Bashing the Bishop

I find it odd – well actually I don’t – that none of the MSM have picked up on Julie Bishop’s comment yesterday where she said:

Well, it would depend what the package included, but we would be urging the government to include in any stimulus package tax cuts, broad and sweeping tax cuts that will increase the tax base and increase tax revenues.

Imagine if Rudd, Swan or Tanner said that. The MSM media would be all over it.

From what I can see only Joshua Gans (Core Economics) and Larvatus Prodeo have picked up on it.

Update: Peter Martin references the comment in The Age.

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32 Responses

  1. Firstly, the apparent inconsistencies displayed by the MSM shouldn’t really surprise anyone who takes an interest in public affairs.

    Secondly, it’s not clear that what she said was actually wrong, much less stupid:

    Professor Feldstein, head of the National Bureau of Economic Research, is perhaps the godfather of modern public-sector economics and is often cited as a potential Nobel laureate. The former chairman of President Reagan’s Council of Economic Advisers, he has always been known for his conservative views. He has brought more comprehensive data to bear and has made the most influential case; if you accept the evidence he offers, progressivity in the tax code appears very damaging. Raising taxes on high-income people seems to make the economy much less efficient and raises little revenue.

    As he put it in a 2006 interview published in a magazine of the Federal Reserve Bank of Minneapolis, when you raise top marginal rates, “it shows up as lower taxable income.” He added: “A reduction in taxable income, whether it occurs because I work less or because I take my compensation in this other form, creates the same kind of inefficiency.”

  2. Joni you know that according to conservatives, tax cuts are the solution to all known economic woes.

    The notion that tax cuts increase tax revenues dates from the Reagan era and remains an article of faith with conservatives, despite the Bush tax cuts having caused enormous deficits in the USA. We’re dealing with faith here, not rational argument. Quite how they would affect the tax base though is beyond me.

    As for the media … it seems to me that they are pretty much ignoring anything the opposition says these days. It’s not time yet for another leadership crisis story, which is the only thing journos really like to write about oppositions.

  3. Tony your selective quote is a bit naughty … read the whole article. Fedlstein’s is a minority view and in any event he’s only talking about high income earners. Is Bishop advocating tax cuts only for the rich? That should be popular.

  4. *Feldstein’s

  5. Yes Ken, it was selective, but my point is there are arguably no definitive “truths” in economics. (Recent events have surely taught us that.)

  6. It’s like I keep saying: any link between intelligence and an Australian politician is tenuous at best. They have to fly o’seas at least once a year because they have forgotten what it is they were supposed to do. Don’t worry about Rudd, Swan or Tanner; they’re just jealous because Bishop beat ’em to it.

  7. As Education Minister Julie Bishop was woefully ill-informed or else deliberately distorted reality. She specialised in claiming that so-called initiatives were her personal idea, even when they were as old as programs to link schools and industry. She just mouths the spin most of the time.

  8. Interesting article by Peter Martin at: http://www.theage.com.au/opinion/trying-to-slow-the-slide-20090202-7voq.html

    And quote from above: On Sunday, Opposition Treasury spokeswoman Julie Bishop frolicked in fields where serious decisions need to be made by calling on the Government to introduce “broad and sweeping tax cuts that will increase the tax base and increase tax revenues”. No one I know of thinks that sweeping tax cuts will increase tax revenues, certainly not in the present environment.

    But Bishop issued a follow-up statement saying there was Australian evidence for the proposition. When I emailed her office asking what the evidence was, they emailed back two studies, neither of which showed any such thing. When I asked for clarification, her office put me on to the Opposition’s external tax consultant, Henry Ergas, who was in Papua New Guinea. It’s an awful look for an alternative government at a time of crisis. It isn’t developing its own coherent plan (at least deeply enough to understand the research it is purporting to rely on) and it is carping at the Government’s attempts to do the right thing.

  9. 1. I think this is an attempt by Bishop to appear relevant and on top of her game. I think she’s failed and I doubt, though I’m not sure, that the theory she espouses would work in this case.

    2. That said, Gans, Martin, and others have, in their rush to mock, exposed themselves as little more than mouthpieces for the ALP. Had they analysed the theory and explained why it can’t work, they would have some cred. It is a theory, a legitimate economic one, and to pretend that they don’t know what Bishop is talking about exposes them as either incompetent or horribly biased.

  10. James, Martin states that he attempted to have things clarified/concerns addressed was foisted off to an external tax consultant (in New Guinea). There is nothing ALPish about this, but rather the inability of Bishop and her office to answer the questions.

  11. James,

    Both Joshua Gans and Peter Martin have articulaed why the theory is wrong. Bishop in her statement said that there should be tax cuts to broaden the tax base. These are not the same thing and this is what Gans and Martin are poking fun at. Furthermore, the legitimate theory you point to is the Laffer Curve Theory which is debated over at the LP link. There is little or no evidence to suggest that this situation exists in Australia. Furthermore, if it did (and that is debateable in the present economic climate where there is a demand shortage), one has to ask why the Libs did do more to reform the tax system and expand the tax base when they were in power and demand was strong? The tax cuts that the past Government introduced in the later years of the Government were little more than adjustments that accounted for bracket creep – they did not equate to real tax cuts (because a failure to adjust the thresholds up would have in effect been an increase) and they did not broaden the tax base. The increase in tax take over the past 6 years or so was entirely due to increased company and income tax take flowing on from the comodities boom. If Bishop knew what she was talking about, she would realise that she is actually criticising the former goverment for a lack of action on tax reform!

