Ideas@TheCentre
HOIL no more
Click on the date below to see the corresponding issue of ideas@thecentre:
Friday, 28 May 2010
Friday, 21 May 2010
Friday, 14 May 2010
Friday, 7 May 2010
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Freedom quote of the week:
‘Liberty is not merely a privilege to be conferred; it is a habit to be acquired.’
- David Lloyd GeorgeRSPT debate put on ice Robert Carling
Don't trust Google, trust the government Jessica Brown
A pox on the liberal house Jeremy Sammut
RSPT debate put on ice
In the heat of debate about the emotively named ‘resource super profits tax’ (RSPT), it can be difficult to keep track of exactly what the argument is about. Is it the very concept of a resource rent tax (RRT) on which the RSPT is based, the particular design of the RSPT, the size of the tax burden being imposed on the industry, or some combination of all the above?
The mining companies that are being demonised by the government and some commentators have in fact advocated the replacement of state royalties by some kind of RRT in the past. If we, like the industry itself, accept the concept of an RRT for the sake of argument, then we can focus on design and size. Here, the industry has legitimate grounds for complaint. Three issues stand out: existing projects, the rate of tax, and the future of state royalties.
As far as existing projects are concerned, the loss offset mechanism built into the RSPT design (whether or not it is an efficient mechanism) is irrelevant. All the talk about retrospectivity and heightened sovereign risk are given a ring of legitimacy by the government’s outrageous proposal to subject existing projects to the same tax as new projects (which arguably could benefit from the loss offset mechanism).
Then there is the size of the tax. Even if one accepts the concept of the RRT and the design of the RSPT, what is to say that 40% is the correct rate? The government seems to have plucked this figure out of the air, but two points of reference suggest that 40% is far too high. One is the size of existing royalties, which are much smaller than the revenue from the RSPT. The other is a comparison with other countries that are rich in minerals. One commentator said that an RRT could be imposed at almost 100% without affecting risk-taking in mining. The absurdity of this statement is exposed by international comparisons, which show that the RSPT would put Australian tax on mining way above other comparable countries. The minerals are an immobile tax base, but the capital to develop them isn’t.
Both the treatment of existing projects and the size of the tax have more to do with the government’s craving for revenue than its attachment to sound principles of taxation.
The interaction with state royalties presents another risk to miners. In the government’s design, while existing royalties would be refunded to mining companies out of the RSPT revenue, there is nothing to stop states from increasing royalties in the future, and such increases would not be refunded. The Henry report recommended that royalties be abolished and replaced by the RRT. This is not what the government is doing.
Robert Carling is a Senior Fellow at The Centre for Independent Studies.
Don’t trust Google, trust the government
Thank goodness for Communications Minister Stephen Conroy and his tireless campaign to protect us from the nasty World Wide Web. Like a brave David squaring up against colossal Goliath, he vows to protect us from the evil clutches of internet behemoth Google and its dastardly ways.
In a Senate Estimates hearing this week, Conroy launched a scathing attack on the search giant for a privacy breach in which personal data were inadvertently collected from some Wi-Fi users. The breach was indeed serious, and Conroy is not the only person around the globe to raise concerns. But he just might be the angriest.
A quick scan of HANSARD, however, reveals that Conroy’s real problem with Google is that the search engine doesn’t know its place. ‘They consider themselves to be above government,’ says the Senator. ‘When it comes to their attitude to their own censorship, their response is simply, “Trust us.” They state on the website, “Trust us.”'
And it is this attitude that, according to Conroy, is so dangerous. Perhaps he has a point?
Google can decide – on a whim – to remove web pages it doesn’t like. We will never know what they are because its blacklist is a secret. We don’t even know what criteria are used to decide which pages get binned, or if and when those criteria are changed.
But guess what? It’s the same story with Conroy’s proposed internet filter.
The only difference is, if you don’t like the way Google works you can switch to Bing, Yahoo or any of the other multitude of search engines. If you don’t like the way the government’s internet filter will work, your best option is to leave the country.
Conroy doesn’t really see the connection though. While Google is a ‘corporate giant who is answerable to no one and motivated solely by profit,’ his government is driven by an altruistic urge to protect us all.
But what about those times when it is motivated not by altruism but by a desire to win the next election? Or push an ideological barrow? Or buy off an interest group? Or pander to the political views of an independent that holds the balance of power?
Can we really trust the government to decide – behind our backs – what is in our best interests any more than we can trust Google?
