The budget is the greatest moral challenge of our time? Bollocks

Posted on September 23, 2016 by Warwick Smith

 

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‘The logic that persistent government deficits mean that the nation is living beyond its means is faulty in several respects.’ Photograph: Mick Tsikas/AAP

All the assertions in Malcolm Turnbull’s statement about the budget being a fundamental moral challenge are flawed. Let’s look at them one at a time

This article was originally published in The Guardian.

The prime minister, Malcolm Turnbull, has labelled government budget deficits and debt as a “massive moral challenge”. This, to use the technical term, is complete and utter bollocks. In a leaked briefing to coalition backbenchers, Malcolm Turnbull wrote:

This is a fundamental moral challenge. How long are we prepared as a nation, as a generation, to load more and more debt on to the shoulders of our children and grandchildren? How long are we prepared to live beyond our means, to live effectively on the credit card of the generations that come after us?

The assertions that sit behind this paragraph are all flawed. Are we living beyond our means? No. Are we living off the credit card of future generations? No. Does Australian government debt rank alongside other identifiable major moral challenges of our time? Absolutely not. Let’s take them one at a time.

We are living beyond our means

The logic that persistent government deficits mean that the nation is living beyond its means is faulty in several respects.

We could eliminate all superannuation concessions for high income earners, get rid of negative gearing and the concessional treatment of capital gains, not give the planned tax cuts to high income earners, and not give the planned tax cuts to companies and we’d more than balance the budget. Given that, how can it be claimed that we’re living beyond our means? This is an accounting issue, not a fundamental economic problem.

Even if Scott Morrison’s nightmare scenario comes true, and we end up with $1tn of debt, that would be like a salary earner on $100,000 having a debt of a little over $200,000. It’s a significant number but a long way from insurmountable (particularly for the entity that creates the currency). It’s even less scary when you realise Scott Morrison was using the old trick of using gross debt rather than net debt as a poorly disguised way to inflate the figures.

Future generations will suffer under the burden of our debt

Our economy has been so thoroughly financialised that many find it very difficult to see the real economy for all the money. The living standards of the population are determined by the goods and services that the population is able to produce. Seems pretty straight forward, doesn’t it?

How exactly then, do we imagine future generations will suffer as a result of us living on their credit card? As Warren Mosler is fond of asking, can they send goods and services back in time to repay the debt we have incurred? Of course not, it’s a ludicrous notion. Their standard of living will, like ours, be dependent on their capacity to produce goods and services.

The only way future generations will suffer as a result of our debt is if it’s in a foreign currency (it’s not) or if economically illiterate politicians make them suffer.

As an illustration, the period of highest government debt to GDP in our nation’s history was at the end of the second world war. Have you heard all the stories about how the post war generations suffered under the burden of all that debt? No? Me neither. Those post-war decades are often referred to as the “golden years” with unemployment hovering around 2% (somehow thought impossible now) and economic growth consistently strong.

The deficit is a fundamental moral challenge

Given all of the above, can we really conclude that the budget deficit is a fundamental moral challenge? Here’s a small sample of other possible candidates for fundamental moral challenges:

Syria

The prolonged civil war in Syria is resulting in untold death, suffering and displacement. Should we be taking a moral stand on this situation? Should we be doing more to help those displaced?

Same sex marriage

Here’s a moral challenge, one that asks some fundamental human rights questions. Where’s Turnbull’s strong leadership on this one?

Climate change

Let’s face it, Kevin Rudd was right about climate change – till it was dropped like a hot potato, that is.

Inequality

Definitely one of the great moral challenges of our time is the gulf in wealth and resources between wealthy nations and poor nations as well as the growing gap between wealthy individuals and the poor within Australia. Can we call ourselves a democracy and a meritocracy when there are great disparities in educational opportunity and healthcare? Should a child born to poor parents have the same opportunities as one born to rich parents? There’s a moral challenge worth sinking your teeth into, prime minister.

No need to jump at economic shadows.

Warwick Smith is a research economist at progressive think tank Per Capita.

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2ser radio Sydney interview on the government’s PaTH internship program

Posted on May 9, 2016 by Warwick Smith

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I was on 2ser’s Sunday night program The Mix this week talking about the budget and, in particular, the government’s new Prepare-Trial-Hire (PaTH) program for youth unemployment. You can listen to the program on the link below. My contribution starts at about the 45 minute mark.

