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Aussies and NZers: Four seasons in one protest


karaddin

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I guess your GST is slightly less regressive than ours, but GST is still regressive precisely because it draws on all people without distinction, with lower income people paying a larger proportion of their disposable earned income in GST that wealthy people who put a lot more into savings to generate unearned income before they spend it - if at all (inter-generational wealth transfer).

So with that in mind, I will never support the suggestion that GST should be the solution to a shortage of tax revenue. Indeed I am mostly in favour of getting rid of GST and replacing it with something more like a luxury tax. Essentially a somewhat progressive kind of consumption tax. You want a TV, for example? You can have a <$1000 TV for no tax, you can have a $1001-$2000 TV for some tax, you can have a $2001-$10,000 TV for some more tax, you can have a >$10,000 TV for a lot of tax. Back when accounting was done by squishy brains and pen and paper, progressive consumption taxes were impossible to administer, hence GSTs were put in place with very blunt forms of exemption. Now that we can put silicon brains and electronic spreadsheets on the job progressive consumption taxes become much more manageable despite being equally or even more complex.

 

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The GST is regressive by definition (takes a larger percentage of income from low-income earners than from high-income earners). We should be aiming for a progressive tax system and to hell with efficiency. 

Raising the tax-free threshold is extremely expensive and would probably wipe out any increased GST tax take. We have a 13% sales tax here in Ontario in addition to high provincial and federal income taxation. It's terrible and it hurts low-income households.

 

 

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22 hours ago, Jeor said:

I've said this before but in my view the most equitable way to do it is to raise the GST rate

GST is evil and should be abolished.

22 hours ago, Jeor said:

The GST is the "best" tax to lean on because it is broad-based and gathers from all consumers (unlike income tax, which is only on the working population, and hence unreliable in the future with an ageing demographic).

How are non-working people supposed to afford the extra GST? It's only possible if you increase benefits etc proportionately, which defeats the purpose.

22 hours ago, Jeor said:

So if you cut the personal income tax rate for low earners (or increased the tax-free threshold) you could balance it out so they're no worse off, while having increased tax efficiency across the board (while incidentally also saying that you've cut taxes for everyone, because everyone uses the lowest bracket).

Abolishing GST means you can say you've cut taxes for everyone, because everyone buys stuff (including people who don't pay income tax so don't benefit from income tax cuts). And if you want the effect that high earners pay more tax but low earners don't, the best method is obviously to increase the rate for the higher income tax brackets. Plus capital gains tax etc.

22 hours ago, Jeor said:

With the changing demographics and existing inefficiencies with income tax (given things like negative gearing, which seems like it's never going to be touched)

Touch it! Touch it! </Rocky Horror>

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5 hours ago, Paxter said:

The GST is regressive by definition (takes a larger percentage of income from low-income earners than from high-income earners). We should be aiming for a progressive tax system and to hell with efficiency. 

Raising the tax-free threshold is extremely expensive and would probably wipe out any increased GST tax take. We have a 13% sales tax here in Ontario in addition to high provincial and federal income taxation. It's terrible and it hurts low-income households.

 

 

Paxter the federal hovernment does give a GST rebate if your income is low enough. 

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55 minutes ago, maarsen said:

Paxter the federal hovernment does give a GST rebate if your income is low enough. 

I wasn’t aware of this - any chance you have a link? I’m only aware of GST exemptions for people leaving Australia (the refund you get at the airport).

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Moving away from GST. In what appears to be unprecedented electoral manoeuvring there is a bit of a battle for the soul of New Zealand's local bodies happening in this year's local body elections. Anti-vax / anti-mandate extremists are trying to launch a coordinated nation-wide play for being elected to local councils by keeping secret the fact that they are anti-vax, anti-mandate extremists (who will be both right and left wing extremists I think, since I know some lefty people who, were it not for opposing moderating influences, would probably be right on board with these anti-vax/anti-mandate groups). Some of these people have the explicit aim of making New Zealand "ungovernable". On the other side, mostly it is journalists who are opposed to these people / groups who uncovered this...can I say conspiracy unironically here?...and trying to undermine it by shining a light on it. In an even more unprecedented move, I think, the govt department Local Government NZ has taken to trying to educate voters to learn as much as they can about the politics and ideologies of candidates standing in local council elections before voting the department does not seem to have singled out particular individuals or platforms, but it is clear the not so veiled message is, please don't vote for anti-vax nutcases.