Perhaps a (not so?) radical idea would be for Conroy to trust us to decide for ourselves.
Jessica Brown is a Policy Analyst at The Centre for Independent Studies.
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A pox on the liberal house
Malcolm Fraser’s resignation came as a shock – he was still a member, right? – given his long track record of commenting on political issues and personalities from a Left-wing perspective.
His decision will simply confirm the reputation he has already acquired on the side of politics that made him prime minister in the most controversial of circumstances.
The ‘Dismissal of the Whitlam Government’ is the prism through which Fraser, and much of the political history of the past 35 years, must be judged.
Whitlam was a disastrous prime minister who was headed for an electoral wipe-out at the next federal poll. But was his government so ‘reprehensible’ as to warrant the decision to block Supply in the Senate?
Fraser certainly believed so – and, as events unfolded, his boldness was rewarded and his ambition satisfied a few months earlier than otherwise would have occurred.
At the time, rank-and-file partisans generally swallowed their reservations (and maybe their scruples, except for John Gorton). They threw their support behind the leader’s crash-through strategy which, on any fair reading, involved some pretty sharp and brutal political practice.
Yet it is the foot-soldiers, not the general, who paid the social price for the perception that Whitlam didn’t ‘get a fair go.’ Fraser’s actions were widely interpreted as confirming every Tory born-to-rule stereotype, and the political brand was permanently sullied in a large and influential segment of Australian society.
Many baby boomers, justifiably sick of 23 years of unbroken Coalition rule, were alienated by what became a formative political experience. The lesson they took to heart was that if the Right were capable of engineering the defeat of a democratically elected government, what were they not capable of doing?
Fraser polarised and embittered Australian life like few other figures in our history. The consequences go beyond party politics and have shaped the intellectual climate in which all those who subscribe to liberal ideas and values have to operate today.
The outrage generated by the Dismissal became the well-spring of the dominant Left-of-Centre media, arts, and academic culture that is generally hostile to all things Right.
It is ironic, to say the least, that Fraser has spent his retirement chasing cheers from the ‘elites’ he alienated. He has the right to speak his mind. But given the cultural consequences of what he did back in 1975, the acclaim Fraser continues to receive from the Left is irritating, and justifiably so, if ever you have been treated as social lepers for holding Right-of-Centre views.
Dr Jeremy Sammut is a Research Fellow at The Centre for Independent Studies.
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Freedom quote of the week:
‘The only way to make sure people you agree with can speak is to support the rights of people you don't agree with.’
- Eleanor Holmes NortonA simple idea for our ever more complicated bureaucracy Oliver Marc Hartwich
NZ's budget surprise Luke Malpass
Tax and the City Jeremy Sammut
A simple idea for our ever more complicated bureaucracy
I must be a fairly complicated person, at least if Remy de Gourmont is to be believed. The French poet once claimed that ‘very simple ideas lie within the reach only of complex minds.’
Well, I had one very simple idea a few months ago – and I am still trying to figure out whether it actually makes any sense.
It happened at the height of the controversy over the government’s Carbon Pollution Reduction Scheme. The more I heard ministers wax lyrical about cap-and-trade schemes, the more I wondered why they were not extending the same logic to other areas that needed cuts. If an emissions trading scheme allegedly made it possible to cut pollution in the most cost efficient way, then why should we not use something similar for, say, red tape?
If you think about it for a moment, bureaucracy and carbon emissions are not too dissimilar. You can understand them both as unwanted byproducts of something else. Carbon emissions are byproducts of energy use, whereas bureaucracy is a byproduct of regulation. Both can be understood as some kind of pollution.
And this is where my very simple idea comes in. Why should we not introduce an emissions trading scheme for regulatory pollution? You could cap the total amount of bureaucracy costs for the whole economy just as you can cap the total amount of carbon emissions. And instead of issuing carbon certificates to polluters, we would issue red tape certificates to bureaucrats.
Under this Red Tape Trading Scheme, bureaucrats would have a choice. They could reduce the regulatory burdens they impose by cutting red tape. Or they could purchase credits from their colleagues at other departments who managed to do better.
The Red Tape Trading Scheme would make it possible to reduce administrative burdens without a top-down strategy. Instead, it would give incentives to bureaucrats to spot opportunities to still achieve the same goals of regulations but with less bureaucracy.
As I said before, it is an extremely simple idea – so simple, in fact, that when I first had it I thought, ‘Gee, someone must have thought about this before.’ But as far as I could see, this scheme has never been tried anywhere.
