For the sake of this article I’m going to ignore the big three players — the coalition (including Liberal, National, Country Liberal & Liberal National Parties), the Labor Party, and the Greens. If you haven’t heard of them before, then this article probably isn’t for you.

I’ve split the remaining parties into three groups. First the “big little parties” which round out the top ten political parties based on the 2010 Senate election plus a few others that are likely to be top ten this year. Then there is the “micro-right”, and finally the “micro-left”. I hate the false “left-right” dichotomy, but unfortunately that’s still the way most people consider politics.

Big little parties

Family First — first came to attention with electoral success in South Australia, FF really came to national attention when they got a Senator elected in 2004. Though they now have no federal representation, they did score 2.1% of the vote in 2010 which gave them fourth place. The party is generally pidgin-holed as a Christian party, but under the leadership of Bob Day they have tried to shift their focus towards a more small government agenda, while keeping a fair amount of Christian social conservatism. This means they are slightly differentiated from the many “big government conservative” parties discussed below. Not a bad choice for conservative “tea party” types.

Sex Party — the “anti Family First” party came onto the scene in 2010 and engaged Family First about moral issues. While not getting anybody elected, they did manage 2% of the vote which put them just behind FF in fifth place. The party primarily promotes civil liberties and a socially progressive agenda, as well as gender quotas in parliament, but they haven’t been drawn too much into economic debates. Sometimes seen as an economically safer version of the Greens.

Liberal Democrats (LDP) – Australia’s only libertarian political party has been around since 2001 but has only had electoral success at the local council level. The party received 1.8% of the Senate vote in 2010 which put them in sixth place. The LDP is clearly the most free-market party in Australia (the only party to promote real spending cuts), as well as being one of the most socially progressive (marijuana legalization and gay equality). The only choice for libertarians, classical liberals and Ron Paul types.

Shooters & Fishers (SFP) – Originally just the “shooters party” but fishing has been added lately to broaden the appeal. They received 1.7% of the Senate vote in 2010 making them the seventh biggest party. The SFP is focused primarily on NSW where they have two members of the state upper house that current hold joint balance of power with the Christian Democrats. The party is “anti-Green”, and want to relax government controls over shooting and outdoor recreation. Economically they are populist protectionists and socially they are Christian conservative. They are one of the options for “big government conservatives”, along with the DLP, CDP and KAP… all discussed below.

Democratic Labour (DLP) — The “balance of power” party in the 60s and 70s (before the Democrats), the DLP is now a much smaller party but has had a resurgence thanks to electoral victories in Victoria’s upper house and then in the Australian Senate, on the back of a 1.1% national vote that was mainly focused in Victoria. While their Senate vote makes them the eighth largest party, their federal Senator makes them more politically relevant than the above four parties at the moment. The party was born from conservative Catholics of the Labor Party, and continues to promote populist protectionist economics and Christian conservative social values… aka “big government conservatives”.

Christian Democrats (CDP) — At the 2010 Senate election the CDP got 1% of the national vote, putting them in ninth nationally, but they scored significantly higher in NSW where they have two members of the state upper house. As with the SFP and DLP, the Christian Democrats follow populist protectionist economics and Christian conservative social values (“big government conservatives”). Stereotypically, while DLP has Catholic influences the CDP is seen to have traditional protestant influences, and Family First has more pentecostal protestant (born again) influences.

Democrats — The “balance of power” party of the 80s and 90s (after the DLP), the Democrats have fallen far and they may soon disappear. They scored 0.6% in the 2010 Senate election (down from 2.1% in 2004), sneaking into 10th spot over One Nation by less than 0.1%. Their representatives have all faded and many key players have moved on to other parties, though there are constant rumours about a renewal. The party originally came from the left of the Liberals and pitched as a “centrist” party, but shifted further left in later years until they were lost in the shadow of the Greens. They remain a socially progressive party, with an ambiguous economic agenda. With the growth of the Sex Party and LDP (as well as Pirate Party and Wikileaks) it’s hard to see what niche the Democrats are now trying to fill.

One Nation — Rising quickly in the late 90s and dying quickly in the early 00s, One Nation is in a similar situation to the Democrats — though with a different political agenda. With 0.6% of the 2010 Senate vote (down from 1.7% in 2004) they may soon disappear. Formed by Pauline Hanson, the party loudly promoted populist protectionist economics and conservative social values (“big government conservativism”) until perceptions of incompetence drove voters away. With many other parties offering a similar agenda (SFP, DLP, CDP, KAP, etc), the loss of Hanson, and the damaged brand, it’s hard to see how they will rise again.

