Category: Articles

Australia isn’t immune to the Brexit debate

It is not always a good idea to draw an opinion on the domestic affairs of other countries. But in the case of the upcoming British referendum on June 23 to withdraw from the European Union, Australians should be paying close attention.

The pathologies that have led to the Brexit vote are not unique to Europe – there are deep lessons for Australian policymakers too.

At its heart Brexit is a contest between technocracy, red tape and administrative power on the one side, and democracy and sovereignty on the other. In other words, what we see in the byzantine bureaucracies and agencies of the EU is an extreme form of trends that are common across all Western liberal democracies.

Polling this weekend showed the vote to withdraw from the EU has a 10-point lead over the vote to Remain, with 55 per cent of respondents supporting Leave.

This finding is important not just because of what it suggests about the outcome of the vote. The received wisdom has been that voters primarily concerned about immigration – the free movement of people across Europe has never been more controversial than after the Syrian refugee crisis – would vote Leave. Voters primarily concerned about the economy would vote Remain.

Modelling done by the UK Treasury has claimed that British households would be £4,300 worse off in 2030 if the country had left the EU than if it had stayed. This result is derived from the apparent decline in openness to trade and foreign investment that withdrawing from the EU might bring.

But the weekend’s polling shows that the Leave argument is making significant inroads into the group of voters who see the economy as paramount.

As Dan Hannan, a British member of the European Parliament and supporter of Brexit has pointed out, catastrophic claims about the decline of trade and openness resulting from a Leave vote are nonsense. Withdrawal will not be instantaneous following a successful referendum. Rather, the referendum is a mandate for the British government to negotiate withdrawal; to forge new trade agreements and arrangements while simultaneously stepping back from Europe-wide ones.

There are two distinct visions of European unity. One has perversely flourished, and the other has become distorted beyond recognition. The first is the dream of a government of Europe – a transnational European equivalent of the bureaucracies and political institutions that run national governments.

This first project, it must be said, has been an enormous success. The EU has a parliament, courts, a monetary system, and an enormous administration. One 2008 estimate of the number of bureaucrats working in EU institutions – the EU itself is cagey on its total staff – came to 170,000. This is more than the British army.

But it’s one thing to create a government, it’s another to create a responsible, legitimate government. Even the EU acknowledges that it suffers from a perceived democratic deficit – that the citizens of Europe do not feel they are able to reject the administrations and policies that rule them.

While the European Parliament is an elected body, the six other key European institutions are not.
The European Council, the Council of the European Union, the European Commission, the Court of Justice of the European Union and the European Central Bank are all at one or more steps removed from popular control.

In this sense EU institutions are the natural end point of a trend that affects Australian administration as well – the spread of administrative and regulatory independence designed to keep politics out of policymaking. But this comes at the expense of democratic control.

The second vision of European unity was as a free trade bloc. The 1957 Treaty of Rome conceived of Europe in distinctly classical liberal terms, allowing goods, services, capital and labour to move across borders. This was an enormous achievement at the time, given the economic source of so much intra-European antagonism.

The perversion of the ideal of European free trade occurred with the development of the common market. Properly understood, a country with its markets open to free trade is still able to write its own rules about the conditions in which goods and services are produced and sold within the borders of that country. However, the European common market developed in such a way that widened its focus to the regulatory constructs within each country that make it harder to sell (for instance) an Italian product produced according to Italian standards in France, where French standards apply.

The common market aimed to eliminate these differences. Unfortunately it did so by imposing pan-European regulatory requirements across the whole continent. Without the constraints provided by democratic institutions, the EU has been an enormous source of new regulation and red tape – what is understood by European citizens as EU meddling and domestic interference.

One think tank calculated that since 1957 the EU had passed and incredible 666,879 pages of law. In some states up to 84 per cent of national legislation involves the implementation of new and adjusted EU rules. Analysis based on the British government’s own regulatory impact statements show that red tape coming from Europe costs the British economy at least £33 billion (AUD $63 billion) a year.

The European Union represents the worst inclinations of modern government – heavily bureaucratic, deliberately undemocratic, meddling and interventionist. Australian policymakers should not imagine that British discontent with Brussels has no lessons for them.

The case for a company tax cut is rock solid – and Labor knows it

To read most election comment you’d be forgiven for believing that what was until very recently a bipartisan consensus – that there was a strong case for Australia’s company tax rate to be cut – was in fact a mass delusion.

In 2010 Wayne Swan as treasurer declared that, “Reducing company tax will create new jobs and grow the economy right around the country” and was open to a reduction in the rate from the current 30 per cent to 25 per cent. Chris Bowen was arguing for a 25 per cent rate as recently as September last year.

But now that the Turnbull Government has announced a reduction to 25 per cent to be phased in over the next decade, Swan says there’s “no case for a company tax rate” because multinational companies are avoiding their tax and to suggest otherwise has something to do with Margaret Thatcher and Ronald Reagan and “trickle-down economics”.

For their part, Bowen and Bill Shorten now describe the 25 per cent rate as a $50 billion giveaway to big companies.

This is a rather damning indictment of the current Labor leadership, which has abandoned a long-held position simply to paint the Coalition as pro-big business during an election campaign.

Still, why blame a politician for acting like a politician? The populist argument against company tax cuts is just too easy to make. What’s remarkable is not that Labor has reversed its view but that successive governments actually managed to reduce the company tax rate from 49 per cent in the late 1980s to 30 per cent today.

