Turnbull’s novel approach to policy development.

Malcolm Turnbull has adopted a very interesting approach to the “Everything is on the table” tax debate.

Domino man

It’s colloquially known as the ” Red rag to a bull” approach. If the bull charges, forget it.

This was seen in action over the proposal to increase the GST from 10% to 15%

The Age reports that: In damage control over the internal confusion, Mr Turnbull used a morning press conference to finally and decisively rule out the GST hike.

This will force the government to examine some barely more palatable replacements to make up the revenue needed to furnish income tax cuts – and perhaps, a lowered company tax rate.

But the debate (if it actually is a debate) appears to have got the fundamentals wrong. Tony Abbott and Joe Hockey were loud and strong about the debt and deficit problem. They  were half right and their solution was only half the solution and that half was fatally flawed for both of them.

The central problem is that Australia’s deficit is increasing at the rate of about $30 billion a year. Expenditure is greater than revenue and there is no immediate plan to fix this problem.

There are three things that can happen. The first is that the government can slash expenditure. The second is that it can increase direct or indirect taxation. And the third is that it can do both of these.

Given that Australians appear reticent to accept any cuts to funding of pensions, health education or welfare, it is likely that the solution is predominantly in the form of increasing the government’s revenue from taxation.

The problem of Australia’s deficit is not going to be solved by  simply shifting the taxation burden from earnings to consumption as would happen by increasing the GST and then compensating taxpayers with tax cuts. Unless there is a significant net gain to government revenue, this is not going to help.

The leaders of both political parties seem extremely reticent to state the obvious: If we wish to maintain our current level of government services, then Australians are going to have to pay more tax in some form or other.

The unpalatable truth is that Australia and Australians cannot afford to have tax cuts.

 

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