Reports, submissions and white papers – Page 2

Tracer: Peer-to-Peer Finance

With Ryan Garner, Lachlan Webb, Jason Potts and Sinclair Davidson

Abstract: In this paper we introduce Tracer: peer-to-peer financial infrastructure for the decentralised economy. Tracer lowers the costs of participating in financial markets, using blockchain technology to enforce property rights and settle financial contracts without the need for a trusted
third party. Tracer’s Factory smart contract hosts an ecosystem of standardised financial contracts. The Tracer DAO can install proposed contract templates into the Factory, which can be accessed and deployed by anyone with a connection to the Internet. Once deployed, a contract is permissionless and not subject to DAO governance unless specified. A Reputation System allows users to identify financial risk and assess under-collateralised financial opportunities. Oracle financing is introduced as a novel model that incentivises the discovery and standardisation of new data for use in decentralised financial contracts. Tracer’s financial infrastructure stands to be the backbone of a secure, global financial network and provides strong foundations for future financial innovation.

Available at the Tracer website and in PDF here.

Submission to Select Committee on Financial Technology and Regulatory Technology (Response to Interim Report and Second Issues Paper)

With Darcy W. E. Allen and Aaron M. Lane

A submission to the Senate Select Committee on Financial Technology and Regulatory Technology (‘Committee’) following the tabling of the Committee’s Interim Report and the publication of the Second Issues Paper, focusing on the regulatory implications of blockchain technology.

Available in PDF here.

Selling Your Data without Selling Your Soul: Privacy, Property, and the Platform Economy

With Sinclair Davidson

Executive summary: Humans have always sought to defend a zone of privacy around themselves—to protect their personal information, their intimate actions and relationships, and their thoughts and ideas from the scrutiny of others. However, it is now common to hear that thanks to digital technologies, we now have little expectation of privacy over our personal information.

Meanwhile, the economic value of personal information is rapidly growing as data becomes a key input to economic activity. A major driver of this change is the rise of a new form of business organization that has come to dominate the economy—platforms that can accumulate and store data and information are likely to make that data and information more valuable.

Given the growing economic importance of data, digital privacy has come to the fore as a major public policy issue. Yet, there is considerable confusion in public debates over the meaning of privacy and why it has become a public policy concern. A poor foundational understanding of privacy is likely to result in poor policy outcomes, including excessive regulatory costs, misallocated resources, and a failure to achieve intended goals.

This paper explores how to build a right to privacy that gives individuals more control over their personal data, and with it a choice about how much of their privacy to protect. It makes the case that privacy is an economic right that has largely not emerged in modern economies.

Regulatory attempts to improve individual control over personal information, such as the European Union’s General Data Protection Regulation (GDPR), have unintended consequences and are unlikely to achieve their goals. The GDPR is a quasi-global attempt to institute privacy protections over personal data through regulation. As an attempt to introduce a form of ownership over personal data, it is unwieldy and complex and unlikely to achieve its goals. The GDPR supplants the ongoing social negotiation around the appropriate ownership of personal data and presents a hurdle to future innovation.

In contrast to top-down approaches like the GDPR, the common law provides a framework for the discovery and evolution of rules around privacy. Under a common law approach, problems such as privacy are solved on a case-by-case basis, drawing on and building up a stock of precedent that has more fidelity to real-world dilemmas than do planned regulatory frameworks.

New technologies such as distributed ledger technology—blockchain—and advances in zero-knowledge proofs likewise provide an opportunity for entrepreneurs to improve privacy without top-down regulation and law.

Privacy is key to individual liberty. Individuals require control over their own private information in order to live autonomous and flourishing lives. While free individuals expose information about themselves in the course of social and economic activity, public policy should strive to ensure they do so only with their own implied or explicit consent.

The ideal public policy setting is one in which individuals have property rights over personal information and can control and monetize their own data. The common law, thanks to its case-by-case, evolutionary nature, is more likely to provide a sustainable and adaptive framework by which we can approach data privacy questions.

