Michael Keating

Michael Keating is a former Secretary of the Departments of Prime Minister and Cabinet, Finance and Employment, and Industrial Relations. He is presently a visiting fellow at the Australian National University.

Michael's recent articles

Michael Keating. Federalism (repost)

The Governments Commission of Audit, which preceded this Budget, recommended that policy and service delivery should as far as practicable be the responsibility of the level of government closest to the people receiving those services, and that each level of government should be sovereign in its own sphere, with minimal duplication between the Commonwealth and the States. The Government for its part has insisted that it does not run schools or hospitals and that the States are ultimately responsible for them and what happens to them. This conception of the Australian Federation with its emphasis on States rights and separate...

Michael Keating. The Outlook for Housing and Labors Tax Proposals

Since the collapse of the mining boom, housing investment has been an important driver of the Australian economic performance. Furthermore, notwithstanding the rapid growth in superannuation balances, housing still accounts for over half of the wealth of Australian households. In these circumstances it is important to have an accurate appreciation of the likely outlook for housing, and what difference if any would result from Labors tax proposals to substantially reduce the scope for negative gearing for housing and to increase the taxation of capital gains. So far, the only modelling has been by the consultancy firm, BIS...

Michael Keating. An Update on Tax Reform

The Prime Minister seems to have been encouraging speculation that the Government has decided not to consider any reform of taxation that involves an increase in the GST. If true, hardly a courageous decision, given the support he has received from some State Premiers. But this posting is concerned about the consequences. First, in the absence of any extra GST revenue, it now is almost certain that the Australian Government will not give the States any more money. Instead the States will have to wear the $80 billion cut to health and education funding that the Commonwealth has already...

Michael Keating. The Turnbull Governments Fiscal Strategy

This second article, in response to the release of the Governments Mid-Year Economic and Fiscal Outlook (MYEFO) on Tuesday 15 December, focuses on the Governments fiscal strategy. It is a companion piece to another article that focussed on the Governments economic strategy and what the Government expects that economic strategy to achieve. As had been well telegraphed in advance, total budget receipts are now expected to be $33.8 bn lower over the next four years of the forward estimates than expected last May in the 2015-16 Budget. This reduction in receipts mainly reflects lower than forecast commodity prices impacting...

Michael Keating. The Turnbull Governments Economic Strategy

The Governments Mid-Year Economic and Fiscal Outlook (MYEFO) released on Tuesday 15 December outlines the Governments economic and fiscal strategy and, equally important, what it expects that strategy to achieve. It is especially significant on this occasion, as it represents the first major economic statement by the still relatively new Turnbull Government. As such this statement allows us to put some more content into our assessment of what, in its short life so far, has principally been an aspirational government. In this article I will discuss the Governments economic strategy, as revealed in the MYEFO. In a second companion...

Michael Keating. The Key Options for Tax Reform

One useful outcome from the Council of Australian Governments (COAG) meeting on 11 December, was its acknowledgement of the emerging budgetary pressures across all levels of government, particularly in the health sector. This acknowledgement must be the critical starting point for any serious consideration of tax reform. Quite naturally it was equally acknowledged that government expenditures must be efficient. However, the understandings reached at both the Treasurers meeting and at COAG, seemed to be that action on the revenue side of government budgets could also not be avoided. Prior to these two meetings the principal direction for tax...

Michael Keating. Tax Reform and Future Federal-State Relations

All informed opinion is that fiscal repair in Australia will require action on the revenue side as well as the expenditure side of the Budget. Accordingly at least some tax reform is essential and unavoidable. In addition, reform of the taxation system and the future of federal- state relations are inevitably closely connected. First, possible changes to increase the GST revenue are central to many of the proposals to raise the necessary extra revenue and would represent a key element of tax reform more generally. Second, for very good reasons all the revenue from the GST is passed to...

Michael Keating. The role of government in policy renewal.