The case for a corporate tax cut is rock solid. It’s about ensuring that the Australian economy is internationally competitive. A competitive economy attracts foreign investment – and with that investment comes growth and jobs. By contrast, an uncompetitive economy is a declining economy.

As the Rudd government’s Henry Tax Review pointed out, in 2001 the OECD average corporate tax rate was 32.5 per cent. At that time Australia’s 30 per cent rate was a good effort. But now the OECD average is about 25 per cent, and Australia’s rate hasn’t changed.

A word has to be said here about our system of dividend imputation. Under dividend imputation, investors receiving a dividend are credited for tax already paid on company profits. This avoids profits being taxed twice – first as company tax and then as personal income tax when dividends are returned to shareholders.

You often hear that dividend imputation makes the 30 per cent headline rate meaningless, as a reduction in company tax would be automatically made up by a corresponding increase in income tax collection. But that only holds true for domestic shareholders. Foreign companies have foreign shareholders who do not benefit from dividend imputation. And it is foreign companies we want to attract – along with their money and jobs and economic activity.

Indeed, the fact that we need a dividend imputation system at all partly demonstrates why the company tax is a bad tax. In truth no “company” pays tax. Companies are made of people and people pay tax – whether those people are company’s customers, shareholders, workers or management.

Who ultimately pays what proportion of the company tax is a matter of great controversy.

Last year Chris Bowen accepted that the bulk of the company tax was paid by workers. If, alternatively, investors pay the bulk, then it’s worth remembering that through compulsory superannuation we’re all investors. If management pay the bulk – and you sometimes see arguments that the company tax is a de facto tax on wealthy managers – then it is a wildly indirect way of taxing the rich.

This confusion and complication is why every serious investigation into tax points out that the company tax is one of the most inefficient – that is, wasteful – taxes available to government. (See Chart 1.5 of the Henry Review.)

Yet Australia relies on this inefficient tax for its revenue (18 per cent of the total tax take as of 2013) more than any other OECD country (with the exception of Norway, where company tax provided about 22 per cent of the total tax take).

In that light, Wayne Swan is exactly wrong to argue that multinational tax avoidance means we shouldn’t reduce the company tax rate. I’ve argued in the past that avoidance is for the most part a non-problem. But to the extent that company tax is being avoided, it is because other jurisdictions – like Singapore – offer much more welcoming tax environments than Australia does.

Our extreme reliance on company tax makes us particularly vulnerable to corporate tax avoidance and demonstrates how uncompetitive Australia has become for investment.

Labor used to understand this. Given how close they are to winning government, it’s a real worry they no longer do.

Why we’re seeing less pork barrelling this election

When you boil them down to their essence, Australian election campaigns are really just elaborate pork barrel road shows. For all the talk about vision and ideology, politics is about what pleases marginal electorates, not philosophy.

Bill Shorten was in Western Australia last week doling out $45 million for Perth’s Wanneroo Road. Malcolm Turnbull was there a few days later, announcing his own Wannaroo Road upgrade, but a slightly cheaper one – just $20 million.

I complained about this pattern in the 2013 election. Shorten and Turnbull are competing to head the government of a $1.6 trillion economy – Australia is one of the richest countries in the history of the world – and their job application involves dribbling out money for grade separations.

And yet there’s something different about this election. It’s not that the pork barreling isn’t happening. Coalition and Labor candidates are dutifully travelling their electorates to announce minor environmental projects, CCTV installations and community centre upgrades. But at a national level there’s a slight feeling of embarrassment about the whole charade.

Fundamentally both major political parties know that every new spending promise – every new security camera, every new fence around a local park – is a further setback to repaying the national debt.

This week Shorten announced that Labor would not promise to restore the Schoolkids Bonus, which had been scrapped by the Coalition, and refused to guarantee it would restore money to the pension that the Abbott government had cut.

These announcements constitute a dramatic reversal of years of Labor rhetoric. Both the Schoolkids Bonus and the pension changes were essential elements of the attack on the Coalition as being unfair to low and middle income earners.

This is the first election since the Global Financial Crisis in which the reality of deficit politics is beginning to dawn on both major parties.

Tony Abbott and Joe Hockey made the changes on the grounds that cuts had to be made to the Commonwealth budget if it was ever to return to surplus. Now finally at the end of the Coalition’s first term in government Labor has conceded the point – yes, perhaps cuts, even uncomfortable, unpopular cuts, need to be made.

No doubt Shorten has known this for some time. Labor in government was unable to restore the surpluses they promised, but were nonetheless willing to reduce spending in ways that hurt them politically. Recall the cuts to single parent payments which so agonised Labor’s own supporters. Shorten must feel he has a non-trivial chance of becoming prime minister, and needs to start tamping down expectations.

This is the first election since the Global Financial Crisis in which the reality of deficit politics is beginning to dawn on both major parties. Neither party has a plan to bring the budget back to surplus, but they are starting to accommodate it. It seems unlikely either side will give the sort of blanket “no cuts to health, education, the ABC, SBS” promise that Abbott did so fatefully on the eve of 2013.

Both Labor and the Coalition announced tax increases before the campaign begun. We saw in the debate on Sunday night that the Coalition is still trying to deal with the fallout from its retrospective superannuation changes. Tax increases are not ideal electoral politics, and the last thing the economy needs is a heavier tax burden. But the increases were probably necessary to give at least some patina of credibility on all the spending promises that were to be announced – at least in the absence of expenditure reduction.

