An Australian balanced budget amendment

I may have been too hasty in judging our Treasury Secretary. My own fault for taking the word of the SMH. I, of course, remain adamantly against raising taxes to fix our current problems and repeat what I wrote yesterday:

Stop fixating on the deficit. Do the specific things that make the economy work better. Lower public spending. Reduce regulation. Fix up IR. Encourage private industry in every way you can.

But with my morning reading of the AFR there was an important detail left out of the SMH story. The AFR headline reads:

Push to lift GST, cut income tax

This is, of course, different and even if initially the size of the tax take stayed the same this would be a genuine benefit, both in terms of economic prosperity and broadening the tax base.

But the problem remains how you could make such a shift stick. If we raise the GST, it will stay raised forever. But if we cut income taxes, it is not likely at all that they would stay down. Governments are revenue hungry and very weak on keeping the lid on expenditure. There really needs to be something in place to ensure governments do not pocket one tax increase and then go back to where we were on the others.

An idea whose time may have come is the notion of a balanced budget constitutional restriction on governments. It appears that some kind of critical mass may have taken place in the United States over whether enough states have passed a balanced budget amendment that must lead to a constitutional convention which will determine whether or not the federal government of the United States must by constitutional restriction maintain a balanced budget. The article is titled, Balanced budget convention gains steam as congressman calls for official evaluation and this is how it begins:

Rep. Duncan Hunter on Tuesday asked Congress to evaluate whether enough states have officially called for a constitutional convention to propose a balanced budget amendment — marking the next step toward what could be an historic gathering.

Mr. Hunter, California Republican, said Congress should take stock of where things stand after Michigan last week approved an official call for a balanced budget amendment convention. According to some analysts, Michigan’s move makes it the 34th state to request a convention.

For something as unconventional as the notion of a balanced budget amendment to have passed at different times and in different states through 34 different state legislatures shows there is an understanding of the problems that runaway federal spending has caused. The multiplying economic problems that have befallen one economy after another due to the insane levels of public spending after the GFC are due almost in their entirety to the spending that followed the financial crisis and not to the crisis itself. But you almost have to be a non-economist even to notice. Economists still think that C+I+G provides them with some form of understanding about what to do in recessions, with no lessons learned from the past five years.

Since we will already be having a vote on amending the constitution at our own next election, I cannot see why we shouldn’t include one on a balanced budget as well. If we really want to fix our governments’ addition to higher spending we will have to tie their hands. If they want the money they will have to raise our taxes. Then we’ll see just a tad more care in what they do and how they spend.

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