Dick Smith’s manifesto flies in the face of sound economic policy


22 August 2017
By Judith Sloan for The Australian.

Good on Dick Smith for taking an active role in the discussion of public policy. And good on him that he is prepared to put his own money where his mouth is.

The funding will cover an advertising campaign laying out Smith’s agenda as well awarding a total of $2 million to political candidates who sign up to limiting Australia’s population growth.

But this is where the good news ends because Smith’s policy prescriptions are, with one exception, unsubstantiated, ill considered and bizarre. They are close to being complete tosh and will have the reverse effect on what Smith claims to care about: improving the living standards of all Australians.

One of the fundamental flaws in the Smith manifesto is the confusion between population growth and economic growth. It is entirely possible to favour restricting pop­ulation growth while advocating measures that will increase per capita gross domestic product (or national income). I happily confess to being in this camp.

Smith claims that our intake of migrants is too high and he does have a point. The migration program that covers permanent migrants in the skill and family categories is set at 190,000 entrants a year for this year and for the three years after that.

A figure closer to 100,000 is, in my view, much more sensible. Economists have always known there are limits to the degree to which an economy can absorb new migrants and this is made worse in Australia because more than 85 per cent of recent migrants have settled in Melbourne or Sydney. The loss of urban amenity, congestion, pressure on infrastructure and accommodation all mean that a lower migrant intake is in order.

But this is where Smith begins to run off the rails. He wants only 70,000 new migrants each year, but within his total intake he wants to increase the numbers entering under the humanitarian program.

If the economy is the issue, this is a really bad idea because we know recently arrived refugees struggle to get a foothold in the ­labour market and have high rates of welfare dependence.

But this is the high point of Smith’s agenda; it descends rapidly at this point into economic farce. He is convinced that immigration is causing greater inequal­ity in Australia and that cutting it will improve the economic outcomes for poorer members of the community. But here’s the thing: it is not clear that income inequality is deteriorating in this country.

The most reliable dataset, the Household, Income and Labour Dynamics in Australia, is telling us that income inequality has reduced somewhat in recent years. Internationally, Australia is somewhere in the middle of the pack when it comes to income inequality.

It is possible that migrant flows affect relative wages and therefore income inequality. But because our migrant intake is relatively skewed towards the skilled end of the labour market, the local workers who are likeliest to be adversely affected by immigration are the better paid. In other words, incomes may have become more equal because of immigration.

Even so, immigration is likely to have been a relatively insignificant factor bearing on the distribution of incomes. There are many developed economies where income inequality has risen sharply but they have relatively small migrant intakes.

To be sure, wealth inequality is a different matter and rising housing and asset prices have meant the distribution of wealth in this country has become more unequal. This could constitute a case for trimming the migrant intake, but there are other more proximate causes of rising housing and asset prices such as excessively low interest rates and available credit.

But it is at this point that Smith goes seriously off the rails. He wants the company tax rate lifted from the present figure of 30 per cent for large firms and 27.5 per cent for small ones to 45 per cent. He is surely kidding.

This would put us as the country with one of the highest company tax rates, in the context of a country that requires foreign investment to finance the capital account deficit and to spur new investment.

There is no point harking back to the days when Smith was lucky enough to make a lot of dough because pretty much everything has changed since then, including the deregulation of the financial system, the internationalisation of the economy and the restructuring of the tax system, including dividend imputation.

But it gets worse. Smith wants to impose a top marginal income tax rate of 65 per cent on high-­income earners — no, I am not making this up — and to legislate for the public disclosure of the taxes paid by these high-income earners.

He also wants an inheritance tax imposed on the richest 1 per cent of the population because that would work well. Let’s face it, the top 1 per cent would be out of here as fast as I can say Christopher Skase.

And to complete what would have to be the worst ragbag of policies dreamt up, Smith wants to eliminate the capital gains discount and remove all tax concessions for negatively geared assets. Presumably he is not advocating any grandfathering of these changes either.

Where does one start on the foolishness — nay, madness — of these ideas? The capital gains tax discount exists to offset the impact of inflation and the bringing to book of a capital gain in one year on an asset that may have been held for many. It is there to encourage investment in assets, not discourage it.

And to remove all negative gearing concessions would lead to huge disincentives for individuals to invest in income-producing ­assets, particularly in the context of a capital gains tax at full marginal tax rates, while potentially imposing substantial capital losses on those who hold assets.

