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Set a revenue to GDP ratio to improve policy making and service delivery

Comments on John Freebairn "Federal Budget 2013: Why our unsustainable structural deficit must be tackled", 29/04/2013, https://theconversation.com/federal-budget-2013-why-our-unsustainable-structural-deficit-must-be-tackled-13723

I largely agree with the remark by the author that "The mix of tax increases and expenditure reductions require society to make judgements about the relative roles of government and the private sector, and about the relative merits of more or less limited income and resources allocated to government goods and services versus private sector provided goods and services."
Personally, I think there should be a ceiling of taxation revenue to GDP ratio to constrain any government irrespective to their political persuasions, otherwise, it is too easy for politicians to raise tax rates, increase new taxes and levies. Politicians' mandates should be set with a clear limit, so they can focus better on better policies and efficient service delivery.
I personally think that all government revenues to the GDP ratio should not exceed a third for the near future; that would leave two thirds to the private sector. In the longer term, 30% should be aimed for.
Within that broad parameter, the three levels of government should have an agreed shares of the different revenues according to their service responsibilities.

China dialogue - a further step in strengthening Sina Australia relations

Comments on Stephen Loosley "Time is right for China dialogue", 29/04/2013, http://www.theaustralian.com.au/national-affairs/opinion/time-is-right-for-china-dialogue/story-e6frgd0x-1226631142134

Stephen, it is an excellent idea.
The recent development in Australia-China relations and the wonderful achievements by the government and the prime minister in strengthening and upgrading the relations indicates Australia can play a much greater role in the Asia Pacific region in general and in potential bridging between the largest players in the region in particular.
How China conducts its international affairs is likely to affect not only the Asia Pacific region but also the world in this century. It is in everyone's interest that China is most productively integrated into the international system and plays a cooperative role.
Australia is uniquely and well positioned to play a role much bigger than its weight, so it is punching above its weight, due to its strong relations with both China and the US, as well as Japan.
Close relationships and frequent exchange and dialogues will be most conducive to mutual understanding not only between the two countries but also among the main players in the region.
As Chinese Australian who has studied, worked and lived in both China and Australia, I strongly and completely support your proposal and look forward to it being warmly embraced soon.


Reforming GST distribution requires creativity

Comments on David Uren "GST distribution needs a carrot for states", 18/04/2013, http://www.theaustralian.com.au/business/opinion/gst-distribution-needs-a-carrot-for-states/comments-e6frg9qo-1226622975731

The GST distribution in Australia reflects the extreme of Australian fiscal equalisation as currently practiced in the world and should be recognised as already past its used-by date. Unfortunately, the current arrangement for federal financial relations makes it impossible to reform the GST distribution system.

The federal government is generally uninterested in how the GST is distributed among the states because there is little relations for its own revenue or expenditures, so its attitude has been if all the states agree then it would agree. Because any meaningful reforms to the GST distribution system would undoubtedly result in some so called winner and loser states, how could it possible for them all to agree?

Maybe a practical way to change this impasse is to require the federal to contribute, from its own revenue, 50% of the amount that is required for the redistribution from the current calculation and the other half is from the GST pool. In this way the federal government would have some incentive to make the system more efficient and still keep its fiscal equalisation role.

Another way is to distribution the GST by population shares and let the federal government provide all the equalisation funding, so it would have an interest and say in having the system reformed for the better of the nation. But both political persuasions in Canberra are unlikely to be interested in such nation/federation building project. Maybe a worthwhile trade-off is to ask the states to implement some reforms of their inefficient taxes identified in the Henry Review report as a condition for the increased funding from Canberra. It seems another review would be needed, even though a number of reviews done previously ended in failures. 

There are entrenched "interest groups" that would like to maintain the current system devoid of any real reforms. This has been reflected even in the various reviews of the GST distribution, but all have failed as a result of that at least partially because of the divergence in any potential outcomes. It's an unfortunate tragedy for the nation.

The most recent one was commissioned by the PM and Treasurer and conducted by two former state premiers Mr Nick Greiner from NSW and Mr John Brumby from Victoria and a South Australian businessman Mr Bruce Carter, who were hand picked by Canberra. That review was first announced when the PM visited WA at a time there was strong tensions between Canberra and Pirth in terms of funding and hospital reform that the PM was keen to get it done.

