Month: January 2011

Drowning In Gillard’s Flood Levy Spin

The Prime Minister first raised the prospect of a flood levy 10 days ago. Her government wants taxpayers to believe the levy is an unavoidable consequence of the natural disaster in Queensland – imposing a special tax is regrettable, but out of the government’s hands.

Yet the day she signalled the flood levy also happened to be a day when her minister Kim Carr quietly announced the start of the government’s Automotive Transformation Scheme. This scheme packages up $3.4 billion of taxpayers’ money and wires it directly to the dilapidated (but very well connected) car industry.

No one begrudges spending to fix Queensland’s damaged infrastructure. The flood reconstruction is not an optional spend. But the money the Rudd and Gillard governments have pledged to give the car industry over the past few years has been.

All up, the government will spend $5.6 billion on flood reconstruction in Queensland, New South Wales and Victoria; $1.8 billion of that will be raised by the flood levy. The rest, certainly, will come from budget cuts. For instance, Julia Gillard announced she would cut $234 million of automotive subsidies to help pay the Queensland bill. But that is a paltry sum, considering the rest of the government’s car programs will continue. Especially considering eliminating the balance of these programs would easily cover what the flood levy is intended to raise. The full New Car Plan for a Greener Future totals $6.2 billion.

Same with the cuts to climate programs. It may sound like Gillard has made hard decisions cutting $250 million out of carbon-capture research and $160 million from the solar hot-water rebate scheme. But simply trimming a couple of the most embarrassing programs – such as the ”cash-for-clunkers” election promise – is hardly aggressive budget cutting. Governments should be congratulated for any cut of wasteful spending. But there’s nothing about Gillard’s cuts that makes the levy a necessity. It is still a very avoidable tax hike, despite the Prime Minister’s claims.

She gave the game away at the National Press Club on Thursday, when she said: ”The great majority of Australians are ready to contribute” to Queensland’s rebuilding. Special levies are only enacted when the government feels confident taxpayers will fork out with minimal resistance. The Howard government was comfortable imposing a gun buyback levy in the wake of the Port Arthur massacre because public opinion clearly demanded action on guns. We are never charged special levies for unpopular things. There has been no automobile subsidy levy; no Kevin-Rudd-wants-a-spot-on-the-UN-Security-Council levy.

So the worthier the use of public funds, the more likely the government will charge taxpayers extra for it. What is funded out of existing revenue and what is funded with a special levy is a political calculation – made by politicians with a close eye on what the opinion polls will bear – not a public finance calculation.

This is the context in which we have to understand the flood levy. But instead we have heard claims that critics of the tax resent helping flood victims. Or that the spirit of ”mateship” requires the government to temporarily increase taxes. These are emotional arguments designed to achieve political goals.

The politics of the flood levy underlines how momentous the government’s decision was to flush the economy with stimulus spending during the financial crisis. You only get one surplus to spend on a national crisis. Rudd’s ”kitchen cabinet” decided that crisis was the GFC: $90 billion worth of spending commitments between September 2008 and May 2009 plunged the federal budget into deficit. We won’t ever know how our economy would have fared if it saved the surplus for a later crisis – such as the floods.

But the Treasury admitted last year there was no statistically significant correlation between the size of an OECD country’s stimulus package and its economic recovery. Some countries – Japan, for instance – spent more than us and yet suffered worse than us.

The debate over the stimulus package is well rehearsed. But the flood levy makes it necessary to revisit. The federal budget is rich with fat. Yet Gillard suggests she cannot find spare change to rebuild the country after an unprecedented natural disaster. If she genuinely can’t – if there are really no government programs left to cut, no funds to spare and no alternatives to a tax hike – then the decisions taken over the past few years, which have placed the Commonwealth budget in such a dire fiscal situation, need to be scrutinised more than ever.

Micromanagement In The Regulatory State

Another year, another 6,369 pages of law. Spread over 150 acts, that was the Commonwealth’s total new legislation in 2010.

