Shock : $34 Billion Dollars a Very Big Number

Thirty Four Billion Dollars. Sounds a big number right? Its more than Ive got and Id hazard a guess that its more than youve got too. Its a number so large, such a very very big number, that only a Government can throw it around and still be taken seriously.

Today Mr. Howard and Mr. Costello demonstrating their amazing new-found teamwork, batted this mighty number back and forward in front of a small crowd of appreciative journalists who consequently described it as dramatic, as seizing the agenda, as throwing down the gauntlet, and from the Daily Telegraph a massive rabbit apparently confusing finance and zoology.

Thirty Four Billion dollars is an awful lot of money and Mr. Costello was delighted to inform the Australian people that most of those who would be getting a share of this loot would be receiving it the form of money that they would not have to pay in the future. The theory is a little bit like the way torture works. For example, lets say that Im torturing you a fair bit for reasons of national security, and then later on I promise to ease up on the torture provided that you do something that I want – In this case, vote for me. Then, the theory goes, that youll be inclined to consider my generous offer, and you will indeed vote for me. Mr. Howard and Mr. Costello through the effective use of teamwork have devised this fantastic offer for the Australian people. Itll be interesting to see how it plays.

The question on everybodys lips though is this: What can Mr. Rudd do to trump this extraordinary $34 Billion manoeuvre? The options seem obvious. Firstly he can gazump the Government offer with an even bigger number of his own. But that presents the obvious “Labour as financially reckless” comeback. He can low-ball it and reverse the accusation, but miss out on the accolades or he can match it and be accused of more me-tooism. A line, that if it sticks, might become a problem. Perhaps be could take a punt that its such a big abstract number that it has lost all meaning to the voter – and can thus be safely ignored.

These are all possibilities, but with such a crafty opponent Mr. Rudd needs to be careful. You can never be sure how Mr. Howard might respond. Another tactic should be considered. Simply add a 1 to that very big number. Mr. Rudd should respond with a plan for Thirty Four Billion and One Dollars of Labor tax relief. Now that would be playing with Mr. Howards mind.

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16 years ago

False economies II…

We all bemoan the fact that during an election campaign we only talk about policy insofar as it affects the horse race. I plead guilty! So let’s start again with the tax cut policy. Treasury Secretary Ken Henry famously set out 3 Ps for election …

Jc
Jc
16 years ago

Rex

$34 billion is a pathetic little number if taken in context. This is over a 5-year period and the GDP would be $5.950 trillion over that same time if we factor in a compound growth rate of 3.5%. You could piss in the Hudson River and it would have more of an affect in terms of the inflation. Moreover our labor participation rate is very low compared to our peers, which means the hidden unemployment rate is bigger than official stats. Raising the tax-free threshold is a terrific thing for the poorer members.

The only problem I have with it is that it clearly not enough. Double that on present growth rates and it still would not be enough. The growth rate is real and the commodity boom with a few coughs along the way is the real McCoy that could last a decade or more. Mines take 10 years to go from exploration stage to output so there will be bottlenecks for a long time lasting.

Rudd keeps referring to himself as an economic conservative. Yea, well if he means that let’s see a bigger tax cut. Let’s see him lift the tax-free threshold to 25K as that would help the poor more than anything else.

I thought Rudd’s performance tonight on the ABC was pathetic as it was all clich

Mark Bahnisch
16 years ago

That’s interesting, JC, because I saw Howard as being incoherent, defensive and rattled and failing to articulate a clear message. Rudd does pile on the cliches but I thought he batted away the Liberal/media “why wasn’t your tax policy released yesterday?” ball very elegantly and generally acquitted himself well. Obviously a lot of these perceptions are in the eye of the beholder! Anyway, most swinging voters don’t watch the 7 30 report! I’d advise people to watch channel 10 news to see how all this plays in the marginals…

Rex
Rex
16 years ago

I think Mark is right. It’s all about how it plays on Channel 10. While crunching some numbers to prove a point one way or the other is all very well, and comparing policy settings satisfies the policy wonks, the truth is is that Mr. Costello arrived at his number by plunking a couple of spreadsheet jockeys down in front of a computer, giving them a few assumptions and crystal ball style projections and voila the power of Excel produces election winning headlines in the daily papers.

It’s a crock.

Doctor Patient
Doctor Patient
16 years ago

I think Mr Rudd and Mr Howard both look like graduates from the Charles Bronson School of Acting. They seem wooden and unnatural. If they were both replaced by cardboard cut outs no one would notice.

Down and Out of S
16 years ago

That’s $34 billion that’s not going to hospitals / medicare / transport / police / education / [insert your favorite service *] Australians like their services. Rudd should deliver a comeback along this line.

Suggestion for overly exaggerated ad: show a nice clean cut family, flush with tax money driving off to the hospital. They’re in colour, but everything else is in black and white. They drive along a road (with lots of potholes) across a bridge (which is crumbling) to a hospital (dirty with grime and graffiti). They wait five hours in an over crowded waiting room, and finally get a bill of $1000 for their pains. “This is what $34 billion was not spent on under a Liberal government…’

[Which could include services provided by the States but funded by the Feds.]

