Thursday, February 25, 2016

The power of good policy – historical tax distortions waiting for a fix

In a time when arts and culture support is being reduced incrementally, while the size of the economy and the level of both population and demand increases, where is the money going? What better uses is taxpayer money – whether actually collected or foregone – being put to?

We live in an era where arts and culture support – relatively small proportion of overall government expenditure that it is – is continually being cut and restructured. The argument seems to be that there are limited funds and many demands, that there is a 'budget emergency' or, beneath the surface, that government shouldn't be involved in this space at all.

In this context it is interesting to consider where government resources are allocated, how relatively worthwhile are alternative uses of taxpayer funds - whether actually collected or just foregone. The discussion around negative gearing takes us into just such an area.

Negative gearing has been distorting the shape and nature of our cities for a long time.

For decades negative gearing has been distorting the shape of our cities, our suburbs and our communities. It is an inefficient way to achieve the desired result. Because it has been around for so long, it's negative impact has been able to magnify, cumulative like lead poisoning.

The heated response to the tax debate around negative gearing and capital gains tax shows that if political parties adopt a clear policy, in line with their core values and aligned with popular concerns, then get behind it and explain it, people will respond.

Lies, damned lies and lies about statistics
There's a famous old saying – there’s lies, damned lies and statistics. In its place I’d like to propose a new phrase ‘lies, damned lies and lies about statistics’. In my view statistics only ever lie in the hands of a liar or if used on someone who doesn’t understand what the statistics are measuring and how. This means the lies, damned lies and statistics are usually coming from the mouth of some politician or lobby group or spin doctor. In contrast to lies, damned lies and statistics there's analysis based on research that is actually related to reality. A good example is some of the articles being published dealing with the thorny topic of negative gearing.

This time it’s a lesson for the Labor Party. After failing to distinguish itself from the Government on far too many policies and falling back on the old cheap tactic of running a scare campaign to gain ground, it came out with a position on negative gearing and, possibly for the first time since Turnbull became Prime Minister, found itself ahead of the Government on an issue and started looking like a potentially serious candidate for government. I can't believe it – finally Labor has seized the moment with a good policy that changes the ground rules.

Turnbull's response was to be risk adverse about the Liberal faithful, who will not surrender one iota of their God-given (or at least Costello-given) entitlements, funded by foregone tax revenue. He is prepared to give up all his hard-earned political credit and credibility by turning into a second Tony Abbott. This is not really a full blown shock ­– this was always a strong likelihood, given he was burned last time round for ignoring the party faithful.

The improvement in Labor polling compared to the Government was probably not a direct result of having a policy but it shows what could happen for parties that show some policy courage. More clever policies on their part and we might actually have a real choice come election day.

A predictable campaign by the self-interested is just starting to be waged – echoing the campaign run by the mining companies to avoid having to pay a fair share of tax. In contrast here are some of the articles that explore what negative gearing is, what it does and what we need to do about it.

The damage negative gearing does – ‘Negative gearing is an untouchable of Australian tax policy. It survives because of persistent myths that it improves housing availability and reduces rents. It survives because 1.2 million taxpayers – mostly voters – use it to minimise their tax….But negative gearing is expensive, inefficient, inequitable, and it reduces home ownership. For governments under severe budgetary pressure it should be near the top of the reform list’, John Daley and Danielle Wood in The Age.

Confusion in Government ranks and the Turnbull counter-attack against Labor along Abbott sloganeering lines, Mark Kenny and James Massola in The Canberra Times.

There’s more to negative gearing than meets the eye. The case for research and broader options, Jago Dodson, Professor of Urban Policy and Director, Centre for Urban Research, RMIT University in The Conversation.

How younger Australians are the big losers from negative gearing, capital gains and superannuation tax concessions, The Australia Institute.

Explaining negative gearing to the young – possible not interested because of its lack of immediate relevance but the most disastrously and negatively affected, Kaitlyn Sawrey on TripleJ Hack.

This article was originally published elsewhere in my blogosphere and has been revised for this blog.