I guess we'll see how batshit crazy some of our local communities are. On a national scale these groups are fringe minorities who would have zero success in national elections. But local bodies are different. Smaller voting pools, lower participation and less need to talk about specific ideological biases makes it easier for extremists to get elected, in some places.

On top of that concern is a widespread lack of people putting their names forward to be elected to local councils, this could potentially mean some extremists standing unopposed, which means no amount of "education" would stop them from being elected. I'm not sure if there are any wards where people are the sole candidate. But the lack of candidates in some places has made headlines nationally.

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13 hours ago, Paxter said:

I wasn’t aware of this - any chance you have a link? I’m only aware of GST exemptions for people leaving Australia (the refund you get at the airport).

Paxter I suspect that your income is high enough here in Canada that no refund is given. I am in that situation. When you file in Canada, if your income is below a certain point, the refund is automatically given. If I can find a link I will send it on.

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2 hours ago, maarsen said:

Paxter I suspect that your income is high enough here in Canada that no refund is given. I am in that situation. When you file in Canada, if your income is below a certain point, the refund is automatically given. If I can find a link I will send it on.

Whoops forgot you were in Canada haha. I was looking for a parallel regime in Australia - there is none as far as I know. 

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So it seems my GST suggestion is not too popular! I probably should clarify I wouldn't be raising the GST (or any other taxes for that matter) in the current climate, people already have enough trouble with the cost of living.

To be fair, a GST (or VAT) is the bedrock of many European tax systems, which have clearly found a way to lessen inequality (usually by spending on welfare). I'm not suggesting we go full European-style (nor should we go full American with tax cuts for the rich) but there's no doubt the current budget position is unsustainable.

The "tax the rich" regime is morally sound (impose taxes on the people who can afford it, and avoid overly taxing the masses) but I believe a bit economically dodgy. Not for American reasons (I don't believe in trickle down economics or that a high marginal tax rate discourages enterprise) but for the simple reason that budgets that rely on high income tax are wildly unpredictable and exaggerates deficits in a downturn.

California, a US state that does have a very highly progressive state income tax system, has swung wildly from potential bankruptcy to massive surpluses, because progressive income tax depends on the earning potential of a small number of very high earners, which is affected by economic conditions. This article from Reuters has some of the broad brushstrokes of the dangers of relying on income tax.

This article from Treasury.gov.au somewhat detracts from my argument in saying that we're not there yet ("individual income tax...continues to be a stable and predictable source of revenue") though it does note in several instances that Australia's overall tax regime is already "highly progressive" and that the "tax burden is relatively low compared to other developed countries". Of the tax system, 39% of revenue is personal income tax, company tax is 19% and GST is only 12% (state taxes are 19% and other federal taxes are 11%). It notes only 47% of consumption is subject to GST given exemptions etc. However, my point about raising GST rate is likely moot as I wasn't aware that it requires unanimous approval from all state governments.

To summarise this long post, which does have some inherent contradictions in it...

  • Some tax reform is needed to increase revenues due to the budget position
  • I don't think the GST is a terrible tax and in concert with other taxes it doesn't necessarily mean depriving the poor (see Europe)
  • Abolishing GST and further relying on income tax at higher brackets is unwise in my view due to issues with stability etc (see California)
  • GST is unlikely to be practically changeable so we need to look at other things.

Certainly the Stage 3 tax cuts should be abolished. And with the GST legislation putting a stake through my plan...I clearly need to pivot.

