Effective response to emergencies and epidemics means we must first understand how modern financial systems actually work

GDP is a clumsy measure of economic activity, not economic welfare

Hairy Bum Stock Photos, Pictures & Royalty-Free Images - iStock

Where else should I look?

The Gross domestic product (GDP) of Australia is the total market value of goods and services produced in Australia after deducting the cost of goods and services used up (intermediate consumption) in the process of production, but before deducting allowances for the consumption of fixed capital  depreciation.

What’s not Included in the GDP

  • Sales of goods that were produced outside our domestic borders
  • Sales of used goods
  • Illegal sales of goods and services ( e.g. the GST aided cash economy for services in particular}
  • Transfer payments made by the government, including, particularly, unemployment benefits and social security payments 
  • Intermediate goods that are used to produce other final goods

Effective macroeconomic management means that  what matters most is how the resources of the economy are to be fully utilised –  not whether they are producing anything with just a dollar value.  The media and our politicians rabbit-on about GDP as a single measure about success in the economy, despite its widely acknowledged limits and distortions.

Is GDP a useful measure in a modern economy or society, particularly when there is a Coronavirus emergency or any other catastrophe? See Speech 1968 Robert F. Kennedy

“… we seemed to have surrendered personal excellence and community values in the mere accumulation of material things.  …counts air pollution and cigarette advertising…. counts napalm and counts nuclear warheads… does not allow for the health of our children, the quality of their education or the joy of their play.  It does not include …the intelligence of our public debate or the integrity of our public officials.

 

Budget Surpluses, Government Borrowings and Debt and  muddled thinking

Mr Frydenberg’s statement, to be released jointly with Finance Minister Mathias Cormann. See ABC 12th May 2020

“Rebuilding consumer and business confidence will be key as the nation’s finances can only be sustained by a strong and growing market-led economy. Australians know there is no money tree. What we borrow today, we must pay back in the future… that national debt, which had risen more than $50bn to $618bn, would take “many years to repay”.

These statements of intent are totally at odds with the reality for a Sovereign Currency Nation’s public purpose. Australia’s Sovereign Currency Government issues the currency and it must first spend it by crediting private bank accounts before it can tax – by debiting bank accounts.

Claims that governments must tax or borrow to ‘finance’ its spending are not factual nor sensible. The only constraint that a currency-issuing government, such as the Australian government faces, are how many real goods and services are available for sale in $A.  See – https://www.investopedia.com › Economy ›

Australia issues its own currency, $A. It can  run a pure deficit, without borrowings.

A budget surplus  drains savings from the private sector and that leads to loss of jobs and less work done. 

Governments world-wide have been using Quantitative Easing (QE) for decades. QE involves a Government or its Reserve Bank buying Bonds that it has itself issued at an earlier date. See RBA

One wonders how any government could seriously think that it was necessary to borrow its own currency from the private sector when it issues that currency in the first place. If you were running a sausage sizzle and ran out of cooked sausages and decided to borrow some from those who had not yet eaten them rather than cooking more, why should you not be deemed to be a ratbag?

A Sovereign Currency Nation’s government like Australia’s primary purpose is to improve the well-being of its population. Balancing budgets is an irrelevant and destructive blind alley. The real economy is what is relevant to well-being.

Dealing with emergencies such as the Coronavirus epidemic, bushfires and flood, unemployment, climate change, droughts,  defence, innovation and research, education, aged-care and employment (and so much more) is what is really relevant.

A currency-issuing government can, for example, mitigate the economic and social disaster caused by  unemployment by spending enough. Aboriginal and Islander Communities could see a Job Guarantee based around care-for-country and the public good rather than destructive handouts and associated misguided measures.

An on-going Job Guarantee program would see GDP improve!

Although GDP is a clumsy measure of economic activity, a Job Guarantee program would see GDP improve very substantially as the payments made would be included in the total market value of goods and services produced in Australia. 

The transfer payments made by the government for unemployment benefits and social security payments and temporary transfer payments like the jobseeker supplement or the jobkeeper payment would NOT enhance GST numbers!!

A job guarantee (JG) is an economic policy proposal aimed at providing a sustainable solution to the dual problems of inflation and unemployment. Its aim is to create full employment and price stability, by having the state hire unemployed workers as an employer of last resort 

The government should introduce a Job Guarantee that offers a job at a living (minimum) wage to anyone who wants to work but cannot find employment.

An on-going Job Guarantee program would permit quick and effective dealing with emergencies

Australia’s Sovereign Currency Government would be able to deal more effectively and quickly to deal with all kinds of emergencies from a pandemic such as  Coronavirus  as well as bushfires, floods and cyclones.

“Under the Job Guarantee policy, the government continuously absorbs workers displaced. from private sector employment. The Job Guarantee employees would be paid the minimum wage, which defines a wage floor for the economy. Government employment and spending automatically increases (decreases) as jobs are lost (gained) in the private sector. The approach generates full employment and price stability. The Job Guarantee wage provides a floor that prevents serious deflation from occurring and defines the private sector wage structure.”

Reference: W.F. Mitchell (1998). “The Buffer Stock Employment Model – Full Employment without a NAIRU”, Journal of Economic Issues, 32(2), pp.547-5. http://www.billmitchell.org/Job_Guarantee.php

See also:-, Bill Mitchell – Professor in Economics – University of Newcastle, NSW And Here

Training must be included, to ensure that the unemployed are equipped with skills that will be needed when the private economy starts again to employ more people.

Not a “work for the dole” proposal. This is voluntary, full time employment, guaranteed and managed by the government.  It is not intended to be compulsory: it’s there for people who want to work. How to deal sensibly and humanely with those who are able to work and refuse to do so should be examined and addressed – it is beyond the ambit of this Blog Post.

Those who cannot work because of drug or alcohol dependencies should be offered health care, training counselling and more to equip them for meaningful work.

Australia’s Local Governments and Community Councils should manage delivery of JG programs

Job Guarantee Programs should be managed and supervised  by appropriately qualified people at local area level or even neighbourhood levels – a well paid, sought-after job. (Including  perhaps some Centrelink staff, fewer of whom would be needed).

