A Bit Rich

TaxprogressThe head of the ACCI, Peter Hendy, today argues for more tax cuts for the rich. Among his arguments are that: (a) because it’s the 20th anniversary of the last big top tax rate cut, we should do it again, and (b) we should follow Russia, which has a lower top tax rate than us (funnily, he doesn’t mention North Korea, which also has lower tax rates than Australia). Never mind that Australia has one of the least progressive income tax systems in the OECD (and the graph to the left doesn’t even show the heavily regressive tax changes scheduled for the 2005-06 and 2006-07 budgets).

Like most tax-cutters, Hendy makes no mention of the services he’d like to abolish, preferring to live in Laffer-land.

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28 Responses to A Bit Rich

  1. Sinclair Davidson says:

    You’re not being entirely fair. I have called for the ARC to be shut down and all R&D tax incentives to be abolished (over a series of AFR pieces). Also for education to be privatised (at Catallaxy, many different comments). And any of my collegues will attest that I would cut all government activity except law and order and national security (I may have said something like that here once).

  2. Andrew Leigh says:

    Sorry Sinc – you’re the honourable exception, as I should’ve pointed out. Perhaps Hendy could propose scrapping $16bn in corporate welfare (http://www.tai.org.au/Publications_Files/DP_Files/DP34SUM.PDF) to pay for his tax cuts. Let’s see how that goes down at the Club….

  3. Sacha Blumen says:

    Sinclair, you’re not serious, are you?

  4. Sinclair Davidson says:

    As a working hypothesis, yes. I would start off with the notion that government should do as little as possible and move forward. The public health system would be a safty net for people in dire need. Similarly, the education system could be scaled back dramatically. The EPA would just go, and so on.

  5. Sacha Blumen says:

    To genuinely ask – Why is this? Are you thinking of a situation in which you could “create a government” – is it about maximum freedom from the state for individuals?

  6. Sacha Blumen says:

    How does the need for humans to act in accordance with the systems that support life on the Earth fit into this?

    The reason I ask is because my prejudice is that private individuals and organisations are generally not concerned with this, and that it requires some overarching power to “encourage” people to act in a way that is not detrimental to life on Earth.

  7. Sinclair Davidson says:

    In one of the other posts Andrew writes about anti-politics and classical liberals. I am a classical liberal (although some have been known to call me a fascist – such rude people). The state is capable of doing doing few things well – it should do those few things, and leave individuals and markets to do those things they do well.

    In general I’m not overly concerned about the systems that support life. Humans are more insignificant than the Greens let on. If its any consolation my parents are hippy greenies …

  8. Sacha Blumen says:

    Yes, that’s a rather rude thing to call one!

    In your schema, do you suppose that humans have any significant effect, or the potential for significant effect, on living systems? When you say “Greens”, I suspect that you mean the political greens. But many scientists think that human activities are having an impact on the life support systems of the planet – how are human impacts dealt on these dealt with in your schema?

  9. Sinclair Davidson says:

    I would be very surprised if humans are having any great impact on the planet. To the extent the planet warms and cools naturally, I suspect that process occurs without much assistence or hinderance from us. Strictly speaking, of course, I’m an economist (sub-species financial economist – but with broad interests) so the environment is not an area of expertise. So I might be wrong. What worries me though are the time frames. The planet is billions of years old. Most of our understanding is based on computer simulation and calibration. Fine. But I am suspicious when economists do this, and I’m suspicious when scientists do this too. Also the time series for human intervention is very small (max. 200 years). now if someone did business cycle research with three days of daily observations I would not believe them – so when scientists do the geologically equivalent study I don’t believe them either.

    Bjorn Lomborg’s book was good in this regard.

  10. Sacha Blumen says:

    I think that caution in this area is the correct approach. No-one actually knows whether humans are effecting the global climate demonstrable, although people are attempting to guess as best they can. It is hubris to think that humans cannot be having an effect, just as it is overstating the case to say that humans are definitely having an effect given what is known.

    A lot of information on global climate change over the Earth’s history is known, and a lot is not known. There are a lot of computer models, but there is also a lot of data as well (eg from ice-cores). As I am not a statistician, I havn’t read Lomborg’s book nor have I evaluated his methodology.