While I wouldn't rely on raising the top income tax rate, other revenue raisers such as negative gearing, franking credits and capital gains tax (50% reduction) all would have similar effects and in my view increase tax efficiency - these are all carveouts. Given the relatively high number of Australians with investment properties (over 2 million), rather than eliminate negative gearing altogether you'd have to phase it in so that a limit of one property could be negatively geared. Franking credits was a short-sighted move by Costello and should be phased out for wealthy retirees, it's an awful regime that is only set to get worse and worse as retirees grow as a proportion of the population. And CGT exception inordinately benefits wealthy share market investors. By eliminating those loopholes, you aren't necessarily hitting all high income earners because they have a choice of whether they want to do those things or not. This might decrease the revenue from those options over time but it will also decrease inequality and help housing affordability.

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1 hour ago, Jeor said:

To be fair, a GST (or VAT) is the bedrock of many European tax systems

"Other people do it" isn't evidence that it's a good idea, though. It imposes unnecessary administrative costs, requires measures to be taken to compensate for its inherent regressiveness, and it interferes with international shopping.

1 hour ago, Jeor said:

The "tax the rich" regime is morally sound (impose taxes on the people who can afford it, and avoid overly taxing the masses) but I believe a bit economically dodgy. Not for American reasons (I don't believe in trickle down economics or that a high marginal tax rate discourages enterprise) but for the simple reason that budgets that rely on high income tax are wildly unpredictable and exaggerates deficits in a downturn.

No big deal. Invest in infrastructure and pay down debt in good times, rack it up again in downturns. As long as the government plans for future downturns and doesn't spend too profligately when it has cash to spare, fluctuating revenue can be lived with.

1 hour ago, Jeor said:

it does note in several instances that Australia's overall tax regime is already "highly progressive"

Treasury's opinion of "highly progressive" is subjective; personally I'd rate it as "somewhat progressive".

1 hour ago, Jeor said:

Some tax reform is needed to increase revenues due to the budget position

There are other options for generating revenue - nationalise the banks, say.

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@Jeor: Shorten tried and failed with most of your ideas. We have been discussing these on this forum for at least a decade!

And as for the so-called progressivism of the tax system, it seems to be getting less and less so over time. 

Personally I’d go for a combination of land taxes and inheritance taxes (both progressive wealth taxes), if you were really hell bent on fixing the budget.

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2 hours ago, felice said:

No big deal. Invest in infrastructure and pay down debt in good times, rack it up again in downturns. As long as the government plans for future downturns and doesn't spend too profligately when it has cash to spare, fluctuating revenue can be lived with.

I'm not convinced governments can manage fluctuating revenue responsibly. The Liberals at least paid off the debt in the good times, but they also instilled the structural headwinds (capital gains tax concession, franking credits) with that spare cash. Labor didn't have the good times but established big-spending structural programs anyway (NDIS). Now I'm not arguing against the NDIS, but I can't imagine what it would have looked like if it was trying to be implemented while tax revenues were cratering.

2 hours ago, felice said:

There are other options for generating revenue - nationalise the banks, say.

The banking sector's a lot more complicated than that these days. I know CBA was government-owned, but that was back in the days before the technology revolution (pre-1991) and the explosion in financial products, and a good chunk of that period the CBA was also Australia's central bank.

It's easy to look at the combined $15B (I think) profits and think let's tip that into the public purse. But the moral hazard is enormous - consider the ethics of the government directly making loans to every business in every industry including all the unpopular or unethical ones, not to mention the government foreclosing on small businesses, residential mortgages and booting people out of their homes (and ironically then into government housing), and employing people but not remunerating them to private industry standards.

Direct government bank lending is a lot different to government assistance. If you tried to limit this by only partial nationalisation of the sector (e.g. lend only in certain sectors or segments, or startup/takeover just one bank) then the government bank would be uncompetitive and its share of the $15B profit take would be far smaller. If the government were nice to achieve other goals (leave lots of bad loans on the books, pay employees more so talent doesn't disappear) then those profits would disappear. If the rationale for nationalisation is a profit goal in a mixed public/private sector, then the government will be in a real quandary.

In my view, like a lot of socialist ideas, bank nationalisation sounds good at first blush but dig deeper and it opens up a can of worms.