A Job Guarantee’s management and some of its day to day work allocation and supervision would require additional staffing at Local levels with staff engaged by the Local or Community Council or perhaps also by a Statutory Authority on an on-going basis.

The funding for these permanent or long-term jobs should be funded by the Australian Government as an essential element of a JG program.

Climate action solution – a perfect match – tree planting and job creation

Most workers would already have most of the skills necessary to undertake re-afforestation projects. See a UK Guardian article (July 4, 2019) – from its environmental editor – Tree planting ‘has mind-blowing potential’ to tackle climate crisis 

Examples of other ongoing Job Guarantee projects and jobs

  • Noxious Weed eradication – pests: graffiti – rubbish removal on beaches and in waterways 
  • Road Maintenance at low levels – small truck/4 or so workers- potholes, rubbish. Bike paths – many rural roads see cyclists at risk from traffic. Path enhancement is useful and ‘pick and shovel’ 
  • Enhanced care of National Parks, recreation areas, sporting facilities, school premises and streets and neighbourhoods generally. ( On-going management permanent – JGs supplement and augment) 
  • Indigenous health, nutrition, social and other problem areas: Gardens for fresh produce in remote areas, particularly Aboriginal and Islander Communities.  ( On-going management permanent – JGs supplement and augment}
  •  Care for Country and Indigenous Fire Management practices – ( On-going management permanent – JGs supplement and augment) 

Essential works and programs should not rely on Job Guarantee workers or initiatives

Aged Care and Disability (NDIS}, on-going Fire Management, Aboriginal “Care for Country”, Transmission Line and Road Maintenance, Education etc must be provided at all times by a responsible Government. JG provides ‘extras’ and  for the unexpected e.g. Epidemics, Fire, Flood – but not the primary delivery of day to day essentials.

 

Taxes and their Economic, Social and Political Issues in the light of the Coronavirus Epidemic

Introduction

The Australian Government uses its own currency, issued by the Reserve Bank of Australia (RBA). China, USA, Japan, the United Kingdom, New Zealand and many others do the same. A Sovereign currency Government creates money at the computer keyboard

The State and Local Governments cannot issue currency and rely on transfer payments from the Australian Federal Government, State and local taxes, stamp duties, rates, fines and fees, poker machine taxes etc.

Money enters the system when the government spends it into existence. The Australian Government requires that it’s taxes are paid only in $ Australian, ensuring acceptance of its currency.

I’m from the Tax Department!

Despite abandoning the Gold Standard and moving towards a modern economy in the 1940’s, there is a commonly held view that taxes are needed to fund government spending – “the Taxpayers Dollar” is a term widely used today.

Away back in the middle of the twentieth century, Ruml, Lerner and others demonstrated a clear understanding of how a modern economy really works. We have failed to use these insights. For a more complete discussion see We don’t need the taxes of the rich

In 1946, Beardsley Ruml published Taxes for Revenue Are Obsolete He was then Chairman of the Federal Reserve Bank of New York.He argued that “… given (1) control of a central banking system and (2) an inconvertible currency, a sovereign national government is finally free of money worries and need no longer levy taxes for the purpose of providing itself with revenue. All taxation, therefore should be regarded from the point of view of social and economic consequences.”

A taxation system that deters work effort and directs resources into {understandably) seeking ways to reduce a confiscatory tax system is ridiculous. So too is the superannuation system, bank taxes, GST, supporting (fudging?) GDP through unsustainable immigration and so much more.

Taxation supports demand for the currency.

The Australian Government requires that its taxes are paid only in $A, ensuring acceptance of the currency only it can issue. Taxation supports demand for the currency. The Australian Government’s capacity to spend is independent of taxation revenue.   It spends first and taxes afterwards. This ‘spending’ circulates until governments tax the money out of existence.

Taxes should be all about public purpose and should never be about raising revenue.

Tax is all about the social consequences – the total impact of each tax on the real economy and on people’s well-being. In a modern economy, spending and taxing are economically separate activities.

Taxes can be levied to curb inflation or to advance economic issues or address social issues, stimulate research and local manufacture and much more. All taxation should be regarded from the point of view of social and economic consequences.

A core principle of tax design is neutrality: ensuring that taxes depend on behaviour as little as possible. Keeping tax as low as is necessary mitigates tax dodging. When the cost to avoid a big tax bill involves mobs of records, tax accountants, lawyers and even off-shore havens, then it will often be a better choice is to pay it, not dodge it.

Keep it simple and as small as necessary to achieve its fundamental purposes, which have nothing to do with raising revenue to spend. All taxation should be regarded from the point of view of social and economic consequences.

Some examples of many socially destructive and ill-considered taxes

Excise on petrol is 41 cents per litre. GST adds 10%. This means we usually pay tax at around 54 cents a litre. Rationale seems to be to raise funds to support the transportation infrastructure. Excise and GST are regressive taxes affecting mostly those least able to afford a ‘hit’

State governments considering increasing excise taxes to back-fill revenue failures and pay for increased expenses due to the economic impact of the coronavirus shutdown is “bad tax policy,” according to an analysis by the Washington, D.C.-based Tax Foundation.

“The coronavirus-induced economic crisis has impacted “almost every meaningful source of state revenue,” Ulrik Boesen from the Tax Foundation says in a new report published on state deficits.”

The single most expensive ingredient in Australian beer is Australian Government tax. Tax accounts for almost half (42%) of the price of a typical carton of full-strength beer. Of the $52.00 retail price, a whopping $21.84 is tax. Beer excise Aust World’s worst

Fuel tax credits provide businesses with a credit for the fuel tax (excise or customs duty) that’s included in the price of fuel used in machinery, plant equipment,heavy vehicles and light vehicles travelling off public roads or on private roads.

Goods and Services Tax (GST) – We pay GST on power bills and phone/ NBN bills! Abolition of the GST would be sensible. The States should be funded by the Federal Government by Grants and not by using  the present  bizarre GST link.