Shorten says that his backtrack on the Schoolkids Bonus and pension changes came after the release of the Treasury’s Pre-Election Economic and Fiscal Outlook. This is nonsensical. PEFO – one of the rituals which makes up Australian elections – did not forecast anything significantly different from the 2016 budget.

But PEFO represents Treasury’s “best professional judgement” on the state of the economy, undiluted by the political needs of its masters. The Coalition in opposition is sometimes willing to second-guess Treasury. Labor is not.

PEFO made two claims that have been obvious for a while but look particularly devastating when expressed in an official Commonwealth document. First, without either tax increases or spending reductions there will be no sustained budget surplus.

Second, budget forecasts are based on an assumption that economic growth will return to its long run average. If that assumption does not hold – if, say, we go into an economic downturn – then the budget is going to be in a dire state.

The upshot of PEFO is that no side can believably maintain the traditional laissez faire approach to campaign spending promises. Sure, there’s the usual money for playgrounds and intersection upgrades. But the 2016 election carnival has an unusually depressing tone. The Australian political class is learning to live with deficit politics.

People or profit: How does the Greens’ corporation plan stack up?

It is turning out to be a very peculiar election. Last week the Greens wholeheartedly embraced the notion of personal choice – and in the realm of corporate law no less.

The new Greens innovation policy, launched on Friday, is for the most part the standard set of spending boondoggles, new bureaucrats and empty jargon that constitutes deep thinking about innovation these days.

But buried in the policy document is a proposal to create a new class of corporation in the Corporations Act: the “benefit corporation”, which, as the Greens describe it, will “consider the collective good, generate public benefit and generate profit.”

This is not a bad idea – but not for reasons the Greens might think. With this policy, the Greens may have subverted a few decades’ worth of left-wing agitation about corporate social responsibility, the idea that firms need social licenses to operate, the stakeholder model of capitalism, and the campaign for ethical divestment.

We’ll come to all that in a moment.
The idea of a benefit corporation is simple. The Greens argue Australian companies are too focused on profit. The Corporations Act says company directors have a duty to act in the best interests of the company as a whole, which has long been interpreted to mean that they should act in the best interests of the shareholders who own the company.

In a benefit corporation, by contrast, directors are required to take other goals into account alongside profit – typically social and environmental goals.

Right now, directors’ duties are vague enough to allow them to pursue virtually any sort of philanthropic, corporate social responsibility agenda they desire.

Since 2010, some 31 American states have started to offer the benefit corporation with a standard model. This is almost certainly the model the Greens are thinking about. To ensure transparency – it’s easy for shareholders to see when firms are maximising financial value, but not so easy to see when they are maximising social value – firms sign up to third party standards which measure their work against agreed criteria.

But the idea that company directors are narrowly interested in profit is a myth. Yes, it is true that Milton Friedman once famously said that the sole social responsibility of business is to increase its profits. But good luck finding an Australian company director that agrees with Friedman. A 2006 survey of company directors found that nearly 95 per cent believed that they had a duty to take account of the interests of stakeholders other than shareholders. An astonishing one in five did not consider shareholders to be among their top three priorities.

The simple fact is that, right now, directors’ duties are vague enough to allow them to pursue virtually any sort of philanthropic, corporate social responsibility agenda they desire, just as long as it can loosely be justified as a public relations measure. This is why we get firms jumping on board political campaigns like Recognise.

Directors are human. It is unsurprising that they would like their friends and families to see them doing good as much as doing well. But it’s not their money they are playing with.

One basic problem facing any organisation is how to ensure that the people who run it do so in the interests of the people who own it. The duty to maximise shareholder value is an institutional mechanism to try to get shareholder and management interests to align.

This is why the benefit corporation is such a powerful idea. Not because corporations are only interested in profit, as many progressives claim, but because they’re not only interested enough.

In effect, the Greens policy would offer for-profit companies a choice: do they want narrow shareholder-focused, profit-first directors duties, or do they want to pursue broader social and environment goals?

Firms interested in the latter could convert to benefit corporations – to pursue ethical investment strategies, to donate to fashionable social and political causes, to talk about community and social licenses and the environment.

But those that remain would have a much clarified mission. Promote shareholder value. Ignore all the other stuff.

Shareholders too would have a choice – higher returns from profit maximising companies or potentially lower returns from benefit corporations.

This is, indeed, the basis of left-leaning critiques of the benefit corporation model, in that it strengthens the profit maximising goal among firms that do not convert.

Of course, to make the benefit corporation meaningful, the Greens should be advocating stronger shareholder rights to ensure that normal companies actually focus on increasing shareholder value.

For decades the corporate form has been a target of anti-capitalist sentiment. Corporations have been depicted as “psychopaths” for pursuing profit on behalf of shareholders.

Basic liberal theory tells us if society disagrees on an issue we should create institutions that allow people to make choices for themselves, according to their own values. How wonderful to see the Greens embrace that principle when it comes to corporate social responsibility.

Why the super debate is a Liberal flashpoint

Casual observers might be confused why what appears to be a technical legal debate – what counts as retrospectivity for the purposes of superannuation policy – has been so emotive within Liberal circles over the last fortnight.

The answer is historical and philosophical.

For the last two years Labor has been beating the Coalition up on “fairness”, arguing that its economic policy favours the rich. The superannuation changes are intended to counter this attack, hitting the Coalition’s own supporters in their retirement accounts.

But with the retrospectivity debate the Government just dropped itself into another fairness debacle.

