Scrap tax cuts and index instead

Christopher Sheil has an interesting post in which he proposes abolishing the National Competition Council and using the $0.75 billion paid annually to the states and territories (as incentives to continue implementing Competition Guidelines) to fund national infrastructure. Roads, hospitals and schools are the infrastructure areas Chris has in mind, and he reckons Latham could announce a fully-funded $5 billion program over 5 years by this means.

It’s an idea worth considering, both in immediate political terms and as good policy per se. It certainly helps answer the “where’s the money coming from?” question that Peter Costello clearly has ready as soon as Labor announces its tax policy (if Latham ever gets around to it). On the other hand, $0.75 billion per year for 5 years didn’t add up to $5 billion when I went to school. It must be po-mo mathematics.

And even $5 billion over 5 years isn’t very much when it comes to funding infrastructure. It’s certainly better than a poke in the eye with a blunt stick, but if Labor really aims to reinvigorate national road infrastructure and make a significant impact on improving hospitals, schools and universities, a lot more will be needed.

And what about rail infrastructure, and the creation of a national electricity and gas grid, and tackling Sydney’s dwindling water supply by building new dams, and creating large-scale sustainable power generation facilities (whether by CO2 sequestration of coal, or other fuels)? Building the infrastructure necessary to create a truly national electricity and gas grid would actually be a far more useful way to create a truly competitive national market in those areas than persisting with the current National Competition Policy framework (which has largely failed in both gas and electricity for a range of reasons including infrastructure deficiencies).

But all this is going to take a lot more money than a measly $5 billion per year (which is actually just under $4 billion on my admittedly dodgy maths skills). If we’re in the land of dreaming up policy options, what about promising to index income tax thresholds at their current levels in real terms, and then using the $8 billion of “waste” savings Latham has supposedly identified to help fund infrastructure (and re-invigorate hospitals and tertiary education etc) instead of a miniscule tax cut? I reckon most people would be much more attracted by knowing that if they vote Labor bracket creep isn’t going to keep robbing them by stealth, than by getting a measly tax cut that everyone knows from past experience will soon disappear with bracket creep anyway.

Of course, the loss of all that painless bracket creep revenue would make a substantial hole in the alleged $8 billion in savings, but even an additional net two or three billion begins to make the whole idea look like a serious major initiative and not just an election gimmick. And Latham could announce a reprioritization commitment of future tax revenues from economic growth (from excises, CGT and so on) to be directed towards, health, education and productive infrastructure as well.

About Ken Parish

Ken Parish is a legal academic, with research areas in public law (constitutional and administrative law), civil procedure and teaching & learning theory and practice. He has been a legal academic for almost 20 years. Before that he ran a legal practice in Darwin for 15 years and was a Member of the NT Legislative Assembly for almost 4 years in the early 1990s.
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cs
cs
2022 years ago

Ken, the competition payments are indexed for inflation and population growth (some indication of the escalation is here), plus there could be the savings from abolishing the ncc and associated processes. This would probably easily come to around $5bn … plus, there would probably need to be a few more sweetners in the grants dept to appease the usually squealling provinces (although the pm is never in a stronger position than making his first ask after an election).

Agree, that we’d like more, and I would also like to see the tax stuff foregone for infrastructure – but it’s unrealistic at this stage, imo. Still, as you say, this would be better than a poke in the eye, and $5bn is a serious sounding number. To supply some measure of the magnitude, here in NSW, the deal would instantly more than double the increase in capital spending announced in this year’s state budget!

Jacques Chester
Jacques Chester
2022 years ago

Infrastructure has to be maintained, professor. At whose expense? In the long run, mine, to your benefit. You might find this attractive but you can be certain that I don’t.

Telstra is the classic instance of where massive meddling in infrastructural markets has cocked the thing up for successive generations. Telstra should not have anything even vaguely resembling its current market dominance; but then, it was handed billions of dollars of infrastructure for free. Rather hard to compete with on level terms.

People seem prepared to pay far more for plumbers and mechanics than for doctors. Perhaps we should think about that.

Ken Parish
Ken Parish
2022 years ago

Jacques

Most if not all of the areas of infrastructure I highlighted are natural monopolies (i.e. it wouldn’t make sense to have more than one set of water pipes leading to people’s houses, or more than one electricity grid and so on). There is no basis for believing that private ownership is more efficient (or fairer) than public ownership in a natural monopoly situation. In fact there’s every reason to believe exactly the opposite.

History is full of examples of monopolies that exploited their position of power ruthlessly while operating a grossly inefficient enterprise (because they had no need to worry about efficiency). BHP was a good example of a seriously inefficient private sector monopoly (albeit maintained by tariff barriers rather than being “natural”), and Telstra was (and still is in large measure) a good example of a public one.

