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Henry Review DOA

with 58 comments

The long awaited Henry Review has been delivered to Treasurer Wayne Swan. The government will publish the review sometime in the new year. The opposition, however, are unhappy about that.

The Federal Opposition says the Government will not get bipartisan support to make changes to Australia’s tax system if it delays the public release of the Henry tax review.

It is a bit silly to promise bipartisan support for a review that is yet to be released for public comment. But it seems that is exactly what was promised.

Members of the five-person Henry tax review panel have become concerned for the fate of their review since Mr Abbott replaced Malcolm Turnbull as Opposition Leader.

Mr Turnbull had long flagged his interest in comprehensive tax reform and the committee had expected he would understand that this process would involve tax increases in some areas to pay for cuts elsewhere. However, there is concern that Mr Abbott will attack all tax increases.

The opposition should make very clear that any increases in existing taxes, and any new taxes, will be opposed. The government must be held to their election promise that ‘this sort of reckless spending must stop’. Similarly, the reckless taxation must stop. Malcolm Turnbull’s interest is tax reform is problematic. In his budget reply speech, he proposed an increase in cigarette excise and the Ergas Review has never been released.

I have linked to this before, but it is very hard to go beyond the arguments in Brennan and Buchanan’s The Power to Tax (see especially chapter three).

The danger of allowing government access to revenue-raising instruments that generate budgets in excess of those necessary for financing some roughly efficient levels of public goods and services has been central to our model. We should, however, recognize that constitutional tax constraints might, through time, prove to be overly restrictive. In this case, postconstitutional pressures will surely arise for escape through constitutional-style adjustments designed to widen the bases and to allow for more flexible rate structures, to move generally from specificity to comprehensiveness. Empirically, it will always be difficult to distinguish between genuine constituency demands for a relaxation of such constraints and the ever-present demands of the revenue-seeking politicians-bureaucrats. For the latter group, and for their spokesmen, efforts will tend to be directed toward widening bases, toward increasing the number of sources upon which taxes may be imposed. “Tax-reform” advocacy on the part of the “bureaucratic establishment” will tend to be centered on “tax-base erosion.” Indeed, one indirect test of the empirical validity of our model of the political process lies in the observed lack of reformist concern about relative rates of tax within tax-law limits that currently exist.

In the discussion of proposed tax-base changes, the attitudes of the traditional normative tax theorist and the members of the taxpaying public differ more sharply than anywhere else. Our analysis is helpful in “explaining” the attitudes of the taxpayers. For example, they are likely to react negatively and emphatically to proposals to move toward taxation on the basis of full income, as, for example, by including the imputed rental values of owned residences in the base for personal income tax. The normative tax theorist, who advocates such inclusion from reasoning based on equi-yield comparisons, responds to taxpayers by arguing that overall rates of tax may be lowered simultaneously with the widening of the base. But the taxpayers may be implicitly, but correctly, rejecting the equal yield postulate, in their predictions that any widening of the tax base must open up further taxing possibilities for a revenue-seeking government.

I found a great tax quote yesterday ‘An economy breathes through its tax loopholes’.

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Written by Sinclair Davidson

December 24, 2009 at 12:04 pm

Posted in Uncategorized

58 Responses

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  1. I can’t remember a review like this carried out by the head of the relevant department.
    Sure departments consider and recommend law changes from time to time but it seems strange to pretend that this is somehow a review independent of the government.
    The old rule was that you appoint the committee to make sure you get the recommendations you want but this takes it to the extreme. The prime minister does like being in control.

    Ken Nielsen

    December 24, 2009 at 12:34 pm

  2. And who wants to open a book on the changes?
    Another fiddle with superannuation, of course.
    How about imputation?
    Capital gains tax?

    Deemed rent on your own home? No, they wouldn’t do that, would they?

    Ken Nielsen

    December 24, 2009 at 12:36 pm

  3. Not even the current government would be so stupid as to propose an imputed rent tax. I wish it was, but I suspect not. 🙂

    Sinclair Davidson

    December 24, 2009 at 12:40 pm

  4. would kind of be stupid to have imputed rent and things like first home buyers grant

    drscroogemcduck

    December 24, 2009 at 1:25 pm

  5. So they expected they’d have Rudd’s deputy, Turnbull, there to rubber-stamp Labor policy? Boo f—— hoo. Welcome back to Westminster democracy.

