Muddled Thinking Watch #5: “Increase taxes to balance the budget, the revenue well is not dry” Greg Jericho. The Guardian.

http://www.theguardian.com/business/grogonomics/2014/apr/08/increase-taxes-to-balance-the-budget-the-revenue-well-is-not-dry

With government expenditure set to jump, we need to think about how to pay for it”

It’s not always the neo-liberals who get it wrong. Greg Jericho understands full well that austerity economics is bad news for the economy generally, and has previously written:

http://www.theguardian.com/business/grogonomics/2014/feb/27/australia-needs-austerity-like-hole-head

The point that Greg seems not to comprehend is that an argument for balanced budgets, in an importing nation like Australia, is also an argument for austerity economics. It would perhaps be just about possible to argue that if the budget were balanced by the imposition of a wealth tax and other high taxes on the high earners and wealthy then the degree of austerity would be slight but no, Greg Jericho makes statements like:

” I’ve been making the case that the budget isn’t just about cutting expenditure, it’s also about raising revenue.”

Greg might want to think about making the case that the budget should be about neither. It should be primarily about ensuring that the Australian economy is working close to its maximum capacity, and that everyone who wants a job is able to find one,  but without generating too much inflation in the process. That’s the economics. Greg also might want to consider if the collection of a pile of its own IOUs through the taxation system can actually be considered Government “revenue”.

In any case if  government expenditure does jump that will nearly all come back as a tax take or be saved in bank accounts. The only possible danger is inflation. Nothing else. That looks a very remote prospect at present.

There is the secondary consideration of the social effect of how taxes are levied and spending is conducted. If we want people to consume less alcohol for example then we tax it more. If we want to reduce the income and wealth differences in society we have a greater degree of graduated tax on incomes, a lesser dependence on regressive taxes like GST, and possibly add in a wealth tax too.  We spend more on public education and the public health sector and remove any tax loopholes, or anomalies,  which allow the private sector to benefit. Conversely, if we want to bring about a greater degree of inequality, we do the opposite. These are political questions.

It is important to separate the economics from the politics. IMO.  Or at least try to!

 

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