Katter Australian Party (KAP) — KAP didn’t contest the 2010 Senate election so they weren’t previously in the top-ten… but given the high profile of Bob Katter and their performance in the recent Queensland election (11.5% of the vote and now three members of parliament), they are likely to overtake many of the above parties in the 2013 election. As populist protectionists and social conservatives (“big government conservatives”) it will be interesting to see how much they will steal votes from SFP, DLP, CDP, One Nation, etc… and also how much support they will be able to take from the majors. If they can combine the big government conservative vote in one party (as One Nation briefly did) then they could potentially jump straight to the top of this list and be competitive with the Greens. Time will tell.

Wikileaks — While not registered yet, and having no track record, the name of Julian Assange and Wikileaks means that this party has the potential to make a name for itself on civil liberties and transparency issues, potentially stealing support from the Greens, Sex Party, LDP and Democrats. If they run in all states, then they are a decent chance of making the top-ten for 2013.

Micro-right

Many of the “big little parties” discussed above are part of the “micro-right”, including Family First, Shooters & Fishers, Democratic Labour, Christian Democrats, One Nation, and the Katter Australian Party (and arguably the Liberal Democrats). If you thought there was no room for more, you’d be wrong…

Australia First — formed by Graeme Campbell (ex-ALP) in the late 90s to promote populist protectionist economics and conservative social policies (“big government conservatives”), the Australia First Party was side-lined by the success of One Nation and so never really gained ground. Later taken over by more nationalistic types, the party is generally now seen as being on the “far right”, and struggles to gain any significant vote (0.1% average vote in 2010 Senate).

Protectionists — created as an even more protectionist and conservative break-away from Australia First, the Protectionist Party is probably the closest thing we have to a “national socialist” party in Australia.

Rise Up Australia — could potentially be bundled in with the “far right” based on their rhetoric, but given the ethnic diversity of the party membership and leadership it is harder to throw the “racist” tag at them. Started by Danny Nalliah — who has tried to pray the witches away from Canberra and blamed gay-friendly laws for bush fires — the party runs on a strongly anti-Islamic agenda and a “keep Australia Australian” catch-cry. Their launch included Lord Monckton.

Christian Party — not yet prominent, but from all accounts they are similar to the CDP but base themselves in all states other than NSW.

Fishing & Lifestyle Party — the Queensland break-away of the old Fishing Party, the FLP is mostly focused on reducing regulations on outdoor activities.

Country Alliance — set up in Victoria to try and be the “real Nationals”, but hasn’t yet received enough vote to really get on the radar. This will be their first federal election, so if their name resonates they could move up the pecking order.

Climate Skeptics — strongly opposed to the carbon tax and friendly with several other micro-right parties. They received 0.2% average Senate vote in 2010.

Non-Custodial Parents — long time micro party that never really troubles the scorers. They got less than 0.1% average Senate vote in 2010.

Smokers’ Rights — has a general “anti nanny state” agenda with an obvious focus on smokers’ rights. If they are registered in time then this will be their first federal election, so if their name resonates they could move up the pecking order.

Citizens Electoral Council — not really “micro-right” so much as just “insane” given that they believe there is a global conspiracy being run by the British royal family to kill off humanity. They have been around forever, run plenty of candidates, and rarely get more than 0.1% of the vote (as they got in the 2010 Senate).

Building Australia — isn’t necessarily “micro-right” either, they’re main policy is to help the building industry, and they got 0.1% in the 2010 Senate.

Stable Population Party — another not-quite “micro-right” party, they want to prevent the population going above 23 million. Somehow.

Micro-left

Like the micro-right, the main players in the micro-left are in the “big little party” list, including the Sex Party, Democrats, and Wikileaks (and arguably the Liberal Democrats). But there are more.

Animal Justice — a new party that loves animals, but I’m not talking about the taste. They want to provide “a dedicated voice” for animals in politics, and give them constitutional protection.

First Nation — a party that promotes the welfare of one particular race of people in Australia, but this isn’t considered “racist” because the race they prefer is favoured by the politically correct chatterati.

Pirate Party — focused on internet freedoms, similar parties have done well around the world and it will be interesting to see how effective the Pirate Party is in Australia. They could be competitive with the Sex Party, Wikileaks, LDP and HEMP in gathering the socially progressive vote. One to watch.

Secular Party — main agenda is to fight against religious influence, and so could be seen as the “anti-party” to the CDP, Family First, DLP and Christian Party. Received 0.1% average vote for the 2010 Senate so hasn’t really gained traction, but might be an option for non-religious centrists.

HEMP — the “help end marijuana prohibition” party is registered again after being deregistered for a few elections. Their agenda is pretty self-explanatory, and while other parties hint at drug law reform, HEMP and the LDP are the only parties to explicitly call for legalization of marijuana. Received over 0.3% last time they ran (back in 2004).