Retrospective law changes the legal status of actions that were performed before the law was passed. The issue here is that the new lifetime cap of $500,000 on after-tax concessional superannuation contributions is backdated to 2007.

That means there are Australians who have been planning their retirements on the basis of the law of the day and who have suddenly been informed that the law was, in retrospect, different, and that they were working towards a contributions cap that they never knew existed.

That retrospectivity feels unfair, in the sense that it is unjust to rewrite the past in a way that negatively affects the future.

(Retrospectivity is not inherently unfair or unjust. No one could object to posthumous pardons of men convicted of homosexual offenses in the 20th century. And no one should object to the post-war convictions of Nazi war criminals, even though, given they had not violated German law, their offenses had been retrospectively created and applied. But people planning for retirement are neither of those.)

As much as Bill Shorten has tried to suggest otherwise, fairness is not just a question of how heavily the rich are taxed. It encompasses the feeling that a citizenry acting in good faith will be reciprocated with good faith actions by the state.

Particularly since the Howard government, Australians have been told to put superannuation at the centre of their future planning – to contribute as much and as often as they can. Making superannuation the central pillar of retirement income has been a deliberate policy and political position of government after government.

It is hard to exaggerate how much pushback the Coalition is getting from its own supporters on the unfairness of retrospectivity.

There are a lot of people – and many Liberal Party supporters – who are quietly sceptical about the whole idea of compulsory superannuation.

In part this is because retrospective law has a particularly sensitive history in the Liberal Party. The Fraser government’s 1982 legislative volley against the bottom-of-the-harbour tax minimisation schemes (where companies stripped all their assets just before their tax was liable) included a provision that required these companies to pay all the tax that would have been due between the years 1972 and 1980, when the bottom-of-the-harbour schemes were believed to be legally sound.

This created a firestorm among the business community. The issue wasn’t so much that the loophole was being closed. It was that people who had made decisions under the law as it was were suddenly being told that they had actually been acting unlawfully. It was, fundamentally, a fairness battle fought against the government’s supporters.

In his autobiography, John Howard spends a big chunk of his account of his time as Malcolm Fraser’s treasurer detailing the political havoc that the legislation created. Fourteen Coalition members crossed the floor against the bill. Howard told a radio interview in 2006 that he still carried a few scars from the debate. As prime minister he regularly made hostility to retrospective law a basic liberal value.

Twenty-four years after it was introduced, compulsory superannuation is still a policy experiment vulnerable to tax grabs and policy change. While this has been obvious from a theoretical perspective for a long time, the 2016 budget confirms the uncomfortable fact: superannuation is an unreliable store of our retirement money.

Retirement savings are unique in that they constitute fixed investments made with a time horizon of 40 or 50 years. The Coalition Government seems determined to demonstrate that they can fiddle apparently unhindered and consequence-free with the tax treatment of this long-term asset.

Are we supposed to believe that this will be the last change to superannuation? Under the Turnbull Government’s new policy, the accumulation accounts that are supposed to hold super balances above the $1.6 million lifetime cap will be taxed at 15 per cent. It is virtually certain that here will be a government soon that decides that 15 per cent is too low. That it ought to be equivalent to the company tax rate (30 per cent) or the top marginal income rate (45 per cent). Or decides that the money should be taxed when withdrawn at the equivalent marginal income rate.

If it was any other investment, of course, we would be free to move out of this now provably unreliable asset and put our money elsewhere. But that is against the rules.

There are a lot of people – and many Liberal Party supporters – who are quietly sceptical about the whole idea of compulsory superannuation for this reason. It is fundamentally unfair to prevent people by law from accessing until retirement money they have legitimately earned.

And as Labor knows, once people have it in their mind that a policy is unfair, that impression is hard to budge.

The ghosts of deficits past, present and future haunt this election

Is it impolite, at the very start of the election campaign, to talk about the budget deficit? Impolitic? It’s certainly unfashionable.

Budget night was so long ago. Neither Labor nor the Coalition want to bring up this old chestnut. You can understand why. Each have in turn declared their intention to return the budget to surplus and each have failed, at great political cost.

Yet we must talk about the budget deficit. Steel yourself. It would show great disrespect to the treasurers of our ancestors if we were not to briefly acknowledge the land on which they fought and died, at least before the election carnival marches forward. Anyway, the deficit will be the unspoken theme of the whole campaign – always there, never really acknowledged.

Treasurer Scott Morrison declared in the budget speech that the Government was on a “sustainable path” to surplus. This language has become such a cliché that it’s easy to miss how sad it is.

Last Tuesday’s budget declared that the deficit would be just 0.3 per cent of GDP by 2019-2020 – the last year of the forward estimates. Morrison’s predecessor Joe Hockey declared in May 2015 that the deficit would be almost exactly the same (0.4 per cent of GDP) a year earlier, by 2018-19. And in the 2014 budget Hockey argued we’d hit 0.2 per cent of GDP by 2017-18.

The clear reason for this sustained failure to return to surplus is Treasury’s long-standing belief that economic growth will – very, very, very soon – jump above 2 per cent per year. They’ve been predicting this growth leap for half a decade now. No doubt Wayne Swan was very impressed when he first saw growth forecasts with a three in front of them in Treasury’s 2010 outlook. But Morrison’s heart must have dropped when he saw the same numbers again – still just a few years away.

Yes, the budget has to have forecasts. And treasurers can only accept what Treasury’s models tell them. But waiting for a growth spurt that never seems to come is hardly a comforting economic plan.

