Comments on Graham Bradley “We need to have faith in the government's sums”, 30/05/2011, http://www.theaustralian.com.au/national-affairs/we-need-to-have-faith-in-the-governments-sums/story-fn59niix-1226065153933
Bold reforms are needed and leadership to reforms is essential.
If the federal government is serious in reforms, it should start from reforming the governance of the government as the first step, or at least in conjunction with other reforms.
In terms of reforming government governance, maybe a national commission on economic policy should be established. Such a commission should have a component in budget integrity, as well as other economic policies, such as the desirable macroeconomic setting for both fiscal and monetary policies.
In terms of other bold reforms, while the Henry review report could be used as the starting point, its shortcomings should be recognised, such as the exclusion of GST in the review, as well as the lessons learnt from the RSPT/MRRT processes.
The tax forum should also include the carbon tax and related compensation measures, or ETS in its agenda.
Further, there should be a body to make sure the forum produce good outcomes and be implemented, as opposed to the 2020 summit.
To meet the challenges from population aging, there must be enough incentives provided for people to work longer, save more and optimise spending on healthcare and other consumptions.
2011-05-25
China and Japan are vastly different
Comments on John Lee “Japan's economic demons dog China”, 25/05/2011, http://www.businessspectator.com.au/bs.nsf/Article/Why-Japans-past-haunts-China-pd20110524-H6AP4?OpenDocument&src=sph&src=rot
John Lee's article is interesting, although it may be a bit simplistic to extrapolate the implications of the Japanese case to China.
The Japanese suffered not only from lack of innovation in policy approaches to its bubble burst in the late 1980s and the early 1990s, but also the lack of successful experience and precedence in dealing with that.
Further, it was a victim of its earlier success in rapid catch up with the US and in many areas exceeding the latter.
Another point is that lacked the political strength to do what it should have done in standing up against the US and other, re the Plaza Accord that forced its currency too much too rapidly.
The US fed response to the GFC has been different to that of the Japan’s, though its ultimate success still remains to be seen. If it’s successful, it will be an innovative approach and a precedence for policy approaches.
While China’s story may have some limited similarity to that of Japan’s, the two cases are vastly different.
It is inevitable to have large share of investments in the economy if it starts with very low infrastructure, low physical capitals and low housing stocks, as a low income developing economy has.
They are two countries with very different social, cultural and economic affairs and structures.
By the way, the income level and the level of infrastructure are still low now and have a long way to go to catch up with industrialised countries.
PS: while China may not fall into the same trap that troubled Japan, it does not necessarily mean that it will not encounter problems of its own.
John Lee's article is interesting, although it may be a bit simplistic to extrapolate the implications of the Japanese case to China.
The Japanese suffered not only from lack of innovation in policy approaches to its bubble burst in the late 1980s and the early 1990s, but also the lack of successful experience and precedence in dealing with that.
Further, it was a victim of its earlier success in rapid catch up with the US and in many areas exceeding the latter.
Another point is that lacked the political strength to do what it should have done in standing up against the US and other, re the Plaza Accord that forced its currency too much too rapidly.
The US fed response to the GFC has been different to that of the Japan’s, though its ultimate success still remains to be seen. If it’s successful, it will be an innovative approach and a precedence for policy approaches.
While China’s story may have some limited similarity to that of Japan’s, the two cases are vastly different.
It is inevitable to have large share of investments in the economy if it starts with very low infrastructure, low physical capitals and low housing stocks, as a low income developing economy has.
They are two countries with very different social, cultural and economic affairs and structures.
By the way, the income level and the level of infrastructure are still low now and have a long way to go to catch up with industrialised countries.
PS: while China may not fall into the same trap that troubled Japan, it does not necessarily mean that it will not encounter problems of its own.
Discord over WA increase in royalties and the Review of GST Distribution
Comments on Julie Bishop “Swan conjures up a Black Swan from the West”, 25/05/2011, http://www.smh.com.au/opinion/blogs/the-bishops-gambit/swan-conjures-up-a-black-swan-from-the-west-20110525-1f2y4.html
Maybe, the reactions by Swan, Gillard and Ferguson could be explained by the review of GST distribution commissioned by Gillard and Swan and announced in Perth by Gillard on 30 March 2011.
There might have been some understanding/misunderstanding or expectations (or false hopes) that that review would have WA to rethink about its scheduled increase in royalties of its fines iron ore.
The timing for that review is a draft report by February 2012 and the final report by August/September 2012 for consideration for 2013.
It is interesting to note that the final report is expected to be available after the introduction of the MRRT and the carbon tax, assuming both legislations will pass the parliament.
WA may think it will be too uncertain to rely on that review to secure a better funding for it.
Of course, the WA government is a liberal/coalition government and on the opposite political side of the Gillard ALP government.
PS: this fascinating discord involves politics, economics and taxation, as well as federal financial relations. Arguably, it is a very difficult issue even at the best of times of federal politics, not to mention the fact it is at a time the federal government has been experiencing serious difficulties.