Not a bad effort considering their usual legislative binge was interrupted by an election.

The received wisdom about Australia’s political and economic history over the last few decades is wrong.

Think we’ve been living in an era of deregulation? In an era of small, timid, “neo-liberal” government?

The data suggests otherwise.

The Australian Government has been massively, overwhelmingly, and comprehensively expanding its intervention into all aspects of the economy.

Compare 2010’s 6,369 pages to the 1980s, when the parliament only passed around 2,000 pages of law every year. Twenty years before that parliament would pass even less: just 500.

The first few Commonwealth parliaments were lucky to pass more than 100 pages a year. In 1907 the Governor-General ticked off on a paltry 17 pages of new law.

It took just a few hundred pages of legislation to set up the Commonwealth. But 110 years later it apparently takes more than 6,000 new pages to just keep it running.

Admittedly, these figures come with a lot of caveats. In 2010, Australians didn’t have to obey 150 more laws: some legislation is passed to alter or repeal existing legislation. Not all of it, by any means, but some.

And the figures don’t factor in the immense volumes of statutory legislation implemented by the Commonwealth last year, usually hovering around 2,500 to 3,000 pages. Or the pages of legislation passed by state governments, which varies between 1,000 and 4,000 depending where you live. The states implement statutory legislation too.

Yet with all its caveats, looking at the number of pages of law passed each year illustrates two things.

First: the more laws a government passes, the busier it is. We have increasingly busy governments. Australia’s legal and regulatory system is being continuously shuffled around. Continuous change has its consequences. To take one of the more prominent examples, in the last few years businesses have had to get up to speed with niceties of Workplace Agreements, then the complexities of WorkChoices, and now the nuances of Fair Work.

Second: the regulatory framework which governs the economy is increasingly complex. Longer laws are more complex laws. The WorkChoices act was 762 pages. The Fair Work act was 651. People (not just lawyers) have to read and understand those tomes.

Regulation spawns more regulation. Not all regulation works to achieve its goals, so regulators and politicians just pile more and more rules on top. And a great deal of regulation is imposed just for its symbolic benefit – the need to “do something” in response to public demand. The OECD calls all this “regulatory inflation”.

Condemning the “volume and complexity of federal laws”, the Chief Justice of the Federal Court of Australia Patrick Keane told the Australian Financial Review Friday that “opening the tax act is like entering the door to a parallel universe”.

This growth in government control over the economy is hard to reconcile with Kevin Rudd’s view that a “particular brand of free-market fundamentalism, extreme capitalism and excessive greed” has dominated the last decades.

Take the now-orthodox view the global financial crisis was caused by a lack of regulation. This view seems to ignore the abundance of regulation governing the banking and finance sector in the United States, and, indeed, globally.

Certainly, in the aftermath of the crisis, a batch of new international banking regulations have been implemented, most notably the Basel III accords. But rarely is it pointed out there was a Basel I and a Basel II. Each were substantial regulatory frameworks themselves.

Indeed, the perverse incentives created by Basel II’s capital requirements (which encouraged banks to hoard AAA-rated mortgage backed securities) were one of the major causes of the crisis in the first place.

Other regulations administered by the American Securities and Exchange Commission protected the private ratings agencies – which granted the AAA grades – from competition. It gets worse. Jeffrey Friedman convincingly argued in Cato Policy Journal last year that not even the SEC knew about this latter regulation, which it itself had imposed in 1975.

If there are too many regulations for even the regulators to keep track, then our problem isn’t too little regulation.

The expansion of regulation is a bipartisan project. The Howard government was just as enthusiastic about regulating as the Rudd and Gillard Government has been.

With 6,369 pages of legislation, 2010 was unfortunately an unexceptional year.

So it’s time we recognised our political system for what it is. It’s not neoliberal. Nor is it social democratic. Australia is a regulatory state – one in which three levels of government have wrapped society with a complex and confused mesh of rules and laws which micromanage everything we do.