GST and Fuel taxes see very substantial cost to businesses – Requires Business Activity Statement (BAS). Cost of record keeping for BAS estimates suggests businesses pay billions in time, tax accountants etc – MYOB has estimated that the time lost to GST compliance for the approximate two million small businesses in Australia equates to a productivity cost of $13.5 billion. (MYOB is a business software supplier and its estimate needs verification – high cost nevertheless.)

The systems can easily be fudged e.g. diesel in private cars from tractor stocks. GST is easily avoided. A anyone seeking repairs or maintenance to property or vehicles and other things is usually offered a cheaper price for cash, i.e. GST free.  GST also sees some dodgy companies collecting GST and later deliberately liquidated to avoid paying its debts, including taxes, creditors and employees. A new company is then created to continue the business of the company that has been placed in liquidation. See discussion Combating Illegal Pheonixing

Corporate Tax

Corporate tax is a particularly misunderstood and misused weapon. To again quote Beardsley Ruml:-Taxes for Revenue are Obsolete. “ Taxes on corporation profits have three principal consequences —- all of them bad. The bad effects of the corporation income tax are:-

  • “The money which is taken from the corporation in taxes must from the people, in the higher prices they pay;… from the corporation’s own employees in wages that are lower than they otherwise would be … from the corporation’s stockholders, in lower rate of return …harmful to production, purchasing power, and to investment.
  • The corporation income tax is the cause of double taxation. ….taxed once when his profit is earned by the corporation… again when he receives the profit as a dividend . …. stockholders with small incomes bear as heavy a burden under the corporation income tax as do stockholders with large incomes.”

Ruml also pointed out that:-

  • “A corporation is nothing but a method of doing business which is embodied in words inscribed on a piece of paper. The tax must be paid by one or more of the people who are parties at interest in the business…
  • …. the bad effect of tax consideration on business judgment is seen in the preferred position that debt financing has over equity financing. … interest and rents… are deductible as expense; whereas dividends paid are not . …. weighs the scales always in favor of debt financing, since no income tax is paid on the deductible costs of this form of capital. … in many cases, a high corporation income tax induces management to make expenditures which prudent judgment would avoid.
  • Corporation income tax results in either higher prices, lower wages, reduced return on investment, or all three in combination. The effects of the corporation income tax are bad effects.
  • Suppose the corporation income tax were removed, where would the money go that is now paid in taxes? … a large share would go in lower prices, and a smaller share would go in higher wages and in higher yield on savings invested in the industry.
  • A high corporation income tax induces management to make expenditures which prudent judgement would avoid. This is particularly true if a long-term benefit may result, a benefit which cannot or need not be capitalized.
  • The public purposes to be served by taxation are not thereby well served. The tax is uncertain in its effect with respect to the stabilisation of the dollar, and it is inequitable as part of a progressive levy on individual income. It tends to raise the prices of goods and services. It tends to keep wages lower than they otherwise might be. It reduces the yield on investment and obstructs the flow of savings into business enterprise.”

The foregoing supports a case for low or nil corporate tax and use instead other imposts and fees to address conduct or products that are at odds with the public good; eg fees for a licence at premises used to sell junk food or advertise gambling promoters, etc. Perhaps some fee or tax on certain advertising destined for viewing on the internet, payable by Google or Facebook of whatever.

Superannuation, Future Funds and Sovereign Funds

Superannuation, Future Funds and Sovereign Funds are effectively a tax on businesses and individuals with exorbitant management fees and offshore investment rife. Trillions in assets – billions a year in fees and wasted insurance premiums – value of the tax concessions far outweighs the reduction in Age Pension outlays. Judith Sloan  The Australian Contributing Economics Editor 18 August 2018 wrote-

… forces many people to forgo valuable current consumption — think buying a house, paying school fees and the like — in order to knock off their full entitlement to the Age Pension. In other words, it is essentially a tax — and an inefficient one at that. Second, the unmanaged basis of the super industry has created a bounty of wealth for those who run the funds and the associated entities. …..The bottom line is the industry is beset with problems that ultimately stem from the compulsory nature of contributions.’

 

The Australian Business Review 2 May 2020

“Super does not fulfil the requirement of a retirement income system; it’s better thought of as a growth-sapping, resource-wasting, tax-advantaged asset purchase scheme for high income earners, that may ultimately have little effect on reducing reliance on the age pension system.”

Aged pension more effective in retirement than ‘failed’ super

The Government should provide pensions and disability income at responsibly generous levels, with private superannuation available to those who chose it, at their own cost without tax concession, to augment their government pensions. Australia’s sovereign currency government can always repay its liabilities, which are repayable in $A,as they fall due.

The rationale for the Future Fund:-’We invest the assets of the Future Fund, the Medical Research Future Fund, the DisabilityCare Australia Fund, the Aboriginal and Torres Strait Islander Land and Sea Future Fund and two Nation-building Funds’.

Australia’s sovereign currency government can always fund medical research, care for the disabled and provide sensibly and adequately for Indigenous need. Australia’s sovereign currency government can always fund medical research, care for the disabled and provide sensibly and adequately for Indigenous needs right now and an on-going basis in $A, when and where they are needed, many urgently right now.

A future fund is costly to oversee and manage, as is any venture depending on return on investment. The fund is at the mercy of markets and trade wars e.g. USA/China tariff wars, which has seen falling stock markets, leaving returns in doubt.

The Coronavirus epidemic and Government’s responses  have  exacerbated the problems inherent in a Stock Market based, privatised program supposedly for the future ‘Public Good’.

The Australian Future Funds have substantial investment in Global Equities e.g. Future Fund as at 31 March 2019 has 17.4% in Developed markets and 9.00% in Emerging markets. This at the same time as Australia’s Public Good is grossly diminished by unemployment, underemployment, crappy Aged Care, contemptuous NewStart and disgraceful Indigenous disadvantage.

A Sovereign Currency Government – Australia’s – can always  pay for things as they fall due and to fund their superannuation liabilities when they became due, without any need to reduce any other necessary spending,

Those (few) governments with fixed exchange rate currencies have to fund future liabilities before they come due. Enough reserves must be held to make the guaranteed conversion features of the currency work. It also applies to non-government users of a currency.