I’ll admit to some schadenfreude. The deficit has been a major political issue for nearly a decade. Every commentator has refined their arguments on the topic over and over and over. Here’s the hissy fit I had in The Drum on the eve of the 2013 election, when Hockey changed his promise of a surplus to a promise to be “on track” for a surplus.

But in the latter half of the Labor government it was commonplace to hear that there was no need to rush back to surplus. Take this Australian Financial Review piece, or here in The Drum.

Neither party will want to spoil the fun by talking about their embarrassing deficit. But it will be there, uncomfortably shadowing every minute of the campaign.

Many analysts and interest groups warned that the economy either could not handle the necessary budget cuts, or that the surplus was an irrational obsession cultivated by Peter Costello fan fiction. The budget would balance itself in good time. No need to stress about it.

The argument for a single-minded return to surplus was never that the small deficit – yes, our deficit is relatively small as a percentage of GDP compared to many other rich economies – was causing immediate and direct harm to the economy. It was that unless there was pressure on the government to balance the books the government would never feel the need to do so.

And a long-term budget deficit is harmful. Market economies are cyclical. It might not feel that way – growth is sad and sluggish – but it is very possible that these are the good times. When we face the next downturn the budget balance will plunge. It will plunge even deeper if the government of the day decides to stimulate the economy, believing Kevin Rudd’s program to have been a success.

A small deficit always threatens to be a large deficit. And a large deficit is costly, harms macroeconomic stability, and undermines economic confidence. It might not be much fun to cut spending during the good times, but, as Greece has shown, it’s far worse to be forced to cut spending during the bad times.

No doubt we are tired of talking about debt and deficits. Neither party will make it an issue during the campaign as neither party is confident it has a solution. Where tax increases are proposed – such as the tobacco excise hike – they are proposed in order to fund new promises, not pay back old ones.

And spending cuts? Not a chance. It appears that the government has locked in a permanently higher spending plateau. This year it is estimated the government will spend 25.8 per cent of GDP, just a fraction off the 26 per cent of GDP that Rudd spent on his extraordinary stimulus package. Under the Howard government this figure hovered around 23 and 25 per cent.

Elections are always full of spending promises – gifts of road upgrades and sports fields dropped into struggling marginal electorates. If the budget feels long ago now wait until we’ve had two months of pork barrelling. Neither party will want to spoil the fun by talking about their embarrassing deficit. But it will be there, uncomfortably shadowing every minute of the campaign.

Rejecting A Chinese Bid For Land Is In ‘The National Interest’? Show Me How

If it wasn’t clear that “the national interest” was a pretty hazy criterion on which to deny foreign investment approvals, then Scott Morrison confirmed it last Friday.

The first time the Government rejected a Chinese bid for the S Kidman & Co. estate – Australia’s largest private landholding – it was because part of the property, Anna Creek, was next to a sensitive defence site.

In fact, some of Anna Creek is in the least important green zone of the Woomera Prohibited Area, which is infrequently used by the Woomera Rocket Testing Range. Nevertheless, the Foreign Investment Review Board was skittish about a Chinese company owning property nearby, so the deal was scuttled in November 2015.

The Kidman deal was then restructured to exclude Anna Creek. Last week, Morrison announced that this wasn’t enough – the property is just too large to be sold to a Chinese firm. Kidman and Dakang Australia Holdings have until Tuesday to come to another arrangement, otherwise Morrison’s “preliminary decision” to prevent the sale will become a permanent decision.

It’s easy to present the Kidman sale as a big deal. It is, indeed, an enormous collection of properties, spread across Western Australia, South Australia, the Northern Territory and Queensland. It was put together in the 1890s by Sidney Kidman, to whom the words “baron” and “legendary” are usually affixed.

But the land is in fact some of Australia’s least productive. We’re talking about desert. The Kidman holdings are enormous because they have to be – to run cattle across such stark landscape you need space.

As David Uren pointed out in The Australian over the weekend, S. Kidman & Co wouldn’t even rank in a list of Australia’s largest 2000 companies. It has nowhere near the largest number of head of cattle of Australian companies. Geographic size isn’t everything.

Still, you might object, size does matter. But how? Why? Morrison’s press release announcing his preliminary decision is completely empty on this point. It states simply that the sale of a property of Kidman’s size is not in the national interest.

How so? Is it because, as Morrison points out, there are some Australian companies that are interested in the property? This assumes what needs to be shown – that large scale foreign investment is against the national interest, but domestic investment would not be.

Usually governments feel the need to offer arguments in defence of their position. Morrison’s press release offers no justification – just “the national interest”, an empty signifier with no qualification or clarification.

If Kidman is sold, the land would remain in Australia, obviously. The property’s new foreign owners would be able to do no more or less with it than any Australian owners would.

Some have claimed that the sale might result in the loss of Australian jobs, if the new owners brought in Chinese workers. But any Australian purchaser could do the same. The thing that is stopping them is our strict immigration system, and the heavy regulatory constraints around the 457 skilled worker visa program.

Simply put, land owned by foreign investors continues to be governed by Australian law. It is private land so it can be used for private purposes, within those legal constraints. To be afraid of foreign ownership of land is to be afraid of private ownership of land. And to punish it.

Two things are going to happen if Morrison fails to approve the sale of Kidman. First, Kidman’s owners are going to get less money for their property than otherwise. Less money is less investment in Australia – with its superior bid, we can assume that Dakang believes it can run a more efficient and profitable enterprise than any other bidder. Australia is still desperate for capital investment, particularly in the vast interior. Investment brings jobs. Investment brings growth. Blocking investment harms both.

