Wednesday, April 15, 2015

Irvine on company tax (and the problem with economics)

Why Joe Hockey's tax review should focus on lowering company tax

Since returning to Fairfax, Jessica has been doing a pretty good job with explaining some economic issues.

The problem with economics (and I'd be sure this is not an original thought) is that there is "always something else going on" which makes pinning down cause and effect of particular policy settings very hard to work out.  And it enables economists from opposite and set ideological positions to look at the same set of global evidence and both claim they are vindicated.

Hence, with company tax, you can complain that the Australia rate is now uncompetitive, yet the American rate is even worse (and there appears little prospect of it dropping soon), but America is still achieving an economic recovery.  "Sure" the anti tax, small government economists will say "but if you look at countries X, Y and Z and their growth, consider how much faster the American recovery could have been!"  (And, of course, you can often look at some aspect of how country X, Y and Z operates which the ideologically committed would disagree with, so it's virtually impossible to find a country that you could say is a perfect example of following one consistent economic ideological line.)

I'm not saying that is impossible to ever get to a "truth" in economics; just that the very nature of it means that there are always going to ways for dubious economists to convince politicians that they are the ones who are right.

As with the world of moral philosophy, it pays to not tie oneself to any one analyst, and let intelligent common sense from outside the field guide your actions.

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