Listen to the podcast here

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What the government wants us to do – and not do – based on the budget – The Conversation

Posted on May 5, 2016 by Warwick Smith

Warwick Smith, University of Melbourne

Budgets are a good opportunity to see through the spin to what the government really wants. Forget the Treasurer’s speech and the budget overview, the truth is in the measures themselves. Generally things the government increases taxes on are discouraged and things it reduces taxes on – or spends money on – are encouraged.

So, what does the 2016 budget tell us about the things the government wants us to do and not do?

Smoking

Let’s start off with a pretty straightforward, textbook example. The government is raising tobacco excise (tax) by 12.5% per year for four years. this will lift the price of cigarettes to around $2 each by 2020.

Tobacco taxes are generally considered to be a good thing. Not only is tobacco use harmful to the individual, it also creates very substantial public health expenditure. Taxing the consumption of tobacco discourages smoking by increasing the price and raises revenue that contributes to health costs associated with smoking.

This story is complicated by the fact that tobacco is addictive. Because of addiction, price signals aimed at reducing consumption are often ignored by established smokers, many of whom are low income earners. This squeeze on the budgets of many low income earners has undesirable side effects, such as reducing expenditure on beneficial goods and services. However, the price signal does discourage potential new smokers from becoming addicted and ex-smokers from starting again and this is surely a good thing.

Jobs… or free labour?

The A$750 million PaTH (Prepare-Trial-Hire) program to encourage job seekers into internships, followed by subsidised employment, is aimed at job creation. The idea here is to encourage employers to give a person, who’s been unemployed for six months or more, a chance to prove themselves and develop skills through an unpaid internship (the government gives the intern $100 a week extra on top of Newstart).

Not only does the potential employer get an intern for free for four to 12 weeks, they also get $1000. The pros and cons of this measure are complex. The Australian Council of Social Services (ACOSS) has applauded PaTH. It has been arguing for subsidised employment as an alternative to work for the dole programs for some time. Professor Andrew Stewart from the University of Adelaide has warned that the program could actually destroy jobs rather than create them if employers opted for a free intern over a paid employee. It seems there is a lot of potential for exploitation.

The reality is that there needs to be greater demand for goods and services before businesses will employ more staff. The unemployment level in Australia is at 5.7%, meaning there’s no shortage of people willing to fill available jobs. This tells us that there aren’t many opportunities for companies to increase production of goods or services that are constrained by the availability of low-skilled labour at the minimum wage.

It is possible that the wage subsidy of between $6,500 and $10,000 included in this government package could make wage costs sufficiently low to encourage extra hiring. If this were so, what would happen to these employees once the subsidy runs out? Back on the dole?

This brings us neatly to the main slogan of the budget “jobs and growth”.

Company tax cuts and business

Company tax cuts are at the centre of the government’s claims to a jobs and growth budget. It’s standard rhetoric from business groups and the government that reducing company taxes will give companies spare cash that will “trickle down” through greater employment and increased wages and this will increase economic growth. Unfortunately, the actual evidence backing this up is slim. Even Treasury’s modelling used to support the measures puts the impact at an extra 1% increase in GDP over 10 years. That figure is so small that it might as well be zero.

The budget extends provisions for small business to write off small capital expenditure immediately, rather than through depreciation over years. Capital items, like computers, machinery, furniture and other equipment, lose value over time as they wear out or are superseded. These are the things that businesses usually deduct from taxable income.

What this measure means in practice is that the entire purchase of, for example, a new computer for a small business is a direct tax deduction in itself, instead of only the drop in value of that computer during this financial year. This measure was introduced as temporary stimulus in the last budget and has now been extended. In addition, the definition of small business has been expanded to include businesses with up to $10 million in turnover.

This is short-term economic stimulus. The impact will primarily be to bring forward expenditure that would have happened anyway. In other words, it’s likely to create jobs and growth now at the expense of jobs and growth later.

Ideology

We know the Coalition are advocates of small government. They want to reduce taxes and minimise the role of government in society. The majority of the Australian people believe we should be increasing taxes in order to maintain or improve on the quality of services, particularly education and health. This conflict between public opinion and government ideology means that the government cannot always be transparent about their goals. There’s nothing new in this.