Senator Online — not quite “micro-left” but tends to prefer centre-left parties. Their policy is to not have policies until they see the results of online surveys about each topic. Got 0.1% in 2010 Senate election.

Carers Alliance — not quite “micro-left” but since they want more money for carers they tends to gravitate towards parties that believe in an ever-increasing welfare state. Got 0.1% in 2010 Senate election.

Socialist Alliance — many years ago there were a half-dozen socialist parties, but now there are only two, and SA is the largest… even having two councillors elected. They are loud, like to protest, get very offended by everything, and are trying (mostly failing) to bring together the different socialist factions in the country. They generally receive about 0.3% of the vote and tend to preference the Greens before Labor.

Socialist Equality — the other registered socialist party is “Trotskyist” and consider themselves the “real deal” holders of the communist flame. They got 0.1% in for the 2010 Senate, and tend to preference straight to Labor out of love for the union movement.

My main point was that the Treasury approach was hopelessly inadequate, a point that is abundantly clear to any economist who glances at their attempt, and has been readily admitted by some Treasury friends. As I wrote in the article:

“The biggest problem with the Treasury model is that because it misunderstands the issue of international crowding out, it drastically underestimates the impact on net exports. In addition, it entirely ignores the issues of domestic crowding out, monetary policy responses, and the costs of repaying the debt. While its estimate for the private savings response to the stimulus is at the low end of the range, this is the least of the problems.

“The ignorance of open-economy macroeconomics suggests that Treasury has neglected much of the advances made in macroeconomics over recent decades, and its strange assumptions on domestic crowding out and private savings response show that it has forgotten much of its own research. As Harvard economics professor Robert Barro said in 2009 when the US was debating its own stimulus policies, ‘The financial crisis and possible depression do not invalidate everything we have learned about macroeconomics since 1936’ (Barro 2009).”

Of course, the media will continue to repeat the embarrassing Treasury results. One reason is that they simply don’t understand anything about the topic so they have no choice but to do what they are told by the government. But another reason is that there are few alternatives out there… so at the end of my article I provided an alternative set of numbers with the Treasury mistakes fixed:

“…the model suggests that the stimulus provided a 0.5 per cent increase in GDP in 2008/09. This benefit was entirely unwound by the end of 2009/10, and then in 2010/11 the stimulus was actually a drag on the economy, leaving GDP about $6 billion lower than the ‘no stimulus’ counter-factual. These outcomes can be compared with the estimates made by Treasury:

Table 2: Comparative estimates of stimulus benefits (annual GDP growth)

	Treasury estimate	Updated estimate
2008/09	1.0%	0.5%
2009/10	1.6%	-0.5%
2010/11	-1.2%	-0.4%

“Using the Treasury approach to estimating the employment impact, then the stimulus has resulted in the loss of over 30 000 jobs.”

One common statistic used when looking at fiscal policy is the “multiplier” which considers the link between government spending and GDP. If the multiplier is one, then every dollar of government spending increases GDP by one dollar. If the multiplier is negative, then the stimulus actually hurt the economy. The Treasury non-modelling simply assumed their multiplier and didn’t calculate a long-run multiplier at all. Once you fix their errors the outcome is not friendly to the government:

“Using the ‘central scenario’ above, the early benefit from the stimulus provides a positive multiplier of 0.5, but it then falls away sharply so that the multiplier by the end of 2011/12 is -0.1. Projecting forward, we can estimate a long-term multiplier of -1.5, which is close to the estimate provided by Guest and Makin (2011).

“This is also consistent with McKibbin and Stoeckel (2009), who find that the stimulus provides an immediate boost, but then becomes a net drag on the economy with a negative multiplier. In addition, these results are consistent with Barro’s estimate of a near-zero multiplier (Barro 2009), the US Congressional Budget Office estimates of a negative long-run multiplier (Elmendorf 2009), and Ergas and Robson’s finding that the Australian stimulus fails a cost–benefit analysis (Ergas and Robson 2009). It is also consistent with the anecdotal evidence from around the world that has shown no relationship between the size of the fiscal stimulus and economic growth (Ricardian Ambivalence 2012).”

And my conclusion:

“…by fixing some of the most egregious errors of the Treasury attempt, it can at least give a more accurate story about the stimulus. That story seems to be that there was some short-term benefit that was quickly unwound, leaving the Australian economy poorer for the experience.”

Now, some of you may be thinking that this is all a horrible waste of time & money. People have argued that the “war on drugs” is too expensive and draconian, and does more harm than good. But those people would be missing the point.

It’s true that prohibition does cost hundreds of millions, harass many peaceful people for their lifestyle choices, help organised crime and leads to more violent crime, leads to worse health outcomes and more deaths, and it doesn’t prevent drug use to any noticeable degree. But there is another effect that is often ignored — it helps switch drug-users from marijuana to other “harder” drugs.