Why Greedy Gerry And His Mates Will Win In The End

Gerry Harvey is not Australia’s most popular man right now. It would have taken a hell of a campaign to convince Australians that imposing GST on internet retail purchases under $1000 was not just good policy, but the only fair thing to do.

It’s hard to feel bad for the retailers’ coalition, which includes Myer, David Jones and Target as well as Harvey Norman, because it seems like they’re trying to divert attention from higher prices in their shops, which have nothing to do with the GST at all. Hence the popular backlash.

But despite their tone deafness, the retailers have identified an issue that will be huge in the future. For better or worse, the government will eventually be forced to close the GST-free loophole. The alternative is to admit an efficient consumption tax is impossible in a world of global commerce.

Sure, in 2010, only a tiny percentage of retail sales were online. But there is no reason to believe Australians’ engagement with online retail and services has peaked. After all, it took some time to get where we are today: people had to get comfortable with buying goods, sight-unseen, from a website or auction seller.

There’s a generation gap too: 82 per cent of Australians aged 25 to 34 reported purchasing goods online, compared to 38 per cent of those above 65.

And the cost of international shipping is becoming trivial.

The UK-based site, Book Depository, is somehow able to beat almost all Australian retailers on price and ship its products across the world for free. It’s a volume game: the more they ship, the cheaper the shipping for each individual item becomes. The courier discounts the site has negotiated mean many Australian books are cheaper to ship from the UK than to buy at a bricks-and-mortar store here.

Sites like Book Depository use air freight. The savings are even more substantial when you ship.

The rise of the shipping container since the 1960s has reshaped and propelled globalisation more than any other innovation. Where earlier goods would be stowed haphazardly on pallets in small cargo ships, they are now shoved into metal boxes of uniform size, which has changed international commerce to the extent that transport costs are becoming irrelevant.

That’s two disruptive changes working in concert. Driving one side of retail, the revolution of the internet has been proclaimed far and wide. But the revolution on the other side, in international transport, is just as significant yet largely unnoticed.

The waves of change in retail and industry are immense and, of course, welcome. Right now, Gerry Harvey may seem like a rent-seeking whinger. But it is a virtual certainty his campaign is just the first skirmish in a long war between government and consumers who are comfortable circumventing domestic taxes.

As long as the loophole remains, we can expect retailers to try to blur the distinction between overseas and domestic retail. As a pre-Christmas gambit, Myer announced it was considering building a Myer-branded website in Shenzhen, China, to exploit the GST-free loophole.

A transparently political announcement, but not a stupid idea. If there’s a competitive advantage to be gained from restructuring a business to avoid paying local tax, someone (not necessarily Myer, but someone) will try.

The retailers haven’t quite made their case. At the moment, the logistical hurdles to imposing the GST at the border are insurmountable. And there’s obviously no way to get every online retailer around the world to comply with Australian tax law.

Julia Gillard said last week that levying GST on international purchases under $1000 may cost more than it would raise. (Customs ain’t free.) That’s as good a reason as any to rebuff the retailers. Yet it’s at best a temporary reprieve. As online commerce inevitably grows, the arithmetic will change. No government will tolerate watching its revenue hollowed out by changing consumer preferences.

The reaction to the retailers’ campaign has been intense, a reminder Australians don’t like paying tax very much. Less tax is better than more tax; better again is no tax at all.

Yet whether now or in 20 years, the government will have to face the fact that globalisation makes it easier and easier for individuals to get cheap deals. This includes seeking the lowest tax liability.

Policy makers and bureaucrats designing tax systems have long struggled with the fact that globalisation makes it hard to impose heavy taxes. We’ve seen this in the mining tax debate, where miners have threatened to take investment money overseas.

So as we now avoid tax by shopping online, perhaps we might rethink our moralising about those miners or, indeed, the wealthy individuals who protect their earnings in tax havens.

With the internet, tax avoidance is no longer just for the rich.