Second, any failure to approve seriously damages Australia’s reputation for stable and reliable investment, and the marketability of other properties that might be sold in the future. Hence the concern from farming groups – WAFarmers and the Northern Territory Cattlemen’s Association, for instance. All this populist handwringing about foreign investment in agriculture actually harms the real farmers who want to maximise investment and sale prices.

We have a clear national interest in attracting investment; a clear national interest in promoting investment certainty; a clear national interest in developing the interior; a clear national interest forging tighter economic links with China; and a clear national interest in allowing Australian property holders to get the best deal for their property.

All of these things encourage economic development and growth, with flow-on effects that enhance our living standards. The Coalition understood this, when, after the 2013 election, they declared that Australia was open for business. How are potential investors in Australia supposed to see that promise now?

From Markets To Speech, Libertarians Straddle Political Divide

When David Leyonhjelm won a Senate seat for the Liberal Democratic Party at the 2013 federal election, many in the media did not know how to react.

Leyonhjelm described himself as a libertarian or a classical liberal. He subsequently was attacked for being too left-wing on drugs, gay marriage and national security, and too right-wing on guns and economics. Many in the press tried to pigeonhole the plain-speaking agribusiness owner as nothing but a kook: one of the crazies who had been raised above his station merely because of the preferential contortions of that election.

Yet what was so different about Leyonhjelm’s views from those of the other parliamentarians? His most controversial position, backing the right to own guns, would not be unusual in a National Party meeting, and it certainly was common enough before the Howard government moved to limit gun ownership. His views on drugs are not much different from those held by many progressives, and they are in step with an increasing acceptance by the political class that the war on drugs has failed. His support of gay marriage is shared by a sizeable majority of the population. And his views on economic policy are exactly those espoused by the free market wing of Liberal members of parliament – indeed, after the 2013 election, there was a widespread belief within Liberal circles that Leyonhjelm’s vote, at least on economic questions, could be taken for granted in the Senate.

It’s hard not to conclude that what makes libertarians unusual is nothing more than the constellation of views they hold, rather than the specific views themselves. There is a near-infinitesimal number of political positions that any individual may take, but the country’s political culture slots everything into a binary division: you are either with the Left, and therefore vote for Labor or The Greens, or you’re with the Right, and therefore vote for the Liberals or Nationals.

So more libertarian-minded people are buried in their parties, awkwardly lumped in with those who they might vehemently disagree with on social or economic issues.

In the Liberal Party, libertarians are found among the ‘‘hard right”, who strangely share that title with the conservatives who focus on social issues like gay marriage and abortion. Labor libertarians, such as they exist, are scattered on the left and right wings of the party, either hiding their admiration for economic liberalisation or turning a blind eye to the retrograde social views of the conservative unions.

It has been more than 30 years since the Hawke government began to deregulate and liberalise the economy. We’re still not over it.

In December 1983, Bob Hawke and his treasurer, Paul Keating, floated the dollar. Their decision was both inspired and visionary. Governments started to place their faith in markets. In 1985, the government opened the banking sector – one of the most tightly monopolised and anti-competitive industries in the Australian economy – to foreign competition. Throughout the next decade, publicly owned businesses were privatised. Tariffs and other trade barriers were lowered.

The labour market was substantially deregulated. The airline market was opened to competition. Ports were sold and restrictions on shipping liberalised. The final break with the past came with changes to the tax system – the introduction of the goods and services tax in 2000 replaced a sales tax regime that had been instituted by James Scullin’s Labor government in 1930.

‘‘Reform”, of whatever stripe, has become the gold standard of government. For the political class, a successful government is that which reforms; an unsuccessful government squibs on reform. But while one of the most common tropes in the press is the business-leaders-urge-reform genre, in which CEOs and corporate lobbyists complain that politicians are avoiding tough decisions about economic change, rarely do they offer any specific proposals.

The reform mantra has allowed each side of politics to dress up regulatory or legislative change as a great reform no matter what its purpose. For the Australian Labor Party, the minerals resource rent tax and the emissions trading scheme introduced by Julia Gillard’s government were considered great reforms. For the Coalition, abolishing those two schemes constituted great reform. Each harks back to the HawkeKeating era not just as precedents for economic change but as some sort of justification for that change. Reform has become the sine qua non of government.

What made the reforms of the 1980s significant was not their constituent parts but that they added up to an agenda. Governments of the time deliberately shifted the economy from one system of political economy to another. They began to instinctively favour market solutions to policy problems where their predecessors had looked to the state. It was a revolution in philosophy as much as it was a legislative program. Once the full significance of this revolution sank in, there was a host of books published by intellectuals of the old Left who believed that Hawke and Keating had hijacked the grand old Labor Party and its socialist-tinged traditions. The sociologist Michael Pusey argued that the commonwealth bureaucracy had been captured by economic rationalists, a sort of reverse-Fabian takeover of the institutions of government. These economic rationalists had a new idea of what Australia ought to look like and what values public policy should reflect.

But budding reformists have a problem. Since John Hewson’s economic policy package Fightback! died at the hands of voters in 1993, there has been no driving vision of what Australia might look like, no vision of what values ought to underpin political change.

There is scarcely any serious contest of ideas. We can attribute that to a generation of politicians too weak to build and defend a vision. It’s a neurosis that infects the entire political class.

