So where have I gone? You'll find me at Radio National
People have been asking
Until late last year, I wrote weekly for The Conversation and ABC Online. Every few weeks I let you know what I had been up to here.
Then, I vanished. Well, that’s how it seemed.
Here’s where I am now:
Thursdays at 5.30pm, and on all of your favourite podcast apps, The Economy Stupid is an ABC Radio National panel discussion about the issues of the week. You don’t need to know anything, it’s my job and the job of my guests to bring you up to speed.
The theme music (deliberately) has a dinner party vibe. That’s right, by the time we go to air, we are getting ready for the weekend. We are repeated Fridays at 11.30am.
PLEASE let me know what you think, and send in suggestions for topics. We usually look at three topics a week, plus things to look out for in the weeks ahead.
But wait, there’s more.
Every weekday morning live, I talk about business and economics with Sally Sara on Radio National Breakfast. Just lately, a lot of it has been about what the US President has announced overnight, but we’ve dealt with all sorts of things in the news, including the budget and each party’s policies.
I talk economics with Sally each morning, Melissa Clarke talks politics, and Luke Siddham Dundon updates us with news from around the world. Gee, he is good.
A bonus is that I get to listen to the entire program right from the beginning at 5.30am through to 9am. I am impressed, and I suggest you give it a try.
If you don’t want to listen through the entire morning, these are the times you can (usually) hear me: 6.25am, 6.55am, 7.48am and 8.55am.
Tomorrow, I am likely to fact-check some of the things I have heard in the campaign launches today.
Dutton:
Australia has had the worst collapse in living standards in the developed world
Biggest collapse in living standards in Australian history
Electricity prices up $1,300 more than Labor had promised
Electricity prices climbed 32%
Grocery prices climbed 30% under Labor
Rents have climbed 18%
A record 30,000 businesses have gone broke in the past 12 months
A three-fold increase in the number of businesses that have gone broke
Less is being manufactured in Australia and more overseas
Productivity has fallen 5.2% since Labor came to office
$1 trillion in government debt
When it comes to cars, choice is in our DNA
Axing penalties under the fuel efficiency standard will cut car prices
Labor has presided over the biggest increase in average tax rates in history
Nuclear power would be 44% cheaper than renewables only
Net migration reached almost 1 million people in Labor’s first two years
This was 70% higher than in any previous two-year period
I might also look at the Coalition’s two new tax promises: allowing first home owners to deduct interest payments on the first $650,000 of a mortgage from their taxable income; and a one-year tax cut for middle-income earners worth up to $1,200 delivered well after the end of the taxable year, as it was the last time the Coaltion did this.
Albanese
Inflation was on the way up when we took office
Inflation is on the way down now
Real wages have climbed for five quarters in a row
More jobs have been created than in any parliamentary term
I might also look at Labor’s new promises: an automatic $1,000 tax deduction (to end the need to collect a box full of receipts); and paying mortgage insurance for first home owners, allowing more to buy homes with deposits of just 5%.
I had better get to work.
That’s it for me, and that’s where to find me. I haven’t gone quiet, I am just talking somewhere else. The ABC is in my DNA. I wrote about how much it matters here.
A reminder to follow ABC News (the ABC News app is truly excellent), keep reading The Conversation and Inside Story, John Menadue’s Blog, and Post, a free early morning email about what’s happening.
One more thing. I contributed to this timely book. Actually, it is also timeless.
How Australian Democracy Works is available at all good bookshops. My chapter, one of many, is below:
Chapter 13: Money makes the world go ‘round (And Australia is no different)
In the early days of colonial rule, Australia didn’t have its own money.
While the convicts and guards and sailors who came out on the first fleet in 1788 might have taken coins and notes with them (some of them ill-gotten), the colony was to be a prison, and as SJ Butlin notes in his history of money in Australia, “prisons do not require a monetary system”.
The sailors and officers were to be paid, but only down the track, when they eventually returned to Britain or were discharged. In the meantime, they were fed, clothed and supplied by the “commissary”, an organisation under the command of the governor that managed supplies.
If they did any extra work for the governor they were given a receipt which could eventually be exchanged for British pounds back in England or be exchanged sooner at the commissary for goods or food.
These handwritten receipts became valuable in their own right and were soon exchanged between convicts and officers as if they were money.
Later, in the early 1880s, private banks did the same thing, issuing “promises to pay” which looked pretty similar to the £10, £20 and even £50 British notes with which the new arrivals were familiar.
