Ideas@TheCentre – The Centre for Independent Studies

Ideas@TheCentre

Ideas@TheCentre brings you ammunition for conversations around the table.  3 short articles from CIS researchers emailed every Friday on the issues of the week.

Single examples are useless

Michael Potter

17 March 2017 | Ideas@TheCentre

MP canada aus

You can’t prove anything universal with a single example, but that hasn’t stopped opponents of the corporate tax cuts, with Canada being trumpeted as an example of an economy supposedly slumping after tax cuts.

But this shouldn’t be the way public policy is decided. Every country has many things happening simultaneously, some with large effect and some with small. It can be hard to isolate the impact of one factor, like company tax, on the whole economy — particularly when other significant things are going on, like as a commodity price boom, which benefited both Australia and Canada.

Canada also has its own unique characteristics, including being more affected by economic events in the US — plus having Vancouver’s useless vacant homes tax and a Prime Minister who eulogises Fidel Castro as a ‘remarkable leader’.

Let’s ignore this for a moment, and look at Canada’s experience with tax reform in isolation. Unfortunately for the nay-sayers, a reasonable analysis shows things turned out pretty well.

For much of the 2000s, Canada’s corporate rate was close to the OECD weighted average, and their GDP growth was similarly around the average, or slightly above. When their corporate rate fell to well below the average, their GDP growth had a sustained period of growth above the average. Similarly, Canada’s productivity growth lagged the OECD average from 2000, but surged ahead from 2012 onwards, when their corporate tax rate was the most competitive.

mp single examples 1The story is the clearest with investment, with investment (orange line in the graph below) higher than the OECD average when their corporate rate (blue line) was below average, and vice versa.

This was of course during a mining boom, but opponents of tax cuts like ignoring other factors, don’t they? However we shouldn’t commit that error. If we now compare Australia and Canada, as two mining economies, we find Australia’s outperformance on investment has steadily declined as Canada’s corporate rate fell further below ours.

Perhaps Canada does have something to offer Australia after all, although not the sillier ideas about tax and Communist leaders.

Literally no idea about literacy and numeracy

Blaise Joseph

17 March 2017 | Ideas@TheCentre

BJ teacher education 1

In my entire teacher education degree, there was just one subject dedicated to learning how to teach literacy and numeracy. And ironically that subject included very little literacy and no numeracy.

It is unsurprising therefore — but nonetheless concerning — that it’s necessary for the federal government to require students doing teacher education degrees to pass a literacy and numeracy test before they can be accredited to teach.

The test requires students to achieve the literacy and numeracy level equivalent to the top 30% of Australian adults (not the loftiest of goals). This week we learnt that over 5% of teacher education students didn’t achieve the required level on the test in 2016 and another 3% had to re-sit the test, despite having already been admitted to a teacher education degree.

Students are charged $185 to sit the compulsory test — and are then charged the same amount again if they have to re-sit it. They are entitled to wonder why they were admitted to an expensive teaching degree in the first place if their literacy and numeracy skills were not necessarily up to scratch.

This raises many questions. How has the quality of graduate intake in teaching degrees fallen so low that the ATAR cut-offs don’t eliminate applicants who lack the literacy and numeracy levels required? What are universities actually covering in teaching degrees if an external test for literacy and numeracy is still needed? And are there teachers already in schools who don’t have adequate literacy and numeracy skills themselves — and so have no hope of passing on these basic skills to school students?

The absurdity of having to test the literacy and numeracy levels of teacher education students, who will soon be responsible for teaching literacy and numeracy, shows how from primary school through to university the Australian education system is failing to consistently get the basics right. No wonder Australia’s school results have been declining in the international rankings.

It is a crucial problem that literacy and numeracy are not being taught as well as they could. They are the foundations of a proper education.

 

CGT attacks are tall poppy syndrome

17 March 2017 | Ideas@TheCentre

tall poppy poppiesThis week has seen a renewed focus on targeting capital gains tax with the threat that the fifty per cent concession will be cut — a proposal that rears its unattractive noggin on nearly an annual basis. Essentially, this means there will be an increase in taxes on capital.  Tall poppy syndrome seems to be going into overdrive. What next? A tax only for the rich!

There are several reasons why it would be a terrible idea to increase capital gains tax levels.

First, capital gains tax creates what is called the lock-in effect. Meaning, owners of assets are incentivised to hold onto assets to avoid paying capital gains tax. One example where this is most prevalent is the housing market where investors are taxed on an investment property. This creates a decrease in housing available for sale. With housing affordability as a hot-button issue, any action that causes a restriction on the supply side should be avoided.

Second, capital gains tax inflicts an additional burden on capital that has already been taxed. An example of that would be company shares. Any capital that is first earned by a company is taxed. The issue is that if the company retains the profit, it then increases the value of the company’s shares. When the shares are sold, capital gains tax is applied.

The third reason is capital gains tax is not indexed to inflation. Taxing the inflation component increases the effective tax rate on savings above the official tax rate, as argued by the Henry Tax Review. This means capital gains can be overtaxed if there is no inflation adjustment. This works as another disincentive to invest .

Finally, there is a risk in any investment.  To reward the investors for contributing to the economy, a lower capital gain tax would provide incentives for people to invest. We need to stop demonising people for wanting to invest in housing or shares that help them make money. Neither are they cash cows to be milked whenever the government has a shortfall in the budget.

Herman Toh is a Mannkal Scholar and an intern in the CIS Economics Program