A government with a Future Fund or Sovereign Fund spends an amount equal to that which drains it from the private sector with taxes to speculate in the financial and broader asset markets (domestic and abroad). It buys up assets including shares and real estate.It  competes in the private equity market to fuel speculation in financial assets and distort allocations of capital.

What the government does to generate the ‘funds” for its Future Fund adversely affects the economy and the public good. The Federal Government spends less than it taxes and this leads to ever decreasing levels of net private savings. The Private Sector has to borrow more to stay afloat. Private Sector debt is at an all-time high and worse in Australia than just about anywhere else.

The Future Fund’s investments are largely overseas with around 35% in USA, Europe 7 % Britain 3% Japan 8% Developed (other) 5% Emerging  Economies 21% – See https://www.futurefund.gov.au/about-us/annual-reports

The Future Funds Tribunals’ Determination 2017, taking effect from 1 July 2017, set the annual fee payable to the Chair at $206,330 and the fee for other members at $103,170. Some 7 Senior Managers share around $7,000.000 in salaries, entitlements and performance bonuses!

Is a Future Fund, as outlined above, a sensible use of public funds?

 

We must understand how modern financial systems really work to deal with emergencies like Coronavirus

Introduction

20200403_192411

I want a proper flight plan before I fly!

Politicians of all kinds, Media, many Academics and those of us who have neither the time, backgrounds or knowledge to challenge the prevailing superstitions are still trapped in a commodity money mindset and haven’t progressed conceptually from the days when money was backed by gold.

If the Community and Governments understood what a currency issuing country was able to really fund , there is prospect for an Australia with a vibrant economy, affordable tertiary and vocational education, research, equitable pensions, health care, jobs, respect for the natural environment and much more.

An on-going Job Guarantee program would permit quick and effective dealing with emergencies

Australia’s Sovereign Currency Government would be able to deal more effectively and quickly to deal with all kinds of emergencies from a pandemic such as  Coronavirus  as well as bushfires, floods and cyclones.

“Under the Job Guarantee policy, the government continuously absorbs workers displaced. from private sector employment. The Job Guarantee employees would be paid the minimum wage, which defines a wage floor for the economy. Government employment and spending automatically increases (decreases) as jobs are lost (gained) in the private sector. The approach generates full employment and price stability. The Job Guarantee wage provides a floor that prevents serious deflation from occurring and defines the private sector wage structure.”

Reference: W.F. Mitchell (1998). “The Buffer Stock Employment Model – Full Employment without a NAIRU”, Journal of Economic Issues, 32(2), pp.547-5. http://www.billmitchell.org/Job_Guarantee.php

How this Blog Post is structured

This post draws attention to how a modern economy really works. It seeks to make these points:-

  1. A Sovereign Currency Country’s government issues its own currency and can therefore purchase anything that is available for sale in that currency.
  2. Taxes should be levied to advance  public purpose and not about raising revenue.
  3. Because Australia issues its own currency, $A. It can run a deficit without borrowing.

A fairly broad outline of what is considered relevant follows, leaving detailed more detailed discussion about taxes and Job Guarantee to other blog posts.

Links to scholarly and other material are given frequently – About links. (Click and click again on the link shown.)  A general on-line search quoting material in bold-face type will provide further material.

Australia is a Sovereign Currency Nation

The Australian Government uses its own currency, issued by the Reserve Bank of Australia (RBA). China, USA, Japan, United Kingdom and New Zealand and many others do the same.

A Sovereign Currency Government creates money at the computer keyboard. See also RBA is creating money out of thin air

Money enters the system when the government spends it into existence. The Australian Government requires that its taxes are paid only in $ Australian, ensuring acceptance of the currency  only it can issue.

When the Australian Government spends, it does so by crediting the reserves of a commercial bank which are held at the RBA (Australia’s central bank), and having the commercial bank credit the bank account of whoever has been the beneficiary of that spending.

The State and Local Governments cannot issue currency and rely on transfer payments from the Australian Federal Government as well as State and local taxes, stamp duties, rates, fines and fees, poker machine taxes etc.

A Sovereign Currency country:-

  • does not borrow in foreign currencies or peg its currency to any other;
  • only spends and taxes in its own currency;
  • it sets policy interest rate. and
  • the currency floats against other currencies.

A Sovereign Currency country’s government can purchase anything that is available for sale in that currency. The Australian Government has an unlimited capacity to pay for things, to make contracted future payments and it has an unlimited ability to provide funds to the other sectors.

Growth in the money supply is critical for economic growth, and there are only two ways that the money supply can grow in a fiat currency system – Government spends more than it collects – runs a deficit or by private credit growth.

Government spending is not constrained by inflation. It is constrained by the capacity of the real economy. When spending (either by the private sector and/or the government sector) exceeds the capacity of the real economy, inflation increases. The real economy is the output of the underlying economy itself. Real wealth is assets, savings, goods and services

Taxation supports demand for the currency.

The Australian Government requires that its taxes are paid only in $A, ensuring acceptance of its currency. Taxation supports demand for the currency. The Australian Government’s capacity to spend is independent of taxation revenue. Sovereign Currency Governments spend first and tax afterwards. Tax is all about the social consequences – the total impact of each tax on the real economy and on people’s well-being. In a modern economy, spending and taxing are economically separate activities.

Taxes can be levied to curb inflation or to advance economic issues or address social issues, stimulate research and local manufacture and much more. All taxation should be regarded from the point of view of social and economic consequences.

All money comes from government spending and circulates until governments tax the money out of existence. If a government spends and taxes equally, there will be no money left in the economy to be used by the community.

As long as the 1940’s or earlier, society’s myths about money and taxes were beginning to be challenged. An excellent ‘wake up’ was given in a speech given to the American Bar Association in 1943 by The Federal Reserve Bank of New York chair, Beardsley Ruml:-Taxes for Revenue are Obsolete. Australia and much of the rest of the world needs to get up-to-date (or at least into the 21st century). http://www.constitution.org/tax/us-ic/cmt/ruml_obsolete.pdf

Taxes should be all about public purpose and should never be about raising revenue.