While the words printed on each note acknowledged it was only a “promise to pay” they were also the words printed on the official notes printed by the Bank of England in Britain.
Governor Lachlan Macquarie made them as good as official by requiring them to be used when paying for property sold by the government.
Private businesses got in on the act as well, issuing “trade tokens” that looked like coins. Stores handed them out as change, and while they could be redeemed, they were just as likely to be exchanged, functioning as money.
State governments issued coins as well, the New South Wales Holey Dollar (made by stamping a hole in a Spanish silver dollar) and the Adelaide Pound (the first coin made in Australia from Australian gold) among them.
But it wasn’t until 1910, almost a decade after Australia had federated, that the Commonwealth took over responsibility for issuing notes and coins, and outlawed state and private currencies.
Tax has a patchy history too
Tax had a similarly shaky start. At first, there was no need for it. The government of the colony of NSW appropriated everything that was produced, and the commissary distributed it for free to meet essential needs.
As Julie Smith points out in her history of tax in Australia, British law (to which Australians were subject) said taxes could only be imposed by a representative parliament, which prior to 1901, Australia didn’t have.
But there was no law against asking for money, and towards the end of the 1700s, that’s what Governor John Hunter did. Desperate for funds to help rebuild a jail that had burned down, he asked freed convicts and officers to “take up the same responsibilities as men of substance shouldered in England”.
When it became clear that donations would be insufficient, Hunter’s successor, Philip King, simply imposed taxes, beginning by collecting a duty on imports and sales of wine, spirits and beer. He did so believing that eventually (it took almost 20 years), the British parliament would retrospectively make his taxes legal.
His first budget, in 1805, reported income from duties on alcohol, fines, fees on the entry and clearance of vessels, and an early version of sales tax of £2,783.
When gold was discovered near Bathurst in the early 1850s, the NSW government at first (understandably) declared that it owned it, issuing a proclamation that all gold on Crown land belonged to the Crown.
Facing unrest, a day later it dropped the claim and instead charged a fee for gold mining (as did the state of Victoria). This also later triggered riots (Victoria’s was called the Eureka Stockade) and was replaced with a more modest tax on gold exports.
And then there was income tax
Increasingly, the fairness of taxes came to matter as much to governments as their ability to collect them, which is where income taxes came in. Introduced at first in South Australia and Tasmania, then later in NSW and Victoria, they collected the most from the citizens who were likely to be the most able to pay, having reported the greatest incomes.
Better still, fairness could be enhanced by charging higher rates on incomes above certain thresholds, and higher rates on income from property than income from work.
When the Commonwealth took over the collection of taxes on imports and introduced its own tax on landholdings after Federation, the states were forced to rely more on income tax. Queensland and Western Australia soon joined in, and then the Commonwealth itself, which introduced its own income tax to help fund the first world war in 1915.
Designed by Commonwealth statistician Sir George Knibbs, Australia’s first national income tax was a peculiarly Australian innovation – as distinctive as the stump-jump plough, in the view of Smith. It not only charged higher rates of tax on higher incomes, but did so in a continuously variable fashion.
Instead of the four tax brackets we have today, there were as many brackets as there were pounds earned between £156 and £7,600. (Australia didn’t move to the decimal currency we have now until 1966.)
Attorney-General Billy Hughes told parliament the tax per pound would be “threepence and three eight-hundredths of one penny where the taxable value is one pound sterling, and shall increase uniformly with each increase of one pound sterling of the taxable income by three eight-hundredths of one penny”.
Beyond £7,600 the tax rate would stay at the maximum, 60%.
It was, Hughes said, “really quite simple”.
It became far from simple when combined with state income taxes that continued to be charged. State taxes paid were deductible from the Commonwealth tax, meaning the Commonwealth only took an extra amount on top of what had already taken, but the paperwork was considerable.
After the war, two royal commissions recommended some form of simplification, but it didn’t happen until the second world war, when the Commonwealth introduced the Income Tax Act and Income Tax (War-time Arrangements) Act that “temporarily” gave it what was effectively the exclusive right to collect income tax (and control over the staff who had previously collected state income taxes) in return for compensation payments to the states.
That the takeover was temporary was spelled out in the Wartime Arrangements Act, which was to operate only until the war was over.
A separate Act stipulated that the treasurer was to make grants to the states, but only where he was satisfied “that a state has not imposed a tax upon incomes”.