See also

How to run down an essential service – adventures in the crazy world of Centrelink 
‘Of late I have been developing a close one-on-many relationship with Centrelink as I fulfill my destiny of sorting out stuff for my elderly relatives. It reminds me of dealing with Australia Post over many years. Everyone at Australia Post used to bend over backwards to help you. The problem was that their systems were so bad that even their own staff couldn’t get them to work. This is what Centrelink is like. In the crazy world of failing public service systems that are being overtaken by reality, the only solution is a work around. The tick the box approach that is being fostered in the new deskilled public service can’t handle complexity. The test of any system – or policy, strategic plan, program – is how well it handles the unexpected, the unforeseen, reality. This looks like failure to me’, How to run down an essential service – adventures in the crazy world of Centrelink.

Venue lockdown – a blunt instrument for a dire problem
‘The issue of venue lockdown to deal with alcohol-fuelled assaults is becoming a major debate. Of course venue owners are concerned and their argument that the policy will affect the hospitality industry may well be valid – but that, by itself, is not enough. It comes down to how effective the approach is at addressing the problem and how badly the hospitality industry is affected. The question is how finely different kinds of venues are distinguished from each other in a strategy to reduce alcohol-related violence. Dealing with it was never going to be simple or easy. However, like all government policy, it’s all too easy to go for the one size fits all approach which might look good but not work’, Venue lockdown – a blunt instrument for a dire problem.

Diversity underpins the innovation we desperately need
‘I keep writing that cultural diversity is crucial to innovation because where cultures intersect, innovation happens. In a world where change is fast and widespread can anyone afford not to mobilise all they have going for them – to survive, let alone to succeed? Cultural diversity is a big part of that picture’, Diversity underpins the innovation we desperately need.

Unamerican Activities Committee
‘Reading reviews of the new film about the Hollywood screenwriter, Trumbo, I’ve been reminded of the legendary House UnAmerican Activities Committee, set up to hunt reds under the bed – especially screenwriters – in the US in the late 1940s and 50s. Only in America could I imagine something with such a bizarre name. What exactly were ‘unAmerican’ activities – did it include picking your nose in public or forgetting Mother’s Day?’, Unamerican Activities Committee.

Look after pedestrians and the economy will look after itself
‘Public transport is such a central element in a modern city. It has fundamental implications for how productive a city is, how culturally active and just how personally pleasant it is to live and work in’, Look after pedestrians and the economy will look after itself.

Travelling together through the city
‘Public transport is such a central element in a modern city. It has fundamental implications for how productive a city is, how culturally active and just how personally pleasant it is to live and work in’, Travelling together through the city.

Sydney - Australia's most valuable location but public transport its greatest weakness
‘A massive weakness only too familiar to anyone who lives in or has lived in Sydney could derail the whole positive effect of economic growth within different mega regions inside Greater Sydney and hold back innovation and economic productivity. This has serious implications not just for Sydney or New South Wales but for the national economy. Cities have always been serious business but this just got a lot more so’, Sydney is Australia's most valuable location but public transport is its greatest weakness.

Our capital cities are growing and produce most of our income
‘The city is a critical place for cultural life and for the diversity that propels it. It's interesting to see the overwhelming significance of cities in an economic sense as well’, Our capital cities are growing and produce most of our income.

The central importance of cities to the modern economy
‘It is becoming increasingly clear how important cities are in the contemporary economy. Underpinning this is the absolutely central importance of the growth of the knowledge economy and the innovation, collaboration and interaction it depends on. This is a reality that politicians have to grasp if we are going to see good policies that benefit Australia over the next decades. Unfortunately I think that many are still operating with a view of the economy which was out of date at least a decade ago’, The central importance of cities to the modern economy.

Creating cities by reinventing them – ‘Creating Cities’ reviewed
‘At first glance Marcus Westbury’s ‘Creating Cities’ book looks small, but it’s far bigger than it looks. The book is about re-energising cities by reinventing them but it’s starting point is a deep appreciation of the particular regional city of Newcastle. The revival of Newcastle is a reflection of the more general trend towards the revival of regional centres in Australia. Cities are crucial to the innovation and creativity that interaction and partnerships based on physical proximity can produce – whether major capital cities or regional cities. The efforts at revival all reflected the critical importance of cities. Each in its own way draws upon creativity and innovation and the cultural diversity which underpins it to create places which are pleasant and interesting to live in and to drive economic prosperity’, Creating cities by reinventing them – ‘Creating Cities’ reviewed.

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