And this is the good news.

Marijuana is a pretty harmless drug. It is not chemically addictive, has never killed anybody, makes people peaceful and friendly, and it has only limited negative health consequences. If young people are only going to experiment with marijuana, then they are actually playing it pretty safe. And that’s a bad thing.

People learn judgement and critical thinking skills when they face danger. We learn risk management skills by actually facing risk, and we learn responsibility when we have to face tough situations. Marijuana doesn’t offer any of that. But harder drugs can be dangerous and require people to make important judgements. Fighting addiction teaches people self-discipline, going through recovery teaches people about consequences, going temporarily insane teaches perspective and humility, and having to distinguish between deadly and safe pills teaches decision making and risk management. All valuable stuff.

Not to mention the useful small business experience acquired by budding young drug entrepreneurs.

So for the sake of the next generation, we should be helping to shift young people away from overly-safe drugs like marijuana and towards cocaine, opioids, amphetamines and hallucinogens. And the “war on drugs” helps to achieve this, because marijuana is a much more bulky drug and therefore is much easier for the police to intercept. In 2010/11 the Queensland police made over 17,000 marijuana busts… but less than 4000 busts for all other fun drugs combined. The logical response from drug-users is to shift towards smaller (and more concentrated) drugs.

Indeed, this explains why users switched from relatively safe levels of cocaine use to much stronger (more dangerous) levels after prohibition. This is why junkies upgraded from taking “soft” opioids to taking small amounts of more deadly heroin after prohibition. And this is why growers have started creating stronger (but potentially more harmful) versions of marijuana. A more concentrated and smaller drug makes sense for people trying to avoid capture.

If you doubt me… try smuggling $1000 worth of weed on to a plane, and then try the same thing with tabs of acid. No contest.

To celebrate this success, the ever-thoughtful Courier Mail led off their front page article with the heart-warming news that “gun-totting teens in luxury cars have become the new foot soldiers of Queensland’s drug trade, moving tens of thousands of dollars of ice and heroin in a day”. Think of that for a second — young people with business experience, learning responsibility with hard drugs and guns, helping shift future users towards hard drugs, and with the added bonus of nice cars. If they survive, they should be well placed to be the leaders of tomorrow.

We owe a debt of gratitude to the government and their police for their fine efforts. By shifting users to more dangerous drugs, they are improving our risk management and decisions making skills, and killing off those unfortunate people who aren’t up to the task. Given that in every other area of life we are having the risk regulated out of existence, drug use is becoming one of the few places where young people can learn good judgement.

So the next time somebody tells you that the “war on drugs” is a pointless waste of money that leads to death and crime and destroys lives, point out that there is at least one benefit from prohibition — switching young users onto harder drugs.

The first thing to note is that the government decided to give up on fixing the 2012/13 budget.

They have allowed the operating deficit to increase from an estimated $4.9 billion (Audit) to $6.3 billion, and the fiscal deficit to increase from an estimated $9.5 billion (Audit) to $10.8 billion. This is perhaps understandable since the federal government has been playing games with their grants (shifting money around to try and manufacture a federal government surplus) and the lag time involved in reforms. So the real place to watch is the estimate for the 2013/14 budget balance.

To their credit, the government has made some tough decisions for the 2013/14 budget. The best indicator of whether a government is serious about fixing a budget problem is to look at estimated spending, and budget papers show that government spending is forecast to reduce slightly from $48.5 billion (2012/13) to $47.9 billion (2013/14).

It is this spending freeze (along with extra mining royalties) that allows the government to forecast an improvement in the budget balance — with a 2013/14 operating surplus of nearly zero and a 2013/14 fiscal deficit of $3.8 billion. The forecast for a fiscal surplus in 2014/15 is nice, but it is hard to take long-term budget predictions too seriously.

The government deserves credit for that effort, but there are still issues of concern.

First, it is easy to predict future austerity and surpluses, but it is harder to actually make it happen. Spooked by a bit of bad press, governments often feel the pressure to keep handing out taxpayer money to loud lobby groups in the hope of buying favour and another term in office. Already we have seen hints of this with unnecessary and wasteful handouts to tourism and other privileged industries in the budget. The Newman government will need to hold fast to strict fiscal rules, practice saying “no” to special interest groups, and make sure they actually achieve their promised surplus.

Second, given the strong economic growth in Queensland and Australia at the moment, we really should be in surplus already. The idea of balanced budgets over the cycle means that we should be running surpluses during times of growth and then we can allow deficits in times of economic stagnation. The budget papers predict healthy economic growth of 4% and yet we have deficits predicted for the next two years. Given that the government was going to be attacked for cutting spending anyway, a case can be made that they should have cut harder and quicker.

