Adam Schwab in Crikey yesterday had a go at Bernard Keane.  It’s here – possibly paywalled.  My response may be a little too long for Crikey, so I’ve also posted it here, below the fold.

Adam Schwab is probably wrong when he suggests that removing payroll tax would create jobs.  It’s not all that likely to be able to be linked to a singe job.

In Victoria, payroll tax is 4.9%, levied on companies with a payroll of over $550,000 each year.  This means a company with a payroll at the threshold pays $26,950.  The minimum wage is currently $569.90/week, or $29,634.80 per year.  On-costs (superannuation, WorkCover and other costs) add about 20% to this total (say $35,000).  The complete elimination of payroll tax could not create a single full-time job until it was removed on a company with a payroll of over $700,000.  But that’s only a possible job.  Once you consider the impact on a unit cost of goods produced (or services rendered), it gets to the point that payroll tax is a tiny component of the total cost of a good or service anyway.  Using an example, if Ford have 1,560 people employed in production of cars in Australia on an average $100,000 salary, and produce 80,000 cars, the payroll tax cost per car is less than $100 on a purchase price of $15,000 and up.  Ford buyers’ individual savings of $100/car are unlikely to do much to create a job.  Adam Schwab might counter by saying that the money saved will go somewhere – even if Ford pocket the entire corporate tax cut, sooner or later some of it will reach people and start creating jobs.  But currently the majority of payroll tax creates jobs too – teachers, nurses, police, and other public servant positions.  It creates infrastructure too, which creates private sector jobs.  Pretty much all of them are necessary for the state to function.  The hit to Victorian revenue of $4.7 billion (10% of the state’s income) would need to be made up from somewhere, as reduction in government funds leads to a reduction in the workforce.

Adam Schwab does himself no favours by making silly arguments.  The notion of employing people to break windows so that others can be employed to fix them is obviously daft.  Schwab writes off the value of the BER projects, but I don’t think everyone else would be so quick to do so.  The projects have lasting value, and the available information suggests Bernard Keane’s point is well made – the projects were needed, delivered efficiently, in a timely manner, and supported the sectors that needed support (and where the multiplier effect is highest – although I suspect Schwab believes the multiplier is 1, if not less than 1).  And the jobs maintained were sustainable both in the medium and long term.

Finally, the notion that the costs of the various economic stimulus programmes are borne by those yet to be born is only true if you are also prepared to accept that the costs of doing nothing are also borne by those future taxpayers.  A proportion of those who would be unemployed after a severe downturn will never find a comparable job again, and some will never find a job again and join the ranks of the long-term unemployed.  And for those who do not find work, unemployment rates decline slowly.  The economic costs both in outlays by governments and in permanently lost national income should also be considered.