If there were ever any hope that a band of entrepreneurial investors might choose to launch and operate in this country, think again. At that point we simply will be taking in each other’s washing.

But maybe at that point Smith would have achieved his dream: zero economic growth. Mind you, negative economic growth is the likelier outcome.

The real tragedy in Smith’s wacky intervention in the discussion of public policy issues is that he has a point about restricting the migrant intake to a smaller annual number.

This is a relatively sensible and modest idea that probably would have many supporters among ordinary Australians.

But the rest of his package is crazy economic illiteracy. For someone who has had a business career and who presumably has had the time to read about and ­observe the real world, his off-the-wall proposals are difficult to ­fathom.

What we need is a tax system that encourages hard work, risk-taking and investment. We won’t make the poorer members of ­society richer by taxing high-income earners even more. At some point, these high-income earners, many of whom have spent years in education and training, will simply decide to take their bat and ball and go home — to another ­country or into semi-retirement.

Hey, semi-retirement is something Smith does know about.

Maybe it’s time for his complete retirement after this reckless and zany contribution to public discussion.

Read the original article HERE.

dick-smith-fair-go-divider

18 Comments

  • My God . Another hopeless journalist .The media is fast becoming redundant. Look at the jobs she has held. Part of the club. Just a puppet on a string.

  • Judith Sloan has done a ‘hatchet job’ in attacking Dick’s proposals. Let’s not get side-tracked in attacking Sloan. Our task here is to clarify how best we solve the problems raised by Dick, and if we find his plans to be incomplete, let’s help him and the rest of Australia tackle the problem he has outlined. There is no doubt whatsoever that Australia is failing to look seriously at the long-term effects of current policies. Dick has done us all a HUGE favour in raising these matters, and proposing some possible solutions. Thanks Dick. Jay

  • Interesting to see some ‘academics’ input, as per the above editorial, from such as the ‘Ivory Tower Brigade’…..who’ve never really had to put in the hard yards of sheer daily grind of survival,such as Our ancestors had to, lived through, fought & died through the ravages of world wars,mass unemployment ( & without any form of financial backup) & not to too lightly mention recession, but whom somehow, Still managed to survive & raise families. People whom ,only God knows how, managed to feed,clothe & educate subsequent generations, & whom All, in however many small ways, managed to contribute to the Nation this country Once was…& could have still now been.
    The potential of that “Paradise on Earth” promise it once held for all its inhabitants……sadly, not so any longer…..far too many malcontents, whom somehow feel disenfranchised,& owed lifestyles they’ve never in their relatively short lives have contributed to in any real & constructive manner, other than to attempt to criticise & or tear down the achievements & ground gained in those areas by countless,though perhaps unwittingly, ancestoral struggling masses….& of which these ‘dissidents’ can obviously have not a skerrick of comprehension of, nor the ability to relate to…..although having benefited by those very developments they, by comparison, by default have unwittingly gained from…..
    The ‘haves’ peering down from their ivory towers,secure (for how long?)& safe, behind their apparent financially secure battlements & drawbridges, & who’ve only ever,in the main ever raised a momentary – not actual ‘sweat’ but rather a damp feeling in the seats of their collective flanneled pants and skirts,feel as our betters & ‘born to rulers’,self-authorised to cast judgement & opinions upon the rest of we poor plebs ,crawling around in the apparent grime & slime, which they see by peering down upon the streets and earths cities & towns far below, the quagmire they perceive which unsettling to their eyes squirms enmasse far below.

    Australian Government?…..what Australian Government?….is that really what we’ve been witness to?…both by & from that passing parade of useless,directionless parasites that have held those egotistical, self grandiosing,”three monkeys” appointments over the past few decades?….. spending their time….& ‘Our money’ in doing as little as possible,other than casting primary school levels of insults across the floor of “the House”, taking up their obligatory attendance time there, achieveing very little,if anything in jeuvenile & insulting antics to the people of the Nation who’ve voted them there in the vain hope they actually do something which benefits the country,rather than just fills their own coffers from out of the nation’s bank account…..
    It’s said there’s no surviving adage without the sight of ‘smoke ‘n smell of fire’ somewhere on the winds of time…..& nothing’s more true than that of Politicians…..
    q. When can you tell if they’re lying?…..a. Their lips are moving……
    As my father used to say “What this country could really do with, is a ‘Benevolent Dictator’ “…..Somone with whom you may not entirely agree with All of the time in the decisions they make….but at least you know whatever decisions made,it’s made to benefit the country & it’s people…..not it’s leaders egos.