In thanking Ross Gittins for launching 'Freedom, Opportunity and Security', Mike Keating explains the reasons why he and I decided to launch this series, first online and now in a book. Mike Keating's book launch notes follow.I will also be posting Ross Gittins' comments. John Menadue. Thank you Ross Gittins and thanks to you all for coming Why we embarked on this project Concern about the poor quality of public debate on many public issues The failure of political leadership to change that situation, or even be willing to try Instead we think there is a...

Michael Keating. The Turnbull Governments Response to the Financial System Inquiry

The Government has adopted 43 of the 44 recommendations of the Financial System Inquiry (FSI). These recommendations had received wide support, and as I said in an earlier blog (21 January), they should be relatively easy for the Government to adopt. Indeed, the surprise would have been if the Government had not been supportive (whoever was Prime Minister and Treasurer). Overall the net result should: Strengthen the resilience of the financial system Lift the value of the superannuation system and retirement incomes Modestly promote some more competition Lead to some improvement in customer treatment Enhance regulator independence and...

Michael Keating. Austerity, the Greek Economy and Grexit

Faced with an unenviable choice between more austerity and a Grexit from the Euro the Greek Government after six months of resistance caved in and reluctantly opted for more austerity. Two weeks ago in the recent elections the Greek people endorsed that choice, although the record low voter turn-out suggests with little enthusiasm and much political weariness. On the other hand, the Euro-zone authorities are no doubt breathing a sigh of relief. But what can Greece (and its creditors) expect from this deal. The popular image of Greece portrayed by its creditors is of past profligacy which the Greeks...

Michael Keating. Fiscal Repair - both Revenue and Expenditure.

With Federal Budget deficits projected to continue indefinitely, the one thing that is generally agreed is that fiscal repair and consolidation is absolutely necessary. Where there is debate, however, is about how much of the repair job must be achieved by expenditure savings and how much by increasing revenue. In this regard, the new Treasurer Scott Morrison has declared that Australia has a spending problem not a revenue problem. Others including the Shadow Treasurer, Chris Bowen, and the esteemed former head of the Treasury, Ken Henry, have disagreed. Instead they consider that restoring the Budget to a modest surplus...

Michael Keating. Is there a trade-off between equality and efficiency?

A critical policy issue has always been whether greater equality inevitably comes at a cost to the economic growth. For example, historically economists have typically believed that there is a trade-off between increased equality and efficiency. Even those economists who favour policies to improve equality have generally acknowledged that the transfers involved could reduce incentives and result in some loss of national income with the critical question being by how much? Thus those economists who favour redistribution to lower inequality think that such action comes at little or at least an acceptable cost to economic output. While the counter-argument...

Michael Keating. Greeces Predicament

The front page news story for weeks now has been what is happening to Greece and what will happen. The markets, the various authorities and the media all treat Greeces predicament as if it were solely a matter of excessive debt. Therefore austerity is justified as being essential to bringing the debt back under control, and gradually paying it back. But this is very much a financiers view of Greeces problems and those Governments whose views are coloured by their involvement in arranging and/or guaranteeing the finance. What has so far escaped attention is how Greece, while locked into...

Michael Keating, Luke Fraser. Infrastructure: Improvement or Impoverishment?

Fairness, Opportunity and Security Policy series edited by Michael Keating and John Menadue. To paraphrase Paul Keating, right now every galah in the pet shop seems to favour more infrastructure spending. The current Prime Minister wants to be remembered as a Prime Minister who built the roads of the 21st century. The business community is similarly demanding more infrastructure investment, while both Treasury and Reserve Bank, both of whom might be expected to be a bit more critical of spending proposals, have added their blessing to infrastructure spending. In recent years, however, total infrastructure investment has already risen sharply....

Michael Keating. Improving Productivity.

Fairness, Opportunity and Security Policy series edited by Michael Keating and John Menadue. After more than seventy years of ever increasing living standards Australians have come to expect further such increases as their right. But these increasing living standards are for the most part dependent on increases in productivity. So as Nobel Prize winner, Paul Krugman put it, while productivity may not be everything, it is just about everything. Unfortunately in the last decade Australias productivity growth has slowed compared with the 1990s when it accelerated, probably partly in response to the micro-economic reforms of the 1980s and 1990s....

