Please bear with me. As a former academic keen on following Keynes philosophy of achieving meaningful progress by presenting ideas \u201cthat will one day see the light of day,\u201d starting places me in a difficult position.<\/p>\n\n\n\n
You may or may or may not be familiar with the concept of opportunity cost \u2013 the comparison of what happened with what could have been. That is the basis of the criticism (well deserved in many key areas) that abounds in following pages. We can only be extremely grateful that Chifley\u2019s War Cabinet (several of whom I had the privilege of working with) were up to the challenge despite facing major constraints.<\/p>\n\n\n\n
This is not the theme of this book. Nevertheless, the following autopsy of past policy decisions and actions in my areas of expertise generates concern about should the need arise our current ability and capacity to achieve Chifley\u2019s outcome. <\/p>\n\n\n\n
Setting the scene, a boring familiar summary of current issues and challenges provides essential background. <\/p>\n\n\n\n
Coming not long after the Covid-19 direct and indirect disruptions to many, our economy is again struggling to adjust to the sudden and more serious impact of the Middle East conflict.<\/p>\n\n\n\n
For many the worst may be yet to come. Over many decades past and current governments have focussed on short term horizons and paid little attention to longer term security and flexibility. <\/p>\n\n\n\n
At the current time, for example, we could be in a situation remarkably like the 1970s where remarkably high inflation and a creaky revenue system placed massive pressure on the Whitlam government. <\/p>\n\n\n\n
Successive governments have boxed their successors in by introducing or continuing expensive, and in some cases unsustainable, tax and spending commitments. Our current system leans too heavily on personal income tax from working\u2011age Australians, even as welfare payments to that same group have grown rapidly. With few politically palatable options for new taxes, the temptation is to let inflation quietly do the heavy lifting.<\/p>\n\n\n\n
Economists have long known that inflation can serve as a convenient, undeclared tax. It erodes the real value of public debt and boosts income tax collections through bracket creep, as wage rises push workers into higher tax brackets without any new legislation. Recently, a former Treasury colleague, later a Reserve Bank Governor, saw only slight problems in removing inflation protection from capital gains tax (CGT). Following that path would be another form of stealth taxation, and history tells us where that road can lead<\/p>\n\n\n\n
Large budget deficits have been and will be around for years to come worsening the dead weight of funding the already worrying $1 trillion net national debt and continually increasing the money supply. Equally concerning are emerging problem areas including replacing decaying infrastructure assets and restoring our capacity to defend ourselves in a rapidly changing world of defence strategies and technology.<\/p>\n\n\n\n
Inevitability dealing with these challenges will force our politicians to introduce painful and politically unpopular changes. If not managed properly with a distributed impact, the current suffering and unease of PAYG wage and salary earners (already paying 50% of total tax collections) can only increase and complicate governing the country. <\/p>\n\n\n\n
My experience as an academic, bureaucrat, investor and policy adviser has helped prepare the following list of issues that will continue to challenge our decision makers for many years. There are and will always be many others which will pressure government finances.<\/p>\n\n\n\n