Published by the Competitive Enterprise Institute

Submission on the final report of the Australian Competition and Consumer Commission’s Digital Platforms Inquiry

With Darcy Allen, Dirk Auer, Justin (Gus) Hurwitz, Aaron Lane, Geoffrey A. Manne, Julian Morris and Jason Potts

The emergence of “Big Tech” has caused some observers to claim that the world is entering a new gilded age. In the realm of competition policy, these fears have led to a flurry of reports in which it is asserted that the underenforcement of competition laws has enabled Big Tech firms to crush their rivals and cement their dominance of online markets. They then go on to call for the creation of novel presumptions that would move enforcement of competition policy further away from the effects-based analysis that has largely defined it since the mid-1970s.

Australia has been at the forefront of this competition policy rethink. In July of 2019, the Australian Competition and Consumer Commission (ACCC) concluded an almost two-year-long investigation into the effect of digital platforms on competition in media and advertising markets.

The ACCC Digital Platforms Inquiry Final Report spans a wide range of issues, from competition between platforms to their effect on traditional news outlets and consumers’ privacy. It ultimately puts forward a series of recommendations that would tilt the scale of enforcement in favor of the whims of regulators without regard to the adverse effects of such regulatory action, which may be worse than the diseases they are intended to cure.

Available in PDF here.

Submission to the Australian Competition and Consumer Commission’s Digital Platforms Inquiry

With Gus Hurwitz.

Executive summary: The analysis in the Australian Competition and Consumer Commission’s Preliminary Report for the Digital Platforms Inquiry is inadequate in several ways, most notably:

It mischaracterises the relationship between changes in the economics of media advertising and the rise of digital platforms such as Facebook and Google.
Its analysis of the dynamics of media diversity is misguided.
Its competition analysis assumes its results and makes unsupportable claims about the division of advertising markets.
It is recklessly unconcerned with the freedom of speech consequences of its recommendations.
It fails to recognise, and proposes to supplant, the ongoing social negotiation over data privacy.
It provides a poor analytic base on which to make policy recommendations, as it applies a static, rather than dynamic, approach to its analysis.

There is a real danger that if the policy recommendations outlined in the preliminary report were to be adopted, Australian consumers would be severely harmed.

Available here.

What does the blockchain mean for government? Cryptocurrencies in the Australian payments system

With Sinclair Davidson and Jason Potts

Executive Summary: This paper introduces the radical opportunities that the invention of distributed ledger technologies offer for government, using the Australian payments system as a case study. The paper presents a model for the reform of government in light of the blockchain based on the new comparative institutional economics literature. In response to invention of the blockchain, governments should:

Allow firms to experiment and introduce blockchain enabled services – that is, take “permissionless innovation” approach.
Adapt regulatory environments to accommodate the use of blockchain applications where those applications cross over existing regulatory requirements – for example, in the space of taxation, and financial and prudential reporting.
Directly adopt blockchain technologies for delivering government services and to enhance (or replace) existing government processes.

Available in PDF here.

Submission to the Productivity Commission Inquiry into Collection Models for GST on Low Value Imported Goods

With Sinclair Davidson

Introduction: The Productivity Commission (PC) Discussion Paper, Collection Models of a GST on Low Value Imported Goods, suggests that the inquiry that the PC has been directed to pursue is somewhat of a fait accompli. The legislation enacting this policy change (Treasury Laws Amendment (GST Low Value Goods) Bill 2017) has already passed the parliament with broad parliamentary support.

However, the parliament’s decision to delay the implementation of this policy by one year (the original legislation introduced to parliament was scheduled to begin in July 2017) provides an opportunity for the PC to make clear the practical and philosophical problems with the legislated scheme. A clear statement that this scheme is not in the interest of consumers, is unlikely to be effective, threatens Australia’s participation in the global internet commerce economy, and casts Australia as a bad global actor in international taxation, would, in our view, have a concrete public policy impact. The parliament is capable of amending the legislation in response to this investigation, and the government has significant discretionary power to adjust or mollify its implementation.

Available in PDF here

The South Australian Major Bank Levy: Arbitrary, unjustified, and harmful for South Australia and the rest of the country

With Sinclair Davidson

Introduction: In the South Australian state budget 2017-18, South Australian Treasurer Tom Koutsantonis announced that the state government intended to introduce a South Australian Major Bank Levy, one of two revenue measures “to help us meet the cost of our significant support for driving economic growth and creating more jobs”. Treasurer Koutsantonis made clear that this levy was explicitly modelled on the Commonwealth government’s Major Bank Levy, which was announced in the May 2017-18 Commonwealth budget and passed the Commonwealth parliament in June.

