Economic reverse

A chat with the ex is a good idea | The Australian

BROKE bread with a former prime minister the other day. We share a native habitat, Sydney's lower north shore. We reminisced about old times. He recalled his best bowling figures, 6 for 76, and I mine, 8 for 2 off 10 overs. For cricket tragics, the passage of 50 years does not eliminate memory of one's most gratifying achievements.

Just back from a short trip to Canada, the ex-PM looked roseate and relaxed. He is 40,000 words into his memoirs, though this count may not hold up, since he lets it all rip as he talks into a recorder but plans to cut and edit the transcripts. Asked if he would settle a few scores with his book, he hesitated only briefly before replying, "I don't think so. There's a lot of real stuff to write about."

The former PM talks to a lot of people and is up to date with current events, but in the detached way appropriate for an ex.

I've indulged in this rather long-winded prelude to make the point that the former PM seems entirely content with his formerness and nourishes no fantasies about being monarch in exile. He has opinions, though, and believes Kevin Rudd's $42 billion spending package will do little or nothing to stimulate the economy.

"What would have been a better move?" I asked.

"Set aside $16 billion to compensate the states for suspending payroll taxes for a year."

I was taken aback. Though it has been only a little over 12 months, I had virtually forgotten directness and simplicity as a tool of politics.

But a vague recollection came to me, sharpened subsequently with the aid of Google, of the reaction by Rudy Giuliani, damp squib US presidential candidate but triumphant mayor of New York, when he first heard of our payroll tax from an Australian Financial Review interviewer: "I don't understand that. We have about 20 forms of taxation in New York city and some of them are strange, but nothing like that one."

The federal government started levying a 2per cent tax on wages and salaries paid out by employers in 1941, with the specific purpose of financing child endowments. In 1971 the feds handed the right to tax payrolls over to the states and territories as part of the payback for grabbing their income taxing powers. They immediately doubled the rate.

Nowadays every state and territory has a different starting point and imposes a different taxation rate. South Australia starts earliest, hitting payrolls over $504,000 with a 5.5per cent tax. Tasmania lets its employers pay out $1,010,000 before imposing a 6.1 per cent tax.

Queensland has a sliding scale for payrolls between $850,000 and $3.4 million, which means, I guess, that you jump a bracket if you get careless about hiring a tea lady.

Payroll tax is a major earner, second only to land taxes as a source of revenue for the states and territories.

Being a bit worn down by global thinking, I shaped my thoughts about a suspension of payroll taxes in the context of the effect on myneighbourhood.

At the heart of the lower north shore is the electorate of North Sydney, held by the new shadow treasurer, Joe Hockey, who is almost inordinately proud of it. North Sydney, Hockey boasts, is home to 25,000 small businesses and has the highest proportion among federal electorates of working women and people with professional and trade qualifications.

That's a profile of a community with heavy shocks coming its way in the event of drastic economic reverses.

On the other hand, a cost saving of 6per cent achieved by release from NSW's tax on payrolls over $600,000, plus removal of the considerable cost in time and money of compliance with a complex system, might see many established enterprises remain in the hands of experienced, creative, aspiring (or desperate) individuals, able to employ sufficient staff to hold the line and even to grow and flourish.

Moreover, this admirable outcome might be achieved by the federal Treasury's signing only eight cheques a month, instead of the tens of thousands that will be required just for Sydney's lower north shore, to launch and sustain Rudd's suite of favoured industries: school refurbishing, home insulation, building bicycle tracks. Not to mention the pointillist detail involved in distributing all those $900 handouts.

I am not in a position to say with confidence whether Rudd's $42 billion spending package will stimulate anything. Nor, from the sound of it, is he.

But I know governments will make heavy weather of disbursing that kind of money throughout the country and that the very fact of its availability will inspire unprecedented snorting at the trough.

When coaching young cricketers, Mark Taylor constantly urged them: "Keep it simple. Keep it simple."

Pity he didn't go into politics.