The final report of that review was particularly disappointing because it represented a complete failure with virtually no meaningful reforms recommended except some face-saving wording, enormous waste of time and money and a huge retreat from its interim report which raised at least some hopes of reforms to the distribution system.

A potential reason for that failure is likely to be the lack of representation of people from WA and for that matter Queensland in the review panel. It was understandably difficult because any reforms would results in benefits to mining states at the time of mining boom when mining royalties can bring huge amount of revenue to mineral rich states particularly WA with Queensland ranked as the second.

The current GST distribution completely ignores the many changes in the past three and a half decades,such the many economic and tax reforms in Australia.


China is not an average country!

Comments on The Economist's Analects - China: "The post-industrial future is nigh", 17/04/2013, http://www.economist.com/blogs/analects/2013/02/services-sector

This argument in this piece relies heavily on the chart by Messrs Ghani and Kharas that is based on the so called world normal using econometric estimate.

The problem, or at least a potential problem with this kind of approach is that the average approach is itself problematic in a very diversified world and the huge differences between countries in many respects of their situations, including their primary productive factors endowment, their education level, their entrepreneurship, theirs sizes, land and so many factors.

Just ask a reverse question: should China follow the average approach how could it be able to achieve its extraordinary economic transformation with such a different speed from the average?

Once one understands this question and its implications, it will not be difficult for one to understand the problem with the average approach.

Federal should offer a better approach to Gonski

Comments on Paul Kelly “PM needs magic to get a Gonski”, 17/04/2013, http://www.theaustralian.com.au/opinion/columnists/pm-needs-magic-to-get-a-gonski/story-e6frg74x-1226622025078

While the offer of 2 for 1 is appealing to the states in general, it is not on an equitable basis between the states and some states like WA and the ACT are so much disadvantaged by such an offer. Besides, it is so much short of the Gonski recommended amount and who know in how many years the total amount will reach the Gonski amount.

Further, the government approach will create the undesirable effect of undue federal influence on state role and responsibility of school education.

Such a policy by the federal government, if implemented, is very undesirable and will not be a good public policy.

I think a better policy for any federal government on increasing school funding and to implement Gonski would be to offer an package of matching at least on a one to one basis in increased school funding with the states to a set amount in a future year with few strings attached by the federal government. The total amount should be divided among the states on a national Gonski formula basis based on student numbers and on those disadvantaged students numbers. When a state has already have a higher school funding, the matching should be higher by the federal government.

That should be the best policy for a federal government needs to follow in future in any areas where states have the responsibility to provide the services but the federal government wants to contribute to those services to achieve a better outcome.
The principle is to for the federal to help but with little interference in the running of those state services.


US and China need to understand each other for the common good

Comments on Yuhan Zhang and Lin Shi "Conflict between China and the US is not inevitable", 14/04/2013, http://www.eastasiaforum.org/2013/04/13/conflict-between-china-and-the-us-is-not-inevitable/
People should realise that the so called idea of American offensive realists are already proven unworkable by the Iraq and Afghanistan wars.
If the US, together with the support of NATO and other coalition partners, find it impossible to win those wars where the two countries are really very small in many aspects and at a time when interest rates have been super low, how can the US alone win a major win with China where it has the world’s largest population and second largest economy and when interest rates are unlikely to remain as favorable as in the first decade of the twenty first century? Further the Chinese economy is likely to grow at a much higher speed than that of the US’s?
China has always argued for its peaceful rise and there is no reason to believe peace is not in China’s own interests.
As a result, American offensive realists should realise that their ideas are unworkable and will be discreditable if they continue to push them.
The only realistic way forward in the US and China relations is for the two countries to understand that neither will be able to dominate the other without significant and unbearable costs to both sides.
Once this becomes clear, the two should engage in cooperation as well as economic competition as any two normal countries would do peacefully.