This leads me to conclude that maybe it is just an outlandish idea. Perhaps it is completely unworkable and barmy.
Or maybe I am just too complicated?
Dr Oliver Marc Hartwich is a Research Fellow at The Centre for Independent Studies. His paper Towards a Red Tape Trading Scheme: Treating Excessive Bureaucracy as Just Another Kind of Pollution was released this week by the CIS.
NZ’s budget surprise
A hike in GST and concurrent reduction in personal income tax rates have been the worst kept political secret in New Zealand. But the extent of the cuts and improved debt outlook, revealed in yesterday’s budget, have surprised many.
GST has been increased to 15% and all personal income tax rates have been reduced from 1 October this year.*
What this means is that for a person earning $48,000, the tax rate has dropped from 33% to 17.5% in the last two years. This is a substantial drop. Prime Minister John Key is also claiming that this new package means that 17.5% is the highest marginal tax rate for three quarters of taxpayers. This is a remarkable figure and signals a move in the right direction. The changes also mean that the top rate of personal income tax is now aligned to the trust tax rate at 33%, thus closing a tax avoidance loophole.
Perhaps most surprising is a 2% reduction in company tax rate to 28% from the start of the 2011–12 financial in March next year. This is of note because it is immediate, unequivocal and not funded by any sort of ‘resource super profits tax’ such as in Australia.
However, there is a downside. These moves are fiscally neutral over the next three to four years and do not address the overall tax burden that New Zealand faces. Core Crown expenditure is at an all time high at 34.7% of GDP, and the increase in revenue gained via GST will make this more difficult to reduce.
Although this particular rearranging of the tax system is positive and to be welcomed, it is overall expenditure that needs to be addressed by government policy into the medium term. This is something the current government has been assiduously trying to avoid, so as not be accused of carrying out swingeing cuts. So far, with help from New Zealand’s export led recovery, it has been successful.
The 2010 Budget was surprisingly bold compared to what was expected, but considering the government’s substantial political capital, a bit timid, especially on the spending side. However, signs are positive that cuts in low quality spending may be down the line in the medium term. It now seems to be a case of ‘watch this space.’
In the meantime, Kiwis can look forward to 1 October!
*Personal income tax rate changes: 0–$14,000, 12.5–10.5%; $14,001–$48,000, 21–17.5%; $48,001–$70,000, 33–30%; above $70,000, 38–33%.
Luke Malpass is a Policy Analyst with the Centre’s New Zealand Policy Unit.
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Tax and the City
To borrow a line, I want to tell you about a girl.
We shall call her ‘Isabella.’ Isabella is a high school teacher at a public school. I know what you’re thinking and you are not entirely wrong.
She believes NAPLAN is a disgrace that punishes disadvantaged schools and that Deputy PM Gillard is a sell-out. I’m working on her on that and other fronts, because she is not a lost cause. At university, she protested against the construction of freeways on environmental grounds, but has since learnt-by-doing that freeways are a faster way to get to work without wasting hours each week in traffic.
Recently, Isabella made an interesting point for someone with a left-of-centre perspective on an old issue. As a dedicated and hard working educator, she mentioned how much of her modest salary is confiscated as income tax.
Not that she was complaining. You see, she wants to live in a welfare state in which everybody receives enough income from the government to keep body and soul together and keep people off the streets.
What was annoying her was the number of beggars constantly on show in the Sydney CBD. Show is the right word. These beggars come complete with cardboard accounts of tales of woe and kneel on the footpath with heads bowed in supplication.
This struck Isabella as un-Australian and a betrayal of the social contract she willingly supported. As she put it, she pays her taxes so fellow citizens don’t have to debase themselves by seeking ‘alms for the poor,’ and, therefore, resents being expected to feel guilty as she had already given at the office.
She suspected (rightly) that since even homeless people can claim benefits, these people are undeserving of a few loose dollars and cents more. She also has an old-fashioned respect for work, which led her to a profoundly un-Left conclusion. If the beggars can put so much thought and effort into their daily performances, why can’t they put the same energy into finding a job?
She also wondered what the police are doing and why these people are not moved on. This is a very good question.
Dr Jeremy Sammut is a Research Fellow at The Centre for Independent Studies.
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Freedom quote of the week:
‘It is the duty of government to make it difficult for people to do wrong, easy to do right.’