Third, this budget has not looked at the necessary reforms that Queensland (and all other States) need to make to ensure the budget is sustainable in the medium term. An aging population and a growing welfare mentality is putting upward pressure on government spending over the coming decades that cannot be afforded. At some stage, a brave government will need to start a transition towards health and education systems that involves more personal responsibility and individual contributions. Change is always hard, but if we don’t start preparing for these reforms now then the problems are only going to grow. The first budget of a new government is generally the best opportunity for dramatic reform, so this might be seen as an opportunity lost.

In all, this budget is above average without being brilliant.

As a postscript it is worth noting something about the big issue of public service jobs. Some commentators have complained that the bureaucracy is being gutted, but the budget papers show that total employee expenses have moved from $18.2 billion in 2011/12 up to $18.5 billion in 2013/14. All dramatic rhetoric to the side, that doesn’t represent “massive cuts”.

Note: a version of this article was published in The Conversation. 

When I wrote a monograph back in 2007 looking at some details of a carbon tax, I very intentionally side-stepped the heated debate about the science and just looked at the economics. This earned me hate mail from both sides of the isle.

Compromise seems unlikely, but it is worth at least considering our options.

The key part of the policy puzzle – that often gets ignored in the climate shouting matches – is that effective mitigation can only be achieved with a strong global binding deal. Without such a deal, everything else is smoke and mirrors.

The current Australian policy will give us the most comprehensive carbon pricing scheme in the world, but even this policy will only impact temperatures by a fraction of a degree unless it is combined with global action. Some rough estimates suggest our policy will only reduce global temperatures by about 0.004 degrees, which is too small to measure. In his much-quoted report, Garnaut rightly says: “There would be no point in Australia alone introducing mitigation policies. The entire purpose of Australian mitigation is to support the emergence of an effective global effort” (Chapter 14).

Despite this warning, Garnaut and others argue that Australia should be part of a global solution and that we can have some influence on the world. Fair enough. But then the main question – indeed, the only question that matters – is how can Australia act to increase the chance of a global binding deal, while avoiding carrying the burden if there is no global binding deal?

One potential answer is “conditional legislation”. Our government could legislate now in such a way that we would have no carbon price while there was no significant global action, but that a carbon price would automatically kick in as global action became more serious.

The first benefit of this approach is that it would increase the incentives for other countries to sign up to a global binding deal, thereby improving the chances that the world will achieve mitigation. Our current approach tells the world “do what you like, it won’t change our behaviour”… which is not the best way to encourage global action. With conditional legislation we would be telling the world “if you do your part, then we will do our part”, which improves the incentives for creating a global binding deal. If we concentrate on the real problem – getting a binding global deal – then climate activists should prefer the idea of conditional legislation rather than unilateral action.

The second benefit from conditional legislation is that Australia will play its role in any global deal, but if there isn’t a global deal then we won’t have sacrificed our own economy in pursuit of a ghost.

Indeed, the only downside from this approach is for people who believe Australia should pay the cost, even if there is no climate benefit. While some people might subscribe to this sort of religious self-flagellation, it is hard to see such a position being widely popular.

Some skeptics will still oppose this policy since they see no value in a global binding deal. That is a reasonable position, and it is worth debating whether a global binding deal would pass a benefit-cost analysis. But those skeptics should still realize that conditional legislation is better than unilateral action.

So for both sides of the shouting match, conditional legislation should be seen as a step in the right direction. Now the question is whether rational policy discussion has any place in modern political debates?

This implicit tax increase could be easily removed by indexing the tax brackets to inflation.

To work out a rough estimate of the size of bracket creep, we can make the simplifying assumption that income tax should grow at the same rate as nominal GDP growth. Looking at the coming three years, nominal GDP is expected to increase by 16.9%, while income tax is expected to grow by 25% over the same three years. The difference can be attributed to bracket creep, and amounts to a total secret tax increase of $13 billion over three years.

If the government does not offer at least $13 billion worth of income tax “cuts” over the next three years, then they will actually be increasing income taxes.

Historically, the government has been happy to allow bracket creep to continue as it gives them extra tax revenue each year which they can then give away to special interest groups or loud lobby groups in the hope of buying an election victory. Because the tax increase is not well publicized and not well understood, the government is able to increase the tax burden with a relatively low political cost. But while it might make for good politics, the continuous increase in income taxes has been squeezing family budgets, reducing work incentives, and slowing down our economy.

In the long run we need to have income tax indexation. In the meantime, we need to demand at least a $13 billion income tax cut.

Note: If the government introduced an inflation indexation on income tax rates, that would ensure that nobody was pushed into a higher marginal tax bracket due to inflation. However, there would still be a gradual increase in average tax rates as real economic growth pushed more people into higher tax brackets. To ensure that there is no increase in average income tax rates it would be necessary to index tax brackets to nominal wage growth. But that is a topic for another day. 