    C.L.

    December 24, 2009 at 1:29 pm

  6. Has Ma Henry supplied any of her delicious jam drops with the new review?

    C.L.

    December 24, 2009 at 1:37 pm

  7. Scones CL scones

    tal

    December 24, 2009 at 2:13 pm

  8. Turnbull’s interest in tax is “problematic” because he wanted an increase in cigarette excise? Some problem that would cause – a decrease in smoking.

    steve from brisbane

    December 24, 2009 at 2:24 pm

  9. to quote cheech and chong

    after I cut one of my lungs out
    I cut my smoking in half.

    Always interesting to talk about a report no-one has read yet

    Butterfield, Bloomfield & Bishop

    December 24, 2009 at 2:32 pm

  10. steve – problematic because he wanted to increase revenue to government.

    Sinclair Davidson

    December 24, 2009 at 2:39 pm

  11. The genius of Malcolm: notwithstanding an Oxford education and years in merchant banking, his sophisticated contribution to the tax debate was a variation on ‘Beer, Cigs Up.’

    C.L.

    December 24, 2009 at 2:58 pm

  12. Sinclair
    I don’t care about increased revenue to govt from one source if it is offset by decreased revenue from govt from a source of taxation which results in deadweight losses. Would you object to a higher GST at all if it led to an abolition of the income tax? I wouldn’t.

    Though that’s not what Turnbull had planned, higher taxes on a demand inelastic source which wants to continue to smoke in return for taxing income less resulting in less deadweight loss to the economy is more efficient and fine with me. Remember that Turnbull was part of the ginger group that pushed for lower, flatter taxes. In fact he commissioned the Ergas review which would’ve led to just that. If some stubborn smokers pay the price so much worse for them. They could always stop smoking.

    jtfsoon

    December 24, 2009 at 3:06 pm

  13. Homer:

    STFU, we can sort of tell what’s in it by the clues Henry Ken has been giving us recently… it’s going to be a dooofus report.

    jc

    December 24, 2009 at 3:17 pm

  14. Jason – this isn’t about smoking. this is about a mindset that belives the solution to societal problems and issues is giving more money to the government.

    Now I hear what you’re saying, but I want to see government lowering taxes.

    Sinclair Davidson

    December 24, 2009 at 3:40 pm

  15. Yes Sinc the key word here is net lowering of taxes. I wouldn’t reflextively oppose increasing taxes in minor areas if the same legislative package set in stone substantial reductions in more important areas. I believe the Henry review is keen on cuts in company taxation.

    jtfsoon

    December 24, 2009 at 3:56 pm

  16. As Statman says why would anyone argue about getting rid of small transaction taxes for example and replacing them with another so it is still the same amount of taxation coming in and you have dead weight losses.

    Can you point anywhere in the terms of reference that backs up anything you are saying.

    Butterfield, Bloomfield & Bishop

    December 24, 2009 at 3:58 pm

  17. Jason, increasing tax on tobacco is a version of:
    Dont’t tax you
    Don’t tax me
    Tax that fella behind the tree

    Really a form of extortion – hitting people who can’t resist because of their addiction.
    How about taxing church going? It’s probably demand inelastic for the few who still do it.

    Ken Nielsen

    December 24, 2009 at 4:07 pm

  18. Jason – no net. That’s just crap. Just lower taxes. Just do it.

    Sinclair Davidson

    December 24, 2009 at 4:11 pm

  19. So efficiency doesn’t matter at all Ken? Why stop there? The same arguments could be used to argue we shouldn’t have a GST at all or we shouldn’t put a GST on food. Before you know it you’ve joined the Democrats,

    jtfsoon

    December 24, 2009 at 4:24 pm

  20. Sinc
    there is really no rational basis as an economist for your opposition. Why would you not prefer a higher net reduction in taxes which lead to higher economic growth and living standards to lack of any tax increases?

    Yes, screw the smokers if it means lower company taxes.

    jtfsoon

    December 24, 2009 at 4:33 pm

  21. I still dont know why smokers shouldnt have to pay for their medical bills – they elect to suck in toxins and expect the public to pay for their disability pensions and the public health service to fix em up.