Banking is a key sector in a modern economy. Banks and the financial markets they serve work to allocate capital across the economy to its most efficient purpose. The health of the banking sector is closely related to the health of the economy in general; likewise, an unstable and inefficient banking sector often causes, or is at least a leading indicator of, turmoil in the general economy. The centrality of banking and financial markets to economic prosperity and recession throughout history is reason to subject public policy proposals that affect banking markets to particular scrutiny.

This paper is an examination of the South Australian Major Bank Levy. The South Australian Major Bank Levy is intended to exactly replicate the Commonwealth Government’s Major Bank Levy but at the state level. Accordingly, it applies an additional 0.015% tax on South Australia’s share of the total value of bank liabilities that are subject to the Commonwealth Major Bank Levy Act 2017. That levy consists of a tax introduced on a range of liabilities held by the five of Australia’s largest banks – the Commonwealth Bank, the ANZ, the National Australia Bank, Westpac and Macquarie Bank. While these banks are not explicitly named in legislation, they are subject to the levy because they each have total liabilities greater than $100 billion – raising the prospect of new banks being added or of existing banks dropping off the list.

Both levies apply to the total liabilities held by each bank with the exception of that bank’s additional Tier 1 capital, its deposits protected by the Financial Claims Scheme (that is, its government guaranteed deposits), an amount equal to the lesser of the derivative asserts and derivative liabilities of each bank, and its exchange settlement account held with the Reserve Bank of Australia.

This paper finds that the South Australian Major Bank Levy:

will be economically harmful to a state that has seen a rise in unemployment and a decline in business investment,
lacks serious justification in either taxation or banking policy,
represents a rollback of the GST compact of 2000 which required South Australia to remove state taxes on banking and financial services,
harms the stability of banking in South Australia and Australia more generally,
increases ‘regime uncertainty’ for investors, and
there are reasons to believe it has already done harm to the South Australian economy.

Not only should the bank levy be rejected by the South Australian parliament, but parliament needs to work to ensure that markets and investors have certainty that such an arbitrary and harmful intervention could not occur in South Australia in the future.

Available in PDF here.

Submission to the Senate Select Committee on the Future of Public Interest Journalism

Introduction: It is widely agreed that a free and independent press is an essential part of a democratic order. This submission addresses itself to the implications of the words free and independent. Government intervention in the market for journalism risks undermining the reason we value publicly interested journalism in the first place – its role in providing a check on government and as a third-party watchdog on possible abuses of political, regulatory and fiscal power. When it comes to the profession of journalism and the industrial structure of the media, government is not a disinterested player. Even granting this parliament’s best intentions, government intervention in the media opens up the risk of government interference with the media from future parliaments.

Available in PDF here.

Submission to the Senate Standing Committee on Economics Inquiry into the Treasury Laws Amendment (GST Low Value Goods) Bill 2017

With Sinclair Davidson

Executive Summary: The elimination of the low-value threshold for the Goods and Services Tax constitutes a new tax on inbound internet trade – that is, it will function as a tariff imposed on Australian consumers.

The tax will raise very little revenue and will be expensive and complex to administer.
The tax deviates substantially from the existing GST design.
The tax is less a tax on consumption but on the reputation of foreign internet businesses.
The tax is inconsistent with the government’s commitment to deregulation, the promotion of international trade, and its innovation agenda.
The tax rejects principles that the Howard government established in terms of deregulation and the promotion of international trade.
The tax will do nothing to address the issue of high retail prices in Australia.
While masqueraded as a tax integrity measure, this tax is clearly intended to operate as a form of protectionism.
The tax will reduce competitive pressure within the domestic Australian economy, and (as a consequence) expose Australian consumers to government sanctioned higher retail prices.
The tax will lead to Australian consumers substituting away from large reputable electronic distribution platforms to more disreputable platforms leading to higher rates of internet fraud and possibility criminality. Product safety and consumer protection rights are likely to be compromised.
The tax has few safeguards to ensure compliance and remittance of revenue to the Australian government.
The tax contributes to increased levels of regime uncertainty within the Australian policy environment.

Parliament should reject the Treasury Laws Amendment (GST Low Value Goods) Bill 2017.

Available in PDF here.