    Finally, thank you Mr Smith for fortitude in making the stand on the behalf of the faceless legions out here,who exist without the where withall or opportunity…..

  • Judith Sloane with her “orthodox” neoliberal policies offers nothing that will engender prosperity for all. in a globalised economy.

    Obviously the productive capacity – and technology – now exist to enable provision of at least a basic above poverty level of well-being for all, and indeed participation by all in the economy is possible (the amount of useful/socially desirable work is infinite) , while still enabling superior reward for outstanding ability. She no doubt claims to have a brain – it would be great if she exercised it beyond her obsolete ‘supply-side’ economics, and looked at alternative systems of banking and money creation, at both the national and international levels.

    (The sterile debate about immigration would go away if all countries were equipped to deal with catastrophic poverty in their own lands – and population would take care of itself, as living standards rise).

    Her blinkered, visionless approach to economics, as with the Right in general, is deplorable; while the Left also has to think solely beyond taxation of the wealthy , because instinctive greed in much of the population (all of us?) will always be a stumbling block for redistributive policies alone.

  • “For someone who has had a business career and who presumably has had the time to read about and ­observe the real world, his off-the-wall proposals are difficult to ­fathom.” I really love this coming from an academic who presumably has been stuck in academia since high school and has never bothered to observe the real world.
    Anyone who has any ability of rational thought who has studied economics knows without doubt that most of the economic theory driving policy today is absolute bunkum ‘ceteris paribus’.

  • The government’s appetite for power is insatiable. Have a look at the new Single Touch Payroll system which is spruiked to make life easier for employers but will in fact give government direct real time electronic reporting from most employers’ payroll systems and require all taxpayers to have a myGov account, completing the government’s electronic access to all employer/employee/contractor transaction data. At the same time they are spending millions on the black economy taskforce to eradicate cash transactions. They want more transactions in the taxation pool, more market share, more to collect and control and spend. When they think growth it’s not us they’re thinking of, it’s themselves and their own agendas. Power is being taken off the individual to live freely, to be trusted to do the right thing, to be self autonomous. They’re not growing the economy, they’re growing the state. Growth is just the consumer friendly word they use for power.

  • I am in my late 70s and for some years now have been reading and learning as much as possible on Aboriginal history and in addition to all the excellent books by the likes of Henry Reynolds et al I can’t recommend highly enough that we ‘newcomers’ read Pof Bill Gamage’s book “The Biggest Estate On Earth” and Bruce Pascoe’s “Dark Emu” where both authors relate how this land was farmed and managed for complete sustainability through the good times and the droughts with controlled population numbers. Further reading of books by Jim Poulter “The Dust Of The Mindye” relating how Smallpox was used as a biological weapon by 2 military men of the first fleet that devastated the population causing the loss of some of the lore of society and agriculture and “Sharing Heritage In Kulin Country” give an estimate of 3 to 5 million people living within the coastline of Australia sustainably for 1000s of years. All these authors found that in the worst of climate times Aboriginal Australia survived well enough and did not pollute or damage the soil – Mother Earth – to so do. We have mined and damaged severely Nauru, Banaba [Ocean Island] and Christmas Island [Indian Ocean] to force the soil to grow the agriculture and animals we brought from Europe. And of course we have poisoned the land with uranium mining, chemical production, stomped the soil firm with sheep and cattle so we now have excessive flooding, wild fires and the spread of housing causing severe habitat loss for our friends[?] indigenous flora and fauna. To quote Bill Gamage – “if we are to survive, let alone feel at home, we must begin to understand our country. If we succeed, one day we might become Australian”.

