30 July 2010

A bit of economic competence would be nice

Both Julia Gillard and Tony Abbott are presenting themselves to the electorate as superior economic managers.

Like Julia Gillard (and visiting Nobel Prize winner Joseph Stiglitz)  I think that when it comes to navigating our way through the uncertainties and risks of the Global Financial Crisis the Government has a pretty good story to tell.

But when it comes to debating economic concepts, neither leader has a clue.

In the course of a Senate Estimates hearing on 27 May 2010 Treasury Secretary Ken Henry said in relation to the Opposition’s suggestion that proposed Resources Super Profits Tax that might put pressure on the cost of living (1)

I learnt in high school in the study of economics that profits based taxes cannot affect prices.

Nevertheless the Prime Minister said during the “great debate” that the Opposition’s “levy” (an additional 1.7% of company tax for large corporates) to fund its paid parental leave scheme would flow through into the prices of goods purchased at Woolies and Coles.

Two points to be made here:

-  The Prime Minister seems to disagree with her Treasury Secretary on the question of whether profits based taxes can flow through into prices.  Does she, and if so, on what basis? Given that she does seem to disagree, how does she reconcile that with her profits based tax on the mining industry, which she says will not be a “great big new tax” as claimed by Tony Abbott?

-  When the Prime Minister made the point during the debate that the costs of his levy would flow through into retail prices, Tony Abbott was not sufficiently on top of the subject to challenge her on the consistency of her position with that of her Treasury Secretary’s sworn testimony at Senate Estimates. All he had to say was, “Hang on, your Dr Henry told Senate Estimates that he learnt in high school that profits-based taxes cannot be passed on”.

I have waited with bated breath all week for one of the economic luminaries from the Coalition (the ones who blather on unceasingly about “Labor’s reckless spending”) to make this latter point, but none of them can do it – not Abbott, not Joe Hockey, not Andrew Robb.

If he were not so bored by economics Tony Abbott could also make the point about the resource rent tax that there is no basis in economic theory for differing rates of company tax, otherwise there would be a misallocation of resources. Instead the Coalition demonstrates that it is in a parallel economic universe by prattling on about debt in the country with the lowest public debt in the OECD.


No comments: