Humphreys, J. (2019), Jumpstart Productivity: New modelling pinpoints better tax cut program, CIS Policy Paper 24, Centre for Independent Studies, Sydney.
Treasury modelling of the government’s tax changes make the strange assumption of no behavioural change, leading them to ignore economic efficiency and overestimate the revenue implications. Proper modelling provides crucial further information:
- The Low-Middle Income Tax Offset (LMITO) does nothing to improve economic efficiency and will cost about 10% more than expected.
- The long-term structural tax reforms scheduled for 2022 and 2024 create significant economic benefits, boosting GDP by about $36 billion/year and increasing efficiency by $13 billion/year – this is over and above the direct financial benefits received by taxpayers.
- Treasury estimated the structural reforms would cost about $235 billion over ten years, but proper tax modelling shows the true cost is 38% less at only $145 billion over ten years.
- Scrapping the LMITO and bringing forward the structural tax reforms would give large benefits at a relatively low cost; it would be possible to do this while keeping the budget in surplus.
- Looking beyond the details of the current tax changes, it is crucial that the Australian Treasury copy the lead of the UK Treasury by introducing dynamic tax modelling before they provide tax advice or forecasts.
Humphreys, J. (2019), Budget 2019: Why the long-term tax cuts should be fast-tracked, CIS Policy Paper 19, Centre for Independent Studies, Sydney.
The centrepiece of the 2019/20 budget was a proposed doubling of the income tax cuts that were legislated last year. Both the short-run LMITO change and the long-run tax cuts will reduce tax, but the two approaches are fundamentally different.
These differences are important, but they are hidden by the superficial nature of the tax debate in Australia. To differentiate between superficial tax changes and meaningful tax reform, it is necessary to understand the link between taxes, incentives, and behaviour.
We have used a dynamic tax model that factors in behavioural changes. This model applies an elasticity of taxable income to estimate the direct link between tax rates and the tax base, which allows for more accurate estimates of revenue changes, the efficiency cost (deadweight loss) from tax, economic output, and consumer wellbeing.
Humphreys, J. (2012), “The Treasury’s Non-modelling of the Stimulus“, Agenda, 19:2, Australian National University, Canberra, pp39-51.
In late 2008 the global financial crisis (GFC) sparked a boom in Keynesian economic commentary and activist fiscal policies. The Australian government responded with an immediate $10.4 billion ‘cash-splash’ to households (Commonwealth Treasury 2008), followed by a $42 billion ‘Nation Building and Jobs Plan’, which was to include $12.7 billion more hand-outs as well as a $28.8 billion increase in government capital investment. In total, the government ‘stimulus’ was estimated to be about $52 billion. If we included all discretionary government spending that happened after the GFC then the number would be far higher.
Continue reading “Modelling the Australian GFC stimulus”
Chapter in Carling, R. (ed.) (2011), Taxploitation II: Tax Reform for Incentive,Productivity and Economic Growth, CIS Readings 12, Centre for Independent Studies, Sydney.
This volume brings together papers on different aspects of tax reform published by the CIS over the past five years. In part, these papers review developments in tax reform since the publication of a similar volume – Taxploitation – by the CIS in 2006. The general finding is that against the benchmark set by the reform ideas advanced in Taxploitation, progress has been very disappointing. While Taxploitation focused on personal income tax,Taxploitation IIputs forward ideas for far-reaching reforms in a range of, including not only personal income tax but also company tax and a number of State taxes. These reforms are designed to reorient the tax system towards stronger incentive and growth, and to support a move to smaller government.
Humphreys, J. (2010), “A Fresh Look at Labour Markets“, Policy, 26:1 (August 2010), Centre for Independent Studies, Sydney.
This paper includes a review of the evidence on minimum wages in Australia, and several suggestions for reforms that will help improve the Australian labour market.