Natural monopolies don’t have the discipline of the market to keep them honest and efficient (or die), so it’s best they be publicly-owned so they can at least be subject to a measure of accountability to ensure that they act in the public interest.

Sometimes it’s possible to reduce the scope of the monopoly by hiving off aspects of operation that aren’t natural monopolies and subjecting them to competition. Hence, while Telstra’s fixed landline infrastructure is a natural monopoly, the rest of its enterprise isn’t. I favour flogging off the rest and returning the fixed infrastructure to full public ownership.

Similarly with electricity. The grid itself is a natural monopoly, but power generation isn’t, and a competitive electricity market can (and should) be created. But one of the best ways (if not the only way) of bringing about that situation is to have public ownership of the grid and for government to spend the money needed to get it into a state where private sector players can make a reasonable buck out of generating power and selling it to anywhere in the nation*.

As for maintenance, that is funded by user charges levied by the monopoly operator, and that will be so whether the monopolist is public or private. Main roads are an exception, because everyone benefits from them even if they don’t travel on them, so it’s not unreasonable that their maintenance be funded from consolidated revenue.

Your apparent opposition to public ownership even of natural monopolies, given their features, indicates that your commitment to neoliberal principles is religious rather than rational.

*Transporting electrical power over really long distances via high tension wires is problematic for technical reasons (I think it’s Ohm’s Law if I remember rightly). We need to invest in technologies to solve that problem (e.g. hydrogen fuel synthesised close to a power station and then transported elsewhere and used to fuel electricity generation much closer to where it’s needed). That function wouldn’t be a natural monopoly, but substantial government R & D funding will be needed to achieve it. That sort of longer-term R & D is also something capitalist enterprise doesn’t do very well. It needs government to create the opportunities that it then exploits more efficiently.

Jacques Chester
Jacques Chester
2022 years ago

I’m familiar with the theory of natural monopolies; I’m also aware that there is a substantial body of dissent from it amongst many economists.

The main thing you’ll find amongst the classical “natural monopolies” – power, water, sewerage, gas, telephone – is that all devolve to right of way matters. All of these services are considered natural monopolies because it costs a lot to lay lines and pipes to each household.

However, this theory doesn’t hold water all that tightly. Currently each service runs its own cables and pipes; in a more liberalised market there’d be strong incentives to be more efficient about the laying of infrastructure. You’d see PowerWater’s undergrounding project being part funded by (say) Optus, who would lay a fiber-to-home system in the same network. Or you’d see sealed electrical cables being pulled by robot through sewerage pipes. Or (as already happens) cable television being strung from existing power poles.

If there’s a monopoly at work here, it’s the body that hands out the necessary rights-of-way. In Australia, in its various capacities, it’s the Crown which controls the key property (sidewalks and streets) for which right-of-way needs to be secured.

So it’s another public-private boundary issue thing; much like pollution, overfishing etc.

I may have “the faith”, but I didn’t adopt it from the Mysteries, Ken. I’m a bit too Catholic for that.

Mark Upcher
Mark Upcher
2022 years ago

Ken

I do not think that ownership is the critical element in ensuring that infrastructure is properly maintained. For example, public ownership has not prevented the run down of electricity infrastructure in Queensland. And everyone forgets that the telecommunications infrastructure, especially to the bush, was run down badly under public ownership.

More important is that the economic and regulatory structures be adequate to ensure a balance between providing a return to the shareholders (whether private or public) and ensuring there is funding for an adequate level of capital investment.

Mark 2
Mark 2
2022 years ago

Where is the money coming from again? The $0.75 billion p.a in NCC payments go to the states presumably to fund their expenditure? So if these payments are diverted and tied to infrastructure isnt there a funding shortfall for the states elsewhere which needs to be made up? Have i missed something or is the only ‘saving’ generated here costs directly related to abolition of the NCC and not the NCC competition related payments to the states?

cs
cs
2022 years ago

It’s a tied commonwealth grant for a program the states themselves now argue has run its course, and which has often been argued (inter alia) as needed to compensate state-based losers in the competition process. The states will of course argue that the money should be continued regardless, absorbed into their fags. This won’t happen under any government, as the feds have long (over a year) been trying to dream up new benchmarks to tie the money to beginning next year. Whatever, its not a free lunch, and I’m only arguing that it should be tied to infrastructure development benchmarks, rather than new competition benchmarks. It’s theoretically doable and would be hard for the states to refuse outright, but admittedly may take some added sweetners (which I could go into some other time).

