Michael Pascoe writes:

The Reserve Bank Governor can’t quite bring
himself to tell the Federal Treasurer what to do, but one of his board members
can and has. In an interview with the SMH ANU Professor Warwick McKibbin spells out
exactly
what Cossie should be doing with the money tonight instead of just
doling out sundry Bandaids and piecemeal
tax cuts that have unfortunate interest rate implications.

The SMH‘s Peter Hartcher reports McKibbin
as saying tax cuts would be one of the worst ways to use the resources boom tax
windfall.

His remarks to the Herald
are a veiled warning that big tax cuts, by fuelling consumer demand, could add
to the pressure for more interest rate rises. “Fiscal policy does have an
impact on the economy and domestic demand – there’s no doubt about it.”

“We have a very unusual
opportunity here,” Professor McKibbin said. “The economy is booming
after 15 years and it has generated a windfall for the Government. What do you
do with it?”

McKibbin’s preferred option is
investing the windfall in five critical areas that would improve Australia’s productive capacity, allowing the economy to keep
expanding. The professor’s five top
picks:

1.
Tax reform (not tax cuts) – he wants major simplification, including a top
personal tax rate of 30 percent, to reduce
the resources wasted on avoiding tax;

2.
Infrastructure – “If we are
sitting on $10 billion to $15 billion in surpluses, there have to be ways to
put it into critical infrastructure – rail, roads, water and energy.”;

3.
Education;

4.
Increasing workforce participation, including improving availability of
child care;

5.
Addressing climate – by pricing carbon emissions to reflect the cost of the
damage they inflict, the environment would be able to carry the economy in the
long term.

All reasonably reasonable, one might think.
It would just require a little leadership instead of grubby political
priorities. So how is Costello likely to score on the McKibbin plan tonight?
I’d tip a token gesture on 1, some belated catch-up spending on 2, a nod but
little substance on 3, something solid on 4 and zilch on 5.

That would score about 1.6 out of 5, 32 per
cent. It’s a fail.