Gonski's moral needs to be rational

Comments on Julian Savulescu and William Isdale "An ethical education: why Gonski is a moral issue", 11/04/2013, https://theconversation.com/an-ethical-education-why-gonski-is-a-moral-issue-12849
While I totally agree with the importance of education and the importance of increasing equity in education, I was less than fully satisfied by the article due to its lack of comparative analysis of the cost and benefit of the investment in education between Australia and other countries which the author mentioned in the article.

More specifically, the article unquestionably endorsement of the Gonski recommendation of amount of increased funding by governments is questionable without those comparatives.

The question is: some other countries achieved better results, are they all the results of greater investment per student than Australia's or not? Such information would be helpful to proper judgement or analysis/evaluation of the increased amount recommended by Gonski.

Another question is the relative decline in performance of Australia's education compared with some others. What are the reasons? It is not the right approach if it is based on the model that there is a problem then there must be more investment.


Subsidies to the car industry - needing to compare with benefits

Comments on Remy Davison "Is supporting the car industry so expensive, compared to our heavily subsidised lives", 10/04/2013, https://theconversation.com/is-supporting-the-car-industry-so-expensive-compared-to-our-heavily-subsidised-lives-13386
In the article Professor Davison sates that "The Germans are also looking at electric car subsidies. The Germans also subsidize their car industry to the tune of about $US95 per capita. A far cry from Australia’s $AUD18. Not quite the $US260 the Americans pay per head."

While this may be true, what are the different contexts for each of them? For example, the $US260 in America, is it like this every year or just at times of GFC or a particular year of the GFC period?

Furthermore, even these figures were accepted as the general picture and the relative subsidies in these countries, what are the benefits per head in each of the countries?

Only compare the costs and benefits can the whole pictures be understood.

We need fuller and better information to be fully informed.


Superannuation and tax

Comments on Stephen King "Superannuation needs a sustainable framework", 6/04/2013, http://theconversation.com/superannuation-needs-a-sustainable-framework-13279

While the view and argument of Professor King may be regarded as "right" from a particular point of view or some particular economic theories, it is not necessarily right or correct.
King seems making no difference between one's own money/income with the money provided by other taxpayers.
Any conclusion based on such a view point is likely to be problematic when one take a different view.

The kind of view or thinking is too inducive to laziness and irreponsibility. The reflection in debates in Australia is that some people only talk about how much so called tax concessions that some higher income earners get or would get but not about how much they have paid or would pay tax.
This kind of thinking in terms of per capita entitlement of equal concessions is an extreme view, just as the other possible extreme that per capita tax liability, that is, each person pays the same amount of tax.
Just imagine that latter scenario and how extreme it is, one would understand how extreme and absurd the former is too!
PS: While it is commendable for the Treasurer Swan and the Superannuation Minister Shorten to announce the idea of establishing a semi independent superannuation guardian to consider future government policy on superannuation, it would have been better and more convincing should that had been equally applied to the announced measures, that is, no changes until such a body is set and has scrutinised those changes and got bipartisan support.

Future federation between Taiwan and China

Comments on Wen-Ti Sung "Taiwan’s strategic confusion", 5/04/2013, http://www.eastasiaforum.org/2013/04/04/taiwans-strategic-confusion/

It appears to be the case that as China gets stronger economically and militarily, the best future freedom of Taiwan is a federational style unification with China, with a new federal constitution to safeguard the freedom of Taiwan as long as it remains a part of the Greater Chinese federation.
The safeguard should go to more than that applied to Hong Kong and probably should allow the one country and two systems remain as long as the either side chooses to, and the internal security of Taiwan should remain its own and mainland troops won’t entre into Taiwan for a long period such as 100 years or more. The mainland won’t interfere the internal political governance of Taiwan as long as it maintains the new federal constitution.
Both sides should adopt a practical approach to the relations.