  12. I’ve not been confident in the capacity of Swan to run the Australian economy.

    Though if Julie Bishop represents any alternative benchmark on intelligence and understanding, we are in deep trouble.

    Swan seems confused sometimes. Bishop though is even more of a worry because she seems so unconfused and confident in her odd opinions.

    Remember Keating & Dawkins as Treasurers? The quality of our politicians has been in steep decline for half a generation, and neither party appears capable of renewing itself.

  13. Tom,

    I’d have to disagree here. I actually think it is the public servants at Treasury that are the ones we should (and I believe do) have confidence in. The politicians are just the show-ponies who stand up and front the media. Sometimes they make gaffes and mistakes, but that does not translate into bad policy IMHO.

  14. Tom,

    Swan gave a press conference this morning which was one of his best IMO – he sounded pretty well accross the issues. I suspect he’s been busy studying and possibly getting PR tips over the break. I have no doubt that Swan is very intelligent and capable of the job it’s just that his public performances have left a bit to be desired and this has cast doubt on his ability. At any rate, the real smarts are in treasury and Swan and Rudd (as were Costello and Howard) simple the direction providers based on the advice from Treasury.

  15. Damn joni, you beat me to it.

  16. “The notion that tax cuts increase tax revenues dates from the Reagan era and remains an article of faith with conservatives”

    Yea, pure faith that taking less from what people have “worked” for gives them more to spend; how fanciful. Also, the model predates Reagan genius, ever heard of John F. Kennedy?

    “We’re dealing with faith here, not rational argument.”

    Please, tell me the “rational argument” behind taking from those who are more productive? How many failed states do you need to convince you of your fanciful argument “comrade”? Taxes are necessary but taxing for the sake of or to subsidize the bad behavior of others is pure stupidity. Even Rudd understands this; why else do you think he is still quietly promoting mass immigration in a recession?

    http://www.taxfoundation.org/news/show/323.html

  17. Hey Sparta,

    We watched the superbowl live here yesterday, and I found it riveting. What bad luck for the Cardinals after such a huge come-back. Still, that touchdown by Santonio Holmes with only 35 seconds on the clock was really something special.

    (An ex-Aussie Rules footballer – Ben Graham – was punter for the Cards.)

  18. TOSY,

    Yea it was a real heartbreaker but glad to see the Cards come alive in the second half. I thought Graham did a descent job given it was the big show. Has “football” caught on much in OZ?

  19. sparta

    I watched the replay last night even though I knew the result and thoroughly enjoyed the game (even as a frustrated Bills supporter).

  20. Yeah, it’s getting bigger. In fact, I thought it would be only on ESPN, but it was broadcast live on free-to-air as well.

    By the way, everyone thinks their code is the only one that should be called football. You should hear the round-ball fans complain if you call their game soccer (a newly-minted grievance, too, as far as I can tell.)

  21. Just watchhed the Turnbull Interview on 7.30 report from last night and it occured to me that Rudd’s release of his essay this week was a master stroke. Most people won’t give a sh1t about the essay yet Turnbull and the Libs have jumped on it and apparent contradictions between it and other comments by Labor Ministers as a big issue. The essay has diverted the Libs full attention away from the main game (the GFC) and made them look even less relevant as they desperately try and defend the record of the past Government.

    I note that I haven’t heard anything from Labor politicians at all regarding the Essay – it is simply out there as a work or narrative and the main attention is on the Budget situation and economy – Great politics for Labor and didn’t rely on dog whistling or class politics like Howard used in a similar way (anyone remember the ‘urgent’ terror laws that had to be passed in a rush when the Government was in hot water over something or other that I can’t recall -indicating how successful the diversion was).

  22. Sparta, Can’t let this one go without a comment:

    “The notion that tax cuts increase tax revenues dates from the Reagan era and remains an article of faith with conservatives”

    Yea, pure faith that taking less from what people have “worked” for gives them more to spend; how fanciful.

    No one is denyng that taking less from people gives them more to spend. The issue is whether reducing a tax rate actually results in an increase in total tax take. The theory relies on the tax being cut actually being a disincentive to work harder or make more money. There is little evidence that this is actually the case and futhermore, it requires there to be actual demand for increased labor or effort. At the moment there is a severe shortage of demand so it is difficult to see how reducing tax rates could somehow stimilate demand.

    Reducing taxes and increasing the amount of money people have to spend could increase demand but the Libs have been busy aguing that a cash handout idn’t have any effect so I can’t see how a lesser amount received weekly or fornightly could somehow create even more demand. Added to this is the fact that tax cuts would reduce the amiount of money the Government has to spend and stimulate the economy. There is good evidence to suggest a $ of Government expenditure results in a corresponding increase in GDP of at least $1 but the jry is out on whether tax cuts have a greater or lesser flow on effect. The smart money is on a guaranteed $ for $ return IMO.