51 minutes ago, Paxter said:

@Jeor: Shorten tried and failed with most of your ideas. We have been discussing these on this forum for at least a decade!

And as for the so-called progressivism of the tax system, it seems to be getting less and less so over time. 

Personally I’d go for a combination of land taxes and inheritance taxes (both progressive wealth taxes), if you were really hell bent on fixing the budget.

Yes, it's all theoretical...Shorten had the right idea but the electorate is never going to vote it in. As to your last comment, whether the budget needs to be fixed is something that needs consensus. Some serious economists (and not necessarily as far along as Modern Monetary Theorists) don't think it's much of a priority. But for my kids' sake I lean towards getting it on sounder footing.

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On 9/4/2022 at 12:42 PM, Jeor said:

I'm not convinced governments can manage fluctuating revenue responsibly.

Well, it's theoretically possible, at least. I'll concede governments have been known to be less competent than we might wish!

On 9/4/2022 at 12:42 PM, Jeor said:

It's easy to look at the combined $15B (I think) profits and think let's tip that into the public purse. But the moral hazard is enormous - consider the ethics of the government directly making loans to every business in every industry including all the unpopular or unethical ones

Not making loans to unethical industries seems like a win to me. But the banks could continue to operate as independent entities without politicians being able to have any say in their investment decisions, if that's necessary.

On 9/4/2022 at 12:42 PM, Jeor said:

residential mortgages and booting people out of their homes (and ironically then into government housing)

If people default on their mortgages, the government becomes the landlord and the current residents are automatically entitled to stay on as tenants in the newly acquired government housing, at a reasonable rate (reasonable might not be the same as affordable - if it's a particularly expensive house, they might still need to move to more modest lodgings, but welfare should make adequate housing affordable to all).

On 9/4/2022 at 12:42 PM, Jeor said:

and employing people but not remunerating them to private industry standards. If the government were nice to achieve other goals (leave lots of bad loans on the books, pay employees more so talent doesn't disappear) then those profits would disappear.

The profits are already based on private industry remuneration - if lower public sector wages were introduced, profit would go up. And leaving bad loans on the books to be nice would have financial benefits as well as costs - bank profit goes down, but so does government expenditure related to the consequences of foreclosures, eg welfare payments and demand on police and health services.

On 9/4/2022 at 12:42 PM, Jeor said:

In my view, like a lot of socialist ideas, bank nationalisation sounds good at first blush but dig deeper and it opens up a can of worms.

Worms are vital to a healthy ecosystem! :P

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On 9/4/2022 at 8:26 AM, Jeor said:

Snip.

California, a US state that does have a very highly progressive state income tax system, has swung wildly from potential bankruptcy to massive surpluses, because progressive income tax depends on the earning potential of a small number of very high earners, which is affected by economic conditions. This article from Reuters has some of the broad brushstrokes of the dangers of relying on income tax.

Snip

It is entirely wrong to compare California, a state that does not have currency sovereignty to a country that does. Countries that have the monopoly right to issue their own currency can never run out of money. US states, and countries in the Eurozone, can't issue currency, therefore they can run out of money. Countries that peg their currencies to the US dollar are also constrained. Hence US states need to balance their budgets because they can't spend what they don't have. Countries with sovereign currencies can operate in deficit permanently, indeed for the most part they should. Operating in surplus should be viewed as a failure. If people want to call tax theft, then the time when it is theft is when the government is a surplus.

 

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1 hour ago, The Anti-Targ said:

It is entirely wrong to compare California, a state that does not have currency sovereignty to a country that does. Countries that have the monopoly right to issue their own currency can never run out of money. US states, and countries in the Eurozone, can't issue currency, therefore they can run out of money. Countries that peg their currencies to the US dollar are also constrained. Hence US states need to balance their budgets because they can't spend what they don't have. Countries with sovereign currencies can operate in deficit permanently, indeed for the most part they should. Operating in surplus should be viewed as a failure. If people want to call tax theft, then the time when it is theft is when the government is a surplus.

