VIDEO: It’s the economy, stupid — Stonehouse
I was not going to speak on this motion but I felt somehow encouraged to add a couple of points very briefly. I support the motion moved by Hon Robin Scott, although I admit that it is perhaps not perfect; some of the numbers in the motion seem a little arbitrary.
It reminds me of the special economic zones that other countries have employed with some success — for example, the Iskandar development region in Singapore, established in 2006. In a period of less than six years, more than 3 500 Singaporean businesses have been created in that region.
Over 70 per cent of businesses established have been small and medium-sized enterprises. It has certainly worked for Singapore in its case. In China, Shenzhen city was establish in 1979. Since its establishment, Shenzhen has gone from a relatively small fishing village to a thriving metropolis. It has been China’s fastest growing city for nearly three decades.
Between 2001 and 2005, its economy grew by an average of 16.3 per cent annually. These are special economic zones; they are not simply recipients of tax cuts or tax incentives. There is more to it than that. There is obviously a large amount of government investment in infrastructure. Probably more important is the huge cuts to red tape in those regions, combined with the tax cuts, to create an environment conducive to business growth. I think that is something we could learn from.
Anyone wanting to invest in Australia, in WA in particular, is looking at the highest payroll tax in the country with one of the lowest thresholds. It is also facing duplication of red and green tape from state and federal government. I would like to see us attracting foreign and domestic investment from other jurisdictions in Australia by creating the right economic environment for businesses to thrive. I think the regions and all the state generally would certainly benefit from that. There have even been some proposals on the table to create a free trade or special economic zone for the shipbuilding facilities at Henderson.
I would posit that if we want to address our GST allocation, one of the first things we could do is look at easing back, slowly over time, on our payroll tax rate. As that decreases along with our stamp duty fees and royalties, over four years, GST will be equalised and our GST receipts will increase. I think this is the point Hon Steve Thomas makes from time to time. I agree. I think a lot of the fulminating over GST is often misplaced.
want to address one point that was brought up in the debate; namely, the idea that we have to pay for our tax cuts. Tax cuts will cost us and we will have to find the revenue somewhere else. That may sometimes be the case but I feel that perhaps some members are unfamiliar with the Laffer curve. I do not have a degree in economics but I drew a little doodle of what the Laffer curve looks like.
This is only on A4-sized paper. I can have this tabled if appropriate. I labelled the axes. The horizontal axis is the tax rate; the vertical axis is tax revenue. Obviously, if a tax revenue is zero per cent of whatever the tax rate is, we would have zero tax revenue. If the tax rate is 100 per cent, we would also have, presumably, zero tax revenue because no-one would establish a business in a state that has 100 per cent tax.
We would have achieved perhaps a socialist utopia if we had a 100 per cent tax rate. Therefore, there is a curve and a sweet spot somewhere in this curve where tax revenue is maximised at the right tax rate. It depends on what models we look at and whose research we follow to determine where we think that rate is.
I think in the US some people have posited that the sweet spot where revenue is maximised is at about 30 per cent for different corporate tax rates. This may be a simplistic model; obviously, other factors contribute to tax revenue. The point is that if we are on the left side of the curve and we decrease taxes, we may actually increase our tax revenue.
In some cases, depending where we are on this curve, tax cuts will not only pay for themselves, but will also increase state revenue. In fact, Arthur Laffer was, I think, the chief economic adviser to Ronald Reagan, “the Gipper”, that great President of the United States. During his term as President between 1980 and 1988, he brought in one of the largest tax cuts in US history. Over that period, tax revenue increased. While he passed some of the largest tax cuts in US history, between 1980 and 1988, his tax receipts increased from $517 billion to $909 billion.
No, but he did increase government debt over that time but that is because he also increased spending quite drastically and rebuilt the US fleet and whatnot. So long as we do not engage in any massive spending exercises, we will be okay. The point I wanted to make there is: let us not get caught in the trap of thinking our tax cuts have to be paid for somehow. In many cases, they will pay for themselves through the increased business activity that tax cuts, among other things, can create.
That being said, I am more than happy to support this motion, even if not perfect, merely for the principle behind it; that is, with the right economic settings, we can attract business activity and perhaps more population to our regions.