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.

Question on Notice response to the Select Committee on Red Tape

Red Tape Committee
Department of the Senate
PO Box 6100
Canberra ACT 2600

Dear Committee,

At the Sydney public hearings on the Select Committee on Red Tape on 24 February 2017, Senator Dastyari asked me to take on notice a “large ideological question”:

Do we want socialism in one country or perpetual revolution?

I am glad to supply an answer to this question.

Senator Dastyari’s question recalls a debate between Leon Trotsky and Joseph Stalin regarding the future direction of the socialist movement. I doubt a debate between two totalitarian mass murderers remains a major bone of contention within the Australian Labor Party in 2017. As the Senator would know, Lenin dismissed Labor as a “liberal-bourgeois party”.

But as Karl Marx and Friedrich Engels so compellingly pointed out in their Communist Manifesto, the bourgeois “has played a most revolutionary
role in history”. They observed that “by the rapid improvement of all instruments of production, by the immensely facilitated means of communication, [the bourgeoisie] draws all nations, even the most
barbarian, into civilization”.

Marx and Engels are spot on. The competitive marketplace, with the innovation and change brought about by free entrepreneurial activity, is itself a permanent revolution. The Labor Party, having presided over much of the economic reform of the last few decades, can rightly take credit for allowing the permanent revolution to be unleashed in Australia.

Contrast this revolution of the free market with socialism in one country. Countries that have experimented with the socialist model of economic control have stagnated. They have been forced to copy and counterfeit living standard-enhancing technologies rather than contribute towards that technological development. Central planning has historically been deeply inefficient and corrupt. The economic problems of planning do not seem likely to be resolved any time soon. The necessity of centralised power in order for planning to function also creates serious problems of political authoritarianism. It could be said that socialism in one country is also a “permanent revolution”, but unlike the market revolution (which grows wealth, living standards, and the ability for individuals to live
the lives they choose) the socialist revolution is a revolution against its own citizens.

It should be clear that I favour the permanent revolution of the market to a permanent revolution of socialist control. However, as recent political events have emphasised, the market revolution also entails disruption, as industries shift across borders and technological change undermines established business models. Furthermore, in our actually existing political-economic system, the heavy burden of regulation, red tape and taxation can make it hard to establish new firms to replaced obsolete ones, prevent successful firms from expanding, and encourage rent-seeking and other prosperity-reducing behaviour.

I advise that the growth of the administrative state, with its network of unaccountable and antidemocratic independent regulatory agencies, and quasi-independent watchdogs and standards bodies, has failed to suppress the market’s permanent revolution, but has placed many obstacles for citizens and workers who have to try to adjust to those changes. If parliament wants to help workers adjust to the permanent revolution, it should be looking to repeal regulatory and red tape burdens that make it harder to find a job and grow a business.

Please do not hesitate to contact me further for more details

Kind regards,
Chris Berg
Postdoctoral Fellow, RMIT University
Senior Fellow, Institute of Public Affairs

The Case for the Repeal of Section 18C

With Simon Breheny, Morgan Begg, Andrew Bushnell, and Sebastian Reinehr

Executive Summary: Research conducted by the Institute of Public Affairs demonstrates that section 18C of the Racial Discrimination Act 1975 must be repealed to protect freedom of speech in Australia.

Part A of this report comprehensively outlines the case for the full repeal of section 18C, and the reasons why alternative proposals for reform fail to stand up to scrutiny.

The key arguments of this report are that section 18C:

  • Is a restriction on the human right to freedom of speech and an attack on human dignity;
  • Undermines democracy
  • Is inconsistent with a peaceful and cohesive society
  • Punishes defendants through an unfair process
  • Is partially redundant
  • Undermines attempts to combat racism
  • Is unconstitutional.

The report rejects the following proposed compromises as inadequate:

  • Removing ‘offend’ and ‘insult’ from section 18C;
  • Replacing ‘offend’ and insult’ with functionally similar language;
  • Reforming the process for hearing section 18C or the Australian Human Rights Commission.

None of these reforms will address all of the problems created by section 18C.

We conclude that section 18C must be repealed in full, along with the associated provisions in Part IIA of the Racial Discrimination Act 1975.

Part B of this report outlines the history of section 18C and how it has been interpreted. This information forms the basis for the argumentation in Part A.

Available in PDF here.

The end of history … in Australian universities

With Stephanie Forrest and Hannah Pandel

Executive Summary: Undergraduate history degrees in Australia fail to teach fundamental aspects of Australia’s history and how Australian liberal democracy came to be. Instead, they offer a range of disconnected subjects on narrow themes and issues—focusing on imperialism, popular culture, film studies, and ethnic/race history.

This report contains the results of a systematic review of the 739 history subjects offered across 34 Australian tertiary institutions in 2014, including 34 history programs and 10 separate ancient history programs.

Only 15 subjects out of 739 subjects surveyed covered British history, and of these, 6 were principally concerned with twentieth century British history—that is, the history of Britain after the colonisation of Australia.

Only 10 of the 34 universities surveyed offered subjects on the history of Britain as part of their history programs, even though Australian society is founded on British institutions. By contrast, 13 offered film studies subjects as part of their history programs More universities offered subjects on the history of popular culture (8) than offered subjects on intellectual history (6).

The report also ranks universities depending on how closely they adhere to the Oxbridge model of historical comprehensiveness. Only the University of Sydney, Macquarie University and Monash University come close to the Oxbridge model. Some very small and new institutions — such as Campion College — rank as well on this measure as large and well-established universities like the University of Melbourne.

