The problem is that Sinclair’s statement was that “There is no such thing as unsustainable tax cuts”. Notice the “no”. To debunk this absolute position, Turnbull quite reasonably pointed to a case of tax cuts that even Sinclair could not was unsustainable. So, Sinclair actually loses. But that’s what happens when you engage is iedological sloganeering.

Whether you are in favour of SWFs or not, it pays to actually think about such things rather than recite crap from your idealogical cheat sheet and hope that your academic pedigree will make people listen to you.

For the record I have doubts about SWfs myself. I thought the idea of having a corporation tax cut like Henry wanted was a great idea, and perhaps dump the rest into superannuation, so that if the TOT boom turned out to be temporary after all, the budget wouldn’t be in structural deficit.

Obviously Sinclair is right in posing an affirmative answer if we ask a question such as “can a 50% reduction in tax revenue be sustained”. Clearly it could be. We could cut the public sector substantially and revenue would stay low. There is no technical sense in which this could not be sustained. Sinclair wins. Or does he?

Turnbull however isn’t as far as I can tell trying to make a narrow economic point but a broader point in the context of what he sees as practical political constraints. He assumes that the body politic, that broad ocean of voters out there, would not accept the spending cuts needed to sustain such a reduction in revenue. And that given this constraint any tax cut due to a temporary revenue windfall will ultimately be unsustainable. Turnbull wins. Or does he?

All this depends on two key factors. Firstly are we asking a narrow question about economics and accounting facts or a broader question about political reality? And secondly is Turnbull right in his assumption about what the body politic will accept?

On the second point I think Turnbull is fundamentally wrong. The public don’t readily embrace economic liberalisation, be it privatisation or transfer of costs from the government to the individual or other private institutions. However once such measures are implemented the public also generally has little taste for any reversal. The body politic is not static in it’s disposition.

Many of us who favour small government, and think of Turnbull as a pontential but wayward ally, think locking in tax cuts is a good idea. And that even in Turnbulls terms of practical politics it is readily sustainable because the body politic is not some unchangable static force of nature. That said I think it suits both sides of this debate to talk past each other.

Personally I am dead against the future fund and have always been. Howard was a dope for establishing it and should have cut taxes far more liberally. He wasted a great opportunity.

Some of the tax will fall on residents so there is an effect on the exchange rate. But it is second-order. Max is right.

Commonwealth spending on defence is less than 10 percent of its total spending. As Sinclair rightfully pointed out, if Commonwealth spending got so low that there was a real prospect of the Commonwealth being unable to pay soldier’s wages, then we can start talking about ‘unsustainable’ tax cuts. Until then, it is only unsustainable spending.

I maybe mistaken and if I am I apologise but I am sure when looking at past assertions Mr Davidson said he would do exactly as Turnbull said. He would reduce a surplus by reducing income taxes.
This of course creates or increases a structural deficit.
One might even call it Costello disease.

Ironic that he is a fiscal profigate whilst professing to be a hawk.

In this working paper, I point out something that may be surprising. When the government taxes the mining sector and the effect is mainly felt by foreign owners who would have spent their receipts abroad, and the government then puts the proceeds into a sovereign wealth fund that invests abroad on behalf of the government, there will be little or no effect on the exchange rate. Foreign spending by the taxed owners is reduced, and foreign spending by the Australian government is increased. Thus these taxes that bear on foreigners will not reduce the Dutch Disease.

As Laura said above: faith.

Then, rather than saying: gosh, I’m quite wrong. Heck, if I’m making these sorts of elemental errors I might be wrong on all sorts of stuff! Maybe I should STFU when the grown-ups talk; he said: “I’ll happily admit to being wrong” (which is frankly just as well).

a) the weather in Australia is not the Australian climate, let alone the global climate.
b) climate change is not a left-right issue (as Arnie, Greg Mankiw, and Clive Hamilton all agree) – it rather puts the kibosh on the emancipation of the global working class just as much as it does runaway profiteering. As such, there are deniers across the political spectrum – all of whom are wrong.

Rog, It is Corden as in Max Corden. One of Australia’s great trade economists and now professor emeritus at University of Melbourne.

The argument for a SWF invested overseas is that it smoothes out a cyclical boom in a way that does not bring about unsustainable tax cuts and reduces the value of the Aussi dollar.

Davidson is completely decimated on the Drum post. Very embarrassing for him. Why does he keep doing it? When is going to get the sack from academia?

I also think that the tax cuts of the Howard and Rudd Governments have now given us a federal budget with a structural deficit.

One thing I haven’t seen people mention is Malcolm Turnbull’s calls for tax cuts during the previous commodity boom. http://australianpolitics.com/issues/taxation/05-08-26_turnbull-tax-reform-paper.pdf

I also note a recent column by Ross Gittins comparing the relative performance of small and big government: http://www.watoday.com.au/opinion/politics/dont-judge-government-by-its-size-20120313-1uyd8.html?rand=1331645689963. Ross’s article seems to contradict some of Sinclair Davidson’s arguments.

Malcolm has been wrong before (he has precedence).