RBA needs to move with major international central banks

Comments on Shaun Vahey "RBA: rates should hold, with a gradual return to neutral", 2/04/2013, https://theconversation.com/rba-rates-should-hold-with-a-gradual-return-to-neutral-13174

While the consensus view of unchanged rate this month is reasonable, the view of a higher side risk for rate to move in the next 12 months may be problematic.
A couple of reasons for the opposite view of a lower side risk for rate. One is that the next budge is likely to be contractionary and that is more likely to be followed by a more severe cut of government spending after the next federal election with a change of government.
Another is that international loose monetary policies will continue with increased forces as Japan has now joined the two other major industrialised economies, the US and the Euro zone. This international competition for loose monetary policy or race to the bottom will enforce the save heaven status of or attractiveness of the $A and may force it up further in value, putting further pressure on the Australian economy.
When everyone else is using unconventional monetary policy, it is too naive or silly for Australian monetary authority to continue the conventional way of its monetary policy.
While there is a risk for housing market to be further inflated, but that should be addressed through feasible policies, as opposed to the failed monetary policy to address more than one targets with only one tool.
It appears that it is now a time to have a review of macro economic policies including both monetary and fiscal policies to introduce new policy tools to improve the effectiveness of macro economic policies.
One way is to empower the RBA to have the ability to introduce a measure that can target lendings used in housing assets.

Nuclear power has a role in power generation mix

Comments on Vlado Vivoda "After Fukushima: the future of nuclear power in Asia", 16/03/2013, http://www.eastasiaforum.org/2013/03/16/after-fukushima-the-future-of-nuclear-power-in-asia/

While it is a very sad accident with very serious environmental impact, the Japanese nuclear disaster should not be seen as a typical indication of nuclear power station safety.
Geographically, Japan is an earthquake prone country, with possible tsunami as a result.
From that point of view, many other countries should not be too unduly worried by the Japanese nuclear disaster, even though short term adverse reactions are inevitable.
Just imagine if the world had banned airplanes from flying following the 9/11 terrorist attack of the world trade centre. Would that be a rational response to such an event?
Secondly, reports indicate that newer generation of nuclear power technology are much safer than the earlier ones.
Thirdly, human beings learn from mistakes and history, and advance further in dealing with technologies.
Fourthly, climate change and emissions reduction represent a huge challenge to many countries, developed and developing alike. Limiting the use of nuclear power generation would make that task even harder.

Airport expansion in China

Comments on Wang Tao "Troubles with airport expansion in China", 18/03/2013, http://www.eastasiaforum.org/2013/03/18/troubles-with-airport-expansion-in-china/

I would urge caution for using railway travel against air travel.
While it is true that a much higher proportion of people travel by train in China than those in the US, a point made by the author of this article, the article does not seem to make it clear why that should that be a limiting factor for further increases in the number of airports in China.
For example, China has more than three times the population of the US. This factor alone would suggest that it is still possible that there could be more air travellers in China even with a lower proportion of air travellers in China.
Secondly, fast train services in China are likely to be making losses, not much better than airports.
Thirdly, a better strategy may be to construct different types of airports with different scales.
Fourthly, if air travel and fast-train travel are competitors, it would be a good thing to increase competition as long as new constructions are by the private sector, or at least the private sector has a strong involvement to avoid public investments to be wasted.
Having said that, I think the main point I am making is that the article has not presented a systematic and thorough picture to be convincing in its arguments. The author may be right, but more analysis is needed, especially since in many places it would be too costly to construct rail tracks.

What should be the priority of environmental policy in China?

Comments on Adele C. Morris, Warwick J. McKibbin and Peter J. Wilcoxen "China’s carbon tax highlights the need for a new track of climate talks", 19/03/2013, http://www.eastasiaforum.org/2013/03/19/chinas-carbon-tax-highlights-the-need-for-a-new-track-of-climate-talks/

While China’s announcement of a carbon tax should be welcomed and the authors’ suggestion of establishing a carbon price consultation mechanism is undoubtedly very useful, from an economics point of view, whether unilaterally imposing a carbon tax is the most optimal environmental policy for China or not is a question.
I would suspect that the marginal benefits of reducing its tangible air pollution and water pollution are likely to be higher than the marginal benefits of a general reduction in emissions, particularly when measured against the costs and measured in local rather than global terms and the fact that a reduction in air pollution also has an effect in reducing emissions.
But economics is economics and politics is politics. Should China adopt a carbon tax, it will be good for the world.