A core principle of tax design is neutrality —- ensuring that taxes depend on behaviour as little as possible. Keeping tax as low as is necessary mitigates tax dodging. When the cost to avoid a big tax bill involves mobs of records, tax accountants, lawyers and even off-shore havens, then it will often be a better choice is to pay it, not dodge it.

Keep it simple and as small as necessary to achieve its fundamental purposes, which have nothing to do with raising revenue to spend.

Taxes should  be levied to curb inflation or to advance economic issues or address social issues, stimulate research and local manufacture and similar public good issues.

Some examples of many socially destructive and ill-considered taxes

  1. Excise on petrol is 41 cents per litre. GST adds 10%. This means we pay tax at around 54 cents a litre. Rationale seems to be to raise funds to support the transportation infrastructure.
  2. Goods and Services Tax (GST) – We pay GST on power bills and phone/ NBN bills! Abolition of the GST, which wastes an enormous amount of resources in small businesses and fosters a black economy would be sensible. The States should receive funding from the Australian Government without the GST distortion. It is easily avoided – anyone seeking repairs or maintenance to property or vehicles and other things are usually offered a cheaper price for cash, i.e. GST free.
  3. Corporate tax is a particularly misunderstood and misused. To  quote Beardsley Ruml:-Taxes for Revenue are Obsolete. “ Taxes on corporation profits have three principal consequences —- all of them bad. …the money which is taken from the corporation in taxes must from the people, in the higher prices they pay;… from the corporation’s own employees in wages… from the corporation’s stockholders, in lower rate of return …
  4. Superannuation, Future Funds and Sovereign Funds are effectively a tax on businesses and individuals with exorbitant management fees and offshore investment rife. Trillions in assets – billions a year in fees and wasted insurance premiums – value of the tax concessions far outweighs the reduction in Age Pension outlays.

Australia’s sovereign currency government can always fund medical research, care for the disabled and provide sensibly and adequately for Indigenous needs right now and an on-going basis in $A, when and where they are needed, many urgently right now.

Inequitable, socially destructive and counterproductive taxes

The State and Local Governments cannot issue currency and rely on transfer payments from the Australian Federal Government.

State taxes are mostly inequitable and counter-productive – eg , stamp duties , rates, fees, poker machine taxes, payroll tax/ etc. Supposed benefits from gaming taxes are far outweighed by the cost of trying to repair the damage they cause. Those who can least afford it are most affected.

The States should receive funding from the Australian Government, not by blighting the poor and gullible.

Deficits and Budget Surpluses

Australia issues its own currency, $A. It can run a pure deficit, without borrowings. Instead, it has been decided (politically) that … fund any budget deficit by issues of securities .. A Budget Surplus is essentially meaningless – it is just the amount by which the proposed receipts – taxes, excise etc – will exceed proposed expenditure in a particular year or time scale.

Debt is the amount owed at any point in time—what has been borrowed and not paid back. Australia issues its own currency, $A. It can run a pure deficit, without borrowings – so there is no “debt’. Bonds issued in the past are repayable only in $A and this is done at the stroke of a computer key,

Governments should generally run deficits. The Australian Government has run deficits about 75% of the time. The Howard Government’s surpluses had much to do with selling off almost $72 billion of Government assets. Dept of Finance website – Past Sales. See also Sale of public assets

Most of these assets were natural monopolies – airports, National Transmission Network, ADI Ltd – etc.   A natural monopoly must be held only by a government charged with advancing the public good. Privatisation undermines the capacity of those activities to advance well-being and utilise productive resources effectively.

Thales Australia (formerly ADI Limited) is a defence contractor for the Australian Defence Force, based in Australia. Thales Group is a French multinational company.

Surely a critically important defence industry should be based and controlled by the Australian Government (which may subcontract, when useful) ? It may be cheaper to have India or China supply Australia’s infantry regiments, but would that be sensible?

Governments have in the past have far too often mismanaged public monopolies. Dealing with this mismanagement to ensure that best practice is the norm rather than the exception will ensure that public monopolies don’t waste resources and be unresponsive to the needs of their customers.

 

Job Guarantee – Master Document

Aside

Why does Australia need a Job Guarantee program?

Unemployment and the associated poverty and social ill effects include:-

  1. Losing work-skills: employers hire from those already working or unemployed short-term. Prolonged unemployment can lead to an erosion of skills. 
  2. Poverty reduces people’s capacity to buy nutritious food, housing and health care. Unemployment can force families to deny educational opportunities to their children. Affects health – reduced participation in society: financial strain.
  3. Particular parts of the community are more severely affected than others, exacerbating problems of inequality within metropolitan areas and between the cities and some regional areas. Unemployed in Outback Qld circa 13% Youth around 20%..
  4. Young people are particularly adversely affected – large numbers, particularly in rural and remote areas – a dreadful situation for them to be in to face a meaningful future in our society.
  5. Government’s providing derisive and inadequate income support eg Newstart to provide a Budget Surplus!!!!
  6. Drugs, alcohol abuse and crime flourish in a poor, unemployed community.

In Australia at the end of September 2019 there are around 700,000 persons unemployed. A further 1.1 million persons are underemployed. https://www.abs.gov.au/ausstats/abs@.nsf/mf/6226.0

More recent ABS data shows no improvement to this dismal and destructive pattern. See See ABS 

The inability of unemployed individuals and their families to function in the market economy gives rise to many forms of social dysfunction, in addition to output loss

The mass unemployment problem – as presented by Neo-liberal Governments 

Professor Bill Mitchel has this to say in a log post – one of many on this topic- A new progressive agenda? (September 28, 2010).

“Unemployment is couched as a problem of welfare dependence rather than a deficiency of jobs….responsibility to be shifted from government to the individual. To force individuals to become accountable for their own outcomes, governments embraced a shift from active to passive welfare and the introduction of alleged responsibilities to counter-balance existing rights.