Examining budget measures and their stated aims and comparing them to the evidence is a good way to uncover the truth behind what the government claims it is trying to do.

The Conversation

Warwick Smith, Research economist, University of Melbourne

This article was originally published on The Conversation. Read the original article.

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The Coalition has boxed itself into a ridiculous corner on tax – The Drum

Posted on March 26, 2016 by Warwick Smith

OPINION

Originally published in The Drum
By Warwick Smith

Posted 18 Mar 2016, 10:47am

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We should stop treating all new taxes and all increased taxes with hostility. ABC: Tim Stevens

According to the Coalition, we can’t raise taxes nor introduce new taxes. And if cutting expenditure is off the table following the dire experience of the 2014 budget, what’s left? Warwick Smith takes a look at one suggestion: tax deduction reform.

Malcolm Turnbull and Scott Morrison are reportedly considering applying limits to how much can be deducted from taxable incomes for work-related expenses.

The supposed reason would be to simplify tax returns, but the real reason would be that they’ve boxed themselves into a corner and have few genuine reform options left.

Under this policy, instead of detailing all work related expenses, every taxpayer would receive a standard deduction of perhaps $500 or $1,000. This would be a blow to those with high genuine work-related expenses and a boon to those with none. It would save the government a few billion dollars a year at the most. This might seem like a lot, but it’s pocket change for a Government with an annual budget of over $450 billion.

The policy is a half-implementation of one of the recommendations of the 2010 Henry Tax Review that suggested an opt-out standard deduction for the great majority of taxpayers, eliminating most compliance costs. Under that recommendation, “to ensure individuals with more complex affairs or high expenses are not disadvantaged, taxpayers would still have the option of substantiating a claim for all eligible expenses”.

The Henry Tax Review recommendation would simplify the tax system for the vast majority while not penalising those who have high genuine work-related expenses. Of course, there’s value in examining the criteria for what qualifies as work-related expenses to reduce the extent to which they are used for tax minimisation by the wealthy, but it’s small fry compared to offshore tax havens, superannuation tax concessions, discretionary trusts and the structuring of company vs personal income.

Meanwhile, the Government has been fiercely attacking the Labor Opposition for its policy of limiting negative gearing deductions (where losses from real estate investments can be deducted against unrelated personal income). It would be the height of hypocrisy if they were to limit legitimate work-related expense deductions while continuing to allow unlimited non-work related deductions from property investments.

Make no mistake, the Coalition Government has boxed itself into a ridiculous corner. “There isn’t a revenue problem, there’s a spending problem” is one mantra, while others include “no new taxes” and “no tax increases”. The reality, of course, is that there is a revenue problem, with company tax receipts plummeting alongside falling commodity prices.

We can’t raise taxes – ‘cos that’s bad. We can’t introduce new taxes – ‘cos that’s bad too. We can’t cut expenditure too much because we tried that in the 2014 budget and got our fingers burnt. So what are we left with? Reducing tax expenditures (i.e. tax deductions). And what would be the real impact of reducing tax deductions? Increased taxes, of course. Let’s call a spade a spade.

We need a new relationship with tax, in line with what US Supreme Court Justice Oliver Wendell Holmes Jr said in 1927: “Taxes are what we pay for civilized society.”

Instead of treating all new taxes and all increased taxes with hostility, we should consider what we get in return. While taxes may not be necessary in order for the Federal Government to spend, they do create the spare capacity in the economy needed for substantial government expenditure.

Per Capita’s annual tax surveys have repeatedly revealed that Australians do not feel overtaxed and are willing to pay higher taxes for things they think are important, like education and healthcare. Indeed, we are a relatively low-taxing economy by OECD standards.

This is significant enough that it’s worth repeating. The majority of Australians would be happy to pay higher taxes in return for improved services. Does this mean we’d be happy to have work-related tax deductions limited? No, it’s a cheap workaround rather than real reform. There are lots of good ways to raise tax revenue, some of which would actually improve the economy.

To their credit, there are encouraging rumours that Turnbull and Morrison may indeed be considering greater borrowing and greater use of land taxes to pay for infrastructure. It’s only one more step from there for Scott Morison to stand up on budget night and say, “We know you want a world-class education system. We know you want a world-class health system. That is why we have decided to increase the overall government tax take because we know this is a price Australians are willing to pay for civilisation.”

