"Today we take a look at the State of Australia's economy through the eyes of respected author and financial / economic commentator, Patrick Callioni and we find that all may not bode to well for the road ahead - take a look at this weeks feature opinion:"
I have been asked to comment on the state of the Australian economy and on whether there should be major changes to how the GST operates.
There are two ways to provide comments, one can do it by way of stating opinions or by stating the facts and allowing readers to daw their own conclusions. I am going to do the latter.
Let’s start with the GST. Arguments are being put within government and in business circles and by cash-starved premiers and chief ministers that the GST should undergo radical changes, including extension to fresh food and to health care and perhaps also an increase.
What are the facts, here they are:
The GST is a regressive tax and it hurts the less well off. When Howard introduced the GST, he was able to compensate for that. Given the state of the budget, the Abbott government will not be able to do so.
Our economy is largely driven by consumption of goods and services. Around 80% of jobs and 80% of GDP is in the services industries, including food and beverages and retail. Despite the propaganda, mining and agriculture provide relatively few jobs and make a relatively small contribution to GDP, while receiving considerable subsidies from taxpayers, from us, guys. Agriculture is even smaller in size and scope, relating to both jobs and GDP. Manufacturing actually provides a larger contribution to employment and GDP than agriculture and mining combined, even in its present diminished state.
Unemployment is already rising in Australia. As the Japanese Prime Minister discovered to his chagrin, recently, when he increased Japan’s consumption tax rate from 5% to 8% all he succeeded in doing is plunging Japan into a third dip recession. Chances are that extending the GST and or raising the rate, let alone doing both, would probably do the same to our economy.
There is much talk of paying the GST to states/territories on the basis of population. Well, first of all, that is not how the agreement governing the GST is supposed to work, we are after all a federation. Secondly, the states agitating for this, Western Australia and Queensland, were for most of their history, dependent on the charity of the rest of Australia. Now that they are doing better, of course, although that is not likely to last, they want to continue sponging on the rest of the country by taking out what they put in, forgetting that the mineral resources they are exploiting do not belong to Queenslanders and West Australians, but to all of us. A good reason why we need something like the mining tax to be brought back.
At the moment, mining companies, largely owned by foreigners are taking far more from us taxpayers than they are putting in. They fudge this by conflating royalties, which is the price they pay for the privilege of mining and profiting from minerals we own with taxes, of which they pay very little and by not counting the various financial and other subsidies they receive from various governments, including, for example, the expenditure on training workers, roads, ports and other infrastructure without which they could not operate and for which we average Aussies have had to pay.
These are the facts. Make up your own mind.
Now turning to the state of the economy. For reasons beyond my comprehension and beyond the comprehension of most economists, the Coalition is considered to be a better economic manager than Labor. This is not so and here are the facts for you to consider:
Let’s start with the last Coalition Government, with Howard and Costello in the leading jobs as PM and Treasurer respectively. The consensus of reputable economists is that the Howard Government wasted billions buying votes to stay in power instead of investing in Australia’s future.
Costello had a limited understanding of economics, in any case. At one stage he declared that he wanted to get rid of the bond market, which is an essential economic stabiliser, together with efficient financial markets, a floating exchange rate and an independent Reserve Bank. Who gave us an independent Reserve Bank, a floating exchange rate and efficient financial markets, with limited exceptions, most of that work was done by Hawke and Keating, a fact, acknowledge even by Howard, if only grudgingly.
The actions of the present Government in economic matters speak for themselves and the less said the better.
With rising unemployment, the Government should forget about balancing the budget, let alone generating a surplus. Doing that will create even more job losses across the economy, as will occur if the GST is fiddled with, as discussed above.
The Government should bring back a form of mining tax, a tax on carbon based on a floating market price, reduce subsidies to the middle and upper classes, and remove subsidies to sunset industries such as mining, especially of coal. It should put in place incentives for sunrise industries such as alternative forms of power generation, which is why the RET should be left as is. Invest in training and education, rather than making them more expensive and put in place measures to transition people from welfare to work that actually get the job done, rather than punishing the victims.
Failure to do this will alienate voters even more than has already been the case and the Baby Boomer generation is already preparing the baseball bats for 2016, as was done to Keating in 1996.
For those who want to read more about all this, I suggest you go to Amazon and buy my book, Harnessing the power of government: A manifesto for a more productive Australia. It is available in printed and Kindle edition. Here is an excerpt from the introduction:
The last few years in Australian politics have been characterised by a startling lack of vision and imagination across the entire political spectrum. It is as if all the leading politicians want to do is to win government – with no idea of what to do if they ever actually get there. It was not always like this, but it is like this now and I see few hints that this lamentable state of affairs might change for the better.
I have written this book to show that government, with brave, thoughtful leadership can achieve much and can create an environment in which individuals, businesses and communities can achieve even more. If nothing else, I hope that this book kick-starts a debate about what kind of Australia we want for ourselves and for the generations that follow us. We can’t change history, but we can create the future we want, if we stop pursuing the lowest common denominator and instead start to build the hard and soft infrastructure we need to succeed.
About Patrick: Patrick is a respected commentator, advisor and EntreHub correspondent in the field of the economy and finacial matters. He is a former senior Autralian Government public servant and is currently a board director and independent advisor. For anyone who wishes to verify Patricks qualifications to provide this commentary, we refer you to his other two books, dealing with issues connected with national and international financial markets, also available from Amazon. They are:
Can compliance be turned into a competitive advantage, rather than a driver of costs? Are financial institutions merely passive recipients of government intervention or is it possible for smart corporates to play a role in shaping regulation and compliance, nationally and internationally? This book addresses these challenges and explores all these opportunities. It provides detailed guidance for those who are responsible for designing and applying compliance regimes in companies. That guidance will be provided in context: legal, social and economic. Understanding the context is essential to anyone wishing to extract value from compliance, possibly turning a cost centre into a competitive advantage.
Written in the middle of a global economic crisis, this book is about a better future. Patrick Callioni identifies and describes the major waves of change that are coming our way over the next decade or so and then provides practical advice on what to do (or avoid doing) to benefit most or suffer least from what is to come. He describes some of the problems with the present regime of regulation “We are regulating to catch the motes of dust floating in the air, rather than the beams that end up poking out the eyes of our financial markets” and suggests “regulation should focus on rewarding the good, rather than punishing the bad”.
He also analyses some of the behaviour that helped to create the ‘Credit Crunch’ – “They took healthy debt – mortgage debt that was likely to be repaid – mixed it up with toxic debt –mortgage debt not likely to be repaid – and then sold the debt on as prime, safe debt, creating untold damage”.
Then he presents the waves of change that are coming: the challenges of new technologies; the business opportunities opened by reactions to climate change; and demographic changes as workers and managers are no longer predominantly baby boomers. He also warns of future signs of impending financial setbacks that should be avoided: “A financial crisis will occur only when the fuel is there, in the form of an investment bubble”.
In his previous book, Compliance and Regulation in the Financial Services Industry, Patrick Callioni successfully predicted most of the course of the current economic downturn. Over-regulation is as dangerous as under-regulation, so he proposes the creation of a federated network of trust. Throughout this exciting book, he emphasizes the increasing importance of knowledge capital, value that is not captured by existing accounting standards, and in particular soft intangibles (knowledge assets, time assets, motivational assets etc) and he proposes guidance on their measurement and profitable management.
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