Reciprocal obligation was developed … as a means of reintegrating the allegedly, welfare dependent underclass into the community.

… no reciprocal obligation on government to ensure that there are enough jobs for all those wanting work. … fallacy to consider that the difference between getting a job and being unemployed is a matter of individual endeavour or preference.”

Introducing a Job Guarantee to Governments and the Australian Community

The government should introduce a Job Guarantee that offers a job at a living (minimum) wage to anyone who wants to work but cannot find employment. See:- Particularly, Bill Mitchell – Professor in Economics – University of Newcastle, NSW

And Here

The Australian government can afford this program because it has has no financial constraint as the issuer of the currency. A currency-issuing government can always choose the unemployment level once the spending and saving decisions of the non-government sector are implemented.

A Job Guarantee would be an automatic stabiliser that ensures that the Government is doing necessary amount of spending where it is needed in the right places and right time to achieve full employment with stable prices.

When the private sector is recovering, federal government spending would automatically fall as people leave the Job Guarantee for higher paid jobs elsewhere.

When the private sector experienced a downturn, federal government spending would automatically increase as people lose their private sector jobs and enter the Job Guarantee.

Unemployment is a major loss of valuable productive resources, depressing the economic economic growth and lowering our standard of living of the whole community.

Offsetting the cost of a Job Guarantee would include lesser demand for Centrelink services, enhanced tax revenue and receipts, including those on superannuation and investments.

The costs associated with substance abuse, including health care costs and police interventions would lessen. Unemployment and its adverse social effects adds very substantially to on-going and escalating Government spending.

Local economies, particularly those in Rural and Remote areas would see an enhanced economy and small businesses would have better prospects.

Training must be included, to ensure that the unemployed are equipped with skills that will be needed when the private economy starts again to employ more people.

Not a “work for the dole” proposal. This is voluntary, full time employment, guaranteed and managed by the government.  It is not intended to be compulsory: it’s there for people who want to work. How to deal sensibly and humanely with those who are able to work and refuse to do so should examined and addressed – it is beyond the ambit of this paper.

Those who cannot work because of drug or alcohol dependencies should be offered health care, training counselling and more to equip them for meaningful work.

Australia’s Local Governments and Community Councils should manage delivery of JG programs

Job Guarantee Programs should be managed at local area or even neighbourhood levels.

Each area’s Program must be managed and supervised  by appropriately qualified people – a well paid, sought-after job. (Including  some Centrelink staff, fewer of which would be now needed).

A Job Guarantee’s management and some of its day to day work allocation and supervision would require additional staffing at Local levels with staff engaged by the Local or Community Council or perhaps also by a Statutory Authority on an on-going basis.

The funding for these permanent or long-term jobs should be funded by the Australian Government as an essential element of a JG program.

Some Job Guarantee examples

With the Corona crisis – Delivering groceries and medicines to the elderly and vulnerable who are self quarantined. 

Climate action solution -The perfect match – tree planting and job creation

Most workers would already have most of the skills necessary to undertake reafforestation projects.

See a UK Guardian article (July 4, 2019) – from its environmental editor – Tree planting ‘has mind-blowing potential’ to tackle climate crisis 

Other Job Guarantee projects and jobs

  • Noxious Weed eradication – pests: graffiti – rubbish removal on beaches and in waterways
  • Road Maintenance at low levels – small truck/4 or so workers- potholes, rubbish. Bike paths – many rural roads see cyclists at risk from traffic. Path enhancement is useful and ‘pick and shovel’
  • Aged Care needs, care etc – working with the long term professionals – but NOT to replace or augment primary health carers or providers – supplement in non-essential areas for enhanced amenity etc.
  • Community gardens, particularly in remote areas – good tucker for kids, aged, deprived. ( On-going management permanent – JGs supplement and augment)
  • Enhanced care of National Parks, recreation areas, sporting facilities, school premises and streets and neighbourhoods generally. ( On-going management permanent – JGs supplement and augment)
  • Indigenous health, nutrition, social and other problem areas  – Care for Country.- Indigenous Fire Management practices – ( On-going management permanent – JGs supplement and augment)
  • Gardens for fresh produce in remote areas, particularly Aboriginal and Islander Communities.

Essential works and programs should not rely on Job Guarantee workers or initiatives

Aged Care and Disability (NDIS) must be provided by a responsible Government.On-going Fire Management, Aboriginal “Care for Country”, Transmission Line and Road Maintenance Education etc – JG provides ‘extras’ and  for the unexpected eg Fire Flood – but not the primary delivery,  day to day essentials.

 The points made above are only a very broad outline – see here   for a review of JG in USA and  generally  online and elsewhere for much more information.

Some Programs with broadly intended policies in the World include:-

India’s Rural Job Guarantee

India has had a rural jobs guarantee program in place, for unskilled workers.The jobs provided  a minimum wage– “… livelihood security to rural residents by providing at least 100 days of guaranteed wage employment in a financial year to every household whose adult members volunteer to do unskilled manual work.’ ‘….. concerns about corruption and unevenness in implementation across states. … several tangible positive effects (pdf): ….. It has also served as a built-in stabiliser of the economy during downturns.”

The Program has fallen in a heap since recent Government’s  policy decision not to fund the program adequately. This failure to fund what even the World Bank considered useful and effective seems to follow widespread failure to understand how a modern economy works. Budget Surplus superstition versus the 

Other programs – not the same as a Job Guarantee

Workfare is a scheme where participation in activities is a requirement for obtaining social benefits. 

Several countries have implemented direct job creation schemes to combat persistent unemployment – Argentina, South Africa, but these schemes are not similar to a Job Guarantee.

In the United States, the Humphrey-Hawkins Full Employment Act of 1978 authorizes the government to create a “reservoir of public employment” in case private enterprise does not provide sufficient jobs. Never implemented!

How do we Balance the Budget and pay for all this?

Australia issues its own currency, $A. It can  run a pure deficit, without borrowings. A budget surplus  drains savings from the private sector and that leads to loss of jobs and less work done. The Government has to spend money into existence. Without that there can be no tax. 

