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The Myth of the 2020/21 Surplus – John Kelly

The federal Treasurer’s belief that he will be able to produce a surplus budget by 2020/21 is either a pipe dream or a con-trick. It is simply not achievable.

And, to our collective relief, it is ignorance rather than good management, that will ensure it doesn’t happen. Notwithstanding the fact that a surplus budget is the last thing our economy needs now or then, it is government policy that will stop it from happening.

The Treasurer thinks giving tax cuts to the private sector will create jobs. It’s often called ‘trickle-down theory’, but it’s only an unproven hypothesis. There is a weak link in his story – and a vital one. He has no control over what happens to that extra money kept by private sector businesses.

Such politicians are constantly boasting that they have created a jobs boom when in fact, the job creation is – in the main – proportional to the increase in population. The jobs increase naturally. If there was a real jobs boom, there would not be 700,000 unemployed today, which as it happens, is the same number of people unemployed in Sept- ember 2013 when this government came to office.

They haven’t created anything, but they will happily take credit for what occurs naturally through immigration.

In the meantime, they are more than happy to maintain a pool of 5 percent unemployed, which some OECD countries regard as full employment, to keep wages stagnant. But low wage growth restricts a nation’s capacity to grow. It limits the spending capacity of workers.

So, the question should be asked: why would companies use a tax cut to invest when low wage growth inhibits workers ability to purchase more goods and services? Such investment would be counter-productive. Which begs the next question: what would corporate Australia do with the extra cash? It might be used to invest and expand, or it might be used for share buy-backs, or for funding even bigger executive bonuses. History, however, tells us that it is bonuses and share buy-backs that usually win out, but history also tells us that one in five companies don’t pay tax.

So, a tax cut offers nothing for them, no reason to invest, no reason to hire. So, the projected surplus in 2020/21 is a myth. Without wage growth which produces higher tax revenues and the promise of higher sales volumes and bigger profits, the only way the federal Treasurer could achieve a surplus in 2020/21 is to reduce government spending further.

That too, is counter-productive. When government spends less, one of two things happens. People spend less, or they take on more debt. We are already one of the top three privately indebted countries in the OECD.

The most likely outcome is contracted growth, leading to recession. We have been on this path now for five years. It has been delayed because of our large immigration intake including 457 visa holders. It’s not rocket science.

So, when we hear the Treasurer and Prime Minister spruiking tax cuts for business, we know it’s not designed for jobs and growth. Is it possible that they have other reasons for wanting to give business breaks they don’t deserve?

Source: The Aim Network, 25 Feb 2018


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