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2013-14 Budget: That’s a Wrap!

And it’s that time of year again – Budget 2013-14 has been released, full of figures, policies and ideological gobbledygook. Never fear, the ESSA budget wrap-up will get you across the headline data, big ticket spending items, new sources of revenue, as well as the reactions of the major stakeholders and political parties!

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Labor’s National Disability Insurance Scheme (NDIS)

The Coalition’s conditional support for the Labor proposed National Disability Insurance Scheme (NDIS) has sparked media frenzy and has dominated domestic news headlines this past week due to the wide and deep affects this will have on the community at large. The scheme, funded in part by revenue raised through an increase in the Medicare levy, represents a tax hike of 0.5% to the average taxpayer. However, for the 410,000 Australians and their families suffering from a congenital or acquired permanent disability, the NDIS embodies the much-needed lifeline that will assist in alleviating the financial burden imposed by their disability.

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“Let’s Stick Together”, They Said. But At What Cost?

The Goods and Services Tax is one of those issues that we tend to look at in isolation. By this I mean that a lot has been said as to its design and reach, yet seldom do we seem to discuss the GST in context. That is, what the overarching objective of the GST is. There’s little point in talking about the GST’s technicalities if we don’t also talk about this.

Firstly, as a consumption-based tax, the GST has proven to be extremely lucrative over the years and thus a seemingly unwavering source of tax revenue. It was the rational legislative replacement for a plethora of other inefficient taxes. Revenue grants from the Federal government sourced from the funds raised by the GST are a key source of revenue for state and territory governments, and hence the GST’s economic and political importance.

This being true, however, the GST’s underlying objective must also be considered. The reality is that the covert objective is, in essence, to subsidize economically poorer performing states and territories (i.e. to achieve Horizontal Fiscal Equalization). It is an old redistribution mentality from the early days of our Federation of “sticking together”. We aim to ensure states and territories have the same revenue capacity to pay for its services in the hope that there will be some long-term benefit from it all and that in the end all states will be equally prosperous*. It is a flawed ideal in that it cannot guarantee an equal outcome as it tries to work against more profound economic changes across the nation.

The GST itself is the flawed means to this flawed end.

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Superannuation: an incentive to save or upper-class welfare?

Superannuation reform – how boring, right?

I suspect you aren’t aware of this fundamental loophole though. Consider this. Currently, the Australian superannuation system allows an individual who has (a) reached 60 years of age and (b) decided to permanently retire to simply withdraw all of their funds from super – completely tax free – and then to splurge it all on whatever they like. It’s important to note that this amount could have been just a few thousand dollars or, alternatively, many millions and that despite the lump sum withdrawal ‘belonging’ to the individual, a large part of it would have been brought about through the subsidised nature of Australia’s superannuation framework. Here’s the real kicker though: having enjoyed a period of superfluous spending – potentially with millions of dollars – that same individual, provided that they were now aged 67 or older, would then be eligible to receive a full aged pension (and its many associated ancillary benefits) courtesy of the federal government for the rest of their life as long as they didn’t earn more than about $3,952 in a year (from interest on their now non-existent savings!) or have greater than $192,500 in assets, excluding their home. Does that sound reasonable to you?

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It’s Politics, Stupid

by Amal Varghese

SYDNEY- Before David Axelrod- one of the finest political strategists in modern American history- there was James Carville; the man who played a big hand in Bill Clinton’s rise to the White House. His greatest achievement was touted as devising the catchphrase for the campaign ‘The Economy, stupid’, which was modified after it caught on fire to ‘It’s the Economy, Stupid’. That mantra highly resonated with American voters who were gradually convinced by the Clinton campaign that George H.W Bush, despite ending the Cold war and coming out a victor in the Gulf War, was not the man who could turn the downward-spiralling economy around. The year was 1992, and in the decade that followed America grew at an average of 3.8% GDP and managed to balance its budget for the bulk of that time under Clinton. The divides that are a caricature of Washington today were present back then (though perhaps the climate was not nearly as polarized) but political leaders found a way to come together and carve a future path for growth. In the decade and a half that followed Clinton’s exit from Pennsylvania Avenue, America’s deficits have ballooned to over US$16 trillion, its growth prospects remain bleak nearly five years after the financial crisis and political paralysis has become the hallmark of Washington. But in stark contrast to the 1990s, America’s deepest problems today are rooted in politics, not economics.

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The Fiscal Cliff – Where are we at?

No one ever said being President of the United States was an easy job, and that has certainly been the case for the newly re-elected, President Obama. After a bitterly fought re-election over Republican nominee, Fmr. Gov. Mitt Romney, he was literally back to work the next day, beginning the negotiating to avert the Fiscal Cliff.

 

As I wrote in my article for ESSA’s Equilibrium about this topic, the Fiscal Cliff will involve the expiration of numerous tax cuts, unemployment benefits and across-the-board discretionary spending cuts; a scenario many economists fear will significantly inhibit economic growth in 2013, the exact opposite of what the American economy needs as it slowly emerges out of a sluggish economy recovery and into a more sustained period of economic growth.

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Taxation of Superannuation

Professor John Freebairn

By Professor John Freebairn

 

Superannuation is a form of remuneration and labour cost, and it is a form of saving current income for future consumption in retirement. In terms of equity and efficiency, it is desirable that the taxation of superannuation be similar, if not identical, across different forms of labour remuneration and across different forms of long term saving.

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The Carbon Tax: Tony Abbott’s Ticking Time Bomb

On the 9th July 2010, Prime Minister Julia Gillard announced the Government’s intention to introduce a ‘carbon tax’ in order to put a price on pollution and thereby give firms an incentive to reduce carbon emissions. The carbon tax passed the House of Representatives and the Senate on the 12th October 2011 and the 8th November 2011 respectively, and consequently on the 1st July 2012 a tax of $23 per tonne of carbon emissions will come into effect.

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Economics at Ernst and Young Recap!

As a student who has been keen to gain professional work experience with my degree, finding the right company has been difficult. So often I have seen the big accounting firms come to campus and immediately assumed that they are only interested in accounting students.

Today’s event conducted by the Economics Student Society of Australia (ESSA) and Ernst and Young demonstrated the array of job opportunities available to economics students. Too often we assume that an economics major can only land us a career working in academia or public policy. However it is important to understand and appreciate the valuable skills and thinking process one can gain from studying economics.

Most importantly it is the analytical thought process gained from the study of economics that makes an economic major so attractive to employers.

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