A Sovereign Currency Nation’s government like Australia’s primary purpose is to improve the well-being of its population. Balancing budgets is an irrelevant and destructive blind alley. The real economy is what is relevant to well-being, care for the environment, defence, research education, aged-care and employment (and so much more).

A Sovereign Currency Government issues the currency and it must first spend it by crediting private bank accounts before it can tax – by debiting bank accounts. The claim that governments must tax or borrow to ‘finance’ its spending is false under a fiat-currency system. See – https://www.investopedia.com › Economy › Economics

The restrictions on government spending are the quantity of real goods and services available for sale in its own currency, including all the unemployed labour. The only constraint that a currency-issuing government, such as the Australian government faces, are how many real goods and services are available for sale in $A.

Our wide-spread quasi-superstition about balanced budgets is a blight on public policy discussion. However this Blog is about Job Guarantee and there is ample material on the Web about monetary theory and practice – see for example- http://bilbo.economicoutlook.net/blog/?p=41133#more-41133

Job Guarantee – A Fair Go and a sound Economy go together

 

Unemployment and the associated poverty and social ill effects include:-

  1. Losing work-skills : employers hire from those already working or unemployed short-term. Prolonged unemployment can lead to an erosion of skills. 
  2. Poverty reduces people’s capacity to buy nutritious food, housing and health care. Unemployment can force families to deny educational opportunities to their children. Affects health – reduced participation in society: financial strain.
  3. Particular parts of the community are more severely affected than others, exacerbating problems of inequality within metropolitan areas and between the cities and some regional areas. Outback Qld circa 13% Youth around 20%..
  4. Young people are particularly adversely affected – large numbers, particularly in rural and remote areas – a dreadful situation for them to be in to face a meaningful future in our society.
  5. Government’s providing derisive and inadequate income support eg Newstart to provide a Budget Surplus!!!!
  6. Drugs, alcohol abuse and crime flourish in a poor, unemployed community.

In Australia at the end of September 2019 there are around 700,000 persons unemployed. A further 1.1 million persons are underemployed. https://www.abs.gov.au/ausstats/abs@.nsf/mf/6226.0

The government should introduce a Job Guarantee that offers a job at a living (minimum) wage to anyone who wants to work but cannot find employment. See:-https://futuretofightfor.org.au/policies/01/ and Associate Professor Pavlina Tcherneva  https://www.pavlina-tcherneva.net/job-guarantee-faq

The Australian government can afford this program because it has has no financial constraint as the issuer of the currency. A currency-issuing government can always choose the unemployment level once the spending and saving decisions of the non-government sector are implemented.

In terms of the overall working of a national economy ( macroeconomics), a Job Guarantee would be an automatic stabiliser that ensures that the Government is doing necessary amount of spending where it is needed in the right places and right time to achieve full employment with stable prices.

When the private sector is recovering, federal government spending would automatically fall as people leave the Job Guarantee for higher paid jobs elsewhere.

When the private sector experienced a downturn, federal government spending would automatically increase as people lose their private sector jobs and enter the Job Guarantee.

Unemployment is a major loss of valuable productive resources, depressing the economic economic growth and lowering our standard of living of the whole community.

Offsetting the cost of a Job Guarantee would include lesser demand for Centrelink services, enhanced tax revenue and receipts, including those on superannuation and investments.

The costs associated with substance abuse, including health care costs and police interventions would lessen. Unemployment and its adverse social effects adds very substantially to on-going and escalating Government spending.

Local economies, particularly those in Rural and Remote areas would see an enhanced economy and small businesses would have better prospects.

Training must be included, to ensure that the unemployed are equipped with skills that will be needed when the private economy starts again to employ more people.

Not a “work for the dole” proposal. This is voluntary, full time employment, guaranteed and managed by the government.  It is not intended to be compulsory: it’s there for people who want to work. How to deal sensibly and humanely with those who are able to work and refuse to do so should examined and addressed – it is beyond the ambit of this paper.

Those who cannot work because of drug or alcohol dependencies should be offered health care, training, counselling and more to equip them for meaningful work.

Job Guarantee Programs should be managed at local area or even neighbourhood levels. Each area’s Program must be managed and supervised  by appropriately qualified people – a well paid, sought-after job. (eg – maybe Centrelink staff, fewer of which would be now needed).

Some Job Guarantee examples

  • Noxious Weed eradication – pests: graffiti – rubbish removal on beaches and in waterways
  • Road Maintenance at low levels – small truck/4 or so workers- potholes, rubbish. Bike paths – many rural roads see cyclists at risk from traffic. Path enhancement is useful and ‘pick and shovel’
  • Climate change responses – tree planting and care 
  • Aged Care needs, care etc – working with the long term professionals.
  • Community gardens, particularly in remote areas – good tucker for kids, aged, deprived.
  • Enhanced care of National Parks, recreation areas, sporting facilities, school premises and streets and neighbourhoods generally
  • Indigenous health, nutrition, social and other problem areas  – Care for Country.- Indigenous Fire Management practices
  • Gardens for fresh produce in remote areas, particularly Aboriginal and Islander Communities.

 The points made above are only a very broad outline – see here  and  generally  online and elsewhere for much more information.

Some Programs with broadly intended policies in the World include:-

India’s Rural Job Guarantee

India has had a rural jobs guarantee program in place, for unskilled workers.The jobs provided  a minimum wage– which varies by Indian state. Employment must be provided within five km of the worker’s home.  The jobs are unskilled labor – priority is infrastructure: e.g., roads, canals, ponds, wells.

Economist Jayati Ghosh wrote this assessment of The Mahatma Gandhi National Rural Employment Guarantee Act of 2005 (MGNREGA) in The Guardian in 2015:

‘….. two interlinked goals: ensuring livelihood security to rural residents by providing at least 100 days of guaranteed wage employment in a financial year to every household whose adult members volunteer to do unskilled manual work; and using the programme to mobilise existing surplus labour in the countryside, to unleash productive forces and generate more economic growth in rural areas.’