What does it say for the state of politics and of our democracy that it’s completely implausible that the government will announcing on budget night something we know the majority of Australians want?

Warwick Smith is a Research Fellow with progressive think tank Per Capita.

 

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How about three-day weekends in exchange for working until 70? – The Age

Posted on March 13, 2016 by Warwick Smith

First published in The Age.

March 10, 2016

Warwick Smith

Most of us would be happy to work a few years longer if it meant a shorter working week.

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Australians today get more leisure time than past generations, but most of it is after we retire. Wouldn’t it be great to get some of it while our children are young. Photo: Lyn Osborn

A report published this week by the Centre for Independent Studies claims age pensions are set to become unaffordable and that we will have to reduce future pension rates and raise the pension access age.

Access to the pension is being lifted from the age of 65 to 67 and the government and the centre want to raise it to 70 . Is this really necessary? Should we let it happen without a reduction in the hours we work during the rest of our working lives?

For a long time now, commentators – from Karl Marx to John Maynard Keynes and the Jetsons – have been predicting that increasing productivity will allow us to work less and have more leisure time. While computers and robots do more, we will be able to do less. So far things haven’t panned out that way. Labour productivity has been steadily increasing, while working hours in Australia have stayed pretty constant over the past 30 years. During the same period, workforce participation has increased dramatically, particularly among women. Meanwhile, wage growth has stagnated.

Why haven’t all the computers and other technological innovations that improve productivity translated into more leisure time for us? Well, in actual fact, they have. However, this change has mostly slipped under the radar.

We’re working less and having more leisure time, because we’re living longer. The extra leisure time kicks in when we’re over 65. In a recent speech, Productivity Commission chairman Peter Harris said that “in 1909, the original age pension recipients generally had spent near enough to 75 per cent of their life after the age of 15 in full-time work; for the Baby Boomers, that figure has fallen to about 60 per cent; and for the generation today in high school, that figure will fall to about 50 per cent, mostly based on significant health gains, including in retirement.”

That’s a substantial dividend paid in leisure hours after retirement. But look out, the government is coming after that dividend.

The justification for increasing the retirement age is the impact our ageing population will have on government budgets and the remaining workforce. We’re told we won’t be able to afford the blowouts in pension, healthcare and aged care costs that will come with the increasing proportion of Australians who are over 65.

The trouble with that argument is that its only true if you make particular assumptions. The economic modelling included in the federal government’s 2015 intergenerational report makes it clear there will be huge government deficits for many years – but, and this is a big but, these deficits assume regular income tax cuts.

In the absence of these cuts, the government would be flooded with cash. That’s right; those long-range forecasts assume regular income tax cuts without which we wouldn’t have a budget problem and we’d still have dramatically higher material standard of living than we do today.

We are a relatively low-taxing country. There are comparable OECD countries with much higher tax to GDP ratios than ours that also have thriving economies, first-rate health and education systems and very high standards of living. So, we have a choice. We can either work longer and surrender our share of the productivity growth dividend in service of small-government ideology; or we can pay a little more tax (not necessarily income tax; there are better options for extra revenue).

This choice is currently being made for us and being painted as an inevitable result of demographic and economic realities. Nothing could be further from the truth.
Many Baby Boomers are not ready to retire at 65, at least not completely, but that doesn’t mean we should force them all to keep working. Easy for us desk jockeys to say that everyone should work longer, but if you’ve already been laying bricks every day for 45 years, the prospect of doing so for another five years is unlikely to be a happy one.

Instead of deferring access to the pension, the focus should be on job creation and flexible working arrangements (that suit older employees). If we make working longer easier to do and more flexible, then many will come to the party.

Alternatively, if we’re to contemplate increasing the pension access age to 70 and beyond, we should ask for something in return.

All Australians could benefit from a standard working week of 30 to 32 hours, not just the older workers. Most of us would be happy to work a few years longer if it meant shorter work days or a shorter working week. It’s a good trade-off isn’t it? We keep our productivity dividend, but get to have some of it while we’re young and when we’re raising kids.

Three day-weekends every week? Yes, please.

Warwick Smith is a research fellow at progressive think tank Per Capita.

 

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Tax and tax reform in Australia – appearance on Radio National’s Rear Vision

Posted on March 13, 2016 by Warwick Smith

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I was one of four guests on RN’s Rear Vision special on tax reform. You can download the audio here.

