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What Turnbull needs to put on his to-do list

David Bassanese
Wednesday, September 16, 2015

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By David Bassanese

Like many economists around the country, I’m filled with a sense of relief and hope following the elevation of Malcolm Turnbull to the Prime Ministership. As I’ll outline, there are many thing he can, and should, do to improve our economic prospects, but getting the job done will not be easy. 

Turnbull’s greatest near-term challenge – much like Kevin “the messiah” Rudd before him – is to manage already inflated expectations about what he can achieve. As Rudd – and even US President Barack Obama found – popularity can quickly dissipate if you fail to live up to, or at least manage, expectations well. Turnbull must negotiate change through an ideologically divided cabinet room, and then through a populist gaggle of independent Senators. 

He’s said not to suffer fools gladly. He’ll need to learn.

So what should Turnbull do? To my mind, the single greatest problem is to shore up Australia’s tax base so as to restore national finances to a sounder footing. Contrary to some claims, the Federal Government does not have a spending problem but a taxation problem. Taxes are too low and inefficiently organised. Specifically, our traditional personal and corporate income tax bases are eroding under the pressure of globalisation. The superannuation system (sorry readers!) is also an increasing drain on the tax take.

Forget further reviews - we know what to do. The obvious solution is to broaden the goods and services tax (and raise the rate), while also watering down some of the still very generous superannuation concessions. I would also entertain the idea of wealth taxes (which are very low by international standards) – which coming from a very rich Malcolm Turnbull, would be hard for the Labor party to complain about.

In exchange, the Libs could slash corporate and personal income tax while also generously compensating the less well off. To my mind the first port of call would be the social security lobby – to get them on board with changes to the GST in exchange for compensation. They should be told most GST concessions favour the well off in any case, and they should stop their misguided objections to change.

Of course, the other challenge with such tax reform is the states – as any increase in the GST tax take naturally flows to them. They will naturally baulk at proposals where most of the proposed GST revenue gains help cut other Federal taxes, rather than boost state-directed spending on health and education.

To my mind, that’s why Turnbull should also consider something far bolder – like my proposal to tax electronic transactions instead. It’s fair, efficient and promises a revenue bonanza! Indeed, a tax rate of 0.25% levied on either side of the $100 trillion of non-cash payments made each year would raise $250 billion – or five times that raised from the cumbersome GST.

Taxation aside, Turnbull should also start to end the fear mongering about the legitimate use of public borrowing to fund socially useful long-term infrastructure projects. After all, the National Broadband Network is being effectively funded through public debt – and should eventually be sold off for a profit.

Hopefully under Turnbull, the Government’s earlier infatuation with road building will give way to a greater focus on public transport – and he could also help devise innovative public-private sector financing partnerships.

There are two other “strategic visions” – or organising principles for action – that Turnbull could embrace.

First is the idea of greater decentralisation in economic activity – through economic promotion of smaller cities and outer regions outside of Sydney and Melbourne.

As I’ve previously explained in Switzer Daily, most of the blame for Australia’s relatively high house prices reflects our low density, but highly urbanised, style of living and working.

As even the Reserve Bank noted its submission to the parliamentary enquiry into home ownership “Australia is highly urbanised and its urban population is unusually concentrated in a few large cities. The population densities of these cities are also quite low relative to those of cities with similar population sizes in comparable countries.”

Efforts to promote decentralisation (helped by the NBN!) could help revive struggling regions (and so appeal to the Nationals) while also help take pressure off house price and transport bottlenecks around our major cities. 

The other strategic vision is to focus on the rapidly emerging Asian middle class as the source of Australia’s future prosperity. As noted in a speech last year by former Federal treasury Secretary Martin Parkinson, “the number of middle-class consumers in the Asia Pacific region is expected to grow from half a billion in 2009 to 3.2 billion by 2030. Consequently, by 2030, it is estimated that just under two-thirds of spending by the world’s middle class will come from the Asia Pacific region, compared to around one quarter today.” Every Australian should learn these statistics.

This is a positive vision for Australia. It could be supported by government initiatives focused around nurturing specific industry “clusters” such as food, energy, financial services, tourism and education. While this may smack of “industry planning” to some, I prefer to see it as a better way of organising the billions already spent in a much more haphazard way on industry assistance.

The greatest thing Turnbull has said so far is that Australia does not need to be ‘future proofed”. He was perhaps channelling Bill Clinton who said in his Inaugural Presidential Address in 1993

“We earn our livelihood in America today in peaceful competition with people all across the Earth. Profound and powerful forces are shaking and remaking our world. And the urgent question of our time is whether we can make change our friend and not our enemy.”

Change can be our friend. It can bring us untold opportunity. Turnbull now needs to prove this to the rest of Australia.

Published: Wednesday, September 16, 2015

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