Christian Kerr writes:

The Sydney Morning Herald’s economics
editor Ross Gittins delivered a Christmas message to the Australian Business Economists earlier this week.

“At last, at last, economists are getting
what they’ve longed for: the return of micro reform,” he began. “Yippee! But
whether the reform is what economists imagined it would be is another matter,
as is whether what we’re getting will do much good to the economy.”

And Gittins had more to say – more on the
politics of economics. Gittins told his audience that industrial relations
reforms could be a very slow burn indeed, so “Howard will want to find a new,
and preferably less unpopular, reform issue to fill the vacuum left by the IR
changes. He’ll want to change the subject and he’ll want to look busy.”

Gittins suggests tax reform will be the
issue. But what will happen – and why?

Gittins asked if the Treasurer’s reticence
on the question of tax cuts was influenced by his policy rivalry with Malcolm Turnbull.
He said it was quite likely – but might “even be influenced by his preference
for making further income-tax reform the first big reform of the Costello
Government rather than the last reform of the Howard Government.”

But then he had this to add: “that’s all
the more reason why Howard’s likely to insist the question of further tax
reform be explored immediately rather than left for later. The test of whether
this exercise proves to be anything more that a government with an
embarrassingly large surplus finally giving in to pressure from the most
well-off taxpayers in the land is, first, whether anything significant is done
about a far more important problem – the work disincentives facing mothers
returning to work and people moving from welfare to work created by their much
higher effective marginal tax rates – and, second, whether high income earners
are required to contribute to the cost of their tax cuts by way of
base-broadening measures.”

Gittins conclusion? “Tax ‘reform’ presents
an opportunity for genuine reform, but it remains to be seen whether that
opportunity is taken.”

Already this week the Australian Industry
Group has called for tax cuts, urging an $8.5 billion tax cut that would halve
the tax rate for low-income earners and eliminate the top income-tax rate for
high-income earners.

Dollar Sweetie has – finally – unveiled the
Mid Year Economic and Fiscal Outlook. The underlying cash surplus for 2005-06
is now being estimated at a whopping $11.5 billion, a massive leap from the
Budget night figure of $8.9 billion. The estimate for next financial year is up
from $7.9 billion to 9.7.

And his pal Turnbull’s been talking tax
this morning. He seems to be learning how senior politicians behave by watching
the PM and Treasurer. His paper opened with this bit of cheek:

In August this year, Jeremy Temple and I
published a paper on the subject of tax reform entitled “Taxation Reform in Australia:
Some Alternatives and Indicative Costings.” It was designed to make, or
restate, the case for making our tax system simpler, more efficient and more
equitable. This would involve not only reducing rates but also broadening the
tax base and thereby simplifying our personal tax system.

This was hardly radical stuff. While
everyone has a different view about the appropriate design for a tax system,
there is no question about what it should seek to achieve.

Quoting The Wall
Street Journal: “A tax system should generate the
Government’s required revenue with as little economic distortion as possible,
while distributing tax burdens fairly. It should not discourage work, saving or
entrepreneurship more than is necessary and it should not discourage
individuals from acquiring the skills and education that will increase their
productivity. It should not discourage investment, or favour investments in one
asset class over those in another. In short, an efficient tax system alters
economic decision making as little as possible.”

Turnbull’s bitten the bullet. He has quotes
about “tax reform, as distinct from tax reduction.”

Turnbull respects his seniors: “Our own
Treasurer, Mr Costello has not only been a practitioner of tax reform – what
else was the A New Tax System in 2000 if not far-reaching tax reform – he has
also made the principled case for tax reform on many occasions.”

But he still has this to say: “It is clear
that there is ample scope to fund reductions in tax, indeed so much is widely
acknowledged… these strong surpluses also mean that we can afford to tackle
real tax reform.”

And it seems he wants to win one for the
Gipper: “Ronald Reagan once asked ‘If not us, who? If not now, when?’”

So, Cossie’s flush with funds, the only way
to shut Turnbull up will be to actually do something or dump him in a ministry –
and the politics of economics is looking more and more interesting as the
political year moves to an end.