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Tax cuts and political suicide

By Everald Compton - posted Wednesday, 11 May 2016


I respect Malcolm Turnbull and Scott Morrison. They are intelligent, astute Parliamentarians. This makes it difficult for me to understand why they have made tax cuts the cornerstone of their election campaign.

They appear to believe that such cuts will stimulate economic growth and create jobs, but history proves this theory to be a fallacy.

In order to justify this statement, can I suggest to all my readers that you study research reports into tax cuts in USA and Australia over the past fifty years? You will find no economic or social justification for them.

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The facts are that every tax cut has created some more billionaires, but few jobs down on Struggle Street. The trickle down effect has never ever trickled down and never will. Of even more concern is that on each occasion there has been a tax cut the national debt has risen.

The prime example of this is the dramatic failure of Reaganomics.

As probably the most conservative President in American history, Ronald Reagan won office on a promise of huge tax cuts which he said would create unprecedented prosperity. His opponent, Jimmy Carter, took the opposite view and lost. History proved Carter correct as Reaganomics was a failure and the national debt rose alarmingly.

George W Bush followed Reagan's example and failed also, clearly laying the foundations for the GFC.

Both Reagan and Bush were advised by an economics guru by the name of Laffer, a friend of Donald Rumsfield. It is interesting to note that he recently visited Australia. He still earns a good living pushing his failed theory.

A study of all tax cuts in Australia proved likewise to the American experience as Hawke and Keating found out with their tax cut.

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Now, having expressed my concerns about the futility of tax cuts, I will be a hypocrite if I don't provide an alternative.

What I will now suggest is not new, it has just been neglected.

I reckon that taxes must be increased and the new revenue spent on infrastructure (only), not on welfare handouts.

Infrastructure creates jobs three times. Once during construction, more during its operations and even more as new industries are created around it.

Much more compelling is the fact that most infrastructure in Australia is second rate and underprovided, the result of generations of inadequate investment. Its time to reverse this unjustifiable neglect.

But, returning to tax cuts, who pays the price of those cuts. The answer at the moment is those with large amounts of capital in their super funds.

Now, I strongly agree with Morrisons decision to tax those with more Superannuation than they need. It is fair because compulsory Superannuation was never meant to provide anyone with a tax haven.

But this rightness of this decision was negated by the anger of those hit by it. They feel that they are paying for others to get tax cuts.

Had the revenue from new Superannuation taxes been invested exclusively in infrastructure, the decision would have been accepted by voters without much angst.

However, there is another issue that is even more difficult to understand and this is the Prime Minister's decision not to reform negative gearing. He probably made the decision because it too is the equivalent of a tax cut, but it is an unjustifiable benefit for a privileged few who abuse it mightily.

He seems to have missed the fact that most Australians are willing to accept a drop in house prices as it will enable their children and grandchildren to afford to buy a home. And the under thirties cheer this view.

Now, let me even the ledger.

I have not yet seen a clear plan for economic growth and jobs from Bill Shorten ( whose intelligence and integrity I also respect). He says that he will achieve this through a better educated work force and the advancement of science and skills. While this strategy is excellent and essential, we need a plan as to how it will actually be implemented and we need it soon.

What all sides of seem to forget is that the average voter is now much more astute, informed and politically aware than when I first voted sixty years ago. They quickly identify spin and are disgusted by it.

Right now, they can't work out why, after 25 consecutive years of prosperity, business in Australia needs a tax cut. It lacks the logic that will win any votes.

Politicians need to pay them greater respect – and quickly – as the Trump vote is growing rapidly in Australia and the pending backlash is enormous.

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This article was first published on Everald Compton.



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About the Author

Everald Compton is Chairman of The Longevity Forum, a not for profit entity which is implementing The Blueprint for an Ageing Australia. He was a Founding Director of National Seniors Australia and served as its Chairman for 25 years. Subsequently , he was Chairman for three years of the Federal Government's Advisory Panel on Positive Ageing.

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