My book, in all modesty, is an attempt to offer a new agenda. Libertarianism is a political philosophy that favours liberty in all its facets. The libertarian agenda is deceptively simple but powerful and ambitious. It wants people to be free to trade across national borders and to move their families across them, too.

It provides a philosophical structure for open markets, unencumbered by excessive regulation and red tape, exposed to and strengthened by engagement with a global marketplace. It views overregulation not simply as a cost to business but as a brake on human progress and innovation.

It takes seriously the choices people make about how they spend their money and sell their labour, without assuming that policymakers and the government know better what values those people are weighing up when they make risky decisions. It views entrepreneurs as the central driver of economic growth, and the key to future living standards. And it says that decisions are better when they are made by the people they affect. Libertarianism offers a new and important perspective on the biggest issues facing Australian society, from human rights to the environment and inequality, from trade to sexuality and gender.

It provides a new way through our moribund political debates. The libertarianism I argue for is a fundamentally practical one. It takes people as they are. It treats human society as an impossibly complex, endlessly diverse and infinitely exciting web of relationships and ideas. It asks what economic and political system suits a world in which people have different preferences and want to lead different lives, form different communities and enjoy different lifestyles, but all have equal rights. Government can only limit our liberties, not enhance them. Markets and civil society, by contrast, facilitate such difference, encourage toleration and co-operation, and take advantage of the natural pluralism of a free people.

Libertarianism exposes old problems to a new light, helping us understand how to tackle them and what’s at stake in doing so. As for the inequality debate, governments should first realise they’re already making the problems of poverty and inequality worse before they try to ‘‘fix” economic inequality. Environmental problems are regarded by libertarians as fundamentally property rights problems. Libertarianism also has a distinctive approach to freedom of speech and privacy, two of the thorniest issues of modern public policy. Some conservatives argue that libertarians can’t handle questions of national security and foreign policy – I make the case for a security policy that respects individual freedoms, and a non-interventionist foreign policy.

Returning to the domestic sphere, I tackle freedom of choice, consumerism, and what the human rights debate tells us about the state of libertarian ideas today. The economist Adam Smith wrote that all that was necessary to allow a nation to thrive was ‘‘peace, easy taxes, and a tolerable administration of justice”. What made sense in 1755 is even more compelling now, as technological change and innovation eliminates many of what our predecessors saw as the necessary limits on the market economy. We’re on the edge of a revolution in the way we work, the way the economy functions, and the way we relate to each other. Exploiting these possibilities to the fullest will mean rethinking what government is for – and recognising its limits.

Libertarianism is a philosophy of optimism. It is a philosophy that understands what institutions can and cannot do.

It embraces change. It embraces difference and diversity and pluralism. It wants government out of your wallet and out of your bedroom. Libertarianism, alone, wants individual freedom in all its dimensions.

Turnbull’s Policies Aren’t Liberal, They’re Incoherent

It’s hard not to conclude that Bill Shorten has the measure of Malcolm Turnbull. Policy after policy the Government is chasing the Opposition, rather than leading it.

For instance, this weekend’s talking point – negative gearing – is only on the table because Labor announced their negative gearing policy in February.

The Government’s reforms to the Australian Securities and Investment Commission are obviously because Labor called for a royal commission into the banks.

The assistant treasurer, Kelly O’Dwyer, announced a new public register of shell companies last week. Does anybody believe the Government would be so keen on this issue if Labor hadn’t made corporate tax avoidance a centrepiece of their economic message?

Labor declared earlier this year that it would hike tobacco taxes. Lo and behold so will the Coalition.

And the mooted superannuation reforms we heard about last week appear to be specifically calibrated to trump Labor’s proposal. Where Labor will increase taxes on those earning more than $250,000 a year, the Coalition will increase taxes on those earning more than $180,000.

These aren’t marginal issues: if the leaked script for the post-budget advertisements is correct, multinationals, tobacco and superannuation are exactly what the Government wants voters to think about.

More damningly, those three budget centrepieces all constitute tax hikes. (Any policy that increases government revenue is a tax hike, no matter how it is dressed up in the language of “loopholes” or “concessions” or “savings”. The Australian commentariat can be embarrassingly gullible when it comes to political euphemisms.)

If the political parties were only ever neutral policy shops freely picking and choosing ideas from across the political spectrum this wouldn’t be remarkable. Simple models of political competition suggest that in a two party system, party policies are likely to converge.

But the Coalition is not supposed to be a neutral policy shop. The Coalition is supposed to be – indeed, professes to be – the low-tax party, reducing the burden of government on the citizenry rather than increasing it.

Shortly after becoming Treasurer, Scott Morrison declared that Australia had a spending problem, not a revenue problem. Language ought to mean something. If our budget problem is not a revenue problem, then why are revenue grabs at the centre of the Government’s economic message?

Messiness in policy formation can always be overlooked … But messiness in policy direction is harder to ignore.

Prime ministers usually set the standards by which they are judged. Tony Abbott was unable to deliver the steady government he promised after the turmoil of the Rudd-Gillard years, and surrendered his “freedom wars” less than a year into office. Turnbull set his standard – to lead a “thoroughly Liberal government” – at the moment of the spill. It is a standard he has yet to live up to.

On the positive side of the ledger, there was the successful effort this month to abolish the Road Safety Remuneration Tribunal. This price-fixing regulator was established by the Gillard government yet left untroubled by the Abbott government.