Andrew Bolt has continued to ask all comers about how the Australian carbon tax will impact on global temperatures, and most people have refused to answer. So he decided to work out his own estimate. Using the calculations of Damon Matthews, who suggests that a tonne of co2-e will change temperatures by 0.0000000000015 degrees, and given that the government plans to reduce our emissions by 160 million tonnes, then Bolt estimates that our carbon tax will change the global temperature by about 0.00024 degrees. Fair enough.

From the other side of the fence, the only person I have seen willing to put their name to an estimate is John Quiggin, who thinks the carbon tax will be 100 times more effective and reduce temperatures (compared to “business-as-usual”) by 0.02 degrees. Quiggin should be congratulated for putting his name to an estimate, and it’s appropriate to note his caveat “as should be pretty obvious, it’s not meant to be precise, and claiming precision would be silly in any case”. Fair enough.

It is worth having a look at some of the assumptions made by Quiggin:

Australia is currently responsible for a about 2 per cent of global emissions. Under business as usual projections, our emissions were expected to grow by 20 to 30 per cent between 2000 and 2020. If we achieve the target of 5 per cent below 2000 emission, that implies a reduction of 25 per cent relative to business as usual, 0.5 per cent of global emissions. That’s about 1 per cent of what is needed if the world is to cut total emissions by 50 per cent over the next couple of decades, as is necessary in a stabilisation scenario.

If the stabilisation scenario meant that temperatures increased by 2 degrees instead of 4 degrees under business as usual (BAU), then the benefit would be a “saving” of 2 degrees… and if Australia makes up 1% of that saving (as suggested by Quiggin) then our contribution is 0.02 degrees. So far, so good.

There are a number of key assumptions here, including:

* Australia will be responsible for about 2% of emissions into the future
* A 50% reduction in global emissions over BAU will put us on a stabilisation scenario
* All countries will contribute equally to emission reductions
* The carbon tax is the only policy responsible for reaching the 5% reduction goal

All of these assumptions are questionable. On the first point, Ross Garnaut estimated that Australia contributed about 1.5% of emissions in 2005, and that would drop to 1.1% by 2030 and then continue to decrease in the future, as developing countries (China, India) increased their emissions.

Second, Quiggin suggests that a stabilisation scenario requires a 50% reduction in emissions, which is a common goal of activists (for example, see this EU paper). However, while other activists have called for a 50% reduction in total emissions, Quiggin is talking about a 50% reduction from the “business as usual” counter-factual, which is a very different goal. Since global emissions are expected to double by 2030 in a business-as-usual scenario, then Quiggin’s goal actually represents an increase in global emissions, which is not consistent with his stabilisation goal.

What happens if we re-do the Quiggin approach but change the above assumptions?

Since future Australia will account for about 1% of global emissions and we are reducing those by 5%, that implies a reduction of 0.05% of global emissions thanks to Australia, which is 0.1% of the effort needed to reach the desired 50% global reduction in emissions. If we keep our earlier assumption of a 2 degree “saving” then Australia’s contribution to global temperatures is 0.002 degrees.

The above analysis assumes that all countries will contribute equally to emission reductions. It is widely expected that developed countries will need to reduce their emissions by more than developing countries, and Garnaut estimates that Australia will need to reduce our emissions by about 90%. If we use this goal in our working, then Australia’s 5% reduction will mean that we only contributes 0.06% of the global effort needed to reach stabilisation, and so can only take the credit for 0.0011 degrees of temperature change. That is still more than four times higher than the Bolt estimate, but the disagreement is significantly smaller.

Finally, if the carbon tax is responsible for all of the reduced emissions, that implies that all other carbon policy  achieves nothing — despite costing about $1 billion each year. It is doubtful that this is true, and it is doubtful that Quiggin believes this to be the case. This same mistake exists with Andrew Bolt’s estimate.

In summary, that leaves us with the following estimates:

As an aside, it is interesting to note that Australia’s 5% emissions reduction is expected to be achieved though buying foreign carbon permits. In other words, Australia will continue to increase emissions, but we will pay other countries to decrease emissions on our behalf.

UPDATE 

John Quiggin has pointed out that there is also a significant problem with the Bolt estimate, since it only calculates the benefit from reduced emissions for one year (2020) instead of adding up the cumulative reductions over multiple years. Good point. This means the Bolt methodology just got a while lot more complicated since it now requires an expected future emissions time series and an expected future emissions time series counter-factual. That task is too big for me at the moment, but it’s fair to say that such a number is going to be quite a bit higher than Bolt’s original estimate.

Quiggin does a “back-of-the-envelope” analysis and multiplies Bolt’s estimate by 100 to come up with a new estimate of ~0.02, the same as his original estimate.