Doctor Patient
Doctor Patient
16 years ago

D&O, if some services are provided by the states but funded by the feds why do states collect taxes and where do those taxes go? Surely there’s a limit to state profligacy.

Bring Back CL's blog
Bring Back CL's blog
16 years ago

for those who do not understand an Opposition cannot produce a tax policy willy nilly because they rely on getting information from MYEFO. They can then do their sums.

Quite obviously howard and Costello have ddone theirs hoping it will change things.

This makes sense when you look at the debate about the debate.

howard can say here is my tax policy where is yours.

The Anhnillator should say wait.

He doesn’t need the debate Howard does

Nico
16 years ago

I may be naive, but I’ll admit I was astonished to hear Kevin Rudd say that he will not reveal Labor’s tax policy until he’s has time to study the Coalition plan.

So, he freely admits that Labor has no new policies, just reactions to Coalition policies?

Reason number #598 why, for the first time ever (and it’s my fourth election where I’ve been eligible to vote) I’ll be voting Green this time around.

Rex
Rex
16 years ago

Double postings removed.

Mark Bahnisch
16 years ago

It’s a perfectly sensible response, Nico. The tax cut announcement was accompanied by new mid year fiscal numbers which means that any work Labor has done so far has to be done again on the basis of new assumptions about growth, the size of the surplus, etc.

Down and Out of S
16 years ago

Doctor Patient: money comes from the States as well as the Feds – but on average, the share of Federal funding is down in the last 11 years.

Bring Back CL's blog
Bring Back CL's blog
16 years ago

Gee Mark I wish I had said that..hold on I did

Mangoman
16 years ago

$34B is too big a number. I suspect that it only looks good to people who are watching this as a game. Those that might change their vote on this will look at what it means to the bottom line immediately – not in 5 years. It simply isn’t that much for the majority.

The services argument is a good one but hard to run without being hit with the comeback – ‘what is wrong with giving people the choice about how to spend their own money?’ Very hard to deal with the complexity of funding for service delivery in that environment.

Patrick
Patrick
16 years ago

$34B is too big a number. … It simply isnt that much for the majority.

er, whatever, then.

Thats $34 billion thats not going to hospitals / medicare ..etc

The theory is a little bit like the way torture works, etc

– wait, I’m confused, are we supposed to want to be tortured?

Rudd should introduce an negative income tax or earned income tax credit – even I would vote for him then!

Nicholas Gruen
Admin
16 years ago

$34 b is quite a lot to spend on the first day of the campaign.

Jonno
Jonno
16 years ago

On the radio this morning (Jon Faine 3LO Melbourne) a Sydney academic said that due to the low income tax offset removal, this would have no effect on participation rates. Is someone able to explain this please?

derrida derider
derrida derider
16 years ago

“Rudd should introduce an … earned income tax credit” – 15

I’m guessing that’s just what his policy will announce, Patrick. It’s what I’d do if I was him, anyway.

The main practical difference in the Australian context between an EITC and the expanded Low Income Tax Offset that the govt favours is that retirees won’t get the EITC***. But since “self funded” (ie tax assisted) retirees are pretty well all rusted-on Howard backers (as they bloody well ought to be given how much workers’ money he has lavished on them), there’s little political penalty for Labor in this and it frees up funds to spend on a bigger EITC.

Rudd will be able to show a bigger amount than “$25 a week extra” for the average worker while spending the same $34B in total. And it nicely skirts the “me tooism” charge.

*** Note the phase in arrangement of the US EITC (ie with a negative tax rate segment) makes no sense in Oz without other changes to the welfare, family payment and income tax systems, but that’s a long story which he wouldn’t go into in an election campaign. That would come as a surprise – partly pleasant but mostly unpleasant – in Swan’s first budget.

derrida derider
derrida derider
16 years ago

jonno, I’m guessing that what they’re talking about is the way that the Low Income Tax Offset has to be “clawed back” from middle-income earners by adding 4 cents to the dollar. The academic is asserting that the effect of this clawback on how work pays will offset the effect of the higher effective tax threshold on people’s decision to work.

This is possible, but IMO pretty unlikely. The clawback will reduce the incentive to move from part time work to full time work, but it leaves unaffected the payoff for moving from non-work to full time work, while the higher effective tax threshold increases the incentive to move from non-work to part time work. So the likely net effect is a few extra people moving from non-work to part time work and a few extra people moving from full time work to part time work. Thererore the total number of people wanting some form of work will increase slightly.