I think that’s a welcome development. Politicians with big spending dreams will disagree. Gerry Harvey mightn’t be popular, but eventually a government will do his bidding.

National Curriculum Gets Our History Badly Wrong

Julia Gillard began the development and implementation of the national curriculum as minister for education in the somewhat happier days of the Rudd government. It hasn’t gone well. The curriculum’s implementation problems keep piling up. It’s not at all ready to be taught.

The plan was to have the curriculum rolled out in the 2011 school year, but only the ACT will meet that deadline.

New South Wales and Western Australia have decided to delay the curriculum to 2013. The Victorian government announced recently it would do the same. But there are problems with what’s in the curriculum too.

Take, for example, the history syllabus. After a full quota of compulsory schooling, Australian students will be none the wiser about the origins and central tenets of liberalism: the basics of individual rights, representative democracy and the market economy, and the importance of civil society.

Not to put too fine a point on it, but these are the absolute fundamentals of Western civilisation. And they are missing from the national curriculum.

One need look no further than how the curriculum purports to teach ”struggles for freedom and rights”, a ”depth study” for year 10 students.

The struggle for liberty against tyranny is one of the most important themes of the history of the past 500 years. From the English Civil War to the American and French revolutions, the proclamation of the rights of individuals has given us a rich inheritance of liberalism and civil liberties. That, at least, is how you’d think it would be taught.

But according to the national curriculum, the struggle for individual liberty started in 1945. Because that’s when the United Nations was founded.

To hinge the next generation’s understanding of individual rights on such a discredited institution is inexcusable. And it says a lot about the ideology of the curriculum’s compilers: as if individual rights were given to us by bureaucrats devising international treaties in committee.

Do we owe our liberties to centuries of effort by moral philosophers and revolutionaries opposed to repressive governments? Or do we owe our liberties to the UN International Covenant on Civil and Political Rights, devised by governments, and which only took force in 1976? The curriculum implies the latter.

Students go on to study the fight for freedom in the developing world and battles for rights of developed-world minorities. Worthy topics. But oppressed minorities were seeking the same rights held by the majority. Aboriginal Australians wanted full political rights. Black Americans wanted an end to discriminatory Jim Crow laws. To teach the struggle for minority rights without mentioning how the idea of universally applicable rights came into being is to distort history.

We could dismiss this distortion as an accident if not for the strong impression it would give students – that the history of Western civilisation is primarily characterised by the oppression of minorities, not the long, slow, spluttering development and expansion of political freedom, liberalism and prosperity.

Rights denied to racial minorities is a stain on our past, but it is not the sole attribute of our history. If the struggle for individual rights against the tyranny of government is one pillar of the history of Western civilisation, the other crucial pillar is the boom in wealth and well-being over the past two centuries.

Here too the national curriculum is distinctly lacking. The year 9 study of the Industrial Revolution includes weeks pondering ”the 19th-century concept of progress” – insinuating that a belief in progress is anachronistic. The syllabus keeps students’ attention on labour conditions, social problems and the slave trade. Again: worthy topics. But it is an accepted historical truth the Industrial Revolution was the bed on which our affluence was born. Hopefully that can be squeezed in between discussions on dark satanic mills, machine-breaking and limits to growth.

And the Industrial Revolution was the period in which slavery was ended. Slavery has been a constant throughout history. Its elimination is humanity’s greatest achievement. But introducing slavery in the Industrial Revolution unit suggests something else: that the invention of modern capitalism was somehow to blame for this ancient crime.

The entrepreneurial spirit of the Industrial Revolution is one we should encourage in students.

Yet the word ”entrepreneur” appears nowhere in the curriculum. And when the curriculum talks about ”wealth”, it only refers to the distribution of wealth, not the creation of wealth.

Sure, the ideological assumptions in the national curriculum are subtle. But they’re pernicious.

Students will not be taught the origins of their world. They’ll learn only of Western civilisation’s mistakes, while staying ignorant about its extraordinary achievements.

So Canberra’s inability to implement the national curriculum may be for the better.