But on the negative side of the ledger we have tax hikes and new spending promises, the latter amounting to $10 billion of expenditure announced since Turnbull took power. And the bevy of new powers being granted to ASIC will also represent a substantial increase in the regulatory burden – and a substantial empowerment of the regulatory state.

The Turnbull Government’s policy suite isn’t thoroughly Liberal – it’s incoherent.

Messiness in policy formation can always be overlooked. Government is a human enterprise not a divine one. And few voters are engaged enough in political news to identify complication and contradiction before policies are formally announced. But messiness in policy direction is harder to ignore.

This is one reason why Bill Shorten looks more electable by the day. To Labor’s credit, they have announced a suite of policies that fit together nicely and tell a coherent story about the world. It’s not a very pleasant story – banks are ripping off their customers, multinational corporations are ripping off the budget, rich taxpayers with large super balances are ripping off poor taxpayers – but it does give a picture of what Labor stands for and what a Shorten government will mean.

Voters still lack this information about Turnbull. After the entirely-forgettable innovation statement, the Government has been on a constant backfoot – chasing the legacy of decisions made by Tony Abbott’s team, such as the tax reform process, as much as trying to keep up with a stream of Labor announcements.

Some of this dynamic has been forced upon the Government. Leadership changes are disorderly. But not all of Turnbull’s problems have been forced by circumstance.

Turnbull needs to grab the agenda, and grab it in a way that is thoroughly – discernibly – Liberal, rather than an emulation of Labor. After all, if voters want the Labor package, why would they vote for the Coalition?

Why Anti-Bank Populism Is A Fundamental Part Of Australia’s Political Culture

It’s not really a surprise that two-thirds of voters support Labor’s royal commission into banking,as the Fairfax/Ipsos poll found yesterday. Anti-bank populism is a fundamental part of Australia’s political culture.

Back in 2012 Essential asked voters how, specifically, they would like the banks to be controlled. Ninety per cent wanted the government to fix bank fees. Eighty-one per cent wanted the government to fix the salaries of bank CEOs. Seventy-four per cent wanted to forcefully peg interest rates to the Reserve Bank’s monthly interest rate determinations.

It seems likely that voters would welcome a return to the pre-1980s regulatory regime where the government fixed interest rates and micromanaged the products and investments of the banks – where credit was scarce and you had to beg banks for a loan.

So this fortnight’s debate over the royal commission into banks and the government’s alternative – to boost the powers and funding of the Australian Securities and Investment Commission (ASIC) – is not just a minor election year spat.

It’s a revealing window into how the government changed the way it controls business over the last few decades.

The market-oriented reform of the 1980s and 1990s revitalised the Australian economy after the stagflation of the 1970s. But in the wake of that reform grew up a complex regulatory state that pleases no one.

Now control of the economy has been delegated to arms-length independent regulators. They oversee vast regulatory regimes that create uncertainty and impose heavy costs, while at the same time doing nothing to satisfy the anti-corporate populists who imagine that industries like banking have been left up to the “free market”.

We can debate how heavily regulated companies should be, but surely we can agree that the regulation should be transparent.

Take, for instance, the complaint last week in the Sydney Morning Herald by Allan Fels – himself a former regulator – that ASIC has failed to be the “tough cop” on the corporate beat because it has been too eager to sign negotiated settlements with the firms it is supposed to regulate. Fels would rather ASIC take more firms to court.

No doubt many readers nodded in approval, the report further confirming their belief that ASIC is soft and that we need a royal commission.

But the idea that the increasing use of negotiated settlements and so-called “enforceable undertakings” is a sign of regulatory softness is bizarre.

The practice of negotiating enforceable undertakings – essentially promises made by firms to do certain actions which can be enforced in court – was developed to give regulators discretion to be more intrusive, not less.

The idea is this: rather than going to court every time the regulator wants a firm to do something, it can negotiate. Negotiation is cheaper for all involved, but it also gives the regulator more power. With a negotiated settlement, the regulator can persuade firms to do more than the letter of the law would require: do this, and we won’t take you to court.

Enforceable undertakings are a big part of the “responsive regulation” idea that was supposed to strengthen the power of regulatory agencies. ASIC is a big fan of responsive regulation.

Now, in my view, this sort of regulatory practice is bad policy. Firms should know exactly what is lawful and what is unlawful. Regulation shouldn’t be a matter of discretion – it should be clear and unambiguous. Uncertainty is bad for the economy.

But it’s bad politics, too. Recall that old aphorism: not only must justice be done, it must also be seen to be done. Regulatory agencies spend their life negotiating in private with firms rather than publicly enforcing clear rules in court. No wonder voters think those agencies are a bit hopeless.

We can debate how heavily regulated companies should be, but surely we can agree that the regulation should be transparent.

Into that political void has fallen Bill Shorten and his royal commission into banks – an exercise that appears more about adverse publicity rather than a genuine desire for reform.

After all, if Shorten had any grand regulatory dreams for the sector he had ample opportunity to chase them in the three years he spent as Minister for Financial Services and Superannuation.

But it is hard to imagine a royal commission that did not recommend more regulation. They’re structurally designed that way. Lawyers tend to be more sympathetic to legal controls on market transactions than the economists that dominate most other forms of banking inquiry.

The Coalition government has its own policy to strengthen ASIC – with new powers, a new funding model, and some more resources.

None of these options is likely to resolve the deeper problem – that the discretionary, arms-length, ambiguous regulatory state offers nothing but uncertainty to firms and the public.

No wonder voters don’t have confidence in the system. No wonder they like the idea of a populist royal commission.