At the 1946 Premiers Conference after the second world war, Prime Minister Ben Chifley declared the Commonwealth would continue to collect income tax exclusively, regardless of what the states thought. The states had challenged his legislation in the High Court and lost. The Commonwealth was entitled to charge as much income tax as it wanted and make grants to the states conditional on them imposing none whatsoever.
The result was an income tax system pretty much like the one we have today.
Income tax had been extended from middle and high earners to ordinary and low earners to help fund the war and unemployment benefits, and it was by then being collected fortnightly from employers on a “pay as you go basis” rather than at the end of each year.
Three years after the end of the war, the Commonwealth collected almost all of Australia’s tax, 88% in 1948-49, doling it out in grants to the states.
The best part of a century later, things have changed little. The Commonwealth is still collecting 83% of Australian tax and doling out grants to the states.
It has made Australia unusual among federations in having the central government collect most of the tax while the state and local governments did most of the spending on services such as schools, hospitals and roads, the bulk of it with grants from the Commonwealth.
All up, including the goods and services tax, the Commonwealth collects about one quarter of each year’s gross domestic product (25.5% in 2024-25), meaning it collects in tax one quarter of everything that is earned, which also about one quarter of everything that is spent and everything that is produced.
This money doesn’t disappear – roughly the same amount (26.4% in 2024-25) is spent, meaning that the bulk of what the Commonwealth takes it gives back.
How does the federal budget work?
Each year, usually in May, the Commonwealth government sets out on paper how much it proposes to collect in each tax and how much it proposes to spend on each program, then seeks the approval of the parliament. It’s called the budget, and it also functions as a statement of priorities. Most years (aside from election years), it’s the biggest political event of the year.
The biggest spending item in the Commonwealth budget ($94.4 billion in 2024-25) is grants to the states. The second-biggest ($61.7 billion) is the age pension, followed by the National Disability Insurance Scheme ($48.7 billion). After that are aged care services, Medicare rebates and grants to the states for hospitals.
Strictly speaking, it isn’t correct to say that the Commonwealth needs to tax in order to spend that money. Being able to issue dollars through the Reserve Bank of Australia, it can pay out first, thinking about what to collect later.
Usually (in all but 20 of the 110 years since the start of the first world war) it has collected less than it has paid out, which is called a budget deficit.
Much more rarely, it has collected more than it has paid out, delivering a so-called budget surplus.
The government could keep running deficits forever, and mostly has. To make its books balance it can borrow by issuing government bonds, which are promises to pay, often after 10 years.
Because it is always able to repay (being the issuer of Australian currency) it is always able to borrow more, leading to the paradoxical situation where its debt can appear to keep growing, even though it pays each individual debt when it falls due.
During the early 2020s COVID pandemic it effectively borrowed from itself, issuing bonds to private lenders, which the Reserve Bank bought off them with money it had created. This meant government payments on government bonds went to the government itself.
So why tax at all? Because, while money might not be scarce to the government (it can produce as much as it likes), if it didn’t tax, the things that it wanted to buy would be scarce.
If the government neither taxed nor spent, in good times most of the people in Australia would be pretty fully employed.
If the government then decided to spend to buy those peoples’ services (perhaps spending up to one quarter of GDP) it would create a bidding war, pushing up wages and prices, and inflation.
On the other hand, if at the same time it imposed taxes on the employers of those workers (and the customers of the employers), it could depress demand for their services and get them without much pushing up the price.
By using tax to reduce private calls on resources at the same time as it uses spending to increase government use of those resources, the government can get resources such as teachers, nurses and soldiers without feeding inflation.
High inflation erodes trust in the government and in society. Taken to extremes, “hyperinflation” of the kind seen in Germany between the wars and more recently in Zimbabwe renders currencies worthless.
Of course, the government doesn’t need to exactly offset what it is spending with tax. There will be times when the private sector isn’t spending enough and there’s unemployment.
At those times it will make sense for the government to spend more than it collects to employ people the private sector won’t and run a deficit.
At other times, when the private sector is spending too much and there’s inflation, it will make sense for the government to do the opposite and spend less than it collects, running a surplus.
It is very different from the way households manage their spending – they are unable to borrow forever – and also different from the way state governments manage their spending. Their income (including borrowing) needs to match their spending.
Unlike the Commonwealth, they are unable to produce their own money, and these days they wouldn’t be taken seriously if they did.
How Australian Democracy Works: And why we need it more than ever
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