Tax wealth and consumption rather than income: automation is killing jobs

Tax wealth and consumption rather than income: automation is killing jobs, by Alan Kohler.

Underemployment has been rising steadily for 40 years and is now the highest it has ever been. And it’s a global trend — not confined to Australia.

This is why real wages are now falling, which is to say that average wage growth is below the rate of inflation (1.9 per cent versus 2.1 per cent). …

The economics profession is struggling to account for this, and officialdom isn’t even trying. …

Automation is creating a steady tide of unemployment:

Here’s a guess about what’s going on: in thousands of ways, every day, technology and globalisation are mopping up local, human jobs, and will keep doing it.

I’m not just talking the big things like manufacturing robots and Manila call centres, although they’re an important part of what’s going on, but relatively small, commonplace things like the arms that come out of garbage trucks and pick up the bins now, ATMs replacing bank tellers, emails replacing posties, online shopping gradually replacing shops and online distance learning replacing lecturers.

The shift of manufacturing jobs to China and factory automation has probably peaked — which is to say those jobs have all gone, never to come back — but call centres and data entry operations are still being quietly closed and moved to Manila or other Asian centres every day.

And then there are the big future shocks, like driverless cars and drone delivery, that are barrelling towards us.

Those being made redundant aren’t going on the dole and therefore showing up in the stats — they can’t afford to because of the mortgage. They’re getting whatever part-time or contract work they can, but it’s never enough. In short, they’re underemployed and forming a large pool of labour market slack — not the usual pool easily and classically seen in the unemployment rate, but a pool of available hours. …

If automation continues to overpower job growth, what should we do? At the moment, the tax regimes favor robots, and disadvantage humans:

Society is structured around work (jobs and growth); the entire focus of policy is job creation; taxation is based on income from employment; the whole notion of retirement assumes work to have retired from; and education is almost entirely vocational, aimed at getting a job and then getting promoted.

For a start the tax system will need to be rethought, urgently. Right now the global effort, including Australia, involves reducing company tax rates to compete for mobile capital but that involves cutting taxes on robots, which are plant and equipment rather than staff, and raising taxes on humans.

Got to switch to taxing wealth and consumption, rather than taxing human incomes:

If the plan is to tax human incomes more to make up the loss in company tax income — such as increasing the Medicare levy (Coalition) or increasing the top marginal income tax rate (Labor) — that simply won’t work long term.

If company tax rates, and therefore taxes on robots, must be reduced because of the mobility of capital — and I think that’s probably right — then taxation will have to be focused on human consumption and wealth rather than income.

That means higher GST and land taxes. There is simply no viable alternative, apart from endless deficits, or perhaps coming to an unlikely global agreement on company tax (which is just another form of GST and wealth tax, after all).