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"...public opinion deserves to be respected as well as despised" G.W.F. Hegel, 'Philosophy of Right'

Ken Henry speaks « Previous | |Next »
March 13, 2014

Ken Henry, the ex-Secretary of the Treasury says on the 7.30 Report that that Australia cannot afford new social policies without tax reform and predicted the GST will have to rise to tackle structural holes in the budget:

We cannot afford new social policies with the current revenue base. We can't. If you look at the circumstances that the Commonwealth was in after the last big tax reform package - and I'm really talking about the implementation of the GST back now in 2000-2001. At that time in 2000-2001, with the GST implemented and all the other bits of the package implemented, the Commonwealth budget revenue was 26 per cent of gross domestic product. That's how much the Commonwealth raised in revenue. Today, that's down at 23 per cent.
Three full percentage points of GDP lower - that's in the year 2012-2013, the last concluded fiscal year, right? Three percentage points of GDP. RoweDKenHenry.jpg David Rowe

Henry continues:

Now you probably know that the projected budget deficit of the Commonwealth in 2013-2014 is, guess what: three percentage points of GDP, right? And which is another way of saying if we had the same revenue collections today as we had in 2000-2001, guess what: there would be no budget deficit at the Commonwealth level, but we don't. And instead what we have is new social programs particularly, but spending programs generally being added on to a revenue base that we know is declining, has declined quite considerably.

It is clear in retrospect that the tax cuts and increases in family payments that were provided in the early part of this century, particularly in those years from 2004 through to 2007, 2008, have put very considerable pressure on the budget.

Henry adds:

But if you ask me the question: do we have the capacity to finance new spending without new sources of revenue, the answer is no. if the present revenue system is not capable of funding those programs, are there alternative government spending programs that could be cut in order to make way for the new programs? That's a very big question, and I have serious doubts about that, by the way. Or - and if that's not the case, then are there alternative revenue sources that one could turn to in order to finance those programs?

Abbott's response is that is that Australia's policy direction changed very substantially back in September of last year. Australia went from being a high-tax, high-regulating government to being a low-tax, deregulating government. Cutting taxes and regulation for business will restore economic growth.

No quite. The Abbott government is working in the short term interests of business not the long term interests of the society. Cutting taxes and regulation for business will restore economic growth.

| Posted by Gary Sauer-Thompson at 9:51 PM | | Comments (3)
Comments

Comments

I like Ken, I really do, and not just for his wombats - a little matter of GFC stimulus springs to mind.
Kudos Ken.

So why this absurdity - " do we have the capacity to finance new spending without new sources of revenue, the answer is no"?

Good question, silly answer. Wrong answer.
Of course we can finance new spending, he knows that, or should, just run a deficit budget. No big deal. Good idea in fact, if we want to employ more people, grow the economy and provide services.
The GFC is still with us, despite Ken saying it was over 3 years ago, and the symptoms Ken is describing are the result of such.

It is an elementary error for an economist to assume spending must be paid from revenue. Elementary.
Sad to see Ken make it.

Watching Ken in the recent footage he seems to be basking in self importance. He loves the camera and attention but pretends he doesn't. Obviously intelligent but this recent episode was attention seeking. Is a book coming out was my only question.

Fred says:

"Of course we can finance new spending, he knows that, or should, just run a deficit budget. No big deal. Good idea in fact, if we want to employ more people, grow the economy and provide services."

you cannot do that long term. At some point revenue must cover expenditure.