Also, I’ve run across two more estimates of the global temperature change from Australia’s policy — one from Christopher Monckton (0.00005 by 2020) and one from Michael Bachelard (0.0038 by 2100). Obviously, these use different end dates. To make them comparable, if you assume that the Monckton number applies every year between 2020 and 2100 then 0.00005 * 80 = 0.004 which is remarkably similar to the Bachelard estimate… and also similar to the “half Quiggin” estimate above.

*****

I have unplugged comments on this article because I don’t want my nice calm peaceful blog to play host to a flame war about climate change. Sorry.

In 2011 the government announced a series of changes to the income tax system as compensation for the impending carbon tax. At the time, I ran the numbers to show how they would change the actual tax rates.

Now that the 2012/13 Budget is out, it’s time to run the numbers again to strip away the magic and report the honest marginal tax rates faced by Australian workers. These numbers are quite similar to the numbers I reported last year, except for an increase in the threshold for the Medicare Levy. Last year I had pointed out that the Medicare Levy was going to kick in at a lower income than ordinary income tax starting in 2012-13… and it’s good to see that somebody in Treasury has noticed this problem and fixed it.

These were the actual marginal tax rates for 2011-12, which you won’t see reported anywhere else.

Actual marginal tax rates for 2011-12

At you can see, we had an absurd eight different tax brackets + the tax free threshold. Ever sillier is that the tax rates are regressive in two places, dropping from 25% to 16.5% at an income of $22,808 and also dropping from 35.5% down to 31.5% at an income of $67,500. The first anomaly is caused by the Medicare Levy (which is 10% for low-income earners) and the second anomaly is caused by the winding down of the low-income tax offset (LITO).

Below are the actual marginal tax rates for 2012-13, which you won’t see reported anywhere else.

Actual marginal tax rates for 2012-13

By coordinating some of the thresholds, the government has managed to reduce the number of different tax brackets to six + the tax free threshold. The two regressive steps stay in place, though they now kick in at $24,167 and $66,666 respectively.

Now that the government has pushed up the threshold for the Medicare Levy, the tax-free threshold (TFT) really will be $20,542 as they originally advertised. This is good news for those with very low incomes. Unfortunately, the tax rate kicks in at a significant 29%. While the higher TFT means that most workers will pay less tax, the marginal tax rates are actually higher for workers earning between $20,542 and $30,000… for people earning $24,000 their marginal rates have increased by 12.5% (from 16.5% up to 29%) and for people earning $28,000 their marginal rates have increased by 4% (from 16.5% to 20.5%).

Another group to see their marginal tax rate increase are those earning between $67,500 and $80,000, who will now pay an extra 2.5% (from 31.5% up to 34%)… though in a little quirk, people earning between $66,666 and $67,500 will actually see their marginal tax rate drop by 1.5% (from 35.5% to 34%).

The government has claimed — correctly — that the above changes will not increase anybody’s tax payments. However, the change in marginal tax rates are important, because it is the marginal rate (not the total tax paid) that determines work incentives and the efficiency cost of the tax. In particular, it would be great to see the government abolish the very high 29% tax bracket that applies to low-income earners. And if the government was looking for some more gratuitous advise, I suggest they consider combining the 35.5% bracket with the 34% bracket and the 38.5% bracket and perhaps making them all 35%… which would simplify the system down to just three tax brackets + the tax free threshold.

Take THAT you evil climate.

For the proponents of climate change “action”, I have some good news. Not only will Australia have the world’s biggest carbon “tax”, but we also have a few government programs working to save the penguins from sun-stroke. Did I say “a few”? Let’s have a closer look…

Phew!

The climate crusaders must be overjoyed at how much government action we have — with more schemes, programs, funds, frameworks, measures, targets, roundtables, packages, and authorities than you would think possible. I’m sure there are a few public servants who are happy about the facilities, standards, initiatives, councils, operations, systems and protocols too.

But while the climate extremists and rent-seekers should be happy to see such a bloated government, hard-working productive people may not enjoy the fact that they are paying extra taxes to fund this never-ending growth of government spending.

This document shows how we can immediately return to surplus, fundamentally reform hospitals & schools, cut taxes in half, and slash regulation to get the economy booming.

The below reforms are a clear break from “business as usual” and would require brave political leadership. The spending cuts will be unpopular, especially from those people who previously received the “free” money.

However, while these reforms introduce some short-term pain, the long-term benefits are clear and significant. A more competitive hospital and school system will lead to better quality health and education. Dramatically lower taxes and fewer regulations will spur new investments and productivity growth – leading to more jobs and higher wages. And importantly, these reforms ensure the budget position is sustainable so that we do not leave a legacy of debt and deficits for future generations.

