Working Papers

Hockey’s Hindsight Heroes

Opposition Treasurer Joe Hockey has problems staying on message:

Mr Hockey’s most controversial remarks were suggesting that the Rudd government would have been justified in cancelling this year’s tax cuts.

“The honest answer is there would have been a legitimate justification for the government to say our debt, our recovery, our economic recovery will be slower if we are running a big deficit and I think it should’ve been considered as part of the mix.”

Mr Hockey noted that it would have been hard for the Liberal Party to support the removal of the tax cuts. Earlier this year, Mr Hockey had argued for the government to bring forward tax cuts.

There is, of course, a case for not proceeding with the tax cuts.  Because they are unfunded, the tax cuts are equivalent to a future tax increase and subject to the same Ricardian equivalence critique as discretionary government spending.  However, one suspects that this is not the case Hockey has in mind.  Instead, Hockey is an unreconstructed, Costello-style revenue-hoarder:

Mr Hockey said that, if he had his time again, he would have better explained the Future Fund, which Mr Costello regarded as one of his crowning achievements. “I would have set up the other funds earlier: the higher education funds for infrastructure and the health and hospitals fund,” he said.

Like Costello, Hockey does not seem to understand that these funds are simply deferred government spending.

posted on 01 July 2009 by skirchner in Economics, Fiscal Policy

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At least Costello had some interest in cutting taxes - I’m not sure Howard or anyone on the Labor side did.  So, would it have been better to cut taxes more then and go into a bigger deficit now (or at least a bigger deficit than would occur without the various stimulus packages and schools/sports spending)?

Posted by .(JavaScript must be enabled to view this email address)  on  07/01  at  01:04 PM

“At least Costello had some interest in cutting taxes”

I think the evidence for that is pretty thin.  Costello frequently resisted tax cuts, claiming they would lead to higher interest rates.  The fact that he is so proud of the Future Fund speaks for itself.

Posted by skirchner  on  07/01  at  03:42 PM

I’m not sure who in politics was seriously and consistently agitating for more tax cuts than Costello. Until July 2005, Labor and the minor parties held the balance of power in the Senate and had threatened to block tax cuts to higher-income earners. In Costello’s memoirs, he discusses Howard’s reaction to his 2006 proposal to increase to the top two thresholds to $100K and $200K:
“On the Wednesday before the Budget I outlined these thresholds to John Howard. He was adamantly opposed to them. He said it would look like the tax cuts were being skewed to the rich.”(p.284) While Costello was also sensitive to this issue, he tried to get around it by raising thresholds rather than lowering rates.

Posted by .(JavaScript must be enabled to view this email address)  on  07/01  at  10:18 PM

Costello only ever supported tax cuts out of the surplus.  This was Howard’s position too.  He was no worse, but certainly no better than Howard.

Posted by skirchner  on  07/02  at  07:59 AM

‘no better than Howard’ is a bit harsh - not much better than Howard is more reasonable.

Posted by .(JavaScript must be enabled to view this email address)  on  07/02  at  09:45 AM

Collective cabinet responsibility means that Costello cannot cherry-pick the former government’s record, claiming credit for some policies, while washing his hands of others.  Howard and Costello were part of the same government and collectively responsible for its policies.

Posted by skirchner  on  07/02  at  10:45 AM

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