Articles – John Humphreys

Not all tax cuts are equal

_{Published in The Canberra Times on 27 October 2019 under the title “Truth is, not all tax cuts are created equal”. Written in my capacity as Research Associate at the Centre for Independent Studies.}

TREASURY’S flawed tax model has caused the government to underestimate the benefits and overestimate the budget cost of their long-term tax reforms. This has influenced the government to pursue the wrong tax policy and delay a lever that could give productivity a much-needed boost.Their static tax model – which assumes people don’t change their behaviour at all in response to cuts – has led to the government’s structural reforms being estimated to cost $90 billion more than they actually will, and to be scheduled much later than they should be.

In reality, people respond to different tax rates in a number of ways. They may decrease their amount of saving and/or investment, shy away from new ventures, change how much they work, pursue tax minimisation schemes – or even be tempted into tax evasion.

Tax cuts are about productivity, not stimulus

_{Published in The Australian on 25 October 2019 under the title “Canberra needs to discover ‘secret’ tax cuts bonus”. Written in my capacity as Research Associate at the Centre for Independent Studies.}

Australia’s tax debate needs a reset. The government’s recent tax reform is to be commended but it was based on flawed Treasury modelling that ignored productivity and over-estimated the budget cost of tax cuts by $90bn.

The debate about tax in Australia is often framed as a contest between tax cutters and big spenders. The tax cutters argue that workers should be able to keep more of their own income and that tax cuts provide important stimulus. Their opponents insist that we need more government spending instead of tax cuts and that spending also provides important stimulus. Both sides frame their argument through the prism of stimulus. This is a mistake.

Tax cuts & economic growth

_{Published in The Australian Financial Review on 17 October 2019 under the title “Tax is the first lever the government can pull for growth”. Written in my capacity as Research Associate at the Centre for Independent Studies.}

The Australian economy has stalled. According to the most recent national accounts, Australia’s GDP per person has not increased over the past year, and the IMF predicts the stagnation will continue in the short term.

This gloomy news has led to the inevitable calls for more monetary and fiscal stimulus. But these are the wrong ideas at the wrong time.

There may be a time and place for stimulus policy. Specifically, if there is a sudden shock that decreases aggregate demand, then stimulus policies can potentially improve the situation by boosting consumption spending. But these macroeconomic tools are blunt instruments designed to create a short-term boost during an emergency — and they do nothing to improve long-term productivity.

Review of 2014 QLD budget

_{Published in The Conversation on 4 June 2014 under the title “Queensland budget another case of the disappearing surplus”.}

With the release of a plan to sell and lease $33 billion worth of assets after the next election, the state government has shifted attention away from its budget. Though in truth, it would have been quite easy to distract people from this budget, because there is nothing new.

We already knew that the ever-elusive budget surplus had disappeared. Two years ago I commented in The Conversation that: “The forecast for a fiscal surplus in 2014/15 is nice, but it is hard to take long-term budget predictions too seriously” and also that “it is easy to predict future austerity and surpluses, but it is harder to actually make it happen”. Time has justified that scepticism. The government’s original estimate for 2014/15 was a A$0.7 billion surplus, but it is now expecting a A$2.3 billion deficit.

Alternative to the minimum wage

_{Published in The Drum ABC Online on 10 June 2013 under the title “Minimum wage is bad social policy”, with an opening blurb of “There are more efficient, equitable and transparent systems for fighting poverty than implementing a minimum wage”.}

Imagine a free-market economy with no government welfare. Some people earn high incomes and others earn low incomes. Now consider that some kind-hearted bureaucrats come along and want to introduce a government policy to help the low-income earners. How should they do it? Let’s consider two options.