Maybe, the reactions by Swan, Gillard and Ferguson could be explained by the review of GST distribution commissioned by Gillard and Swan and announced in Perth by Gillard on 30 March 2011.
There might have been some understanding/misunderstanding or expectations (or false hopes) that that review would have WA to rethink about its scheduled increase in royalties of its fines iron ore.
The timing for that review is a draft report by February 2012 and the final report by August/September 2012 for consideration for 2013.
It is interesting to note that the final report is expected to be available after the introduction of the MRRT and the carbon tax, assuming both legislations will pass the parliament.
WA may think it will be too uncertain to rely on that review to secure a better funding for it.
Of course, the WA government is a liberal/coalition government and on the opposite political side of the Gillard ALP government.
PS: this fascinating discord involves politics, economics and taxation, as well as federal financial relations. Arguably, it is a very difficult issue even at the best of times of federal politics, not to mention the fact it is at a time the federal government has been experiencing serious difficulties.
2011-05-24
Incentives alone not enough to solve the problems
Comments on Cassandra Wilkinson “Mollycoddling jobless is not compassionate”, 24/05/2011, http://www.theaustralian.com.au/national-affairs/commentary/mollycoddling-jobless-is-not-compassionate/story-e6frgd0x-1226061416518
While incentives are important themselves, they are not enough.
The government, society, the employers and the unemployed need to tackle this holistically.
The Australia's employment system can be very strange in some respects. For example, many employers require employment experience even for the most basic labour work.
Maybe that reflects some inherent deficiencies in the work relations system that may prevent flexibility because of some explicit or implicit/hidden costs in hiring and firing.
It has been reported over and over again that people work to work but just could not be accepted by any employers. Some are in perfect working age.
So, simply taking about incentives will not solve the problem. The government must look at the issues from those who are unemployed or on welfares and then design policies/strategies, and also put in place the real assistance available to those who need it or in need of it. Work in partnership with them.
PS: If people who want to find a job very actively can't get one, it is no wonder many on welfare can't get employment, or get off from the welfare system.
2011-05-23
Respect the constitutional rights of states
Comments on Kenneth Wiltshire "WA pays heavy price for a problematic federation", 23/05/2011, http://www.theaustralian.com.au/national-affairs/wa-pays-heavy-price-for-a-problematic-federation/story-fn59niix-1226060664190
Professor Kenneth Wiltshire is one of few rare voices to acknowledge the constitutional rights of the states in mineral resources in the mining royalty/tax debate.
Most people ignore the constitution issues and simply argue that mineral resources belong to all Australians. It has become a complex issue with the MRRT/RSPT.
The MRRT/RSPT should have been designed as a replacement of the current less efficient state royalties and belong to the states, as opposed to the designs adopted by Canberra. In that way, the states including WA would have been on side and land their strong support.
In terms of further tax reforms, it is important that the Commonwealth learn from the GST experience to focus on national efficiency and national outcomes, as opposed to attempt to use it to further strengthen the revenue power of the Commonwealth as typified by the MRRT/RSPT designs.
As Professor Kenneth Wiltshire argued, it should consider how to address the vertical fiscal imbalances between the Commonwealth and the states and territories, currently to the tune of about $100 billion.
Swap the GST and personal income revenue is an option. Alternatively, a well designed income tax sharing arrangement may also work, still leaving the GST revenue to the states and territories as currently the case.
This, together with a new design of GST distribution, hopefully resulting from the current review Commissioned by the Prime Minister and the Treasurer, will rationalise the federal financial relation, to make it more efficient by better aligning service responsibilities with adequate revenue sources at the two levels of govenrment in the federation.
Professor Kenneth Wiltshire is one of few rare voices to acknowledge the constitutional rights of the states in mineral resources in the mining royalty/tax debate.
Most people ignore the constitution issues and simply argue that mineral resources belong to all Australians. It has become a complex issue with the MRRT/RSPT.
The MRRT/RSPT should have been designed as a replacement of the current less efficient state royalties and belong to the states, as opposed to the designs adopted by Canberra. In that way, the states including WA would have been on side and land their strong support.
In terms of further tax reforms, it is important that the Commonwealth learn from the GST experience to focus on national efficiency and national outcomes, as opposed to attempt to use it to further strengthen the revenue power of the Commonwealth as typified by the MRRT/RSPT designs.
As Professor Kenneth Wiltshire argued, it should consider how to address the vertical fiscal imbalances between the Commonwealth and the states and territories, currently to the tune of about $100 billion.
Swap the GST and personal income revenue is an option. Alternatively, a well designed income tax sharing arrangement may also work, still leaving the GST revenue to the states and territories as currently the case.
This, together with a new design of GST distribution, hopefully resulting from the current review Commissioned by the Prime Minister and the Treasurer, will rationalise the federal financial relation, to make it more efficient by better aligning service responsibilities with adequate revenue sources at the two levels of govenrment in the federation.
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