    And then there are the costs of “involuntary smoking”, evidence is that this is unfairily borne by the young

    For children under 15 in 2004/05, involuntary smoking accounted for
    25 per cent of deaths, 96 per cent of hospital bed-days and 91 per cent of hospital costs.

    User pays sounds very reasonable.

    rog

    December 24, 2009 at 4:38 pm

  22. But Minchin and his puppet Abbott would be “unconvinced”

    rog

    December 24, 2009 at 4:40 pm

  23. C’mon Jason, the slippery slope argument isn’t worthy of you.
    I am uncomfortable with using demand elasticity as art of tax policy.
    May (just maybe) tax smokers hard as part of health policy to get them to give up. But that would kill the goose (and perhaps save a few smokers) so it would be an inefficient tax. I suspect the current rate is pretty close to revenue maximising. Seems wrong to me.

    Ken Nielsen

    December 24, 2009 at 4:50 pm

  24. Evidence Ken? Analysis shows that tobacco costs 5x more than it raises.

    rog

    December 24, 2009 at 4:51 pm

  25. The smokers aren’t going to pay for any meaningful reduction in company tax. In any event, the Henry tax review conference heard that smokets mre than pay their way already.

    The opposition I have is about the need for reform. Fiddling here and there and crapping on about net changes is not a reform. Cutting taxes across the board and cutting spending is what is required.

    Sinclair Davidson

    December 24, 2009 at 4:52 pm

  26. rog – your and my comments were posted at the same time. An analysis of the Australian tobacco excise done for the Henry review and reported at the conference a few months ago showed that smokers more than pay their way.

    Sinclair Davidson

    December 24, 2009 at 4:53 pm

  27. Rog, leave aside the issue of secondary smoke for the moment.
    I believe that smokers as a group get a lower share of medical costs. That is they save Medicare money as compared to a non smoker.
    Lung cancer is usually not treatable and kills pretty quick. So smokers who die of it do not need the expensive medical treatment that most of us who will die slowly of chronic diseases will want. Most of the medical expenses of most people are in the last 5 or so years of life. Sure some smokers will die of cardio vascular conditions but they are outweighed by those who get cancer.

    Ken Nielsen

    December 24, 2009 at 4:56 pm

  28. Evidence, Rog?
    The 5X figure could only work if you include the smoker’s lost years of life.

    Ken Nielsen

    December 24, 2009 at 4:59 pm

  29. That’s bizarre. And unethical.

    I would have to see that analysis to believe it – all the evidence to date is that there are awesome savings in reducing tobacco usage.

    I have read reliable reports that 80% of the public support increased cost of fags – 10% against – nobody would want that curse to be put on their kids

    rog

    December 24, 2009 at 5:09 pm

  30. Yes Ken, what $ do you put on QALY?

    rog

    December 24, 2009 at 5:09 pm

  31. Sinclair Davidson

    December 24, 2009 at 5:21 pm

  32. “That’s bizarre. And unethical.”

    What, to say smokers save Medicare money?
    It’s pretty obvious when you think about how most smokers die.

    All I’m saying is that the argument for tobacco taxes that goes “they cost the community money” is false.
    If you want to use tax to stop people smoking then fine. I won’t object, but you will need to increase tax to punitive rates.
    It would of course be a highly regressive tax and would, I believe, hurt the revenue as I guess the current rate is close to revenue maximising.
    Complicated, innit?

    Ken Nielsen

    December 24, 2009 at 5:24 pm

  33. Hmmph!

    This meta tobacco study was inconclusive however they did worry about the possibility of smuggling which leads one to wonder as to their priorities

    rog

    December 24, 2009 at 5:44 pm

  34. Ken, the ethics is that to properly study you would have to get subjects to smoke and then watch them die and study the results – which is unethical.

    Studies like these are hampered by ethics. Premature sickness and death deprive the economy of a valuable workforce – all that expensive training gone up in smoke

    rog

    December 24, 2009 at 5:47 pm

  35. No, rog, easy enough to do with case histories.
    Hey, I’m not arguing against action – taxes and the rest – to stop smoking. I just object to acting as if it is an economic question for society. It’s more like motor bike helmets.
    Society probably has an interest in encouraging young men to ride without helmets. If they die with head injuries they don’t need much medical treatment and are one of the main sources of organs for donation.
    Society can and should do some things to force/encourage people not to be stupid. But don’t pretend it is based on economics.
    (That will probably get me drummed out of the libertarian club but I’d rather force society to justify coercion than slide around it by pretending it’s the result of economic calculus.)
    Rant over. Merry Chistmas.