  • oh by the way Mr smith has proven him self in government roles, casa twice, had to be brought back to fix the mess it got it self in, and of cause we know the rest. a better or more honest person Australia does not have, we need more like him with common sense to burn, just watch the powers that be and the press thy to stick the racist label on him. I call on all elders of Australia’s tribal groups to speak up on this, over population matter, what are your thoughts, as I know they would hold great weight in this matter

  • 1 We will leave the country, can I give you a hand with your bags. 2 Economics is a fairy story where its proponents believe in endless growth, if you grow 400,000 tons of wheat, sell 100,00 cars etc. next year you must do more on all fronts, or you are in recession , the madness is that these are the people the government get there advice from. my brother always tells the story of a economist he meet at a party, goes like this. economist, we need a larger population in Queensland to have a larger tax base so we can have more roads and bridges, and better ones at that. my brother well if we let the population fall through natural wastage (death) and some kind population limit , we would not need more roads. and what about the bilbies and such. economist, /#@%$ the bilbies. my own little story, I worked in the mines, gold ,coal, nickel that kind off thing for 35 years on and off, so I gave money to Greenpeace on and off to keep us on our toes, I got a phone call from them one fine day, please send more money, and did you see us put those solar panel on the prime ministers roof, aren’t we fab and we are doing the whales again this year. me, what are you doing about over population, them, oh we cant talk about that…… did you know Captain cook the chap who found this place thru great skill and mapped a good bit of it with great skill ,a level of skill still wondered at to this day was paid a very small wage. like all people of his time the gap in wages between high placed and the low placed was not much, now ,as Mr smith knows greed knows no bounds, and the super rich get help form our governments to make the gap to the everyday person even larger. thru no apparent skill ,or effect on their part.

  • Changing habits is one of the most difficult challenges that face us as individuals; and especially as institutions or nations. We are all fearful of change and cling to the status quo, the system has served us well for generations, so better not rock the boat.
    Mr Smith, the majority of your thoughts, ideas and recommendations are actually very sound and need to be implemented immediately. Of course that will never happen. Your suggestions are just too much for 95% of the average Australian to understand and take on board. Vested interests will never let it happen, and you will be shouted down by ignorant economists who know the truth but are afraid to shout: ” The King is wearing no clothes!”
    You have my support for trying, and flagging the problems to largely deaf and ignorant ears. I love the tag line FAIRGO – unfortunately Australia has forgotten what it means in their pursuit of greed is good. Consumption is the first action that needs dramatic reduction protocols in place. Good luck with that!
    The tipping point for the planet was 1996. Anything done now will be too little too late. Anyway, I must be off and see how my vegetables are growing. At least that is a measurable growth that is finite!

  • Judith Sloane was my tutor at Flinders University when I studied Economics. Her colleagues included Professor Dick Blandy. I was aghast as the fluff they preached. They were the classic ivory tower inhabitants. I remember an article in the Financial Review that headlined words to the effect; “no matter how preposterous a theory, you’ll always find an academic economist to support it and no matter how commonsense a theory you’ll always find an academic economist to attack it”. And up above we get another example at that shameless arrogance and ignorance, masked behind the usual economics babble. Economists have been largely called out for their vacuous content and it appears Demographers are the new go-to for so called ‘Uni-cred’ (eg Salt & McDonald). Watch the cash flow from high density monstrosity developers to Unis to see the bribes in action.
    Sloane – you’ve done well – an easy life behind a keyboard spouting Labour Study fluff, but if anyone’s retirement would benefit Australia, it’s yours. The Uni sector needs to be vaporized and re-invented and Sloane is a good example why.

    • Chris

      I couldn’t agree more but will certainly try. Her “so-called” critique of Dick’s manifesto is, to be kind, cringe worthy.

      No analytical work but a simple debunk based 50 year old static economic theory. She obviously has no idea what makes an economy work and how unreliable and easy to manipulate statistics and other GDP measurements really are.

      I do, however, believe a flat rate of tax for both individuals and corporates would close off the arbitrage that is currently distorting all forms of economic activity and restricting the amount of tax collected. A flat rate of say 25% with no deductions would provide a much more stable tax revenue base and also a higher aggregate tax revenue. In fact, it would provide a stronger revenue pool to build a more equitable welfare system for the truly needy.

      I also agree with Dick on negative gearing which has been the main cause of the distortion in the housing market.

  • It is quite fantastic in this democracy that we are getting some coverage for the Fair Go Manifesto. Of course there has been plenty of positive coverage, but it is also wonderful that I am getting some quite negative coverage. I really like the article by Judith Sloan “Dick Smith’s Manifesto flies in the face of sound economic policy” and also her suggestion that I should retire – “Maybe it’s time for his complete retirement after this reckless and zany contribution to public discussion.”

