Opinion: Micawber's equation too simple for a nation's economy

Monday February 16 2015, 4:45pm

PRIME Minister Tony Abbott says that economic management is in the Coalition’s DNA. That may be true if you view economic management as merely being on the right side of Micawber’s equation. 

The Dickens character Wilkins Micawber said, “Annual income twenty pounds, annual expenditure nineteen pounds nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds nought and six, result misery." 

But what passes for good management in a Victorian era household does not pass muster for a modern economy in which too little spending in one place causes a blow-out a bit later somewhere else, and where blowing Micawber’s equation one year may help match it in other years. 

Since Abbott’s pledge after the spill motion that “good government starts today”, a fair amount of discussion has been about tax. 

Tax is at the core of good government. Tax enables government to do things; it discourages and encourages certain conduct; and it redistributes. The first two can make a country more prosperous, healthier and better educated. The last makes a society fairer. 

A starting point is to have effective tax collection. Cutting the Australian Tax Office to the extent that it is now thinking of allowing large corporations to provide their own “independent” tax auditors is dumb government, not grown-up government. 

Similarly with a range of other government bodies. The Bureau of Metreology, the Australian Bureau of Statistics and various scientific bodies. 


These do work that would not be done if run by the private sector for profit. Not enough people would buy weather reports, economic and social statistics, or theoretical research to generate enough income for them to provide the service.

But funded by government they provide services to all that generate or save far more than their cost.

 Micawber might cut them so the equation could be met this year, but in the long term it is not something a good grown-up government would do. Similarly with a lot of infrastructure.

It makes for a more efficient economy, but often only government can take the risk to start many big projects. Sometimes governments have to borrow (shock, horror) to get these big projects off the ground.

Micawber would not borrow, even at an interest rate barely above inflation, because it would upset the short-term equation, even if it would be profitable in the long run. 

The great majority of Australians could never own their own home without debt. Debt for worthwhile projects is good – ask any business that borrows at 5 per cent to buy equipment that generates income at 12 per cent.

 That said, Australia has a moderate long-term debt problem because our Budgets are out of balance for the foreseeable future.

But the answer is not to mindlessly cut government spending on worthwhile things. The answer in an economy like Australia with a small public sector is to raise more revenue. Austerity stops consumer and business confidence.

Higher revenue from people on high incomes does not. Perhaps this is why unemployment is now at its highest in 13 years (indeed, since the economic-management-DNA-endowed Coalition was last in power).  

It comes back to fair tax. But we have to be careful. Sudden large changes can have unforeseen consequences. But here are a few recent suggestions. The Australian Conservation Foundation thinks removing the tax exemption on fuel for the airline and mining industries would bring in $5bn.

More likely a lot less because fewer people would fly and some mines would close or not open, so fuel consumption would fall. But still worth looking at. Imposing the GST on private-school fees and health insurance would bring in about $2bn, according to the Australia Institute.

This is a good one because few people would take their kids out of private school and few would drop private health insurance. Axe the tax deduction for health insurance. Again, few would drop their insurance. 

Abolish negative gearing. A bit drastic given we do not build enough new dwellings to meet demand. Better to reduce demand by cutting immigration.

But dopey governments regard negative gearing as an all-or-nothing proposition. You could take a sensible middle course.

It would be reasonable, for example, to refuse tax deductions for all state and local government levies on investment properties.

After all, this is just silly revenue shifting between levels of government. Removing some of the tax benefits on superannuation. Even Alan Jones thinks this is a good idea.

The benefits are costing the revenue more than the superannuation levy scheme purports to save in old-age-pension payouts. Instead of redistributing from rich to poor superannuation concessions hold the poor down in favour of the rich. Unfair.

So how do the above proposals from various think tanks and commentators compare with the tax proposals to date of the Abbott Government. The Medicare co-payment discourages people from going to the GP. This will cost in more acute treatment later. It is just dumb.

Increasing burdens on tertiary students. This will discourage education. Really dumb. Lowering the corporate tax because, the government says, Australia’s company rate is uncompetitively high. Inaccurate, because this does not account for Australia’s imputation scheme under which dividend-receiving shareholders are given credit for all company tax paid when they put the dividends down as income on their personal tax return. This proposal carries no benefit for Australian shareholders because for every dollar cut in corporate tax, their personal income tax is increased by that same amount. It only benefits foreign shareholders. Plain dumb.  We do not have a good, grown-up government. We have a government where fools, ideologues and industry mates hold sway. 

Some commentators suggest that the government needs an “over-arching narrative”. Please spare us. Nazis and communists have over-arching narratives.  Besides, Tony Abbott already has an overarching narrative and most Australians and most of his backbench do not like it. It includes knights and dames, the monarchy, greater inequality, and smaller government for its own sake. 

We just want a government that ensures the public sector does effectively and efficiently those things that only the public sector can do, and creates the environment for the private sector to do what it does well. Perhaps this is why the polls suggest that many Labor voters like Malcolm Turnbull.

He is not an ideologue. He gets the evidence. He thinks about things. And he argues propositions rather than baying today’s “on-message” slogan. And his economics is a bit more sophisticated than that of the Victorian era’s Wilkins Micawber.