Michael Keating. Improving Employment Participation

Fairness, Opportunity and Security Policy series edited by Michael Keating and John Menadue. The rate of employment participation and the productivity of those employees together determine the average per capita incomes of Australians, and therefore our living standards. In addition, being employed creates many of the social contacts and sense of self-esteem that are vital to our individual well-being. While arguably the best way to reduce inequality is to create the conditions where those disadvantaged people who are presently on the margin of the workforce get work, or in other cases get more work. In short increasing employment participation...

Michael Keating. The Future of Federalism

Fairness, Opportunity and Security Policy series edited by Michael Keating and John Menadue. Six months ago Tony Abbott announced that he wanted to create a more rational system of government for the nation that we have undoubtedly have become. A worth aspiration, but what does it mean in reality? Fundamentally there are two contending doctrines regarding the future of federal-state relations in Australia. One view is that we should be working towards a clearer separation of the respective roles and responsibilities of each of the two levels of Government. The other view is that the two levels of government...

Michael Keating. Taxation Reform

Fairness, Opportunity and Security Policy series edited by Michael Keating and John Menadue. Oliver Wendell Holmes, the great American jurist, is reputed to have said, I like to pay taxes. In this way I buy civilisation. However, in contrast to Holmes noble ideal, too often today we hear people railing about the burden of taxation, as though it is in some way an unfortunate even illegitimate imposition upon ourselves, our economy, and our way of life. Lower taxation has been embraced by all political parties without any evidence that, given our already low starting point, less taxation will in...

Michael Keating. Fixing the Budget Part 2

Fairness, Opportunity and Security Policy series edited by Michael Keating and John Menadue. The previous article on fixing the Budget concluded that the Governments plan to balance the Budget by 2019-20 was not really credible. It relies too much on unsustainable increases in taxation as a result of bracket creep, and too many of the expenditure savings are unfair and unlikely to be realised. This article will instead outline an alternative strategy for fixing the Budget. The starting point is the reported deficit equivalent to 2.6 per cent of GDP for the current fiscal year which is nearly over....

Michael Keating. Fixing the Budget Part 1

Fairness, Opportunity and Security. Policy series edited by Michael Keating and John Menadue. According to the Treasurer, Joe Hockey, the timetable back to a budget surplus is unchanged from last year. Furthermore, the Government is asking us to believe that unlike the savage and unfair spending cuts in last years budget, now it can all be done with no pain. Indeed restraint has been thrown away, and in pursuit of popularity the Governments policy decisions since the previous 2014-15 budget have actually added as much as $13.4 billion to the cash deficits for the four years 2014-15 to 2017-18[1]. ...

Michael Keating. The Role and Responsibilities of Government.

Fairness, Opportunity and Security Policy series edited by Michael Keating and John Menadue. Different possible conceptions of the responsibilities and roles of government are an important backdrop to the policies that will be examined later in this series of articles. The purpose of the present article is to show that despite the ideological debate between the extremes on the Right and the Left of the political spectrum, in practice: The responsibilities of governments have changed little in the last thirty years The roles have changed, but changes in regulatory regimes and the marketisation of some services has enabled governments...

Michael Keating. Tax Reform 2015

According to the Government its first objective for tax reform is lower taxes. A responsible government would, however, first consider what revenue will need to be raised to efficiently fund the sorts of services that our society expects. Of course, opinions may differ on what level of service provision is appropriate, and how it should be paid for. Unfortunately the various Intergenerational Reports and the Governments decision to abandon its own Budget do not install confidence that lower taxes are in fact realistic. Instead, given our present Budget deficit and the consistent projections of future deficits, it would...

Michael Keating. The 2015 Intergenerational Report

Purpose of the Intergenerational Report The Intergenerational Report (IGR) should be an important document. It purports to tell us what the Australian population, economy and Budget could look like in forty years time. Of course no-one really knows what the economy will look like in forty years time. Instead the IGR tells us how fast the economy could grow over the next four years if the drivers of economic growth population, participation and productivity continue to have the same future impact as in the past. So despite the declared optimism of the Treasurer about our economic...

