Henry Tax Review:

Ray Quigley writes: Re. “Henry Review: how did the government respond? It didn’t.” (yesterday, item 1). When you say to your GP “I’m feeling crook,” he says things like “stick your tongue out,” etc — it’s called diagnosis. Then he provides some remedial steps which should make you feel better.

At this point in time you may well say things like I will do more exercise/give up the fags/etc — and you don’t have to — it’s your call. But, at least the pathway has been identified for your retrospective action.

It seems to me Dr Henry has proffered his remedial recommendations of which the Rudd Government has chosen to accept a morsel of, but at least a thorough diagnosis has been made.

Someone should analyse the 130 plus “unused” recommendations and rate them in terms of importance and whether it/they are still relevant in, say, three to five to seven etc years. The important thing is this work is invaluable and it’s ours to use, or ignore. So, in a future election campaign some pimply faced “journalist” can ask the very erudite question, “so whadda ya reckon about reco 28, then?”

Niall Clugston writes: While the criticism of Kevin Rudd’s caution is fair, the contrast with the 1980s is exaggerated.  The Hawke-Keating reforms were part of a global crusade of privatisation and deregulation spearheaded by the Iron Lady, Margaret Thatcher.

Today there is no sweeping change of economic orthodoxy.  Nor is the Pale Imitator who inhabits the Lodge likely to receive any international guidance from the incompetently honest Gordon Brown or the temporary messiah, Barack Obama.

Rudd the coward:

Julian Gillespie writes: Re. “Mungo: on tax and the ETS, Rudd tainted by cowardice” (yesterday, item 15). Mungo was right-on yesterday about Rudd: YELLOW = lacking courage; ignobly timid and faint-hearted.

Probably bloody useless to ask, but will I see at least one politician during my relatively short existence that doesn’t expose their yellow belly in public? Anyway, my response to you Mr Rudd on your BS about-face on the ETS is pretty simple — bye bye.

Population:

Justin Templer writes: Re. “Abbott’s population target will cost us hundreds of billions of dollars” (Friday, item 1). You fired two barrels at Tony Abbott on Friday, bringing out Bernard Keane and then another Bernard Keane (“Abbott’s crass populism will have many casualties”, item 8).

Conveniently Bernard’s two egos seemed to agree that the Leader of the Opposition is a brainless, but at the same time small-minded, little man willing to exploit xenophobic fears about immigration for purely hypocritical populist purposes, which purposes will destroy the economy and drive us all to ruin. Unfortunately the Bernards have allowed their unconstrained dislike of Mr Abbott to also constrain their connection with facts and common sense. [Note: for ease of understanding I will henceforth treat the two Bernards as one.]

Firstly, Bernard has an unfortunate penchant for muddying the waters by measuring national GDP in preference to GDP per capita when comparing different population growth scenarios.  Your readers are not so silly as to not recognise that the per capita figure rather than the gross figure is a more important measure of our financial health.  We all know that increases in the population will increase total GDP.

Instead, the argument is around per capita GDP — why there are more BMW drivers in Liechtenstein than Indonesia.  To make matters worse Bernard even goes so far as to then criticise the Coalition discussion paper for avoiding the impact on total GDP by focusing on GDP per capita. Well, duh, Bernard — perhaps you should have attended the Economics 101 lectures instead of sneaking off to the pub with the social science students.

Bernard then leaps without foundation to the conclusion that Coalition proposals mean that “the entire temporary visa program and student visa programs would have to be shut down, as well as the humanitarian program”. A small leap for Bernard but a giant leap for logical connection.Unabashed he then takes a further hop, skip and jump, concluding that the Coalition proposals would “prevent employers from hiring skilled workers from overseas”. So that’s no 457 visas, no students, no refugees, no family re-union and no skilled workers.

This presumably means zero immigration — Bernard certainly did not read the same Coalition discussion paper that I read. Bernard is also a tad loose with his measures and statistics. For instance, proposing that “Keeping our net migration down to 100,000 a year will cost us 17% of GDP over the next four decades”. What does this mean? Is it a cumulative total over 40 years or the difference in the final year. “Do the maths”, he says. I wish I could.

Bernard criticises Tony Abbott for not being on the side of business, moaning that business will be punished by the abandonment of Howard-era support for high immigration.  Well, boo hoo.  The day we allow business to set immigration policy will be a sad day for Australia. “More slaves from the provinces”, they will cry.

Rather strangely, while Bernard is happy to use Treasury data to attempt to excoriate Coalition argument he chooses not to quote contextually from Treasury’s  Intergenerational (IG) Report. The inquisitive reader will find the report to be stuffed full of gems inconvenient to Bernard’s argument, such as “Productivity growth will be the main driver of economic growth and living standards in the future. Over the past four decades labour productivity growth accounted for most of the increase in real GDP per capita.” What’s that, Bernard ? Productivity growth the major influencer, not immigration rates? How inconvenient.

The IG Report also tells us that “The ageing of the population is the major factor driving the slowing in economic growth.” Around 89 per cent of migrants are aged less than 40 years compared to 55 per cent aged less than 40 years for the resident population. And obviously in crude mathematical terms Bernard is entirely correct in his overall proposition — the ageing of the population is an incremental factor in the slowing of economic growth. Increasing immigration will boost the proportion of younger people in the population and thus increase the rate of growth.  But ultimately the immigration chickens will get older and come home to roost — like a Ponzi scheme, this is not a game one can play forever.

Further, the population aging effect is tiny. The Treasury report predicts that over the next 40 years real GDP per capita growth will slow to 1.5 per cent per annum from the 1.9 per cent per annum experienced over the previous 40 years. The predicted rate growth of 1.5 per cent is a product of assumed labour productivity growth of 1.6 per cent and the aging of the population detracting 0.1 per cent (over the past 40 years a positive 0.1 per cent). Bernard has conveniently chosen to ignore the overwhelming effect that labour productivity growth has in contrast to that of population effects.

But maybe Bernard did attend his Economics lectures because he has obviously discovered the power of compound interest, which allows small amounts like 0.1 or 0.2 per cent per annum to create big numbers when compounded over long periods of time, like 40 years. Then multiply that big number by a truly massive number, such as the GDP of Australia, and you can write headlines like “Abbott’s population target will cost us hundreds of billions of dollars”. I bet that felt good.

And finally, in the forward to the IG report and carrying the signature of the Treasurer of the Labor government, Wayne Swan, are the following words: “The Government has begun to address these challenges through a broad agenda that includes supporting productivity growth through investment in infrastructure, skills and education, overhauling our health system to ensure it delivers maximum value for money, adhering to a disciplined fiscal strategy and introducing the Carbon Pollution Reduction Scheme.” Commitments by the Labor government in the IG report to increase immigration = zero.

Peter Fray

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