Hugh Morgan, “The golden age of low taxes,”
The Australian, July 10, 1987, p. 14, as a letter to the editor.
SIR — During this election campaign a number of influential journalists, Claude Forrell and Kenneth Davidson, for example, have uncritically asserted, and re-asserted, the canard that tax levels have no effect on productivity, economic growth, capital formation, and prosperity generally.
I find it difficult to believe that this argument can be seriously entertained. If we compile a list of countries beginning with the highest tax regimes and moving to the lowest tax regimes, we would start at the Soviet Union and the countries of Eastern Europe under the Soviet yoke, and move through Western Europe to the United States and then to Japan, Taiwan, Hong Kong, South Korea and Singapore.
Can anyone, even these journalists, seriously argue that the Soviet Union has been a model of growth and productivity? Can they argue that the outstanding performance of the four tigers of the West Pacific has been in spite of, rather than because of, the low tax regimes which these countries have enjoyed?
We find compelling evidence of the deleterious consequences of high tax rates when we consider the different rates of economic growth that have occurred within the United States as a result of differences in tax regimes.
In Massachusetts, in 1980, in a direct referendum, the people reduced taxes on property by 40 per cent. They were warned by the leaders of the major parties, by the pundits of the press and by the leaders of the business community that such a “radical step” was “dangerous”; that it would “decimate public services” and that it would ruin the State’s economy.
The voters ignored these warnings by a 59 per cent to 41 per cent margin. The consequences have been dramatic. Per capita income in Massachusetts, which was third slowest in US growth rates, from 1975 to 1978, became the third fastest growth rate in the US from 1982 to 1985. Massachusetts is now the boom State of the US. Similar consequences followed the passage of the tax reductions in California.
No arguments of cultural differences or Confucian work ethic can explain these interstate comparisons within the United States. Within Australia we have the example of the gold mining industry which has been tax-exempt at the corporate level, but which has paid more into consolidated revenue through the productivity improvements, industry and employment expansion and capital investment programs which the industry has generated, than would have been the case if it had been taxed as Treasury and various spokesmen for the compassion industry have demanded.
Those who argue that there is no evidence to show that tax rates have no impact on economic growth and capital formation are merely displaying a determination to turn their eyes from the evidence. It is a significant indication of John Howard’s intellectual stature that he has been able to throw off the conventional wisdom, repeated by these journalists, and appeal to the common sense of the ordinary Australian.
If he succeeds in this venture Australia will enter a new golden age of prosperity.
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