To confirm this you’d need to run it through a good behavioural model of people’s decision to work. Fortunately we have one – Melbourne Uni’s MITTS. Treasury uses MITTS so I presume they’ve already run the numbers through it – no doubt this is where Costello’s bit about “mums working part time” is coming from.

pablo
pablo
16 years ago

I wonder if Rudd/Swann might see this big tax refund carrot as a chance to counter Howard on the wall-to-wall Labor governments tag. Instead of it being a negative, Federal Labor could promise tax reform with all state indirect taxes to go (including pokies) in return for all surpluses, such as the $34 billion going to the states. A slight adjustment to the GST perhaps… all those impediments in state charges on housing affordability… yeah pigs might fly. Still where’s the vision thing in the PM/SubPM tax giveaway?

ab
ab
16 years ago

pablo, in an ideal world we’d abolish all those ridiculous and inefficient state taxes, stamp duties, etc. and ramp up the GST. The ALP kind of ruined that one for everybody, though.

BBB

Doctor Patient
Doctor Patient
16 years ago

ab, don’t stop with the trimmings. Just abolish states.

Bingo Bango Boingo
Bingo Bango Boingo
16 years ago

Nah, the states are fine. Competitive federalism and all that. Just make sure that all GST revenue goes straight through to state coffers. Do not pass Go. Do not collect $200 for yourself. I wonder what kind of GST rate would be required to abolish them all?

BBB

Tim
Tim
16 years ago

I’m a self-funded retiree and I wouldn’t vote for El Rodente in a million years.

He’s squandered the prosperity coming from the mining boom, drastically underfunded higher education and public health, wasted billions on the Private Health Insurance Premium Rebates, failed to spend money on infrastructure at anything more than a fraction of what’s needed and encouraged over investment in housing, through the tax system, which in turn has led to the price of it becoming stratospheric for new home buyers. And the Liberal Party has the gall to claim its the better economic manager?

Since when does squandering today’s prosperity without any more than token concern for the future constitute good economic management?(BTW I’m looking forward to the new Labor Government investigating the scandalous investment practices behind the Liberal’s so-call “Future Fund”.)

There comes a time when the job of the electorate is to “Throw the rascals out”. The real time for the current mob (and the current NSW Labor Government) was at the last election. Unfortunately, the Opposition Leader in both cases was more intent on sef destruction.

Tim
Tim
16 years ago

I’m a self-funded retiree and I wouldn’t vote for El Rodente in a million years.

He’s squandered the prosperity coming from the mining boom, drastically underfunded higher education and public health, wasted billions on the Private Health Insurance Premium Rebates, failed to spend money on infrastructure at anything more than a fraction of what’s needed and encouraged over investment in housing, through the tax system, which in turn has led to the price of it becoming stratospheric for new home buyers. And the Liberal Party has the gall to claim its the better economic manager?

Since when does squandering today’s prosperity without any more than token concern for the future constitute good economic management?(BTW I’m looking forward to the new Labor Government investigating the scandalous investment practices behind the Liberals’ so-call “Future Fund”.)

There comes a time when the job of the electorate is to “Throw the rascals out”. The real time for the current mob (and the current NSW Labor Government) was at the last election. Unfortunately, the Opposition Leader in both cases was more intent on self destruction.

Niall
16 years ago

It’s a tax cut, or maybe even a series of them, to be trumped out over years to come when we don’t know for certain we’ll even see them legislated. Do I smell a con job? We see these alms every year at budget time, almost immediately swallowed by a tailgating interest rate rise, or petrol price hike, or similar cost of living increase. $34b……big deal!

Bingo Bango Boingo
Bingo Bango Boingo
16 years ago

So let me get this stright, Tim. You’re a self-funded retiree?

BBB

Robert
Robert
16 years ago

Apologies for the general nature of this, Rex. A video link to Bob Hawke tearing into Howard, with the scent of victory in his nostrils, methinks. Been a while since he’s livened up like this.

Tony T.
16 years ago

Apparently Tim’s a self-funded retiree.

Patrick
Patrick
16 years ago

and encouraged over investment in housing, through the tax system

Well, except that Howard never touched those rules, and that actually he has discouraged negative gearing by lowering most people’s tax rates.

I think Labor could and should announce $50b in tax cuts, along the same staggered lines, but with an expensive EITC to make them even more progressive. Just model in a bit of higher growth stimulated by the extra cuts, another $10b recouped through improved integrity measures, we’d be there in a jiffy.

And I agree entirely with raising the GST to 12.5% and cutting all state taxes except perhaps stamp duty. Pretty efficient tax, stamp duty.

Jc
Jc
16 years ago

Patrick

How can they announce those sort of tax cuts when they have already promised 2 billion to heatlh, an open cheque to ed and sorts of other crap? They’re making the Liberals foray into spending look like a kids picnic.

I think they have problems.

Howard stupidly bought himself a hospital in Tassie for $40 mill and the other numbnut raises him $2 billion. It’s hysterical.

Doctor Patient
Doctor Patient
16 years ago

BBB, all I’m trying to do in calling for the abolition of the states is to make room at the Qantas departure lounge for those on genuine o/seas business rather than have the lounge full of junketeers.

Bring Back CL's blog
Bring Back CL's blog
16 years ago

JC,

I sugggest you examine the MYEFO before commenting anymore.

If one accepts the absurd 1% of GDP rule then Rudd has plenty of money to play with.

Howard still has a few bill to spend as well.