So now we know why the Prime Minister isn’t that keen on tax reform, but still promises some tax reductions.
Treasury is saying lower income earners are going to lose money in the
wonderful world of WorkChoices, the Government will have a very strong
political incentive to cut taxes to make sure overall incomes don’t
fall too much.
Funny. The Hawke and Keating governments tried
something similar to control inflation – replacing wage rises with tax
cuts. It was all part of the package called the Accord.
the WorkChoices debates, the Howard Government talked up wages growth
over its time in office, contrasting them with the parsimony of the
Labor years – and the wages growth to come under its new system. Now…
well, let’s just say that the reasons for any tax changes will be
blatantly political – and potentially more harmful to the long-term
competitiveness of the Australian economy.
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We think there needs to be a bit more attention paid to economic detail when we’re discussing concepts like wages.
Like the difference between nominal and real wages. Most economists
would argue that real wages should rise with productivity – not nominal
wages, as many have implied – but this issue seems to have been fudged.
Even the Prime Minister made this error when he gave his major speech
setting out his IR reform agenda at the Sydney Institute back in July.
The quality of economic debate and the quality of economic advice – and what happens to that advice – are closely linked.
lesson from this week seems to be that the Government only listens to
the advice it wants to hear, and that Peter Costello’s policy making is
an analysis free zone. A subscriber has tied the Treasurer’s latest
contretemps into the Rob Gerard fiasco:
I would like to pick up on the RBA governors’ approval of
the appointment process for board members. I think the media should ask
the question – why would he approve of such a process? The answer is
that it benefits the Governor and Deputy Governor to have the board
structure and a bunch of people on the board who are unable to
scrutinise their advice. If on the other hand, we had board structures
like that of the Fed and the Bank of England, where most if not all
members of the governing board have some form of professional economic
training, then the RBA analysis would face a lot more scrutiny and make
the jobs of the governor and deputy governor that much harder.
of the US Board of Governors not only have professional economic
training, but also have a dedicated professional staff that can
question the analysis in board papers etc – they think about policy
full time. Only the treasury secretary is in a position to question the
RBA’s advice, and does, because he has a staff that has access to all,
if not more, information that the RBA has access to. The rest of the
board has to take the RBA advice and are not in any position to
credibly question the advice. Rarely do board members request analysis
from RBA staff, often this is done via the governor who can filter
whatever analysis is given to the board member – this is done by
slanting the analysis to suit whatever message the governor wants board
members to hear and is also “dumbed down” so that the board members can
understand. It is in the best interests of the executives of the RBA to
maintain the status quo.
It is also interesting that the
Treasurer was able to comment on the contribution of Robert Gerard to
the RBA board. My question is how would he know how board members
contribute to the decision making process for monetary policy? Do they
ask insightful questions, do they ask questions that the RBA staff have
not considered and do they actually add anything to the continuing
monetary policy debate? Well the public can never know because the
Treasurer refuses to publish RBA board minutes – what is he afraid of?
All the RBA needs to print is “One board member commented that…”,
“Another board member questioned whether….” without identifying who
said what – see the Bank of England minutes. It seems that Australia is
willing to adopt many practices from overseas, but central bank
transparency is not one of them. The public (including RBA insiders) do
not even know if the RBA board takes a vote – yet we know the B of E
and the Fed boards both do.
I think it is worth questioning
whether the Treasurer or the RBA are reluctant to publish minutes. The
common perception is that the RBA has been blocking this
innovation…but I think this is a misconception. I would not be
surprised if the RBA has been preparing publishable minutes but that a
certain minister does not want these in the public domain. Does this
sound like independence to you?