The synthesis
Economists now argue that the end purpose of international trade is to maximise its benefit to the wealth of the country and its citizens. In the immediate present this is achieved by getting imports a cheap as possible and selling exports for the highest price available. As already remarked, an artificially low currency achieves a superior economic outcome to global import tariffs and is far superior to selective tariffs, on some imports only.
All such interventions sacrifice this present wealth for some hoped for future gain.
With the exception of one or two dissident voices, on both sides of politics, there is now bipartisan support for free trade and free enterprise. Australia is now one of the World’s principal advocates of free trade and argues that industries that are not internationally competitive are a burden on national (and collective) wealth. Most previously government owned trading organisations have been privatised. It is argued that international competition leads to improved efficiency, productivity and is an incentive to innovate.
As predicted by Jackson, Australia has moved to become a service economy.
For example, the largest industry sectors are now Retail trade, Property and business services, and Health and community services. Manufacturing is now on fourth position.
There is little doubt that Australia’s very strong economic growth performance and relative insulation from international economic downturns is an outcome of its ability to exploit the moment and extract the best available advantage.
It can also be argued that the last remnants of protection have now been stripped away and manufacturing has reached a more or less stable base and share of the economy consisting of: 'industry that is land (eg food) or minerals based; industries based on skill, innovation or design; and industries with a high degree of natural protection by virtue of their bulk, non-durable nature or ability to satisfy specialised local demands'.
But manufacturing is still at the mercy of implicit protection (or rather its opposite). It can be seen from the earlier discussion that the value of the Australian dollar is now the single greatest determinant of manufacturing viability and growth (or decline) in Australia. In addition to the implicit protection afforded by a low dollar, and corresponding lack of protection afforded by a high dollar, rapid fluctuations in the value of the dollar and cost of capital militate against businesses that are highly capitalised and need a continuous, relatively stable return on that capital. These fluctuations both affect viability and make it difficult to predict return on investment.
External influences on the dollar’s value include money market speculation, the country’s trade performance and international investment flows. The principal visible trade drivers of a strong Australian dollar are our mineral and energy exports but agriculture, trade in services and manufacturing itself are important contributors.
The various Governments’ fiscal behaviour has an influence on internal distributions of wealth and on savings, in turn influencing investment, and the longer term dollar valuation.
The remaining (benign) facility to smooth fluctuations and influence the dollar’s value (through money market operations and interest rate manipulation) now rests with the independent Reserve Bank (established in 1960 under Menzies).
While government has substantially withdrawn from direct market manipulation and participation in support of local manufacturing it continues to play a number of important roles that directly or indirectly support or influence manufacturing viability. These include:
• labour laws and regulations;
• regulation of occupational health and safety;
• regulation of business practice, including accounting standards and competition;
• regulation of emissions (airborne, water, noise);
• local planning and zoning;
• maintenance and expansion of transport infrastructure (roads, rail, ports, airports);
• ensuring the appropriate availability of electricity, gas, water, and waste disposal;
• ensuring an adequate information technology and communications infrastructure;
• participating in international standards;
• regulations affecting export reputation (eg export meat and dairy);
• providing support for research and technology development;
• providing export development services;
• negotiating international trade agreements and partnerships;
• ensuring high standards of basic education and literacy;
• providing and/or supporting skills, trade and advanced education;
• ensuring a healthy population; and
• maintaining law and order and the protection of property.
Taxation plays an important role providing revenues to support these services and redistributing wealth to steer society in agreed directions. Such redistributions include present resource taxes and of course progressive income taxation. But any such redistributions are inevitably opposed by those disadvantaged; and governments need to be strong and decisive when making changes.
This has not been the case in recent history. For example of the 138 'Henry' Tax Review recommendations (a review commissioned by the present Commonwealth Government) hardly any of the substantial recommendations have been implemented; and those few have mostly been watered down.
Important to the present discussion were recommendations 45 to 50 in section C1 — Charging for non-renewable resources. These have largely been set aside after heavy lobbying by mining interests and some States.
Also of interest, but completely ignored was recommendation 25 in section A3 — Wealth transfer taxes: 'While no recommendation is made on the possible introduction of a tax on bequests, the Government should promote further study and community discussion of the options'.
Even recommendation 1, setting out the global principles, has been largely ignored:
|
Revenue raising should be concentrated on four robust and efficient broad-based taxes:
Additional specific taxes should exist only where they improve social outcomes or market efficiency through better price signals. Such taxes would only be used where they are a better means to achieve the desired outcome than other policy instruments. The rate of tax would be set in accordance with the marginal spillover cost of the activity. User charging should play a complementary role, as a mechanism for signalling the underlying resource cost of publicly provided goods and services. With both specific taxes and user charges, revenue would be a by-product of the tax or charge, not the reason for it. Other existing taxes should have no place in the future tax system and over time should be abolished. |
All taxes need to be simple with clear guidelines and a minimum of exceptions or exemptions. For example under no circumstance should an entity (a person or a business) be taxed and then be compensated for the taxation impost. I have remarked on the proposed carbon tax in this context elsewhere on this website.