  23. Sparta you do realise that your comment makes no sense at all? What do individual incomes have to do with the topic, which is government tax revenues?

    Once you’ve learnt the difference (it’s not really difficult) you can move up to more complicated stuff like the tax base.

    After that, you might be able to comment on tax systems without making a complete fool of yourself, although your reference to immigration as if it were relevant makes me rather doubt it.

  24. James,

    Further to the above comments, Peter Martin explains why the ‘evidence’ relied upon by Bishop is incorrect here (see bottom of post).

    Peter’s post here (particularly the links to previous posts at the bottom) also explains why she is wrong.

  25. Dave55,

    “At the moment there is a severe shortage of demand so it is difficult to see how reducing tax rates could somehow stimilate demand.”

    I won’t disagree with that analysis completely, in this climate.

    “Reducing taxes and increasing the amount of money people have to spend could increase demand but the Libs have been busy aguing that a cash handout idn’t have any effect so I can’t see how a lesser amount received weekly or fornightly could somehow create even more demand.”

    I think their argument, like the Repub’s here, is in reference to the “small business” owners who create the majority of jobs. Again though, given this climate and the lack of available credit now, it is difficult to see how it will have that big of an effect but should still be part of any “stimulus”. However, I am a bit puzzled by the notion that “taking” more money from people will create jobs or put money in the hands of people that need it? Handing checks out certainly hasn’t worked here either……

    “Added to this is the fact that tax cuts would reduce the amiount of money the Government has to spend and stimulate the economy.”

    It is a tricky thing to be sure. There is simply no easy way out of this mess without paying for it but the only ones who can afford it at the moment are the same ones we are hoping will create the jobs. It is a fine line to be sure…….The government is supposed to set policy however and spending is what got us into this mess! How does government spending put people to work exactly? What makes you think they will spend your money more wisely than you?

  26. Sparta,

    Fair comments, but there are a couple of big differences between Australia (even under the past Government) and the US. The first is that Australians in miost surveys would prefer higher taxes and better services over a tax cut – I don’t understand this to be the case in the US. I can’t say for cetrain about the US situation but my understanding is that successive Governments have tried to reduce the size of Government and health expenditure by the Government is relatively low. Additionally, the States (and local Councils) provide much of the infrastructure expenditure and policing. The latter is the same here as well however the states are primarily funded through taxes collected by the Commonwealth with a little of their own. When we think about tax increases here, we think Cth whereas in the US it is spread more. Additionally, ther US tax base is massive comparred to us. Don’t underestimate the significance of this. Our whole GDP is around AU$1 Trillion wheras the US government budget exceeds this figue easily – hell, the US defecit this year will exceed this. Accordingly, the numbers in Australia are different but the way we behave and are goverened is also suffiently different

    As for how expenditure creates jobs, the announcement today to spend on infrastructure and give rebates for construction expenditure creates demand for product and labour which is additional to current demand. This demand facilites job creation. While it won’t prevent people losing their jobs in other sectors (finance for eg), it will counter these job losses by creating new ones. Quite simply, cash handouts to you or me aren’t going to be big enough to create this type of immediate demand and this is why I trust Government to spend it better thanI will whileat the same time keeping the tax intake high enough to make it easaier to pay off the Gov’t debt when things improve and/or fund further (and recurrent) expenditure in the future. If things do get worse (which they will) having less Gov’t revenue will only make defecits larger and harder to pay off – I still have no idea how your Government is going to pay off it’s debts or how long it will take.

  27. there is a now a dedicated thread up for discussion of the stimulus package, RBA announcement and other finance news…

  28. Sparta

    I have a simple question for you. What were the tax rates in your country 25 years ago and how well was your country doing then.

    What are the tax rates now 25 years later and how well is your country doing now.

    Now tell me how much those tax cuts for the rich have provided your country with untold wealth and opportunities for all your citizens.

    Tax cuts are a phurphy bandied about by the wealthy to reduce their contirbution to the countries operations yet they are the ones talking the wealth for their own benefit. A tax cut of $2 per week off the poor will do nothing, but billions on infrastructure will ensure jobs and benefit the whole community in the long term.

  29. Dave & Joni – I know the discussion has moved on, but I’m afraid I disagree with you.

    Do you think we would have had similar reform zeal during the 80s if Ralph Willis rather than Keating, had been the first Hawke Govt Treasurer?

    Treasurers can have a sense of direction, they can push their departments or they can let their departments push them.

    I think Swan is more likely to be pushed by the bureaucrats. He’s no Keating, no Dawkins, not even a Willis.

    But he is preferable to Bishop, though that is hardly any form of flattery.

  30. Tom,
    Oh – I get you’re point now. Yep – I agree with that. PJK provided much more direction than Willis etc but he was still guided quite a lot by his advisors (in particular Garnaut).

  31. Bashing the Bishop, Choking the Chicken, Pin the Tail on the Donkey & meet the Spartans.

    Why do you guys call “that” football? Near as I can tell the ball rarely makes contact with a foot & everybody is so scared that they wear body armor.

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