A sample my contribution to the program is below.

Keri Phillips: Warwick Smith is a research economist at the University of Melbourne and at Per Capita, a think tank focused on progressive policy reform. The Asprey Review of the tax system had been commissioned in the 1970s by the McMahon coalition government.

Warwick Smith: The Asprey Review had a pretty similar reception to the Henry tax review initially, that most of the recommendations were rejected. But over the coming 35-odd years, almost all of them were implemented, and the GST was the last significant one of those. And many other OECD countries have what they call value added taxes or goods and services taxes, and it was considered an important element to add to Australia’s tax mix.

The GST is considered desirable, for one thing because it’s difficult to avoid, and so we know that there are tax minimisation strategies for a lot of wealthy people, but it’s much more difficult to avoid the tax they spend on their consumption.

The GST is on its own regressive, but it’s always acknowledged that if you introduce the GST or increase the GST or broaden its base, that you’ll have to compensate those who are at the bottom of the income and wealth distribution. And the compensation can be generous enough such that the net effect is positive for them. So it’s really important that we consider the entire tax and transfer system when talking about progressivity and impact on the poor. And that debate was really lost when the GST was introduced because we had a proposal from the then Howard government that the GST would be on everything.

And there was an outcry, and the main complaint was you can’t put GST on fresh food and education and these are critical things for the poor. But if in fact the original proposal had been accepted, the tax on food and education and health would have applied to the wealthy as well as the poor, and then the poor would have been compensated for it. That compensation was already written into that proposal. So the poor would have been no worse off under that total package. So the removal of those things in effect just took the GST off education, fresh food and health for wealthier Australians.

I mean, it’s important to say I’m not in favour of increasing or broadening the GST necessarily, and that’s not because I think it’s a terrible idea but I would say it’s probably number four or five in terms of good, effective tax reform, and we are not doing one, two, three and four and that’s primarily because I think that they would cause too much upset amongst people who have a lot of wealth and as a result quite a lot of power.

Keri Phillips: One of the other ways in which Australia’s tax system differs from many other OECD countries is that we don’t pay a tax on wealth we inherit when relatives die—death duties or estate taxes—although we did have such taxes until the 1970s, when Queensland decided to get rid of them, sparking their abolition everywhere at both the state and federal level.

Journalist [archival]: It looks as though death duties are to be abolished in Queensland. The Premier, Mr Bjelke-Petersen, is keen to see them go and it’s fairly certain that the joint Liberal and National parties will vote to have them scrapped in the forthcoming August budget.

Journalist [archival]: Mr Premier, why are you advising people how to get out of paying death duties?

Joh Bjelke-Petersen [archival]: I spoke in terms of the hardship that probate and succession duty was creating for many people, and then went on to say that I myself had organised and arranged my affairs so that it wouldn’t actually affect my people as much as it affects many people who fail to take any action in arranging their own affairs.

Warwick Smith: The book by Thomas Piketty that sort of took the world surprisingly by storm a couple of years ago talked about the inevitability of rising inequality based on the current paradigm. And the only way that he saw to claw that back was through wealth taxes because his argument was that wealth accumulates wealth, as we well know, and that if you’ve got money then your rate of income growth is larger than if you don’t. The return on investment of capital is higher than the growth in wages. And so the result is that the wealthy get wealthier at a faster rate than wage earners. So an estate duty or a death tax or whatever you’d like to call it is one of the potential ways to prevent that ever-widening gap between the rich and poor. There are challenges with estate taxes and death duties in terms of enforcing them and preventing evasion. But other countries certainly use them, and those challenges can at least to some degree be overcome if the design is clever enough.

Neil Warren: The logic of estate and death duties is to say, look, if you were able through your life to accumulate substantial wealth through tax advantage, then estate and death duties kind of claws some of that back. So it’s just not a lifetime redistribution issue, it’s an equity issue. You know, that we want to claw that back rather than pass it on to the next generation and empower them to have even more money to tax advantage themselves into bigger houses and all sorts of advantage. So estate and death duties in other countries is used to close off income tax loopholes, to say, look, you’ve made all that money through advantage, through all sorts of things. Now, that will enter the debate about property taxation and the future of property taxation in Australia. It will be like this is a de facto way of trying to capture property which is not highly taxed, that is your residential untaxed property, owner-occupied house, one way to try to claw something out of that. That’s a very common objective for estate and death duties and why it really needs to be there to close the system off in terms of tax advantage.

