3 ways the Government can kick-start the economy
By David Bassanese
Apart from a few modest budget savings and further tinkering with the superannuation system, the Turnbull Government seems bereft of “big economic ideas” to carry it through this term of Government. Indeed, the great lament for the economy is that growth-enhancing economic reforms are just seen as too hard for either major political party.
Even the much-touted corporate income tax cut is fairly modest and will be dragged out over ten years.
In the face of such a policy vacuum, let me venture forth a few ideas which I think could help boost productivity while not adding all that much to Australia’s entrenched budget deficit.
1. Get stuck into infrastructure
For starters, the Government needs to get stuck into infrastructure in a much bigger way. For too long, this has largely been seen as the preserve of the States, and the Federal Government (admittedly under Tony Abbott) only seemed to want to fund more roads. Yet, it’s an obvious free kick just waiting to be taken.
Indeed, the Reserve Bank, the Organisation for Economic Cooperation and Development (OECD) and even the International Monetary Fund (IMF) have all argued that the limits of monetary policy – in terms of low interest rates and quantitative easing – have largely been reached.
To further boost growth, countries are being encouraged to boost publically provided infrastructure – provided that the projects are of merit and prudently financed. New South Wales has already unleashed major infrastructure programs in recent years – thanks to the privatisation of electricity and other “asset re-cycling measures”, which is helping the State power along.
The single best start in this direction would come from Treasurer Scott Morrison in next years’ May Budget. A centre piece should be a recasting of the budget accounts in terms of a “recurrent” or “operating” budget balance and a separate “capital” or “investment account”. That would allow us to separate the challenge of raising enough taxation to fund yearly spending needs (such as health and education) from that of borrowing over the long-term to fund worthy infrastructure projects.
At a time when Australian 10-year government bond yields are not much more than 2%, this is a once in a lifetime opportunity to build out Australia’s infrastructure requirements. I would also like to see an independent body – such as Infrastructure Australia – being charged with the duty to pick the best infrastructure projects based on a rigorous cost-benefit analysis.
2. Move towards a cashless economy
A second “big picture” idea is to move Australia toward a fully cashless economy. As recently outlined in The Economist, the volume of card-based payments in Sweden has increased tenfold since 2000 and, today, around 95% of all payments are cashless. Some estimates suggest a purely cashless economy could save around 0.5% to 1% a year in cash handling costs – a big saving that accrues annually, and would clearly help lift productivity.
Moving to a cashless system could also help boost tax revenues by limiting scope for the “cash economy.” And it could potentially save business billions in reduced tax compliance costs by, for example, automatically sending a certain percentage of sales receipts or wage payments to the tax office. Welfare payments could also be better streamlined.
3. Clamp down on corporate tax avoidance
Another obvious free kick is clamping down on corporate tax avoidance through international loopholes. Again, this could bolster tax revenue and help level the playing field for smaller, more domestically focused firms which can’t avoid tax so easily.
To sweeten the deal, the revenue saved through such a crackdown could even be used to cut the overall corporate tax rate more deeply and quickly. Indeed, I’ve long argued that the Government should adopt aggressive tax broadening measures so as to achieve a game-changing cut in the corporate tax to only 15%, or even less.
Given the degree to which the current high corporate tax rate is so easily avoided by the big-end of town, we might end up getting even more tax revenue from them simply by making it less advantageous for them to spirit their money away offshore.
The old Malcolm Turnbull seemed full of big, bold ideas. Indeed, we could add the bold embrace of clean energy, better public transport networks and greater regional development – the latter being the best option to reduce the congestion and house price pressures in our major capital cities.
To my mind, there seem enough avenues through the Senate for many of these proposals to get a fair hearing. The only obstacle seems be the desire of Prime Minister Turnbull to remain a “small target” given his own divided party.
Published: Wednesday, October 05, 2016
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