Why we suddenly owe tax, the drug dealer's defence for coal, how Chalmers squibbed it on full employment
Plus other things I've been reading , editing and writing
Hi, it’s good to be writing to you again. And yes, I’m *still* off Twitter. It’s like giving up alcohol, which I’ve also done.🤞🏽It gets easier over time, but there’s always the risk of going back in, just the once.
In my view, Chalmers squibbed it on full employment.
Sure, his white paper said he committed himself to “full employment” which it defined grandly as meaning
everyone who wants a job should be able to find one without searching for too long
But is something of a “look over here” trick, the white paper said full employment was too multidimensional to put a number on.
The white paper says what matters in addition to unemployment (539,700 Australians) is “underemployment” in which people work fewer hours than they want (1 million) and “potential workers” who would like work but aren’t actively looking and so aren’t counted as unemployed (1.3 million).
White paper: To put a number on a target for the unemployment rate would be to ignore those other things.
Me: It would also enable you to slide out of putting a number on a target for the unemployment rate. And if there isn’t a number on a target, it’s not taken seriously.
Train travellers in Sydney know this well. A few years back trains had specific measurable targets for being on time, but less-specific vaguer targets for actually picking up passengers. When trains were at risk of running late they whizzed past passengers on platforms to make up time. I know. I was one of them.
The White paper implies that: yea, putting a target on one part of full employment (the unemployment rate) would prioritise it over other aspects of full employment, underemployment among them.
But here’s the thing: those other things move in line with unemployment.
When Australia’s unemployment rate falls, Australia’s underemployment rate falls, almost in tandem.
This makes the unemployment rate just about the perfect proxy for everything else about the labour market that matters, and just about the perfect number to target.
Chalmers squibbed it. And I hadn’t thought he would. The Keating Labor government’s Working Nation statement released in 1994 at a time when unemployment was almost 10%, specified a target unemployment rate of 5%.
Chalmers could have specified 3% or 3.5% or something, anything that would have served as a beacon. Chalmers is an admirer of Paul Keating. He squibbed it in a way Paul Keating would not have.
Petrol Douses inflation?
Hear me out.
Inflation climbed throughout most of the Western world in July and August. In Australia, the stats suggest that all of the increase was due to a jump in the price of one type of good – automotive fuel. (Yes I know, you could also argue that all of it was due to anything else, but the price of automotive fuel did jump an extraordinary 9%.)
AMP chief economist Shane Oliver thinks the latest petrol price rises could be disinflationary. That’s right, “disinflationary”.
Just as a tax increase reduces the free money households have to spend and makes it harder for them to push up prices, an increase in the price of a purchase that’s near compulsory cuts the amount we have to spend on other things.
Offsetting this is the reality that petrol and diesel prices have risen. In time, those higher prices will feed through into higher prices for just about everything that is moved by trucks.
But the two – higher input prices and less price pressure from consumers – should to some extent offset each other, which is a reason for the Reserve Bank board to at least consider taking the latest uptick in inflation in its stride.
I reckon it will. The board next meets on Melbourne Cup Tuesday, November 7.
Tax refunds up to $1,500 smaller, tax bills up to $1,500 bigger, and tax refunds turned into bills? You bet.
One of the most Googled questions in Australia right now is
Why do I suddenly owe tax this year?
Another way to put it would be: why is $11 billion being withdrawn from the economy?
Ann Kayis-Kumar takes up the story.
Worth up to $1,500 per taxpayer in 2022, and paid or part-paid to taxpayers who earned between $37,000 and $126,000, LMITO was introduced in 2018 as a temporary measure by then treasurer Scott Morrison to “increase disposable incomes to help relieve household budget pressures”.
Morrison always intended LMITO to be temporary because it was to be replaced in 2022 by measures in Stage 2 of his tax cut plan that would have the same effect.
But in the 2020 budget, Treasurer Josh Frydenberg brought forward Stage 2 from 2022 to 2020 and kept LMITO in place to provide an “additional benefit”.
In 2021 Frydenberg extended LMITO for yet another year to give recipients what he called a “further benefit” that would help secure the economic recovery.
In 2022 Frydenberg stopped. The benefit for 2021-22 to be paid out in 2022 would be the last, although it would be boosted from $1,080 to $1,500 as a “temporary, targeted and responsible way to reduce cost of living pressures”.
More than 10 million Australians received LMITO in its final year, most of them the full LMITO.
Treasurer Jim Chalmers could have saved the benefit – in April Shadow Treasurer Angus Taylor accused him of trying to hide a decision to axe it “under the cover of Easter”.
But the decision to end it was taken a year earlier in Frydenberg’s budget for the 2022-23 tax year, meaning it is only now being felt.
What else? I told you I had been busy. Most of my job at The Conversation is editing other people’s work, and it was a pleasure to edit John Quiggin.
The drug dealer’s defence
You know the drug dealer’s defence… Prime Ministers Turnbull and Albanese have used it: If we don’t sell coal to the rest of the world, someone else will.
Quiggin says it’s correct for street-level drug dealers:
As soon as one dealer is arrested, someone will enter the market to replace the dealer. For this reason, drug policy has shifted away from traditional modes of street-level enforcement and towards community partnerships.
But coal is different. Global markets are supplied by a range of producers, each with different costs. Some mines can cover their costs even when world prices are low, others require very high world coal prices to break even. Australia’s mines are mostly at the low-cost end of the spectrum.
As low-cost mines get closed, higher-cost mines need to be used in their place, pushing up the supply curve and the price, but also… pushing down demand:
This makes the drug dealers defence for exporting coal especially shoddy.
It would be open to Environment Minister Tasnya Plibersek to make another argument: that in the government’s political judgement, Australians are not willing to wear the short-run costs of a transition from coal, regardless of the impact on the global climate manifested every day in bushfires, floods and environmental destruction.
But instead, we are being told that if Australia cuts supply, other suppliers will rush in, without being told about their costs and what will happen next.
In markets like coal, with a fixed number of suppliers facing different costs, demand responds to the withdrawal of supply in the way the economics textbooks say it should.
Also on this question, Tim Colebatch has an excellent piece in Inside Story on the latest International Energy Agency report (and Australia):
The report implicitly rejects Labor’s policy of phasing out fossil fuels at home while expanding exports for others to burn. If our goal is to stop global warming, you can’t do it by transferring emissions from power stations here to power stations in Asia. You can argue the detail of how the transition to renewables should be managed, but the IEA insists that fossil fuels must be phased out throughout the world.
That’s it for now. Keep reading The Conversation, and for that matter Inside Story, John Menadue’s Blog, and Post, a free 7am weekday email from The Saturday Paper. There’s life after Twitter
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I’ve got lots of ideas for columns in the week ahead – including the extent to which Australians (compared to others) can withstand high interest rates. There’s evidence both ways.
My column is in The Conversation (almost) every Wednesday.
Any ideas for columns, or for this newsletter – Longer? Shorter? More frequently? less frequently? (the last one was one month ago).. let me know.
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