How to halt the de­cline

The Weekend Australian - Review - - Books -

fis­cal pol­icy left a struc­tural bud­get deficit a string of gov­ern­ments have since been un­able to plug. Howard, he writes, “taught peo­ple to ex­pect a hand­out out­side an elec­tion cam­paign, which cre­ated a per­ma­nent sense of en­ti­tle­ment”. The “Howard gift” — large, reg­u­lar cuts in per­sonal in­come tax from 2005 on­wards that saw its share of na­tional in­come dip to the low­est level since the 70s — was par­tic­u­larly cul­pa­ble, neu­ter­ing bracket creep’s role in bud­get re­pair. This is a con­tro­ver­sial view: had the tax cuts not been made, the bud­get might not be in much bet­ter shape; gov­ern­ments are very good at spend­ing what­ever money they have.

Me­ga­lo­ge­nis in­cludes in­ter­est­ing in­ter­views with Ken Henry, sec­re­tary to the Trea­sury dur­ing the Howard and Rudd-Gil­lard gov­ern­ments, for­mer Re­serve Bank gov­er­nor Ian Mac­far­lane, and Paul Vol­cker, the US Fed­eral Re­serve chair­man who de­stroyed in­fla­tion in the 80s. Henry con­cedes Trea­sury should have ar­gued against the in­come tax cuts in the knowl­edge the rev­enue boom would not last: “It’s very dif­fi­cult in that en­vi­ron­ment to firstly con­vince your­self that it’s only tem­po­rary and then, if you have con­vinced your­self, you’ve got to turn around and con­vince ev­ery­body else.”

There are plenty of op­por­tu­ni­ties to dis­pute Me­ga­lo­ge­nis’s eco­nom­ics. Most econ­o­mists would prob­a­bly dis­agree with his claim the global fi­nan­cial cri­sis would have been a good time

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