Beware international experts bearing gratuitous advice
Melbourne Age Date: September 28 2002
By Ross Gittins
If you've ever wondered why the International Monetary Fund is so hated by the ordinary citizens of the poor countries that fall into its clutches - why they're commonly provoked to riot in the streets - you need look no further than the "reforms" it recommends in its latest report on our economy.
The report softens us up with some very complimentary remarks about the recent performance of the Australian economy and the many micro-economic reforms we've already made.
These have "helped Australia to sustain strong economic growth despite the substantial external shocks stemming from the Asian financial crisis and the synchronised slowdown in the world economy during 2001", the report says.
"This has to be recognised as a major achievement because it represents a sharp departure from the economy's previous vulnerability to such shocks."
Well, thank you very much. Most kind of you to say so.
But what's that you're saying? We need further reforms if the economy's rapid growth is to be sustained? Really? We made all those reforms but they only kept us going for a decade and now we're in danger of running down like a clockwork toy?
Gosh, that's not very encouraging. Oh, but the next reforms you recommend will "raise the economy's potential growth rate on a sustainable basis".
Really? You wouldn't just be giving us a salesman's come-on, would you? Anyway, let's have a look at what the IMF has on its list of the further reforms we should be giving priority - the ones that are finally going to do the trick.
There's no mention of reforming the funding of education, or research and development, or the pros and cons of privatising Telstra.
Health funding did get a guernsey, but it isn't a biggie in the IMF's eyes.
No, the IMF agrees that the one, really big, really important reform we need is a "comprehensive and coordinated package" of "major changes in the tax, income support and industrial relations system".
Within such a package, however, the "major priority" is to "enhance incentives to work, save and invest" by reforming the personal income tax system. And the change we need "in particular" is to cut the top tax rate, which applies to income in excess of $60,000 a year.
"The top marginal tax rate at 47 per cent kicks in at a relatively low income level (one that is about two times median income) and is high relative to the corporate income tax rate, which has been reduced to 30 per cent," the IMF explains.
So this is the IMF's magic bullet - the single change that would really transform our economy. Let's look at it.
What's being advocated is a hugely expensive tax cut, but one limited to just the roughly 10 per cent of taxpayers earning more than $60,000. They'd make a tax saving of 17 cents (47-30) on every dollar of income above $60,000.
So someone on $100,000 a year would get a saving of $6800 a year, or $130 a week. Someone on $200,000 would save $23,800 a year, or about $460 a week.
And a CEO on $7 million a year - such as David Murray at Commonwealth Bank - would save $1.18 million a year, or almost $22,700 a week.
Now, if you were a simple wage slave, you might wonder how giving these fortunate people a huge increase in their after-tax income would suddenly give them the incentive to work a lot harder - particularly when most of them are probably working 50 or 60 hours a week already.
You might also imagine that people in the kind of jobs that carry these hefty salaries are already highly motivated by the pursuit of social status and power. But you'd be wrong, apparently - the IMF knows they're only doing it for the money.
After we've fixed that top priority, the IMF wants us to do more at the other end, motivating all those people who are bludging on the dole and, especially, the shirkers on the disability support pension. The high effective marginal tax rates they face are a big barrier to them taking full-time jobs - but, apparently, the real problem is that they find it so cushy living on $200 or $350 a week without having to work.
So, in the IMF's view, "eligibility requirements for income-support programs and penalties for breach of obligations need to be rigorously applied and in some cases tightened".
As for industrial relations, the main problem is that our minimum wages "remain very high in Australia relative to other advanced economies". If they were lower, this would "enhance employment prospects for low-skilled workers".
So there you have the IMF's expert analysis of our economy's remaining woes.
The first part of our problem is that our rich are motivated solely by money, so they must be given the carrot of huge tax cuts.
Our poor, on the other hand, are lazy and utterly unmotivated by money, so they should be given more stick to get them off their backsides.
And, though the IMF didn't have time or space to explain or justify these conclusions, you can rest assured they flow from objective, evidence-based scientific research and are, like everything the economic rationalists recommend, completely "value-free".
The fortunate thing, however, is that because we don't need to borrow from these notorious shylocks, we - unlike so many poor countries - are free to completely ignore their gratuitous advice on how to mismanage our economy and heighten social conflict in the process.