Can there be a China model?

Comments on Yu Keping "Search for balance in China: a quest for dynamic stability", 23/09/2013, http://www.eastasiaforum.org/2013/09/22/a-quest-for-dynamic-stability/

Given the current contradictory between what the CCP official line says and the difficulties to reconcile that with the affluent societies in the West democracy, it will be very difficult to advance the Chinese fairs without creative and innovative thinking, reforms and great leadership.

While it may seem an almost impossible task, somehow the CCP needs to find a way that guarantee its ruling party status and the long term and continued acceptance by the vast majority of the Chinese people.

That would require a new social contract to be written between the CCP and the Chinese people.

That contract must ensure that the CCP is a collective force and the best one for raising the living standards of the Chinese people and the CCP is not corrupt, democratically governed for all Chinese
people, respects the law and creates the condition in which everyone
who makes effort can succeed.

Is that a difficult task? Surely it is.

Is that an impossible task? It depends, but only time will tell.
What it implies is that the CCP should learn from its history including its past before the PRC and the reform era and the history of the world and to form a new framework and a strategy.

NBN should not be a monopoly

Comments on Alan Kohler "The NBN board has run away. Why?", 23/09/2013, http://www.businessspectator.com.au/article/2013/9/23/information-technology/nbn-board-has-run-away-why

Alan, while your analysis has obvious merits, there are ways both to allow competition and to make the NBN profitable you have not considered.
Competition is to create a level playing field for all participants and not to create entry barriers. As long as NBN is not allowed to be a monopoly and treat it and other competitors equally, competition can be achieved.
While NBN profitability is dependent on the level of cross subsidies from urban to rural areas, this could arguably be achieved through, say, a national charge to all suppliers to urban areas including both the NBN and non-NBN ones. The income from this can be used to subsidise rural users or suppliers to rural areas.
The upshot that is most important is to allow competition for innovation and efficiency. Other policy objectives can be achieved through other means.

Under this framework the Coalition's NBN policy may not necessarily create a board problem for any NBN Co. Further, the Coalition government is unlikely to ask any board to do the impossible.

There are two dimesions in fiscal policy

Comments on Stephen Koukoulas "Sense should squib a surplus promise", 23/09/2013, http://www.businessspectator.com.au/article/2013/9/23/economy/sense-should-squib-surplus-promise

The talks of whether the budget is in crisis or not come down to different perspectives and what you compare with. If one compares ours with those in deeper trouble as Stephen did, ours is in a much better shape and not in crisis. On the other hand, if one compares with prudent practices as the Coalition implies, ours was not good and the speed of the debt growth may be described as crisis.
Both have a point of their own logic and reasoning.
However, the right thing to do is to choose the better elements of each side and do a better job in both managing the budget (better than in the past years to avoid wastes and reduce unnecessary spendings and achieving surplus as early as possible) and keeps the economy growing (the traditional fiscal policy management for the economy).
To achieve that, the government needs structural reforms to government expenditures to achieve the same outcomes with less spending or achieve better outcomes with the same spending.
So, it is important to bear in mind that fiscal policy has two dimensions of both a aggregate size and its structural content and work on both aspects to achieve the most optimal outcomes.

A good economist pays attention to both dimensions when considering fiscal policy.

Change the GST or not?

Comments on LAUREN WILSON "Tony Abbott dismisses fresh push to re-examine the GST", 20/09/2013, http://www.theaustralian.com.au/national-affairs/tony-abbott-dismisses-fresh-push-to-re-examine-the-gst/story-fn59niix-1226723309057

The current government prior to the federal election said GST will be included in its planned tax review and also said earlier GST won't change in this term of government and any change will need to get a mandate from the next election, although latter on it was changed to GST will not change.

My reading of the government's approach is that it will continue to say GST won't change until the review report is publically available  with recommendations that the GST should be changed. There appears a case that the GST should be changed to either replace some of the inefficient state taxes, such as stamp duty on conveyances, or to reduce personal income taxes.

Any changes to the GST whether it is to broaden the base, or to increase the rate should be traded with a reduction in some taxes so to keep the level of overall taxation roughly unchanged. The aim is to increase the efficiency of taxation rather than to increase the level of taxation.

There are two other important issues related to potential changes in the GST. One is there should be a compensation to low income earners through tax reduction to minimise its impact on them and at the same time to increase the incentives to work.

Another is that if the GST is to be changed, it would present an opportunity to change the GST distribution system. Fundamentally, the federal government should consider to distribute the GST on population shares and should move the fiscal equlisation role through another general grants in a trade off with the states to support GST changes.

Since the introduction of the GST, fiscal equalisation is done through GST distribution. Given that GST is fully provided to the states and the federal government does not have any direct benefit from GST one way or another, it lacks interest in how it is distributed.

By moving fiscal equalisation into using another general grants from the federal general revenue pool, it would have an interest in the size of the redistribution, and hence how it is done. More importantly, it would provide a circuit breaker for the disagreement between the states on how GST should be distributed.

I see this as a practical way to move forward on the GST issue. And it is likely that a change to the GST will on the card in the next election.

PC inquiry on Australia's car industry

Comments on Sid Maher and John Ferguson "Coalition calls for 'urgent' report on car industry", 20/09/2013, http://www.theaustralian.com.au/national-affairs/coalition-calls-for-urgent-report-on-car-industry/story-fn59niix-1226723160050

The new government should let the PC conduct its inquiry into the car industry without any preconditions and should not preempty the PC inquiry and report on the future of the car industry in Australia, although politically it may continue the line that its supports the car industry until the report comes out.

More importantly, the government should fully respect the verdict from the independent economic body and accept rational and economically sensible recommendations on the future of the car industry without yielding to special interest groups.

It is too important for all Australians to be emotional rather than rationally making  difficult choice between the car industry and possibly better national wealth and welfare, particularly when the output of Australia's car industry has been declining and will decline more when Ford closes its production here. As a result, the costs of continuing government subsidies are likely to increase as car production falls.

My instinct feel is that it is very difficult for car manufacturing to survive in Australia for long. However, we should wait for the PC to report on this.