    Why do you say “I would be very surprised if humans are having any great impact on the planet.”? Two effects I can immediately think of are the changes in the albedo of South America as the Amazon is gradually being cut down and the change in albedo of the Earth due to pollution and aerosol particles.

  11. Sacha Blumen says:

    I think that caution in this area is the correct approach. No-one actually knows whether humans are effecting the global climate demonstrable, although people are attempting to guess as best they can. It is hubris to think that humans cannot be having an effect, just as it is overstating the case to say that humans are definitely having an effect given what is known.

    A lot of information on global climate change over the Earth’s history is known, and a lot is not known. There are a lot of computer models, but there is also a lot of data as well (eg from ice-cores). As I am not a statistician, I havn’t read Lomborg’s book nor have I evaluated his methodology.

    Why do you say “I would be very surprised if humans are having any great impact on the planet.”? Two effects I can immediately think of are the changes in the albedo of South America as the Amazon is gradually being cut down and the change in albedo of the Earth due to pollution and aerosol particles.

  12. Sinclair Davidson says:

    The important question is not whether the temperature of the earth is changing. The question is “How much of that is attritubale to humans?” I suspect very small. I think people view this in terms of religion. In medieval times man was at the centre of the universe as a force for good. Now man is at the centre of the universe as a force for evil. I don’t think man is at the centre of the universe.

    In other respects I’m selfish. In my lifetime the planet won’t warm up enough to endanger me. Nor in my childrens’ lifetimes. My great-great grandchildren are going to be suffiently wealthy to look after themselves. In any event, I live in Melbourne – warmer weather is desirable.

    The precautionary principle is not an efficient decision making rule anyway. I’m always shocked when economists advocate it.

    Lomborg’s book is worth reading. He doesn’t advocate any theory himself. He just checks the numbers on other peoples’ theories. It isn’t a pretty sight. Our greenie firends have been caught economising on the truth.

  13. Actually, Hendy’s ACCI did release a paper by Des Moore on what expenditure should be cut. I can’t find it on ACCI’s messy website, but Des has a link to it from here:

    http://www.ipe.net.au/ipeframeset.htm

  14. Sacha Blumen says:

    Yes, the important question is how much of any climate change is due to human activity. I’m surprised that you say that future generations would be wealthy enough to deal with any climate change – can the effects of climate change be dealt with by money?

    In any event, there’s no guarantee that Melbourne would be warmer – global warming does not imply local warming – perhaps it’d be even colder!

    My serious question is to ask to what extent your economic ideas are grounded in the physical world – as all life is dependent on the physical world, and the physical basis of life is the most important thing insofar as humans are concerned.

  15. Sacha Blumen says:

    Another important thing is to attempt to work out how the climate is changing (if it is), whether attributable to humans or not, so that people can prepare (eg, potentially disappearing land/islands). Here, computer models might well be useful, even though they’re best guesses.

  16. Sacha Blumen says:

    One last thing – Sinclair, yes I think that quite a few people do view the question of human influence on climate change as a matter of religion, but if we’re interested in seriously thinking about this or other matters that could be connnected to it (eg economic models), then we should look at it as a matter of science, and forget all the religious influence.

    I recommend that you read more than just Lomborg’s book – read at least the responses to it in Scientific American. I am not saying who is correct/not correct (I don’t know) – I’m merely saying that the debate has all the hallmarks of a science “culture wars”, and this is not how it should be approached.

  17. Sinclair Davidson says:

    I’m not sure what you mean by theories linking to the physical world. Am I just an impractical academic? Well, maybe (speak to my mother-in-law). Does my lack of concern re the environment impact my theories of market versus command economy? No. If I were an agricultural economists they might. But the thigs I think about are not much impacted by the environment, cooling or warming for that matter.

    I did see the reponses in Scientific American (was it Nature??), and also Lomborg’s reply on his blog (website, really). (In fact I saw the kerfuffle before I read the book) Having actually read his book, all I want to say about the SA is that they are dishonest. In the past few years I have read a number of books following public kerfuffles (Lomborg and Windshuttle) – the responses to these books have been disgraceful.

  18. Sacha Blumen says:

    What I mean is that human activity cannot be taken as isolated from the physical world and that whatever ideas there are should reflect this. Perhaps the easiest example of this is imposing carbon taxes to promote certain sorts of activities (whatever the results of imposing these taxes actually are).