 

Just because you have a large economy and the credit and bargaining power that comes with it doesn't mean that all countries do.

Or maybe you can try telling that to Sri Lanka.

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6 minutes ago, Proudfeet said:

Just because you have a large economy and the credit and bargaining power that comes with it doesn't mean that all countries do.

Or maybe you can try telling that to Sri Lanka.

It can be told to Sri Lanka. The principle holds for every country with its own sovereign currency that has a floating exchange rate. Sri Lanka's inflation problem was caused, like almost everywhere, by supply problems, in its case caused by a reliance on imports, most especially food and energy. Sri Lanka has 99 problems, but running out of money isn't (doesn't need to be) one.

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12 minutes ago, The Anti-Targ said:

It can be told to Sri Lanka. The principle holds for every country with its own sovereign currency that has a floating exchange rate. Sri Lanka's inflation problem was caused, like almost everywhere, by supply problems, in its case caused by a reliance on imports, most especially food and energy. Sri Lanka has 99 problems, but running out of money isn't (doesn't need to be) one.

Who doesn't rely on imports? The USA and China can maybe, but even they aren't currently geared that way.

You can print your own money, what are you going to do for your foreign currency reserves? Again, credit and bargaining power are an advantage large economies have that smaller economies don't. 

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How's the common law movement going across the pond? Here it seems one of the side effects of COVID is increasing activity of these extremist fringe movements.

https://www.stuff.co.nz/national/300679126/spies-extremist-citizens-arrests-could-end-in-violence

Quote

Spies: Extremist citizen's arrests could end in violence

The pseudo-legal conspiracy theorist common law movement is normalising and justifying violence, intelligence agencies warned in April

Intelligence agencies are concerned that political and media figures may be targeted with violent "citizen's arrests" as part of a new extremist movement.

The danger posed by the so-called common law movement is described in a threat insight from April, written by the Combined Threat Assessment Group and the New Zealand Security Intelligence Service and released to Newsroom under the Official Information Act.

This document describes the common law movement as similar to the more well-known sovereign citizen ideology. Both groups insist they aren't subject to existing laws, but intelligence officials warned the common law movement goes further "in its proactive pursuit of a new form of government based on common law pseudo-legal theories, rather than passive or reactive resistance most often practised by Sovereign Citizens".

People arrogating to themselves the role of law-keeper / law-enforcer according to their own ideas of law and order are perhaps a significant potential threat. But hopefully, when all the COVID restrictions come off at some point they will crawl back into the woodwork where they belong as they will find they don't receive a sympathetic hearing outside of their own small echo chamber.

A change of government at next year's election, being a change to a rightwing govt, would probably also put a dampener on things. If the current govt gets back in, with the necessary support of the even more left Greens...well that will just foment the "they stole the election" narrative among those extreme right-wing groups.

Being that climate change is the real threat of our time, inflation being largely a transient problem that is only an extreme concern for a handful of mostly corrupt and low productivity nations (ref. Sri Lanka). My concern is does one trade safety for a govt that is less inclined to be active in climate change action? Not that I think our current govt is doing everything it could or should, but it is doing more than a right-wing govt would, that relies on a coalition partner ideologically opposed to govt doing anything on climate change except lower taxes and reduce regulations to allow "the market" to fix climate change.

I don't know what's worse: Climate change deniers, who oppose govt action on climate change because climate change is not being affected by human activity; or people who [say they] accept humanity's effect on climate but do no believe there is any direct action needed because the invisible hand of the market will fix what the invisible hand of the market created.

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So another 50 basis points hike from the Reserve yesterday and I think we'd expect to see another 50 in October and 25 in November before they start to become more data dependent. Lowe isn't expecting inflation to peak in Australia until the end of the year. 

At least we have finally made it to a fairly neutral monetary policy stance now, versus the ridiculously loose stance during a period of very strong economic growth a few months ago. We are not yet at a restrictive level - real interest rates are still very negative, meaning that you are still effectively being rewarded (not penalized) for borrowing money. 

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