Michael Keating. The Financial System Inquiry. Part 3: Investor protection and other matters.

I am reposting Part 3 of this important series by Michael Keating which was posted during the holiday period. John Menadue Investor protection It is now more than 15 years since the present regulatory system was established for the financial system. The basic presumption underpinning that approach to regulation has been that proper disclosure should be relied upon as much as possible. That way it was assumed that investors acting in their own interest would make the best decisions regarding the selection of financial products and services, and through competition thus maximise the efficiency of the system. ...

Michael Keating. The Financial System Inquiry. Part 2: Superannuation and Retirement Incomes

I am reposting Part 2 of this important series which you may have missed during the holiday period. John Menadue. Australias retirement income system is based on three pillars: A means-tested age pension funded from general revenue which alleviates poverty by guaranteeing a base level of income support for retirees Compulsory saving through the superannuation guarantee which was introduced in the early 1990s Additional voluntary superannuation saving. This system has received considerable support from overseas authorities, such as the OECD and the World Bank, as providing a model for other countries to follow. Compared to most European...

Michael Keating. The Financial System Inquiry. Part 1: Resilience of the Financial System.

I am reposting this important article in case you missed it during the holiday period. John Menadue With its budget stalled the Abbott Government has often appeared to be floundering and devoid of any long term economic plan or strategy. But this appearance may be deceptive. In fact the Abbott Government has established major inquiries into the financial system, federalism and taxation. Taken together these reports could provide the basis for a comprehensive package of major reforms for the Government to at least announce, even if not complete, before the next election. Ideally that reform package would also include...

Michael Keating. The Government's mid-year budget update. Part 2.

Where to from here? So what is the Governments strategy to return the Budget to return to surplus as the government has promised over the medium term? The May Budget was almost universally criticised for its unfairness. While restoring fiscal health of the nation may require sacrifices, the evidence clearly showed that in the May Budget the Government did not demand equality of sacrifice (for example, see my comments on the Budget posted on this site last May). Unfortunately the new evidence from the MYEFO suggests that this unfairness continues. Essentially the Government has balanced the cost...

Michael Keating. The Governments mid-year Budget Update. Part 1.

What does it say about the governments fiscal performance? The headline news is that the Budget deficit for the current fiscal year, 2014-15 has blown out by $10.6 bn from $29.8 bn in the Budget to $40.4 bn in the Mid-Year Economic and Financial Outlook (MYEFO) released on Monday. Over the four years to 2017-18 the deterioration in the Budget balance since last May is projected to accumulate to some $43.7 bn. According to the Government none of this deterioration in the Budget is the Governments fault; indeed as much as $39.6 bn is explained by changes in the...

Michael Keating. The politics of the Medicare co-payment

The adjustments that Tony Abbott announced to the Medicare co-payment are presumably intended to remove this particular barnacle. According to Graham Richardson, that self-styled political expert writing in the Australian, Abbotts parliamentary colleagues are breathing huge sighs of relief ... that the Medicare co-payment has been so restructured that it scarcely exists anymore. Really? Are they stupid or dont they and Richardson know the facts? The reality is that the $7 co-payment has been abandoned for pensioners, other card-holders and children, but for the rest of us the co-payment is still $5 a visit instead of $7. Furthermore, this...

Michael Keating. Capitalism and the Economy.

As both John Menadue and Ian McAuley have argued in recent posts there are good social reasons for governments to intervene to modify the outcomes from a purely capitalist economy. Right now rising inequality and taxation avoidance by companies and wealthy people are priority issues that should be addressed. It is also possible that the impact on the government budget from increasing inequality could have a negative impact on future economic growth. I think, however, it is going a step too far to suggest that capitalism is leading to low wages which then result in a shortage of demand,...