    Judith supports the fact – as many of the wealthy do – that if the tax increased they would all leave Australia and go and live somewhere else. I would suggest Bangladesh as the tax is only 20% there. By the way, this is the greatest con of all time. It has been used to constantly reduce tax on the wealthy, but the number that would go overseas to a low tax regime is very small, and my view would be good riddance – it would give lots of young Australians the chance to start their own business and make their own fortune.

    • You know Dick I am for your Manifesto up to a point, I truly believe that change is coming and whether or not that will be a positive change is yet to be decided.

      The points that worry me are:

      1. Your suggested Tax reforms and correct me if I am wrong (entirely possible) but wouldn’t it just be fairer and much simpler to tax everyone the same. You expound equality and yet your Tax reform would mean certain sectors would be Tax at varying levels, this to me reeks of inequality and would (in my opinion) create massive derision.

      2. You also say that Population Growth needs to be regulated, this is very dangerous ground that you tread and would appear to some to be somewhat reminiscent of a certain movie ” Soylent Green ”

      Again I support a system that does away with our current corrupt economic policy in favour of a system based on humanity and equality for all however as I have said the above two points seem to be in contradiction to your “FairGo Manifesto”, so could you please comment and maybe enlighten me as to how you see these two items being implemented in a fair and humane manner.

      • To Shane Miles,

        A flat tax? Say 10%?

        Person A has an income of $1 million, he pays $100,000 tax, and remains very well compensated for his labour.

        Person B has an income of $20,000 (poverty level; there are 1 million underemployed persons in Australia), he pays $2000 tax, and is plunged even further into poverty.

        How is this equitable? You fail to take income inequality into account.

        As for population growth, this tends to reduce as living standards rise. Therefore elimination of poverty around the globe is the urgent task, thereby eliminating both unsustainable population growth and at the same time the need for better-off countries to accept unsustainable immigration.

        I envisage reform of the international financial system, as pointed to, in Dr. Samuel Alexander’s article.

        Eg, All nations’ public sectors must be authorised to create the funds necessary to eliminate poverty.

        At present private banks alone have the privilege of creating loans for creditworthy customers; this process must be complemented by public sector money creation processes that enable all governments to ensure sustainable employment of all working age people in their own countries, at above poverty level wages.

      • If someone’s paid 20,000 dollars a week, it’s fair to say they can live very well after paying $9000 in tax and sleep well with a good conscience that they have given back to the society from whence they are profiting. Usually these types of earners enlist the expertise of accountants to form corporations etc so that all their expenses are deducted before tax, something the average PAYG wage earner doesn’t do. They may even decide to work less in spite, which gives someone else the opportunity to ‘fill in’. It may even deter the increasing divide between CEO’s salary and the integral grindstone workers. Once you accumulate a substantial amount of money it becomes increasingly easier to receive money for little effort.
        Remember the CEO of Australia Post paid six million plus bonuses, and we now have a third world style postal service.Is anyone worth $500 000 a month?
        There’s only been a couple years in my life when I’ve earned $80-100k , felt like a lot of freedom and could afford some good things and didn’t really worry about spending and having to miss out or endure hardship. Now receiving about $14000 a year, and hear old acquaintances complaining their broke while with their partners income they bring in $150 000 per annum and own three houses, so its quite subjective.
        2. Population growth is dangerous ground, regulating it is not. It’s very apparent to me the decline in the past 30 years of societal wellbeing and ease of gaining work. A lot of the jobs I used to just walk in to are now taken up by immigrants and even backpackers. Used to work for the ‘guy down the road’ on the local construction or infrastructure projects, now some multi-national company rolls into town and collects the million dollar pay check and bring their own workers or if your lucky enough to jump through their barrage of hoops to have them pay you the minimum wage.
        One last note; Was reading the local rag today, a story about some Indian parrots have flown free from the aviary, and there’s an official call to the public to spot and ‘remove’ them as there are breeding pairs, and this is seen as a huge threat to agricultural economy and the success and wellbeing of the indiginous fauna of australia!

    • Hi Dick

      I like that you’re raising awareness and stimulating debate regarding sustainable economics.

      That said, Judith does have a point: “growth” generally does not mean population growth, but economic growth. The two types of growth should be referred to separately. It is possible to have economic growth without population growth: getting more (or the same) but from less. That should be the focus.

      LS

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