Dutton who?

Mr Dutton’s support for Malcolm Turnbull only lasted one press conference where he “supported” the Prime Minister and the government’s policies. Meanwhile he was definitely not working behind the scenes to undermine Malcolm but just happened to get 35 votes out of the air two days later.

I really dislike Peter Dutton for his style of politics, like his stirring up of racial issues to try and muster support from people who would be better off in One Nation. I was actually thinking of supporting Turnbull and voting Liberal at the next election. Why? Because Shorten has to be the worst leader that Labor has ever had – conniving little creep that he is.

Turnbull has been the best thing that the Libs had going for them. His personal ratings have been consistently high. Not so the party. The reason that the Libs have been dropping in the polls has been the actions of the very people who want to dump him. They are the problem but represent him as the problem and when their disloyalty and disunity cause the party to drop in the polls they blame him.

Dutton will never win an election, that’s for sure. His total lack of charisma is one thing. Sure he’s a bit of an egghead, but looks aren’t everything! Most right-minded people would be appalled at his track record and ashamed to have him as leader.

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An ideal combination of fairness and efficiency

Let’s consider a couple of propositions.

  1. What if… we taxed all income, from the first dollar, at the same marginal rate?

Or

  1. What if… we gave welfare to everyone, regardless of their income?

You can imagine the reaction to each proposition – “You must be mad, that would never work!”

  1. But, what if we do 1 & 2 at the same time?

Now, that becomes interesting because it turns out we get some very desirable results.

  • Surprisingly, for the vast majority of taxpayers and welfare recipients, the final disposable incomes of people under the new system are very similar to the current complex arrangements. How can that be? I did the arithmetic and can assure you that its true. You can do the arithmetic and find it is indeed the case.
  • This is because we remove the ‘welfare’ component currently built into tax rates (like tax-free thresholds, low marginal tax rates, Medicare exemptions and low-income rebates) and that’s a good thing because…
  • We can target the actual welfare payments better than we can with tax-free thresholds or low marginal tax rates or the low-income rebate.
  • We can eliminate poverty traps because now everyone has the same incentive to earn money and enjoy spending it. We eliminate high effective marginal tax rates (EMTR) and we encourage participation in the workforce for everyone.

What else does it do?

  • We can remove the phrase, ‘class warfare’ from any discussion of taxation or welfare. How? Everyone will have the same basic entitlements and obligations. No one can complain that any group is not doing its fair share of lifting.
  • We also get the opportunity to factor in wealth, via an asset test on the welfare payment, to determine a person’s final disposable income.
  • We can remove all the fuss about low Newstart and all the anguish of recovering over-payments from the welfare system when mistakes are made. We can actually reduce Social Security complexity to a minimum and thereby reduce the staff required to manage it. No one has to apply for anything – ‘welfare’ as a concept becomes obsolete.

Anything else?

  • We would factor in the family home as part of the asset test, so that we can distinguish a mansion in Vaucluse from a flat in Cabramatta.
  • We can give everyone an age-related threshold of wealth, below which it doesn’t affect the welfare payment, as everyone accumulates their own wealth (total net assets) over their lifetimes.
  • We need to factor in previous tax paid, so that people have an incentive to declare income and pay tax.
  • We can effectively eliminate the need for complex tax and financial planning advice because all assets count and all assets are treated equally.

What would the marginal tax rate need to be?

I estimate that the marginal tax rate would be in the high 30s, say 37% or 38%. This would need to be modelled to determine the best result. There would be another higher rate, say 45% for very high incomes. Why? Didn’t I say they’d all be the same? We would have a higher rate for very high incomes because these people are probably no longer getting the welfare payment and we want to reintroduce progressiveness at that point.

What would the factors affecting the welfare payment be?

  1. Just existing qualifies a person for a basic payment, after which it is adjusted for…
  2. Household type and one’s position within the household: single without dependents, single with dependents, couple with dependents, couple without dependents, in foster care etc.
  3. Age – child, adult and aged.
  4. Disability – a variety of disabilities with a variety of payments.
  5. Carer – related to the disability.
  6. Tax paid in prior period – a formula based on previous tax paid up to a limit.
  7. Being in education would raise the rate.
  8. Total net wealth – above an age-based threshold – would lower the rate.
  9. Number of children qualifying – the welfare payment for additional children diminishes as the number of qualifying children grows.

