Tag: ABC The Drum

Hockey’s ‘Grand Deal On Tax’ Is Just Wishful Thinking

Joe Hockey is looking for a “grand deal” between government and the community on tax reform. On Wednesday last week he addressed a PricewaterhouseCoopers audience calling for a discussion about big, long-term changes to the tax system that might set us up for coming economic changes.

There’s no reason to doubt his sincerity. Hockey seems genuinely interested in the structure of the tax system. He was recently speculating whether the GST has a future in a global economy, where transactions are digital and borderless. It’s not hard to imagine the blue sky conversations he’s enjoyed with Treasury boffins where they ponder such imponderables.

But his hope for a grand deal on tax is folly. Tax reform is easy to talk about. It’s very hard to implement. It’s even harder to implement in a way that prevents the political system from undermining the virtues of the reform in question. And it’s almost impossible to implement when your government has no political capital.

Australian governments levy more than 100 separate taxes. Each of these interact in complicated ways, introducing incentives for us all to rearrange our affairs, to work, spend and save differently. No real-world tax is perfect, perfectly fair or perfectly efficient. They all bias economic activity somehow. (Sometimes this bias is intentional. So-called “sin” taxes are designed to stop us buying the product that is being taxed.)

Over time, governments have amended the system to reduce the most obvious biases and distortions. Many of those policies that are today fashionably described as tax loopholes or concessions exist because, in their absence, some activity would be penalised.

On The Drum last year, for instance, Alan Kohler criticised dividend imputation for making Australian investors obsessed with collecting dividends. But if we didn’t have it, income earning through corporate investment would be taxed twice – first in corporate tax, then when it is returned to investors through income tax.

The tax system is an evolved formula that reflects decades of lessons, errors and political compromises.

So designing a more efficient tax system than what we have now is relatively easy. Everyone has their own ideas. Yesterday John Daley and Brendan Coates of the Grattan Institute were pushing for property levies. NSW Premier Mike Baird proposed a 50 per cent increase in the GST. Tony Abbott likes that one.

But there’s a big difference between tax design and tax reform, as the Harvard economist Martin Feldstein noted four decades ago. Tax systems can be designed on a blank sheet of paper. But tax reform has to be done in an existing political system, underpinned by existing political institutions, coordinated with existing political compromises, and against the backdrop of a welter of political interest groups with political influence and media friends.

All that politics inevitably leaves its mark. All economic reform is the result of bargaining between the most powerful interest groups. What looks like a beautiful, clean, theoretically-efficient tax on paper is distorted and damaged when the political class try to enact it. Not all laws come out looking like firmly-cased and richly-coloured sausages. Sometimes what falls out of the legislative meat grinder is just a coarse pile of mince and broken pieces of pig intestine.

Hockey should know this. Remember the mining tax? The idea of a resources rent tax was, as so many economists said at the time, an elegant and efficient tax compared to the royalties system. But imposing such a tax on top of the Australian landscape was, it turned out, a hopeless task.

First of all, the mining tax was introduced by the federal government. But state governments owned the resources and charged the royalties. So the designers had to work around that problem by crediting back royalty payments. Second, it had to be introduced into an existing landscape where decisions about mining investments had already been made – hence another round of compromises and transitional arrangements.

And all this happened before the Rudd government learned it was not strong enough to resist a publicity campaign by mining companies. The replacement mining tax, introduced by the new prime minister, Julia Gillard, was even worse.

The last real tax reform success was 15 years ago, when the Howard government introduced the GST. But that success is easy to overstate. Parliamentary negotiations meant that large swathes of consumer products now fall outside the GST net. The original intention was that states would eliminate stamp duties on mortgages and other loans. That didn’t happen. And the way the GST is distributed means states bicker over their share and generally act like mendicant clients of an autocratic Commonwealth.

Hockey wants big picture thinking and long-term reform. It is good we have a Treasurer thinking such thoughts. But Hockey is not a theoretician. He is a parliamentarian. And what can be imagined on paper and what can be negotiated in politics are very, very different.

There’s No ‘War On Wind’, Just MPs Doing Their Job

There was a lot of heat in the debate about the Clean Energy Finance Corporation over the weekend, but not much light.

On Sunday, Fairfax papers reported the Abbott Government had directed the CEFC to stop funding new wind farm projects.

Social media was livid. Tony Abbott was waging a “war on wind power”. How dare the Abbott Government presume to interfere with such a virtuous independent market program to tackle climate change?

That reaction was, to put it mildly, a load of nonsense. The Government’s direction to the CEFC is not unprecedented interference in an independent body. Nor is the CEFC a “market” mechanism. The CEFC is a government program whose funding policies are set by the executive.

Yes, the Coalition wants to abolish the CEFC outright. But it can’t. So the Government says it would rather the CEFC focus on funding innovation rather than established technology. There are a lot of objectionable things in Australian politics. This doesn’t rate.

The CEFC’s enabling legislation – which was written and introduced by the Gillard government and passed without Coalition support – allows the sitting government to do exactly what the Coalition is doing now. As noted in an explanatory memorandum authored by the Gillard government:

It is appropriate that the Government, as manager of the economy and owner of the Corporation, have a mechanism for articulating its broad expectations for how the Corporation’s funds will be invested and managed by the Board.

So each year the government is required to provide the CEFC with an investment mandate direction.

