis you want but if Wayne Swans mother inlaw says it will be a good budget then that’s good enough for me. 😉

  4. “So Rudd reckons the stimulus saved 485 000 jobs. Every three months, Rudd reckons he add 485 000 jobs to our economy? We’d have zero unemployment before football finals if that was true.”

    In the real world, the whole point of a market economy is PRODUCTION of things that society wants. Jobs are a requirement of production and production is required in order to satisfy SPECIFIC things people in a society want. If I want a bicycle and the government through its’ market intervention produces a car, scarce resources have been WASTED.
    If society wants to produce something, worrying about the issue of ‘jobs’ per say is total insanity. Do you really want the government to steal from the market satisfying productive in order to encourage the doing of something that nobody really wants done?
    The RBA is now going to inflate like madmen to try and mask the market adjustments in wage rates. Plenty of new debt to monetize coming online.
    We are setting up for nightmarish inflation and back to the indignity of Fuel watch/Grocery watch propaganda on steroids. Don’t sell your gold, this isn’t a market bubble it’s realty.
    None of us will escape the relative impoverishment the political redistribution of land, labor and capital in contradiction to current bidding preferences from buyers will engender.

  5. That movie doesn’t make Wayne Swan any more likeable than he currently is. God he’s a drop-kick. Hurry up and get Tanner in as Treasurer.

    Hopefully he spends lots of money on tax cuts tomorrow… *rolls eyes*

  6. An interesting counterpoint is to ask yourself- What Would Howard Do? If the Libs had scraped in last time, how would they have handled this, once they ignored the Costello-howard civil war? We’d have had Work-Choices in place, so we’d be a bit more flexible, but what else would be different?

  7. Some types of tax cut are more like a spending initiative even if strictly speaking it isn’t. For instance an across the board flat lump sum tax rebate may be a tax cut in strict accounting terms but in economic terms it looks more like a spending initiative. It is the type of tax cut prefered by demand side economists and not the type prefered by supply side economists interested more in enhancing incentives to produce, than in fiddling with immediate capacity to undertake private consumption.

    Means testing a welfare payment is a spending cut. However in terms of EMTRs it isn’t really any different to reducing a tax benefit. It’s okay to insist we get the terminology correct but in that case simple notions such as “tax cut = good”, “spending increase = bad” go out the door.

    Some tax rebates ought to be reduced (a tax increase) and some means testing of spending ought to be abolished (a spending increase).

    Ultimately this means reform initiatives need to be considered holistically and unfortunately they can’t be easily unbundled.

  8. Nicholas:

    I don’t think the stimulus package would have been as big. They may have actually cut the payroll tax and the spending would probably gone towards infrastructure.

    I also think the states would have been forced to pull their horns in.

  9. Terje — all welfare should be means-tested. Having “rich” people pay tax & receive welfare is pointless churn with several costs and no benefit (other than the political benefit that politicians look nice).

  10. Use of the word “sickening” put a smile on my face.

    My observation from yesterday’s Australian:
    Wayne Swan is attacking Howard’s middle-class welfare and rightly so.
    but in the same breath, he’s introducing more middle-class welfare with the maternity leave promise!
    Hypocrite.

    Re: job numbers, surely the amount of Australian jobs lost lately exceeds the jobs gained.
    Just like the increase in business turn over in the retail sector at Christmas time (probably the only positive example) was far less than the cost of the “stimulus” package.
    Does anyone have a good resource on this? Has anyone out there done the figures? Wasn’t Turnball onto this with job numbers? Hopefully he can come out to publically crush some of Swan’s statements. Hopefully the Liberals aren’t their usual soft selves.
    Actually, I just remembered Fleeced did a post on the out of proportion expense of job creation.

  11. Terje — all welfare should be means-tested.

    Even when the cost of churn is less than the cost of means-testing?

    How much does Centrelink spend annually on trying to make sure the right people are on the right payments?

    How would 30/30 compare to a flat tax and (tax free) citizen’s wage?

  12. Shem, 30/30 is exactly the same as a flat tax & citizens wage. It’s just semantics.

    The cost of churn is huge. Just one example, if a worker with two kids at public school did without the churn, then their tax-free threshold would be $112,500. And that is only health/education churn. It would be higher still if you counted all the other benefits.

    It isn’t hard or very costly to introduce a means-test.

  13. Yes 30/30 is equivalent to a flat tax and a non means tested citizens wage. Which would entail lots of churn. We might consider reforms to such a system in which we either make the tax rate higher for high income earners or in which we means test the citizens wage (less churn). Both modifications are essentially equivalent (and negative) and I don’t see much reason to be more favourably disposed towards the latter simply because there is notionally less churn. The money trail is much the same anyway.

    Quantitative changes in taxation and spending are important but so are structural considerations. There are instances where I would actively prefer that we reduce the taper rates on benefits as a priority over reducing the tax rate on income. Although obviously scrapping the whole mish mash and starting over would be much more desirable.

  14. At the moment we have income tax. As such determining the means of a given person is a sunk cost. If we had no income tax then testing somebodies means would have a high marginal cost.

    Any reform that abolishes income tax is probably ought to do away with means testing. A non means tested citizens wage along with a broadly based land tax or GST (even at a higher rate to what it is today) would suit me just fine as an alternative to our current invasive tax and welfare system. I could live with the churn.

  15. But it’s not Semantics, John. Especially not when you have a PAYG system in place.

    Surely it’d be cheaper to give everyone $173 every week and tax 30% out of all earnings, compared with only giving people income support in weeks they receive less than $576 and taxing the rest and then having to adjust tax taken and welfare given based on actual annual income.

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