    Do you think that it is possible in principle that human activity could affect the life support systems on Earth? If so, how do your economic ideas interact with this? (I don’t ask to say “you’re wrong!” – I’m just curious)

  19. Sinclair Davidson says:

    In principle anything could happen. So if the planet were warming up due to human influence, and that influence were significant, a carbon tax might be a sensible policy – but any if ALL carbon users on the planet were taxed. But if any of these ‘ifs’ is violated carbon tax may raise revenue, but will do nothing for global warming. Generally, I’m suspicious of any tax that performs any function other than revenue raising.

  20. Sacha Blumen says:

    In reality, people have to use whatever tools they have at hand which may include carbon taxes. But I only raised that as an example.

    But tools would you use to encourage/discourage certain behaviours if it was thought that these behaviours should be encouraged/discouraged?

    BTW, it’s highly likely a greenhouse effect like what happened on Venus will occur on Earth within a billion years, whether humans or not humans have any long-term effect…

  21. Sinclair Davidson says:

    ‘what tools would you use to encourage/discourage certain behaviours’

    Depends who I am. If I were the government and wished to discourage certain behaviour I would just ban it. But with a minimalist state its pretty hard to think of too many activities that should be banned, or encouraged. Once property rights are specified the government doesn’t have too much to do (other than catch crooks and enforce contracts).

    As an individuals the only techniques available to me to encourage or discourage behaviour is to pay people (or threaten violence – buts generally illegal, unless I can convince the state the behaviour is undesirable).

    BTW, and many billions of years later the sun will expand out to Mars orbit and obliterate the earth, then will shrink into a white dwarf.

  22. Andrew Leigh says:

    Wow – quite a discussion. Either of you folks are welcome to do a guest-posting on favourite topics, if the spirit moves.

  23. Sinclair Davidson says:

    Kind offer – thank you. Will bear in mind. Today, I’m procrastinating too much as it is. (I set my honours students an assignment ‘Apply Bureacratic theory to DIMIA’ – now I have to mark it).

  24. Sacha Blumen says:

    Enjoy marking the assignments. I recall marking Q. 1 on first year calculus exams and turning into a machine as I did 1050 of them in a week! Aaarrrgghhh!

    Now, Sinclair, what mechanisms would your govt use to prevent problems such as the algae bloom in the Darling river, or the massive salinity problems in Australia that have developed over the last few decades? What mechanisms in society would you use?

  25. Sacha Blumen says:

    Apparently there are some faint red dwarf stars that live for trillions of years (well, are thought to be able to live for trillions of years). Now that’s long term!

  26. Sinclair Davidson says:

    I don’t anything about the algae bloom. Salinity, however…

    As I understand, salinity is caused (exacerbated) by farming in marginal areas. This is turn is due to an inefficient allocation of water rights. Now in areas where water rights can be sold the marginal farmers are doing so (i.e. they make more money selling their water, than they do dumping it onto marginal land and raising crops – two of my collegues have a paper under review at the Aus Journal of Ag Econ on this very point). The solution to salinity is to abolish AQIS. This would lower food prices in Australia leading to marginal farmers being eliminated and selling water rights. Less water being dumped onto marginal land will lead to less salinity problems. While I’m at it, I would also abolish farmer hand outs etc. Alex Robson’s got a great piece on the Queensland sugar industry (@ http://www.cis.org.au). Now criticisms of my proposal are (a) what about disease? AQIS allegedly performs a valuable function? (My answer: CRAP, I know rent-seekers when I see them) (b) isn’t the proposal too simplistic? (my answer: No – what do you mean ‘simplistic’?)

  27. Sacha Blumen says:

    The algae bloom was essentially created by too little water flowing down the river…

  28. John Humphreys says:

    Actually, when the LDP ran on a campaign of tax cuts in the ACT election we put out more press releases on spending cuts than tax cuts. Of course, we were ignored. But it goes to the point about people offering spending cuts.

    At the ALS you’ll find lots of people eager to offer spending reduction ideas.

    My tax cutting idea (reform 30/30) comes with the suggestion that we remove all corporate welfare and most tax expenditures.

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