North Korea, US and China

Reply to Andy's comments on Robert A. Manning "North Korea: an albatross around China’s neck", 21/03/2013, http://www.eastasiaforum.org/2013/03/21/north-korea-an-albatross-around-chinas-neck/

It may not necessarily be that easy for the US to march to the Yalu River, even if it wanted that itself is a highly unlikely if – why it wants to have another war in the Korea peninsular and isn’t the 1950′s war enough for both sides to restrain?
Further, your second point does not seem to hold up either, given that Japan is not divided and the US has stationed and is still stationing troops there.

BRICS has a useful role to play

Comments on Ali Wyne "Reflecting on the BRICs", 22/03/2013, http://www.eastasiaforum.org/2013/03/22/reflecting-on-the-brics/

While some people may take the diversity of political and economic structures of the BRICS as a problem, that diversity itself can be a source of force and strength in an increasingly multi polar world.
Undoubtedly they represent the faster growing developing and transitional economies. They also have reasonable geographical representation, as well as population weights.
At least seemingly, there are G7 or G8 that represents industrialised countries, BRICS represents developing countries and G20 represents both the industrialised and developing economies, that is world major economies. In this broad context and framework, there is a reasonable place for BRICS as a balance in the world economic structural arrangement.

US and China: size matters

Comments on Jeong Lee "Why the United States should ‘lead from behind’ in East Asia", 23/03/2013, http://www.eastasiaforum.org/2013/03/23/why-the-united-states-should-lead-from-behind-in-east-asia/

While probably many people would not dare to think the following point as a serious possibility, the likelihood that the US falls into the same trap that eventually caused the former USSR to collapse will increase as the US continues its attempt to militarily contain China into the future.
One remarkably similar feature is the relative size of the populations. The US had a larger population and a stronger than the former USSR. China has much larger population than the US and the Chinese economy is rapidly approaching the size of the US’.
The shares of military spending in the economy and in central government expenditure in the US are much higher than those of China’s, though China’s military expenditure is increasing much more rapidly than that of the US.
It could be postulated that the US would have to increase the share its military spending relative to both its government expenditure and its economy in order to have a credible possibility to be able to contain China in the future, but that is unlikely to be sustainable at all for an extended period from now on.
China, on the other hand, does not have to match the US militarily on a global scale but on the most important geographic locations relevant to China, so China can concentrate its military power as opposed to a global race.
As a result, in the long run, as the Chinese economy will eclipse the US in absolute size, and it is hard to assume that the US will have the economic strength to continue its containment strategy.

IP protection and Optimality

Comments on Shiro Armstrong "Intellectual property and wealth transfers in the Trans-Pacific Partnership", 31/03/2013, http://www.eastasiaforum.org/2013/03/31/intellectual-property-and-wealth-transfers-in-the-trans-pacific-partnership/
It may be the case that both theories and empirical studies can show pervasive and/or inconclusive results that would make the policy issue difficult to follow.
It is understandable that there needs some protection for IP because with no protection, there is little or no incentive for commercial research, innovation and invention which involves costs.
However, how much protection is needed to be optimal is anther issue.
It seems a time period is one of the ingredients of IP protection. But there should be other dimensions, such as a total amount although this is likely to be a case dependent, given the costs of each case are different.
The total amount or maximum amount should be linked to costs to allow a objectively set reasonable rents be extracted to maintain enough incentives but also allow other benefits to be realised.

Longevity and productivity

Comments on Tomoko Kinugasa "Reaping the rewards of the second demographic dividend", 1/04/2013, http://www.eastasiaforum.org/2013/04/01/reaping-the-rewards-of-the-second-demographic-dividend/
While the first demographic dividend is logically true, the second one may still need to be fully tested, given that many older population now have already faced the longevity without necessarily the high savings made during their working age.

Further, younger working age people may use the same logic that when they are older the young may support them just the same as they are supporting the now older population.I think the more practical policy should be to make use the more important demographic dividend resulting from longevity, that is, the more experience and more accumulated knowledge of those older people and their increased health at the normal retirement age. That is the increased longevity also means the increase of working age and at the knowledge age more productive working people at older but still working age.What this means is the second demographic dividend should be more of the way to utilise both the increased working age and the increased productivity of longevity as compared to increasing savings per year during the working age.