- William E. GladstoneHow to reduce the budget deficit, without really trying Stephen Kirchner
HOIL no more Sara Hudson
UK election report Peter Saunders
How to reduce the budget deficit, without really trying
According to Treasurer Wayne Swan, the government is set to preside over the ‘most substantial fiscal consolidation in Australia’s modern history,’ leading the federal budget back into surplus by 2012–13. The OECD’s glossary of statistical terms defines fiscal consolidation as ‘a policy aimed at reducing government deficits and debt.’ But the policy measures in the government’s 2010–11 Budget make the budget balance worse, not better. The projected improvement in the budget bottom-line is more than fully accounted for by changes in forecasting assumptions. The government wants to claim credit for an improvement in the budget outlook that is entirely a product of its earlier forecasting errors.
The government’s forecast of a faster return to surplus is not evidence of fiscal discipline but of the sensitivity of the fiscal outlook to underlying assumptions. Similarly, the claim that the Australian economy performed better than expected through the global financial crisis is evidence – not of the success of activist fiscal policy but the fact that the forecasts on which that policy was based were too pessimistic.
The budget papers include a chart showing that the size of fiscal stimulus was positively correlated with the size of the forecast error for economic growth across 11 countries, although as Sinclair Davidson has noted, the results are rather different including additional countries. The government wants us to conclude that its fiscal stimulus is to be credited for better than expected economic performance. But causality could just as easily run the other way: the large forecasting error led to excessive stimulus. Since the government’s earlier budget forecasts already had the expected impact of the stimulus measures built into them, its assumptions about the effectiveness of stimulus must have been incorrect as well. Indeed, the government now claims that the multipliers it used to estimate the impact of the stimulus were too small. But this just concedes the point that the government has no idea how effective its fiscal policy measures really were in stimulating economic activity.
What matters is the not the budget forecasts, but the policy outcomes. The Rudd government has presided over the biggest growth in federal spending since Gough Whitlam. It is now committed to keeping real growth in federal spending below 2%. But that’s just a forecast. As the old disclaimer says, outcomes may vary.
Dr Stephen Kirchner is a Research Fellow at The Centre for Independent Studies.
HOIL no more
You know, the difference between a black man and a white man is this, when a white man dies his family gets his house. When a black man dies the government gets it.
— Doing Housing, a report on housing issues in Palm Island from an Aboriginal perspective.
The federal budget’s ‘redirection’ of $56 million of unused capital from its failed Homeownership on Indigenous Land (HOIL) program to another housing scheme for Aborigines in cities and regional towns is the final nail in the coffin for many remote Indigenous Australians’ dreams of homeownership.
It comes as no surprise that Indigenous Australians are not lining up to borrow from HOIL.
This is not to say that Indigenous Australians living on Indigenous land do not want to become homeowners, as some commentators would have you believe.
It has more to do with the fact that they can’t because lease arrangements that were meant to facilitate homeownership have not worked. Back in 2006, the Howard government introduced changes to the Aboriginal Land Rights Act (Northern Territory) 1976 to enable 99-year township leases on communally owned Indigenous land. But only one Indigenous land council – the Tiwi Islands – agreed to a 99-year township lease.
Rather than trying to improve the flaws in the Howard government’s lease scheme, the Rudd government has largely ignored the issue of homeownership, preferring instead to focus on securing 40- or 50-year ‘block’ leases for public housing under its ill-fated Strategic Indigenous Housing and Infrastructure Program (SIHIP).
This is a shame, because it is clear from all the problems with SIHIP that public housing should not remain the only option for residents in remote communities.
This week, the Australian Senate requested that the Auditor-General conduct an urgent investigation of waste and mismanagement in the $672 million SIHIP.
This followed a written answer in Parliament to a question about how much each house under this scheme had cost to renovate. The government’s response that it was not possible to disaggregate payments for individual communities or houses defied belief.
Millions of dollars are being spent on Indigenous housing, but the government has no idea what it’s being spent on?
Adding insult to injury for remote Indigenous Australians is the fact that government is now transferring money meant for them to Indigenous people living in urban and rural regional areas. This money is meant to help urban Indigenous Australians access low interest home loans even though some of the potential borrowers earn up to 125% of the average wage.
The government was not very convincing when it said homeownership ‘must be among the choices available to all Australians,’ and the Rudd government’s redirection of funding to the over-subscribed IBA Homes loan program signals that it has finally given up pretending that its rhetoric will become reality.
Sara Hudson is a Policy Analyst at The Centre for Independent Studies.