    Ken Nielsen

    December 24, 2009 at 6:03 pm

  36. Society can and should do some things to force/encourage people not to be stupid.

    That’s a tall order when you’ve got governments gathering in Copenhagen making plans to decrease the planet’s temperature. This is the most expensive stpidity in the world at the moment and we’re doing nothing to ban it, unfortunately.

    But how well did wowser didacticism work during Prohibition? The promoters of that vice eradication scheme are exactly the same as today’s anti-smoking zealots. Alcohol causes far more damage to people, families and individuals in this country. Logically, a carton of beer should reflect this reality and its price should be increased, via taxation, to about $100 – $150. Right?

    C.L.

    December 24, 2009 at 9:29 pm

  37. Right

    rog

    December 24, 2009 at 9:54 pm

  38. CL, in the words of Sir Humphrey: Very courageous, Minister.

    dover_beach

    December 24, 2009 at 10:34 pm

  39. I look forward to henry spitting the dummy and leaking criticism of KRudd when he doesn’t get his way. Those two cretins deserve each other.

    Sleetmute

    December 25, 2009 at 8:35 pm

  40. Here here Mr Sleetmute 🙂

    tal

    December 26, 2009 at 9:55 am

  41. gosh it is interesting no-one spoke against Henry when he was Treasury Secretary under Howard.

    Obviously cretins at work

    Butterfield, Bloomfield & Bishop

    December 26, 2009 at 11:08 am

  42. Henry was never Treasury Secretary under Howard. He was first appointed by Costello. Stone would have been Treasury Secretary under Howard. Anyway, a whole bunch of us said Henry should have been sacked when he leaked that speech and also there was some disquiet in Liberal circles when Henry was appointed. It was only because Costello really wanted Henry that he got the position.

    Sinclair Davidson

    December 26, 2009 at 11:19 am

  43. OT what did you get for Christmas Sinc?

    tal

    December 26, 2009 at 11:20 am

  44. Gosh, “no-one” spoke against Henry because “no-one” ever heard from the idiot until he made a “secret” speech criticizing the Howard government for not costing the $10 billion water package through his department. It’s surprising he hasn’t applied the smae standard on the fiber network which is costing $43 billion.

    This was the time I like many others spoke up and strongly suggested the government of the time should unceremoniously fire him.

    So the real cretin is you, homer. You’re a first rate cretin.

    jc

    December 26, 2009 at 11:22 am

  45. and also there was some disquiet in Liberal circles when Henry was appointed.

    Which proved prescient in hindsight as the guy doesn’t seem competent enough to be doing the job and has politicized treasury to the extent that it’s just an appendage of the ALP/Greens.

    The next lib government shouldn’t wait an hour after the ALP concession speech before they fired him, possibly even publicly. The Libs could of course publicly state their intentions to fire him now so he wouldn’t be surprised and would immediately offer up his resignation the moment that happened.

    jc

    December 26, 2009 at 11:29 am

  46. Tal, 3 ties 🙂 , cds, books etc. And youself?

    and a big Atlas figure.

    Sinclair Davidson

    December 26, 2009 at 11:36 am

  47. What really shocks me is that the Libs haven’t been politicking against Henry and a couple of the senior ranks of the Treasury in order to highlight to the public how politicized Treasury has become and not to trust anything that comes out of there as it’s now captured ALP territory.

    The Libs ought to be opposing Henry & Co as they would against the ALP and shouldn’t be treated any differently.

    jc

    December 26, 2009 at 11:37 am

  48. Sinkers do not be a Forrest.

    the first cretin mentioned Rudd so it was obvious the talk was of PMs unless you are a cretin.

    No-one had ever heard of Henry?

    Who do you think did all the hardyards for them introducing the GST.
    Only a cretin would say that.

    They have been politicking against him as anyone who has been noticing senate committees would have known.
    They have been very poor as well.

    Henry was a very good Treasury Secretary under Howard and has been the same under Rudd

    Butterfield, Bloomfield & Bishop

    December 26, 2009 at 12:33 pm

  49. I do note again Sinkers produces no evidence of the committee been given the task of increasing revenue to the Government.