Michael Keating. Rebalancing government in Australia. Part II

Taxation Reform and Vertical Fiscal Imbalance Another third and final reason for national government pre-eminence over the States in our federal system is of course the national governments domination of taxation, widely described as vertical fiscal imbalance or VFI. Paul Keating called VFI the glue that holds our nation together, but for the States and the champions of States Rights, VFI is regularly trotted out as the root cause of centralism. In the past the national government has passed payroll tax back to the States, and more recently the States now receive all the proceeds of the GST....

Michael Keating. Rebalancing government in Australia. Part I.

The Future of Federalism Tony Abbott recently announced that he wants to create a more rational system of government for the nation that we have undoubtedly become. As Abbott describes it,achievement of this more rational system is dependent on developing a consensus based on a readiness to compromise and mutual acceptance of goodwill. Understandably the initial reaction of many people was to question whether these lofty (although familiar) aspirations had really been embraced by the most negative and populist politician in living memory. But there is no doubting Abbotts chutzpah, and perhaps the real regret is that he...

Michael Keating. The mining tax debacle

Tony Abbott has finally achieved another triumph with the end of the mining tax. Of course mining royalties continue, and have even been increased recently, and oil and gas are subject to a similar sort of resource rent tax that Abbott decried when it was applied to mining. No doubt the mining industry, their largely foreign owners and the cheer squad in the Murdoch press are pleased, but what about the rest of the Australian community? After all it is we who are the actual owners of the resources, and we have now lost a useful source of revenue....

Michael Keating. Budget Choices

Faced with the rejection of a significant part of its Budget, the Government is reportedly looking around at alternative compromises. Essentially the Government wants to ensure that the Budget is balanced by 2017-18. Consequently if some of the present savings are rejected the Government wants to insist that alternative expenditure cuts are adopted or there are more tax increases, or we finish up with some combination of alternative expenditure savings and tax increases. Unfortunately, however, there is considerable public confusion about what the Budget delivered last May actually does and how it achieves its apparent return to balance in...

Michael Keating. Government Concedes and Declares Victory

For months the government and its various spokesmen in the Australian have been warning us that the nation faces a catastrophe if the Budget does not pass the Parliament intact. Essentially we were told that there was no alternative if economic progress and certainty were to be maintained. Indeed Paul Kelly, to the considerable delight of many in the business community, waxed eloquent in the Australian about how the country risked becoming ungovernable if the government did not get its way. For the government, this line made political sense so long as the government was confident that its Budget would...

Michael Keating. Australia's productivity performance.

For most of our history too much of Australian business was focussed on rent seeking, rather than the creation of wealth. Manipulating government to obtain protection, or other forms of favoured treatment by way of regulation or taxation, was far too often pursued as the easiest way to increase profitability. While the economic reforms of the 1980s and 1990s put an end to much of this behaviour by denying many of the opportunities for rent seeking, business is still too inclined to look to government; hence the cacophony of calls for government to introduce further reforms, when much more of...

Michael Keating. An alternative budget strategy - part 3

Part 3. An Alternative Budget Strategy The previous comment in this series showed that there are alternatives to the Governments particular strategy for restoring a Budget surplus over the next four years. In particular, it was shown that action to protect the revenue could raise around $42 billion in 2017-18. That is about 2 per cent of 2017-18 GDP and meets the Governments Budget targets. Furthermore this objective is achieved without relying on bracket creep that would move a full-time male worker on average earnings into the 37 per cent tax bracket from 2015-16. However, it was also recognised...

Michael Keating. An alternative budget strategy - Part 2

Part 2. An Alternative Budget Strategy In the previous part of this comment, I suggested that the Budget did need to return to surplus over much the same time path as intended by the Government. There is nothing new in that, and as previously noted, Labor also had the same intention when it was in Government. The issue in dispute is whether an alternative Budget Strategy is available to restore a Budget surplus over the next four years and which would be more equitable and less damaging to future economic growth. What follows shows that such alternatives are available; in...