What would the age-based threshold be?

The threshold would be zero for 0 – 15 years but then grow by $6,000 per annum until the age of 65. A person aged 65 would have a $300,000 threshold. A single over 65 would have their threshold doubled.

Here are some examples, to show how the factors relate.

Consider three similar working families with two adults and two children. The only difference between them is their incomes. Assume that the flat income tax rate is 37%.

Family one has two adults and two children with a combined income of $100,000. They pay $37,000 tax. Each adult gets a welfare payment of $10,000 and the children get welfare payments of $5,000 and $3,000 respectively. Because each adult paid tax in the preceding period they get an additional payment of up to $3,000 each. Ultimately, their net disposable income is $97,000 (i.e. 97% disposable income from gross income.)

Family two with a combined income of $200,000 will pay $74,000 in tax and receive the same welfare payments of $34,000. Their net disposable income is $160,000 (80%.) Family three with $400,000 income has a net disposable income of $286,000 (71.5%) (Refer to column one in the table below.)

As you can see, the proportion of disposable income declines as income rises, which is a progressive system. In each case, high or low income, the families have equal incentive to earn money.

Add wealth into the equation

Now add wealth into the equation. The welfare payment reduces by 0.6% of each family’s wealth over an aged-related threshold. (Let’s assume the combined threshold is $500,000 for each family.)

Family one is under the threshold. Family two has assets of $1.5 million so they lose $6,000 from their welfare payment and their net income is reduced to $154,000 (77%.) Family three has $6.2 million in assets, so they will lose all of their welfare payment. Their net disposable income drops to $252,000 (63%.) (Refer to the diagonal in the table below.)

The changes in peoples’ circumstances, including net wealth, produce an intuitively fair and reasonable change in their overall tax burden and welfare benefits.

Disposable income as a percent of gross income
Income\wealth over threshold $0 $1.0 million $5.7 million
$100,000 97% 91% 63%
$200,000 80% 77% 63%
$400,000 71.5% 70% 63%

Summary

A flat tax is fair because it affects everyone in the same proportion and gives everyone the same incentive to earn income. Current low marginal tax rates for low income earners are a lie, as it can be shown that low-income earners actually face the highest effective marginal tax rates and so have the strongest incentives to limit participation in the workforce.

A ‘welfare’ payment can be targetted far more effectively than any distributional features built into the tax system. The current tax-free threshold benefits both wealthy and poor in a blunt and non-specific way. A welfare payment can take account of a multitude of verifiable circumstances, including net assets.

When a flat income tax applies to almost all income earners and a welfare payment is paid to all under the same set of qualifying conditions then we approach an almost ideal combination of fairness and efficiency.

 

Barnaby Joyce sets an example we should all follow

We all have self doubts at times. We put limits on ourselves. We know we have certain talents but also certain shortcomings. We know that we don’t always measure up to the moral standards or the integrity we expect from our leaders. As a result we fail to achieve high office and we don’t make the lasting impression we would like to make on this world.

Barnaby Joyce should inspire us. With very little talent, no charisma and apparently no morals or respectability, he has (almost) risen to the very top. Brings a tear to the eye.

It’s official: Sun will rise in the West!

After countless years of being the last people to see the sunrise, and following a huge grass-roots movement to end the discrimination, a big change is coming for the people of the West (sometimes derogatorily referred to as Westies.)  The government is preparing legislation that will soon see the sun rise in the West.

“This is a small step toward redressing years of discrimination,” said a spokesman for the Westies.

“The consequences of this significant global shift have not been adequately considered,” said a spokesman for the Traditional Sunrise Lobby, to widespread jeers and derision.