You can read the whole transcript or download the audio at RN’s web site.

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Privatising Medicare payments is a distraction from real reform – The Drum

Posted on March 13, 2016 by Warwick Smith

This article was originally published at The Drum.

By Warwick Smith

Posted 10 Feb 2016, 10:23am

A group of Medicare sit on a table
PHOTO: Are we facing a death by a thousand cuts approach to Medicare reform? (Giulio Saggin, file photo: ABC News)

Would the privatisation of the Medicare payments system save money? It’s not impossible, but we have good reason to be sceptical, writes Warwick Smith.

The West Australian newspaper broke a story yesterday claiming that the Federal Government has a well-advanced investigation into the possibility of outsourcing the Medicare, Veteran’s Affairs and aged care payments systems.

Medicare is one of the world’s most efficient healthcare providers and is instrumental in our consistently high ranking in international comparisons of health expenditure efficiency. For example, Bloomberg’s 2014 ranking of health efficiency put Australia at number six in the world.

That said, there’s no doubt that there is waste and inefficiency and the potential for billions in savings. Previous investigations have identified huge waste in the unnecessary use of expensive treatments and diagnostics and big savings to made through greater use of preventative measures.

By contrast, the privatisation of the Medicare payments system hasn’t rated a mention by any recent major investigation or review of the healthcare system, with the exception of the Government’s ownCommission of Audit. The Productivity Commission’s recent review of the efficiency of the healthcare system didn’t mention the payments system as an area of interest or concern, let alone make any recommendations that it be privatised.

Does any of this demonstrate that this isn’t a worthwhile reform? No, but it definitely should make us suspicious. International comparisons tell us that privatisation in medicine often leads to lower efficiency. The US provides us with the clearest example with by far the highest per capita expenditure on health care for only mediocre outcomes. However, this is not a proposal to outsource the provision of medical care, only the payments system.

Could a provider that already has a modern payments system in place do the job more efficiently than Medicare? It seems that is at least possible. Can they do it more efficiently than Medicare plus make a profit and still come in cheaper than Medicare? Again, possible, but a bit less likely.

Historically, the government has a terrible record when it comes to IT service procurements with massive cost blow-outs and the now cliché of redundant public service IT staff returning to do the same work as consultants for three times the money. It’s been well demonstrated that in-house investment in IT by government departments lifts productivity but the impact of the privatisation of IT services is a lot more patchy with no consistent benefits.

While it might appear that organisations like Australia Post or the banks have the infrastructure necessary to deliver this service, the reality is almost always much more complicated, with each system being unique and often requiring building from the ground up. If it’s necessary to build a new payments system, why not invest in the capacity within Medicare which has proven over four decades to be a very efficient organisation?

Medicare has recently transformed its client side payments system with the introduction of mobile apps through which claims can be made – thus avoiding turning up at a crowded office with paper receipts. These changes have met with approval from many users and show progress towards more efficient service delivery.

Efficiency isn’t the only consideration though. In order to provide this service, the private provider would have to have unprecedented access to Medicare and other records of all Australians. We have to ask whether or not this is desirable and what reductions in government spending make the potential breaches of privacy worthwhile. Other important considerations include dispute resolution and customer complaints. The costs of dealing with performance issues are often borne by the public when government services are outsourced. Buck passing between governments and private providers is common and accountability can be opaque.

For many, these reforms will be seen as yet another Coalition attack on our iconic national healthcare system. The Liberals have a love hate relationship with Medicare. They are forced to love it (or at least pretend to) because the Australian people do. They hate it because its efficiency and effectiveness are a thorn the side of their small-government pro-private-sector ideology.

They can’t dismantle Medicare, as John Howard wanted so badly to do, because it’s too popular. Instead they have tried to incrementally erode its universality and effectiveness through the creation of incentives to take up private health cover, the tightening of bulk-billing criteria and the proposed introduction of GP co-payments to name just a few. This proposal could be a continuation of that long-standing death by a thousand cuts approach to Medicare reform, or it could be a genuine attempt to improve service and efficiency. History would tell us the former is more likely.