    It certainly isn’t in the terms of reference.

    Butterfield, Bloomfield & Bishop

    December 26, 2009 at 12:36 pm

  50. While leaking the speech was unprofessional (enough to get you sacked in the private sector), the speech itself raised doubts in my mind about Henry as an economist. I recall he described the simpler super changes as one of the finest reforms he had developed in his years in Treasury, which I thought was odd given that the efficiency gains are likely to be minimal (albeit personally beneficial). And what about the GST and income tax cuts? But the defining moment was during the Senate hearings last year on the first stimulus package. In answer to a question about why the stimulus should not be spent on addressing bottlenecks for when the economy recovers, Henry said two things. First, that good projects should always be pursued regardless of the stage in the economic cycle. Fair enough, but why not at least look for something with a potential productivity payoff instead of handing out cash (assuming that the government must be seen to be doing something)? Second, he said that investing to address bottlenecks would increase the gap between ‘potential’ GDP and ‘actual’ GDP, thereby defeating the purpose of the stimulus. That was it for me. No respectable economist could justify spending money wastefully just to avoid a theoretical gap that could later prove politically inconvenient. He’s a disgrace to the profession as far as I’m concerned.

    Sleetmute

    December 26, 2009 at 1:25 pm

  51. Correction, the policy that was being questioned at that time in the Senate hearings was pink batts and school halls, not the cash handouts. More cash handouts would not have been as bad.

    Sleetmute

    December 26, 2009 at 1:38 pm

  52. oops

    it wasn’t Henry that ‘leaked’ the speech at all.

    Never mind try again next time

    All we have here are people who were BADLY wrong about the stimulus whinging.

    Butterfield, Bloomfield & Bishop

    December 26, 2009 at 1:51 pm

  53. In fact, the “stimulus” wasn’t necessary – thanks to Howard and Costello, the Australian economy sailed through the “crisis.” This was forecast several months before the Julia Gillard Memorial Toilets and the death-by-electrocution insulation program.

    Here’s liar Henry – the Labor member for the Treasury – pretending his Get Howard speech was no big deal in an election year.

    C.L.

    December 26, 2009 at 2:00 pm

  54. Homer you dissembling moron.

    Henry was more than well aware that giving a controversial “secret” speech highly critical (at very vulnerable point in the election cycle) of the government in front of 200 people was of course going to be leaked. He knew exactly what he was doing (and reading the polls) was giving a free kick to labor.

    You really are too stupid to be posting comments on this board, you blockhead.

    Henry was publicly telegraphing that he was throwing his lot in with Rudd.

    Negligence and cowardly behavior was from the Howard camp for not firing his arse the minute they heard about his act of treachery. He should have been escorted out of the building by security officials and persoanl belongings sent to him by post.

    Homer's day nurse (JC)

    December 26, 2009 at 3:21 pm

  55. moderation comment?

    Homer's day nurse (JC)

    December 26, 2009 at 3:21 pm

  56. Strange how forecasts had Australia experiencing a bad recession indeed one CL said at the time the stimulus had no effect on the economy and we were still in recession.

    Sinkers is all at the sea about the terms of reference and what the Government wants to target tax as a % of GDP

    Butterfield, Bloomfield & Bishop

    December 26, 2009 at 3:38 pm

  57. Homer you dissembling moron.

    Henry was more than well aware that giving a controversial “secret” speech highly critical (at very vulnerable point in the election cycle) of the government in front of 200 people was of course going to be leaked. He knew exactly what he was doing (and reading the polls) was giving a free kick to labor.

    You really are too stupid to be posting comments on this board, you blockhead.

    Henry was publicly telegraphing that he was throwing his lot in with Rudd.

    Negligence and cowardly behavior was from the Howard camp for not firing his arse the minute they heard about his act of treachery. He should have been escorted out of the building by security officials and persoanl belongings sent to him by post.

    JC

    December 26, 2009 at 3:55 pm

  58. Henry put the speech on the Treasury intranet, which was as good as releasing it. Let’s not be naive. He saw the writing on the wall and decided to do his impending boss a good turn.

    Sleetmute

    December 26, 2009 at 7:05 pm


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