The Dilemma of the Constitution Writers

Since we didn’t have Australian citizens when the constitution was written, the authors framing s44 needed to use the next best method, i.e. definition by exclusion. They couldn’t say ‘Australian-born’, as most prominent people, including themselves, were foreign-born. They could have said ‘British subjects’, but this was a declaration of a new nation and couldn’t be defined in terms of another nation. So they really had no choice but to define those eligible to be elected by excluding ‘foreigners.’ Since the Australian Citizenship Act, 1948, this section of the Constitution has become irrelevant, and the High Court should have ruled that way, since that time.

But the High Court, being vastly intelligent, and therefore capable of reading but apparently incapable of thinking, have decided that because a grandparent brought a person’s parent to Australia as a child and that country has subsequently decided that the grandchild is now eligible to be a citizen of that country, that person is now ineligible to stand for parliament. The High Court seems to think the founding fathers were idiots or nitpickers, determined to confound the democratic process.

The founding fathers would be tearing their hair out with rage. ‘No!’ they would be saying, ‘we didn’t mean that at all!. You’re being silly. Stop it!’

Bite the bullet

The constitutional problem is not going away. This issue will come back again and again. Somebody is going to have to fix it. Let’s do it now.

All we need to do is change part one of section 44 to read that a candidate for the Senate or House of Reps must be an Australian citizen. Full stop.

The act to put this matter to a referendum could simultaneously protect all current members of parliament from challenge. That would tie the hands of the High Court until order is restored. I think this referendum would have overwhelming support and pass easily.

It’s all the High Court’s stupid fault

Don’t blame Malcolm, it’s all the High Court’s fault.

I know that some people say, ‘the law’s the law.’ We know that ‘ignorance of the law is no excuse’, but there has to be a limit. We have a small constitutional crisis and the High Court recently had a chance to correct the situation but all they could do was to prove that they could read.

Section 44 of the constitution says that one can’t stand for election if one is “is under any acknowledgment of allegiance, obedience, or adherence to a foreign power, or is a subject or a citizen or entitled to the rights or privileges of a subject or a citizen of a foreign power.” (my emphasis)

The learned judges, being able to read, have decided that anyone who, at the time of their election, could have shot off some application papers, birth certificates, photographs, certified copies of photo ID etc. and thereby gained for themselves a passport of  another country, was not eligible for election and therefore is out.

A seven-year-old could do the same. The role of the judges is supposed to be to interpret the constitution in the light of time and changing circumstances. There’s no point in having them if all they do is repeat what is on the paper without any thought. The principle thing on their minds should be, “What need prompted and what did our founding fathers mean when they wrote those words, and what benefit to Australia derives from that meaning? Therefore, what meaning can we now put upon those words, consistent with the need and the benefit that Australia derives.”

The circumstances that led those who framed the constitution was a fear that foreign governments might urge their subjects to join the parliament and undermine Australia’s independence by acting as agents of influence within the halls of power.

Ironically, now, by the current interpretation, foreign governments are influencing election results by having laws that entitled people to citizenship, whether they sought it or not. This situation is clearly outside the intentions of the framers of the constitution. If the learned judges are to be believed, the purpose of section 44 is to create traps in the election process that can be deployed upon an unwitting MP or Senator by their political opponents. The judges obviously believe that the founding fathers were intent on mischief in order to create chaotic situations whereby governments could fall on the whim of a foreign power handing out citizenship willy-nilly.

If I had been a learned judge on that day I would have used the word entitled to effect. Entitled can have shades of meaning. It can mean something that is in prospect, i.e. not yet established or it can mean something that exists right now. For example, it is true to say that I am entitled to catch a plane to Perth as no one can stop me if that is my intention, but another shade of meaning is more strict. In fact I am actually not entitled to catch a plane to Perth, because I don’t have a ticket. Once I go to an agent or website and complete the application, and provided there is a spare seat, and I complete my booking, print off my e-ticket and go to the airport, then and only then, am I entitled to catch a plane to Perth.

The learned judges have chosen the first interpretation, i.e. that an entitlement includes something that is hidden and completely prospective, like someone being 415th in line for the throne being entitled to be King. They have really done us a disservice and shown what a bunch of fools they are.

If only the founding fathers had framed those words to ensure that politicians or parties could not accept, either directly or indirectly, financial benefits or campaign contributions from foreign powers! Then we would be addressing a real and present danger.