Meanwhile, let’s see if the Turnbull Government can deliver on real efficiency and service improvements like increased focus on preventative medicine and more targeted use of expensive diagnostic equipment as mentioned above. There’s not only billions to be saved there, but also a lot of political mileage for any government that can make genuine improvements to our much-loved Medicare.

Warwick Smith is a research fellow at progressive think tank Per Capita.

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Death and taxes on 2SER’s breakfast show

Posted on November 17, 2015 by Warwick Smith

I was back on 2SER’s breakfast show this morning with Mitch Byatt. We talked about inheritance taxes: whether they’re good or not; why they were abolished in the ’70s and what other options there are for tax reform.  It was slightly too early for me but I think I somehow managed to be reasonably coherent – though perhaps not at my entertaining best.

You can listen to the podcast here.

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Cynical workforce participation policy forces solo parents into ranks of unemployed – The Age

Posted on November 2, 2015 by Warwick Smith

By Warwick Smith

First published at The Age

The Turnbull government is peddling workforce participation nonsense.

By investing in the children of solo parents we are investing in our nation’s future. Photo: Gabriele Charotte

Some things have changed under the leadership of Malcolm Turnbull. Many things haven’t. When it comes to employment, the government continues to “push on the string” of workforce participation. Discussing proposed cuts to Family Tax Benefits affecting single parents and grandparents who are primary carers, new social services minister Christian Porter said the government was unequivocally trying to increase workforce participation.

I call this “pushing on a piece of string” for good reason. Unemployment in Australia is at 6.2 per cent. There are many more people looking for work than there are jobs. So, I’d be very keen to hear how pushing more single parents and grandparents into the job market is going to be a positive thing for this country or for the individuals concerned.
Taking away payments from everyone because of the actions of a tiny minority is the kind of collective punishment that society long ago abandoned in every other sphere of life.

There are two possible outcomes from such a move (if it was successful). Those individuals either get a job at the expense of one of the other job seekers or they join the ranks of the long-term unemployed, suffering all the indignities and deceptions that routinely go along with that.

Another insidious accusation sits behind these kinds of statements. Christian Porter is suggesting that there are a lot of single parents out there who could find work but choose not to because of government payments. I reckon Christian Porter doesn’t know many struggling single parents don’t you? The idea that they could just pop out and find a job that fits within school hours but they’re not because of $2000 a year in government payments is the kind of thing that only a politician could believe.
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Of course, there will always be a small minority of people who play the system or who are just lazy, but taking away payments from everyone because of the actions of a tiny minority is the kind of collective punishment that society long ago abandoned in every other sphere of life.

There’s a discrimination present here of another kind as well. Couples with children, particularly well off couples, can choose to have one parent stay at home to care for the kids and keep the household running well. Single parents are being told this should not be an option for them and their children. Instead, they should be forced to run as fast as they can in the hamster wheel that is modern life.

As a society we need to take stock of what’s important. One of the most important things we can do is provide a stable and caring environment for our children. Yes, a 13-year-old is still a child. Pushing single parents into further financial and time stress is not a recipe for a better society.

If we want to improve workforce participation then we should focus on job creation. It doesn’t take a genius to realise that increasing jobs, not increasing the number of unemployed, is the way to improve workforce participation. I said earlier that only a politician could believe the opposite, but the sad fact is they don’t believe it either.
They know it’s nonsense, but it fits within the victim blaming narrative that allows those who are ideologically opposed to social welfare to cut government expenditure and reduce the comparative negotiating power of workers. The more desperate unemployed people there are the less upward pressure can be applied on wages and conditions.

Options for government policies that create jobs are too numerous to list. The problem is that most of these policies require increased government expenditure. Never mind that many would pay for themselves in the medium to long term; the bizarre obsession with budget deficits and budget balances means that such nuanced discussions cannot be had.

Implementing many of the recommendations of the highly regarded, but now buried, Henry Tax Review would create jobs; some without costing governments a cent. These are off the table because tax reform always creates losers, often wealthy losers, and they shout a lot louder than the winners. Instead of considering those recommendations Turnbull is launching his own tax reform process so that it can generate recommendations for some future government to ignore.

Instead of tackling real problems, like tax reform, or investigating novel solutions, like a job guarantee, it’s much easier to kick those who are already down. They’re too busy just trying to survive to fight back.

Warwick Smith is a research economist and writer. He blogs at reconstructingeconomics.com and tweets @RecoEco.

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