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Small Man Syndrome

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The Federal Government recently announced measures to assist Australian farmers in restructuring their debt and to invest in productivity. Among the measures include concessional loans of up to $650,000 for debt-ridden farmers.

The announcement came just days after the premier of WA rejected calls by the state’s farmers for further financial assistance from the state government.  Premier Colin Barnett suggested that some farmers “probably need to leave”. Moreover, according to the Director of the Bankers’ Association, to some “things aren’t too bad” for farmers, and believes that the recent measures are merely to replace the Exceptional Circumstance assistance scheme.

Such comments have not gone down well with farmers.

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The Austrian economists: why we would bring them back from the sidelines

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Amongst the many schools of economic thought, the Austrian school lies outside the economic mainstream. However, it has perhaps surprisingly punched above its weight in terms of its influence over the political and economic thought of the 20th century. Some of the most prominent and influential economists were from this particular school, such Friedrich Hayek.  Hayek in particular had a large influence on the thinking of some of the great leaders of recent history such as Ronald Reagan and Margaret Thatcher.

Known for their “laissez-faire-ness” and strong individualist and libertarian undertones, the Austrian’s ultimately advocate a much broader philosophy that reaches beyond just economics. It is perhaps this point that has given them an even wider reach and audience.

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

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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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