Michael Keating. An alternative budget strategy - Part 1

In May this year I posted five articles by Dr Michael Keating on the economic and social consequences of the recent Hockey budget. Over the next three days I will be posting three follow-up articles by Michael Keating on an alternative budget strategy. Dr Michael Keating was formerly Secretary of the Department of Finance and Secretary of the Department of Prime Minister and Cabinet. John Menadue Part 1. An Alternative Budget Strategy Two months later and the Abbott Governments Budget is the worst received in living memory. There is widespread community agreement that this Budget is basically unfair. ...

An Alternative Budget Strategy by Michael Keating

In this blog in May this year I posted a five-part series by Michael Keating on the governments May budget and the economic and social consequences. There has been a great deal of discussion and confusion, particularly in the senate, over this budget. This has caused Joe Hockey only a few days ago to warn that he is ready to bypass parliament and force through new spending cuts if Labor and the Greens do not come to the table on millions of dollars of budget savings. Next week I will be posting three-part series by Michael Keating on an...

Michael Keating. Part 5. Federalism

The Governments Commission of Audit, which preceded this Budget, recommended that policy and service delivery should as far as practicable be the responsibility of the level of government closest to the people receiving those services, and that each level of government should be sovereign in its own sphere, with minimal duplication between the Commonwealth and the States. The Government for its part has insisted that it does not run schools or hospitals and that the States are ultimately responsible for them and what happens to them. This conception of the Australian Federation with its emphasis on States rights and separate...

Michael Keating. Part 4. Long-term Fiscal and Social Sustainability and Taxation

Fundamentally there is a problem with the rhetoric from the government and its cohorts such as the Commission of Audit. They insist on describing taxation as a burden that should be lightened at every opportunity; thus implying that taxation is somehow illegitimate. On the contrary, however, taxation represents our mutual obligation to one another as citizens. Instead of being a burden, taxation is what we should pay to ensure the sort of society that we want. It is only by changing the rhetoric and accepting the legitimacy of taxation that we can hope to match the communitys expectations for...

Michael Keating. Part 3. An Alternative and Better Budget Structure

In two previous blogs I have argued that the Governments Budget broadly got the economics right, but it failed the test of fairness and it attacks our traditional values. In that case, however, what would the alternative Budget structure look like? Fundamentally the Budget should have relied much more on taxation and less on expenditure cutting. As I have already shown it is low revenue that created our fiscal problem and not excessive expenditure. However, increasing taxation will be easier if it can be shown that expenditure has been properly reviewed and screwed down tightly, and so I will first...

Michael Keating. Part 2. The Budget and our Values

The Budget is always the clearest guide to a governments priorities and values. In the present instance, the Coalition Government wants to define this budget as being all about contribution. Their rhetoric is that we should all make a contribution towards restoring the nations finances. Spreading the burden would be fair and therefore consistent with Australian values. But nothing could be further from the truth. Disadvantaged and low income people are being asked to make very big sacrifices, while most of us will be little troubled, and a few very rich people will be better off as a result of...

Michael Keating. Part 1 The Budget and what it means for Australia's Future

Each day this week I will be running a series of blogs by Michael Keating on the Budget and its repercussions. The posts will be Australia's Fiscal Challenge The Budget and our Values A Better Alternate Budget Structure Taxation Federalism I am sure that these five posts will make a substantial contribution to our understanding of the Budget and its implications for Australia. Mike Keating was formerly Secretary of the Department of Prime Minister and Cabinet. Perhaps more relevant to his comments on the Budget is that he was Secretary of the Department of Finance under...

More on pink batts. Guest blogger: Dr Michael Keating

I would like to add a further comment to your post on 3 January on the Pink Batts. First, I would further contest the evidence that this scheme was poorly conceived and badly implemented. On this point it should be noted that the Auditor Generals finding that 29 per cent of 13808 completed jobs had minor or serious problems was based on a departmental survey, which suggests that the government was following up. Furthermore the survey was not wholly random and as the Auditor General noted this particular finding constituted only weak evidence. Later evidence showed that of 44,300...

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