Stephen Koukoulas’ latest missive in The Guardian entitled “Balanced budget needs higher tax take, but which taxes should be hiked?” inconveniences an unknown number of electrons pulling together 700 words of very little worth whatsoever.
Morrison is talking about the need to raise taxes to ensure these government services are provided while simultaneously moving the budget towards surplus, which is an essential element to avoiding the credit rating downgrade that appears to be just around the corner.
The prognostications of the credit rating agencies for a sovereign currency issuing government have about as much impact on that government’s ability to manage the economy as your footy tips do on the weekend’s results. They’re completely irrelevant, and should be paid no notice whatsoever. Morrison would, of course, because he’s an economic illiterate. The Kouk and his readers don’t need to buy into this neoliberal nonsense.
If the federal government is in surplus, then everyone else (i.e. us, the private sector, in aggregate) must be in deficit. Over whatever period of time we’re discussing, the net flow of money can only be into, or out of, the economy. There’s no other option. And money that isn’t in the economy no longer exists. There’s no warehouse of dollars the government must keep stocked for next week’s spending.
So the question is why the draining of money from the economy is treated as some unalloyed “good thing”. The whole notion of “budget repair” is wrong-headed. The government is not a household, but the currency issuer. It’s not the budget that needs to be repaired, it’s the economy. The ratio between government spending and GDP is of no great significance. The focus should be on attaining full employment with price stability. In other words, getting both unemployment and inflation into that goldilocks zone of between 1 and 2%. Achieve that and most other problems solve themselves.
As usual, his article triggers a thousand comments, arguing over what should be taxed, what programmes axed, the usual crap. Tax the rich! Cayman Islands! Apple, Google! The NDIS is unaffordable! You get the picture.
All the comments recommending who or what should be taxed are well meaning but misguided. The federal government does not need tax money in order to invest in public services, social security and infrastructure.
As I said earlier, the federal government is the issuer of the currency, and they literally have a bottomless pit of dollars they can issue. Dollars are the one thing the government has an endless supply of. What constrains them are real, physical things: the amount of labour and resources available in the economy. When dollars are issued past the point of what the economy can absorb in increased production, then you get inflation.
So taxation is the inflation control mechanism – draining money out of the economy to make room for additional spending. Hypothecating new spending against taxation such as Morrison’s suggestion about the NDIS is a furphy and economically illiterate.
The government can always afford to do whatever it wants. It can buy anything offered for sale in $A. Asking where the money comes from is the wrong question. The only right question is whether the real resources being consumed are being put to their best use for our common wealth.