‘….. concerns about corruption and unevenness in implementation across states. … several tangible positive effects (pdf): increasing rural wages and reducing gender wage gaps; smoothing and stabilising consumption by poor people; enabling better access to nutrition, health and education; increasing financial inclusion because of payments through bank accounts; and reducing distress migration….. It has also served as a built-in stabiliser of the economy during downturns.

The Program has fallen in a heap since recent Government’s  policy decision not to fund the program adequately. This failure to fund what even the World Bank considered useful and effective seems to follow widespread failure to understand how a modern economy works. Budget Surplus superstition versus the 

Other programs – not the same as a Job Guarantee

Workfare is a scheme where participation in activities is a requirement for obtaining social benefits. 

Several countries have implemented direct job creation schemes to combat persistent unemployment – Argentina, South Africa, but these schemes are not similar to a Job Guarantee.

In the United States, the Humphrey-Hawkins Full Employment Act of 1978 authorizes the government to create a “reservoir of public employment” in case private enterprise does not provide sufficient jobs. Never implemented!

Unemployment – A Job Guarantee Solution

In Australia at the end of September 2019 there are around 700,000 persons unemployed. A further 1.1 million persons are underemployed. https://www.abs.gov.au/ausstats/abs@.nsf/mf/6226.0

Unemployment and the associated poverty and social ill effects include:-

  1. The longer people stay unemployed, the more they lose work-skills and non-government employers tend to prefer to hire from those already working or who have been unemployed short-term.
  2. Poverty reduces people’s capacity to buy nutritious food, housing and health care.
  3. Unemployment can indirectly affect health because of reduced participation in society or from the stress of financial strain.
  4. Prolonged unemployment can lead to an erosion of skills, basically robbing the economy of otherwise useful talents. 
  5. Unemployment can force families to deny educational opportunities to their children and deprive the economy of those future skills
  6. Particular parts of the community are more severely affected than others, exacerbating problems of inequality within metropolitan areas and between the cities and some regional areas. Outback Qld circa 13% Youth around 20%.
  7. Mature-age job seekers lose their skills tend to be lost over time, particularly as they are more likely to experience longer periods unemployed. These skills are also lost to the labour market and industry.
  8.  Prolonged unemployment can lead to greater skepticism and pessimism about the value of education and training – workers less willing to invest in the years of training some jobs require.
  9. Young people are particularly adversely affected – large numbers, particularly in rural and remote areas – a dreadful situation for them to be in to face a meaningful future in our society.
  10. Government’s providing derisive and inadequate income support eg Newstart to provide a Budget Surplus!!!!
  11. Drugs, alcohol abuse and crime flourish in a poor, unemployed community.

Distinguished British economist John Maynard Keynes, as long ago as the 1930’s wrote : ‘… outstanding faults of the economic society in which we live are its failure to provide for full employment and its arbitrary and inequitable distribution of wealth and incomes.’  https://www.investopedia.com/terms/k/keynesianeconomics.asp  

The government should introduce a Job Guarantee that offers a job at a living (minimum) wage to anyone who wants to work but cannot find employment. See:-https://futuretofightfor.org.au/policies/01/ and Associate Professor Pavlina Tcherneva  https://www.pavlina-tcherneva.net/job-guarantee-faq

The Australian government can afford this program because it has has no financial constraint as the issuer of the currency. A currency-issuing government can always choose the unemployment level once the spending and saving decisions of the non-government sector are implemented.

In terms of the overall working of a national economy ( macroeconomics), a Job Guarantee would be an automatic stabiliser that ensures that the Government is doing necessary amount of spending where it is needed in the right places and right time to achieve full employment with stable prices.

When the private sector is recovering, federal government spending would automatically fall as people leave the Job Guarantee for higher paid jobs elsewhere.

When the private sector experienced a downturn, federal government spending would automatically increase as people lose their private sector jobs and enter the Job Guarantee. 
Unemployment is a major loss of valuable productive resources, depressing the economic economic growth and lowering our standard of living of the whole community.

Offsetting the cost of a Job Guarantee would include lesser demand for Centrelink services, enhanced tax revenue and receipts, including those on superannuation and investments.
The costs associated with substance abuse, including health care costs and police interventions would lessen. Unemployment and its adverse social effects adds very substantially to on-going and escalating Government spending.

Local economies, particularly those in Rural and Remote areas would see an enhanced economy and small businesses would have better prospects.

Training must be included, to ensure that the unemployed are equipped with skills that will be needed when the private economy starts again to employ more people.

Not a “work for the dole” proposal. This is voluntary, full time employment, guaranteed and managed by the government.  It is not intended to be compulsory: it’s there for people who want to work. How to deal sensibly and humanely with those who are able to work and refuse to do so should examined and addressed – it is beyond the ambit of this paper.

Those who cannot work because of drug or alcohol dependencies should be offered health care, training counselling and more to equip them for meaningful work.

Job Guarantee Programs should be managed at local area or even neighbourhood levels. Each area’s Program must be managed and supervised  by appropriately qualified people – a well paid, sought-after job. (eg – maybe Centrelink staff, fewer of which would be now needed).

Some Job Guarantee examples

  • Noxious Weed eradication – pests: graffiti
  • Rubbish removal on beaches and in waterways
  • Road Maintenance at low levels – small truck/4 or so workers- potholes, rubbish.
  • Bike paths – many rural roads see cyclists at risk from traffic. Path enhancement is useful and ‘pick and shovel’
  • Climate change responses – tree planting and care 
  • Aged Care needs, care etc – working with the long term professionals.
  • Community gardens, particularly in remote areas – good tucker for kids, aged, deprived.
  • Enhanced care of National Parks, recreation areas, sporting facilities, school premises and streets and neighbourhoods generally
  • Maybe ‘Night Watch’ patrols – DON’T approach or  try to apprehend suspicious parties – just call the Police!
  • Indigenous health, nutrition, social and other problem areas  – Care for Country. 
  • Gardens for fresh produce in remote areas, particularly Aboriginal and Islander Communities.

 The points made above are only a very broad outline – see here  and  generally  online and elsewhere for much more information.