There is also a tendency for many smaller universities to offer subjects exclusively on Australian and twentieth century history, thus promoting a narrow and short-sighted view of history. Undergraduate history informs the next generation of historians, the next generation of history teachers, and their future students. This report raises concerns that a new generation of Australians will have a narrow and fragmented grasp of our heritage, and lack an understanding of the institutions that have made Australia free and prosperous.

Available in PDF here.

Submission to Treasury consultation into exposure draft of Tax Laws Amendment (Tax Integrity Multinational Anti-avoidance Law) Bill 2015

With Sinclair Davidson

Introduction: The Tax Laws Amendment (Tax Integrity Multinational Anti-avoidance Law) Bill 2015 exposure draft represents an important and concerning watershed in the practice of Australian corporate tax governance.

The draft bill would base the assessment of Australian tax liabilities on an assessment of tax rules in other countries. It undermines global tax agreements to which Australia is a part that have developed to prevent double taxation, risking the phenomenon that those agreements were designed to avoid. It offers a disincentive for the world’s biggest firms from establishing operations in Australia. It mischaracterises readily understandable business decisions as tax avoidance and penalises firms for normal corporate structural practices.

The scope of this legislation amounts to a substantial, yet entirely unpredictable, increase in corporate tax, and an attendant increase in the regulatory burden faced by large firms operating in Australia. We dispute the claim that this is a “tax integrity” measure. It is very much a tax increase.

Available in PDF here.

Submission to the Acting Independent National Security Legislation Monitor Inquiry into section 35P of the ASIO Act

With Simon Breheny

Introduction: This submission has been drafted in response to an invitation to the Institute of Public Affairs to make a submission to the Acting Independent National Security Legislation Monitor’s Inquiry into section 35P of the ASIO Act.

Our submission recommends the repeal of section 35P. We contend that there are three key problems with section 35P:

  • Individuals can engage in illegal conduct without being aware they are breaking the law
  • Restrictions on disclosure about special intelligence operations last forever
  • Any exemption will provide only limited protection for journalists but journalism is an ambiguous term, and the exemption will not protect freedom of speech

Available in PDF here.

A Submission to the Senate Inquiry into Corporate Tax Avoidance

With Sinclair Davidson

Introduction: In October 2014 the Australian Senate agreed to an inquiry into corporate tax avoidance. This comes after a wave of media comment about apparent tax “minimisation” strategies practiced by large multinational firms, particularly firms operating in the technology space.

The debate over company tax avoidance at home and abroad is a highly politically charged one, but the evidence suggests it offers far more heat than light.

The debate has exposed that the mechanics of Australia’s company tax is poorly understood. Even basic aspects of the company tax – such as the distinction between accounting profit and taxable profit – have been misinterpreted and those misinterpretations repeated.

Such misunderstandings and confusions multiply when the debate turns to the interrelation between company tax in different countries and the international corporate tax regime. Further complications are the growing significance of intellectual property and “border-less” commerce in the digital age. This makes the existence of confusion about the company tax burden understandable. But that confusion is no basis on which to alter the structure of the tax system, nor impose new regulatory controls or privacy-limiting information sharing policies, which could undermine the value of Australia as a business friendly economy.

Furthermore, the overarching public policy goal for Parliament must be the ultimate health of the economy, and the prosperity of the Australian people. We value multinational activity in Australia not because they provide revenue for the government budget, but because they create economic activity: provide jobs, services, and enhance our wellbeing.

Parliament must avoid introducing policy settings which purport to protect the stability of public revenue but at the same time cool the investment climate and push multinational economic activity outside of Australia.

The debate over corporate tax avoidance resembles another controversial and complex tax debate in recent years – that surrounding the mining tax. As we argued in The Australian in in January 2015:

The government should tread carefully. This obsession with multinationals and corporate tax looks like the Rudd government’s mining tax debacle. In 2010, Wayne Swan said foreign-owned mining companies were paying only 13 per cent tax in Australia. Tax office data told a different story but the government ploughed ahead. As we learned, populism made for poor policy …

There’s another reason for [the government] to be careful. When all the dust had settled from Swan’s tax crusade, the mining tax raised almost no money anyway.

Available in PDF here.

Submission to Parliamentary Joint Committee on Intelligence and Security Inquiry into the Telecommunications (Interception and Access) Amendment (Data Retention) Bill 2014

Introduction: Recent terrorist attacks have emphasised the need for counter-terrorism and law enforcement policy to be flexible, robust, and up-to-date. The rise of Islamic State is a significant threat, materially changing the foreign fighter problem. Many of the government’s recent anti-terror law changes have been welcome and necessary. As I argued in December 2014, the “knee-jerk reaction against any and all national security changes is not merely wrong, it’s dangerous. There is no more basic responsibility of government than security.”

However, The Telecommunications (Interception and Access) Amendment (Data Retention) Bill 2014 (“data retention bill”) will mandate the creation of large databases of information about the activities of all Australian internet users, not just those suspected of criminal activity.

The information contained in these databases will be sufficient to reconstruct extremely deep profiles of the activities of internet users. The information within the databases will be potentially available in any court proceeding, including, for instance, as the result of a subpoena in civil litigation. The government has made a decision not to limit access to this information to national security purposes. The creation of these databases manifests substantial new privacy risks to Australians, both from lawful and unlawful access.

The government has not demonstrated that the risks and consequences of mandatory data retention outweigh the benefits to law enforcement, nor has it demonstrated that the existing legal framework – which was substantially revised in 2012 – is insufficient to tackle the security challenges which the government has identified.

Available in PDF here.