Equity to Support Productivity-Raising Reform Q&A

Does Prof Garnaut envisage dividend imputation continuing under his proposed company tax regime?


Have any parts of your rent tax suggestions been applied elsewhere?

A version has been applied in a dozen or so countries as a tax on mineral rent, including for off-shore petroleum as the Petroleum Resource Rent Tax (and some on-shore mineral resources under state jurisdiction). It has not yet been applied as a replacement of the corporate income tax. So far, we have only been discussing the tax switch in Australia.

Will this tax system solicit a greater share of taxation from online companies such as Amazon, Google and Apple?

Yes. These would be among the companies experiencing the largest increases in taxation.

What do you think of claims of 'modern monetary theory' advocates that we should increase the deficit until we reach the point when demand is pushing inflation up too high?

I don’t think it is particularly modern, but the idea is right. Monetary expansion on its own will not achieve Full Employment—as Keynes said, beyond some point, easing monetary policy is “pushing on a string”. At that point, fiscal expansion is required for Full Employment and the ideal level of inflation. I myself would call that Keynesian economics.

In your opinion, is there a way to link population growth to the Pacific bubble concept and create a greater Pacific region for labour?

With NZ we will just about have that with reciprocal removal of restrictions on travel across the Tasman. With the rest of the South Pacific, there will be COVID anxieties; issues of downward pressure on unskilled Australian wage rates (PNG is not so small compared with Australia, especially for population of young people), and, I am afraid, issues of differences of race and culture would become prominent if this were a matter of public policy discussion.

A two-sided tax was proposed for the mining industry over the super profits discussion during the Rudd government but turned down. Why will they accept it now?

The mining industry will not “accept” our proposal. But most taxpayers do not get to choose their tax rate. The question is, would it be in the national public interest, and if so, will an Australian Government insist on the public over vested interests. That depends a fair bit on the quality of Government—and of the Governed—from time to time.

In any case, the 2010 resources tax was two-sided only if you believed that Governments of the future would act consistently with commitments made by a Government today.

Good question. I would like an Australian Government to try. We would learn if it was possible for an Australian Government today to govern in the public interest.

Thought provoking concepts. There are some who believe that modern society already is inefficient in the deployment of labour, in particular the idea that many jobs exist today that probably do not need to exist (i.e.: could be replaced easily with existing tools or processes) in the world post implementation of this proposal there will be even more sections of our financial sector that are currently employed in the administration of our complex tax system will be losing their relevance if the system suddenly becomes super simple. Given the above (that our society already accepts inefficiencies to ensure enough of society has income generating capability) we should marry this proposal with a strong "job generation" from other areas. What are your thoughts for how the implementation of your reforms can avoid mass unemployment?

Lectures 1 to 3 focussed strongly on Full Employment. We can get there with sound policy. See Lecture 3 in particular.

If I understand what you are suggesting re the new system - what would stop businesses from falsifying cost of new equipment upwards when they are then getting 100% deduction allowed? How would this be policed?

The issue is no different from those that arise in administration of current laws. Firms get 100% deductions now if they make enough profits in future; its just that they don’t take the deduction straight away.

What does Prof Garnaut think about the new Home Builder scheme?

I haven’t had a close look, but I favour more general measures than industry level measures.

Have you had active discussions with government bodies on these suggestions?

Yes. Recently especially on the cash flow tax.

With others, I engaged on the reform of personal income tax and social security a lot with Governments in the 1990's. The main problem was that to be neutral in its effect on the budget deficit to bring it in with moderate marginal effective tax rates, the basic tax rate had to be quite high (57% or 47 % depending on whether there were restrictions on the basic payment). The difference now is that we need stimulus to economic activity to support the movement to Full Employment, so measures do not need to be budget neutral at the beginning, if they contribute neutrally or positively to the budget after the establishment of Full Employment.