1. Immediate return to surplus

To return the budget to surplus it is necessary to reduce government spending by about $5 billion, which represents a 10 percent reduction. The below table shows how this can be achieved:

With no change in taxes and the above spending cuts, the government would change the 2012-13 budget from a $4.9 billion deficit to a $0.2 billion surplus, as shown in the table below.

2. Long-term reform: hospitals & schools

Much health and education spending now is in fact churn , where taxpayers give money to the government to then receive the same money back in subsidized and inefficient services. This churn is wasteful and unnecessary, and under this plan it will be reduced.

Instead of the current bureaucratic approach, Queensland should pursue a “community-based” approach to hospitals and schools, with total control of individual hospitals and schools being handed over to local councils or non-profit community groups.

These community schools and hospitals would be independently run, and would not receive any direct State government support. This means they would have to charge a price for their services.

Instead of subsidized services, the government would provide “hospital vouchers” to all citizens so that they can afford community hospital insurance (or equivalent), and “school vouchers” to all parents so that they can afford community school fees.

Efforts should be made to include Federal government health and schools spending into the voucher, and if this is not possible then adjustments will be made to the voucher system to control for the Federal spending. Ideally, the Federal government should hand over all responsibility for hospitals and schools to avoid wasteful and counter-productive duplication.

The voucher system should include a means-test so that government help is being directed primarily towards low-income families. Ideally, this means-test should be matched with offsetting cuts in income tax to ensure that the effective marginal tax rate (EMTR) remains unchanged.

If the Federal government refuses to provide offsetting income tax cuts, then the means-test should have a very low taper rate of only 1% to ensure that it does not significantly alter work incentives.

In the first year of operation, the voucher will fully cover the costs of community hospital insurance and community schooling, and so this will make little noticeable difference to families.

Over time, the voucher system will result in more competition between hospitals and between schools, leading to improvements in quality and reductions in costs. If the cost of hospital insurance and/or schooling falls below the amount of the voucher, then the excess money may be spent on other health or education related expenses.

3. Long-term reform: halving State taxes

The idea of the welfare state is that the government should help those who cannot help themselves. This means that as people become richer, then there should be less need for the welfare state.

It is somewhat of a paradox then that while average incomes have more than doubled over the last fifty years, the welfare state has continued to grow both at a Federal and State level. In Queensland, government spending has increased so much that we have lost the mantle of being the “low tax State”.

It is possible to slash taxes in half and once again make Queensland the low-tax State by introducing a nominal spending freeze for only two years.

This would involve some short-term pain, primarily as the amounts of the hospital and school voucher would be frozen, which could mean that some people would need to contribute to some of their own health and education costs. But given rising incomes it is appropriate for people to pay for some of their own services, and the long-term benefits more than compensate.

The budget audit predicted revenue would rise to $13.1 billion by 2014-15 with no changes. If nominal spending was frozen for two years from 2012-13 then taxes could be slashed to under $6 billion instead (~2% of Gross State Product). This means it would be possible to entirely abolish payroll tax and land tax, and significantly reduce vehicle registration fees and other government charges.

As well as lowering the cost of living, Queensland’s low tax environment would spur economic activity, drawing in additional investment that leads to more jobs and higher incomes. Instead of ever-growing welfare, we would have a cycle of ever-growing wages, lower costs, and better services.

4. Long-term reform: Reducing regulations

Many governments talk about reducing regulation, but the sad truth is that the number of regulations continues to grow, creating ever-higher costs that especially hurt small businesses. Below are five meaningful regulatory reforms that would dramatically lower regulatory costs and so further help to spur economic activity and higher wages.

5. Long-term reform: Fixing the federation

One of the biggest public policy problems is also one of the hardest to solve and the least exciting. Since federation, political power has increasingly been centralized in the hands of the Federal government, undermining competitive federalism. The growing vertical fiscal imbalance (where Federal government raises over 80% of revenue and then distribute the money to the States) means that State governments are becoming little more than administrative arms of a massive central bureaucracy.

The best way to solve VFI and give States control of their finances is to return income tax back to the States, as it was before WW2. If the States kept income taxes and the federal government kept GST then it would also be possible to decentralize all health and education spending to the States, removing all of the current unnecessary duplication.

It would once again become possible for States to compete meaningfully against each other to introduce the best public policy. This sort of competition between governments is the best defense we have against incompetent public policy, as well as allowing diversity and policy innovation.

In addition, it is perhaps worthwhile exploring the possibility of creating extra States. Australia started as a nation with six States and nearly four million people. If we had kept the same ratio to today, then we would have about 35 different States.

Smaller States would allow for the possibility of States merging their responsibilities with local councils (as exists in the ACT) which makes it possible to achieve two levels of government instead of three. Smaller States also allow for more diversity, competition between jurisdictions, and policy innovation.