Mark 2
Mark 2
2022 years ago

Errrr ….. you seem to have just fudged and didged cs that the fundinmg is as i said rather non-funded ??

You seem to have a psychological paranoia to dominate any forum you participate in and have no idea why Ken continues to tolerate you & indulge some of your indefensible ideas!?

A better start to any discussion here would have been the article in todays AFR by Fred Benchly. The whole NCC set up is up for review in the next year and any knee jerk electoral driven policy should be seen as crap politics and not sensible considered policy. The ongoing pretension by cs that this could be an electoral winner for ML should more appropriately be seen as more policy on the run than sensible policy ……. and as Winston Churchill would have said ‘thinking with your mouth rather than your brain’ (excuse the extreme paraphrasing)

Mark 2
Mark 2
2022 years ago

oops excuse my typing deficiencies : /

Errrr ….. you seem to have just fudged and dodged cs that the funding is as i said rather non-funded ??

The opening paragrapg was meant to read such!!

Liar !!!!!!

cs
cs
2022 years ago

Oh well, I wouldn’t want to dominate. You win. Good luck.

mark 2
mark 2
2022 years ago

U made my domination point by resondinfg so quickly you fool !!!

What do you have software to tell u whenever anyone makes relevant comment anywhere in the world ??

This activity for me is an abnormality …. for you mate go out do the world a favour and get a fukin life !!!!!

Ken Parish
Ken Parish
2022 years ago

Mark 2

I haven’t been taking any notice of this thread (or others) for the last few hours, because I’ve been teaching. I have no idea where your rude, aggressive stance towards CS came from. I can’t see anything on the comment thread itself that justifies or even explains it. Chris gave a civil, sensible informative answer to what seemed to be a quite reasonable question from you, and then suddenly for no apparent reason you’re abusing him. Why? Was it an attack of blog rage or something? It’s just gratuitous nastiness that destroys civil debate (as it just did). Please don’t do it again. Sorry Chris. I can’t watch comment threads 24 hours a day.

mark 2
mark 2
2022 years ago

Oh what a pathetic excuse ken !!

An apology to CS really ????

civil? maybe !! informative?? which planet are u on ??????

woodsy
woodsy
2022 years ago

I know this is a bit off-thread but why do we always have to fund long term infrastucture out of surplus tax revenue? In the past we seemed to do quite well building infrastructure that would benefit future generations by borrowing the money, with the loans repaid by the generations deriving the benefits.

Correct me if I’m wrong, but it seems to me that we are in a period of unprecedented low world interest rates, particularly in Japan and the US. Could not the Federal Government borrow fully hedged YEN loans at less than 2%? And, if the arse drops out of the $US, which is on the cards, we could borrow $US at 70c and repay the loans in the future using a $1.25 exchange rate.

In any case, even with the additional costs of hedging the currency, I’m sure that this opportunity to fund huge infrastructure projects is a once in a lifetime thing.

And, while on the subject, what about some of the other unfunded liabilities that few seem to consider. Federal government public servants superannuation for instance! How will our grandchildren, the one’s lucky enough to have anything left over from funding my bloated health costs, find the taxes to pay $100 billion from general revenue.

Even if all this sounds a bit Khemlani-ish, (see http://www.ozpolitics.info/topics/dismissal.htm )I think the concept of using other countries citizens savings (because we don’t have any of our own) to build intergenerational infrastucture and provide for public servants superannuation is good in theory.

Ken Parish
Ken Parish
2022 years ago

Wayne

You’re dead right. As long as the infrastructure is productive and longlasting, there’s no reason at all why the current generation should bear the whole cost of building what will benefit future generations as well.

I’m not an economist, so one of them may correct me. But it seems to me that governments are doing too little borrowing for long-term productive capital infrastructure, while individuals are doing far too much borrowing for short-term consumption. It’s eaxctly the wrong way about, and it probably isn’t sustainable.

Jacques Chester
Jacques Chester
2022 years ago

Ken, I used to think of infrastructure in similar terms (I wrote a very long article about my ideas). It does make sense to borrow for long-term capital projects, if they are expected to be profitable.

However with government borrowing, there are a number of problems. The first one is moral hazard: what’s stopping the government from cheating by banning or curtailing competition (see also: Telecom), or pork-barrelling by senior politicians (see also: New England Highway), and so on and so forth.

Then there’s the problem of picking winners. Corporations face this problem also, but unlike governments, corporations can and do go broke. Their focus is on infrastructure which is clearly and obviously desired, when it is desired. Rather than diverting current capital for distant generations, current capital is spent on current desires.

Of course I’m not an economist, but by now you’d realise I closely follow the topic as an interested layman.