In this interview, Adam Creighton appeared on Afternoons with Michael McLaren – 2GB Sydney to discuss the IPA’s research on Australia’s taxation system.
All media appearances posted onto the IPA website are directly related to the promotion and dissemination of IPA research.
Below is a transcript of the interview.
Michael McLaren:
The big story of the day obviously concerns the stock market. I don’t think it’s going to be the only day where this is going to be the big story of the day. Anthony Albanese and Peter Dutton, they’re commenting on all of this today. They’ve conceded the tariffs were somewhat outrageous and the rest of it. Not everyone sees it that black and white, however. Now, I noted a piece by Adam Creighton. I’ve got a lot of respect for Adam Creighton. He’s now with the Institute of Public Affairs. He’s the chief economist there. And he was making the point that really what the Americans are doing here is raising tariffs on imports. Of course, the Americans say you put your factory over here, and then, of course, no tariffs. And that’s what they want, local domestic manufacturing capability. It’s a sovereign issue, as much as it’s an economic one.
But simultaneously, they want to bring down the rate of income tax. So, raise it over here, bring it down over there. Now, if they can achieve that, at the same time, not crashing the global economy, it may well be a blueprint for others that may wish to follow. I thought we’d bring Adam Creighton in. He’s on the line. Adam, thank you again for your time. I appreciate it.
Adam Creighton:
That’s fine, Michael.
Michael McLaren:
How fully do you think the average commentator understands what’s going on here?
Adam Creighton:
Well, look, I think people are very scared by the word tariff. And the point that I was trying to make in my column last week that tariff is just another tax. And of course, taxes are not good. I mean, certainly, we at the IPA do not like taxes. I think that’s pretty well-known. But income tax is a bad tax, stamp duty is a bad tax. There are lots of bad taxes out there. And the US government has a massive budget deficit of around $2 trillion every single year, and it somehow needs to plug that gap. Now, income tax in the US is already very high, whereas tariffs are in effect close to zero.
And so, I think part of the reason why the US government, and I stress just part of the reason that tariffs are going up, is because that’s the only way the US president can increase taxes without a law passed by Congress, which is not going to happen. And as the treasury secretary there, Scott Bessent has pointed out quite a few times, this is going to raise about six or $700 billion, which is a very significant amount of money. I mean, that’s almost half of the gap, if you like.
Michael McLaren:
Per annum?
Adam Creighton:
Yes, yes, that’s right. Per annum. But as you just pointed out, Trump himself has said many, many times that he wants to reduce income tax and rely more on tariffs. Now, that was actually the situation for a vast bulk of US history. I mean, I don’t think income tax came in there until 1913. And until then, the federal government was more or less funded by tariffs. So, historically, that is not an unusual situation. And the other point I was trying to make in that column is that income tax is a very bad tax. Tariffs are bad, but so is income tax. I don’t think it is obvious that one is better than the other necessarily.
Michael McLaren:
Okay. Thinking more laterally here even than that. We’ve got a lot of people out here screaming blue murder because they’re watching the stock market. And if they’re a self-funded retiree, for example, I mean they’re particularly exposed. I understand that. But some might say, well, okay, but if you’re younger, and you’ve got a mortgage or you want to get a mortgage, and you’re struggling with cost of living pressures, I mean all the indications is if this thing keeps rolling along, the Reserve Bank will cut the interest rate three, maybe four times this year.
The price of goods will no doubt go down, because they won’t be cutting rates if there’s inflation. They’ll be cutting it if we’ve got the opposite of inflation. They want to stimulate the economy. We’ve seen the price of oil drop. Now, if the dollar continues to go down, we may not get much benefit at the pump. But nonetheless, there’s a lot of de-inflationary pressure all of a sudden coming through the global economy, is there not?
Adam Creighton:
Yeah. Certainly, that’s true. Look, I think it’s hard to say in net terms how this affects Australia, yes. And as you point out, we have an unusual situation with compulsory super that large swathes of the population are actually susceptible to changes in the stock market, whereas that’s not the case in most countries where it’s just kind of the upper echelons that are. But as you pointed out, despite all of the rage about the stock market, the oil price has fallen quite significantly. And now, the Reserve Bank, I read, at least according to experts, is considering cutting four or five times this year. So, both at the bowser and also on home loan repayments, ordinary people could end up at least this year doing better out of this.
Michael McLaren:
Okay. Now, I don’t know about you, I’m not saying this is a stroke of genius by the Trump administration, but it certainly is the greatest gamble Donald Trump has ever taken in his life, which has been full of gambles. Because he’s not just playing with the Trump business, he’s playing with the world economy here effectively, certainly playing with the American economy, right?
Adam Creighton:
Yeah, look, certainly that’s right. And I’m certainly not saying that this is a stroke of genius either. It’s extremely bold move, I must say. But that said, he did promise during the presidential election campaign that he would do this. He promised over and over again, so this really shouldn’t be seen as a surprise. I think the other point to make is we often criticise politicians both here and overseas for not actually having any bold promises and for not actually doing things. We can see that now in what is a fairly small target federal election, I would say. But here’s a politician who’s actually doing something in a very big way, so you have to at least give him credit for doing that because it is a big risk.
Michael McLaren:
Okay. Now, the logic here, I guess, is if you make imports more expensive to the United States, you might be able to drag some businesses, many of them American businesses, back to making their products in the United States. Now, if you had a high unemployment rate, that would be particularly attractive, because there’s a lot of human capital that needs somewhere to go. America has very low unemployment rate like us. So, let’s assume some of these factories in the next 12, 18 months start coming back, where are they going to get the workers to go and start pumping the products out?
Adam Creighton:
Yeah, certainly. Look, that’s a good question. I mean, you could, of course, get people shift between industries if there are higher wages in the manufacturing sectors that move back. But personally, I’m a little sceptical that they will move back in a large scale. And that’s mainly because I suspect a lot of the business community will think that these tariffs are not permanent. So, they’re not going to last, at least at the same level beyond this second Trump administration. And so, if you believe that, then you may just kind of wait it out, basically.
That’s especially the case if a democratic administration comes back next time. We don’t know yet. This is a few years away. But if you don’t think that they’re permanent, you’re probably going to wait. And also, I think that even though the tariffs are very high, at least in the case of China, I think, and I think it’s 40 or 50%, the wages in those countries are still much, much, much less than in the US. And so, I just don’t think the tariffs are large enough to bridge that wage gap.
Michael McLaren:
At least the Americans have cheap energy, unlike here. They’ve got at least one advantage in their hand. Good to talk. We’ll keep talking as this unfolds in the weeks ahead. The stock market, as we speak, down 4.39%, so it’s not quite the six and a half it was earlier, but it’s still a hell of a whack today. Adam, thank you for your time.
Adam Creighton:
Thanks very much, Michael.
Michael McLaren:
Adam Creighton there, Senior Fellow and Chief Economist at the Institute of Public Affairs.
This transcript of Adam Creighton speaking on Afternoons with Michael McLaren – 2GB Sydney from 7 April 2025 has been edited for clarity.
