Professor Sinclair Davidson, IPA Senior Research Fellow and Professor of Institutional Economics at RMIT University, joined us on The Young IPA Podcast this week. Here’s some of what he had to say:
Why Australia hasn’t seen meaningful tax reform since 2007
Well there’s two things that have really happened. The first is we’ve had a lack of economic leadership. Peter Costello leaving the Parliament was a huge loss to Australia, so that sensible economic leadership we saw during the Hawke, Keating and then Howard years kind of came to an end. And at the same time our budget has been in deficit ever since 2008. And what has actually happened is the federal government panicked, overreacted to the Global Financial Crisis and massively ramped up spending.
How do we get economic leadership back?
We need to be in a positon whereby the Treasurer and the Finance Minister can say to people “no new spending until we’ve got all spending under control.” The 2013 federal election was a huge missed opportunity. There was a change in government, the Coalition came in, and they almost immediately validated all of Labor’s irresponsible spending. And then they’ve built on top of that.
Getting debt under control and getting back to a zero net debt position should have been the number one priority of the Abbott government. And to be honest they just didn’t even try.
The current leadership of the major parties are very underwhelming. It’s been very disappointing. The Labor Party gave up on economic reform in the mid-1990s. The Liberal Party unfortunately [saw] all the sensible, hard-headed economics people all left after 2007 so we’ve got all the big-spending, airy-fairy economic types. We don’t have any serious people who are prepared to make tough economic arguments and tough decisions to actually bring budgets under control.
Why debt is such a big problem
Government can only finance itself, more or less, through taxation. That basically means you can tax the money now and spend it now, or you can borrow money, spend it now and then tax it later. So debt is simply a form of deferred taxation.
The government is taking money away from people in the future to pay for things now that we don’t really need. It’s not like they’re building massive infrastructure that’s going to last forever. And the young people of today are going to be paying those bills in future.
Why are tax cuts seen as the government doing us a favour?
This is the notion that we are somehow all tax slaves. That our pre-tax income belongs to the government and they let us keep some of our own money.
We have a system where the majority of the population actually comply with tax obligations because they know it’s the right thing to do. And when you start abusing people, start taking them for granted and start insulting them [through high taxes], you have to be unsurprised when you find yourself out of office.