The memorandum specifically nominated “allocation of investments between different types of clean energy technologies” as one of the areas in which ministers might issue a direction.

What independence is provided by the CEFC Act is a requirement that ministerial directions not be contrary to the CEFC’s statutory obligations, and that ministers must not direct or prevent CEFC investments in specific companies. All fair enough.

With these provisions, the Gillard government gave itself the statutory leeway to direct the CEFC’s investment direction. If it didn’t want an Abbott Government to have the same leeway, it should have written the legislation differently. It knew the Coalition was opposed to the CEFC.

Anyway, that discretion is entirely proper. The CEFC is not an ethereal, non-political part of the Australian social fabric. It is the result of a four-year-old political compromise, designed to funnel money into one particular sector of the economy as part of the quid pro quo for theGreens’ carbon tax support.

So it’s a little bit silly to hear (as we did over the weekend) that by changing the CEFC’s mandate the Abbott Government is “picking winners”. That’s exactly what the CEFC was designed to do. The CEFC was designed to pick winners. It was designed to choose investments that it felt were not being adequately funded by open capital markets.

And the CEFC legislation already favours specific technologies. The body is not allowed to invest in carbon capture and storage or nuclear power. Nor can it invest in non-Australian projects. This last constraint seems a little peculiar if you think the CEFC’s ultimate goal is to reduce carbon emissions – a global, not a national, problem. But foreigners can’t vote.

Because it is not driven by the profit motive in a competitive market, the CEFC has to rely on non-market criteria on which to evaluate alternative investments. Right now that is done by these folk – the board of the CEFC. All the Abbott Government’s no-wind mandate does is constrain their criteria some more.

The idea that the CEFC is a “commercial” operation is nonsense. If it makes a profit consistently then it is a good candidate for privatisation. Why should the government own a profit-making financier? Why would it need to?

The CEFC got upset earlier this year when the Abbott Government asked it to lift its investment returns, asking it to “consistently outperform the market by a large margin”. But if the CEFC can’t beat the market with its government support, then the case for its continued existence is pretty weak.

Australia has a long history of government-owned banks like the CEFC – banks designed to push money into politically favoured sectors.

Who now remembers the Commonwealth Development Bank or the Australian Industry Development Corporation? Or the Commonwealth Bank’s Mortgage Bank Department and Industrial Finance Department? Or the joint public-private ventures of the Australian Resources Development Bank, the Primary Industry Bank of Australia, or the Australian Banks’ Export Refinance Corporation?

These banks were abolished or privatised because Australia came to recognise that markets allocate capital better than bureaucrats.

Right now there is a majority in the Senate preventing the abolition of the CEFC.

But it is almost inevitable that one day parliament will end the CEFC. Just as it ended all its other special development banks.

Why Is The Agriculture White Paper Gunning For Supermarkets?

On Saturday Barnaby Joyce and Tony Abbott released the long-delayed Agricultural Competitiveness White Paper.

The Government feels that farm businesses, “especially those of a smaller scale”, are vulnerable to “anti-competitive market behaviour or unfair market practices”.

So they want to establish a new commissioner within the Australian Competition and Consumer Commission to make the ACCC more “farm savvy”.

Yes, I admit this all sounds pretty dull and bureaucratic.

But official government white papers have to be coy. We don’t. The Abbott Government is really talking about a regulatory crackdown on Coles and Woolworths – the twin spectres haunting Australian retail and agriculture.

The journalist Malcolm Knox describes the two companies as “Supermarket Monsters”. They are anti-farmer, anti-competitive, oligopolistic, bullying, overbearing, and so forth.

Indeed, no hyperbole has been undredged in the rhetorical battle against Coles and Woolworths. Last year Bob Katter even compared the installation of traffic lights in a north Queensland town near a Woolworths outlet to the “Norman Conquest”.

How did discussion over the relationship between farming and grocery retail in Australia become so unhinged? And why is the Government indulging these fantasies – pushing the ACCC into a battle with Australia’s supermarkets?

This is what happens when agrarian socialists team up with foodies.

We’re in the middle of a sustained price “war” between the two major supermarket chains in Australia. The battle is mostly waged around private labels – the supermarkets’ own branded cheap products that they have more efficiently integrated into supermarket supply chains.

The opening salvo of this war was the announcement by Coles in January 2011 that it was going to cut its private label milk down to $1 a litre. (It’s tempting to write the “infamous” announcement, but the idea a basic consumer product price cut could be both famous and bad just shows how batty the supermarket debate has become.)

That was four years ago. Since then, the retail contest has been joined by Aldi and Costco, two firms pushing the prices of groceries lower again. Aldi’s German cousin, Lidl, the fourth largest retailer in the world, is set to enter Australia as well.

Changes to grocery markets have been single-mindedly in favour of consumer interests. Cheaper goods, more availability, more competition, and, with the increasing availability of online shopping, incoming technological change. All good things.

Is this price and service competition hard on producers? No doubt. But the Agriculture White Paper gives the political game away. The supermarket’s much fretted over market power and industry dominance is in comparison to the diverse and diffuse farming sector: “The relatively small, independent nature of farming means that farmers can be at a commercial disadvantage relative to buyers.”

If a power imbalance is the problem, the solution surely is to continue the consolidation of farm operations that has been going for decades. Yet, as Bernard Keane pointed out on Crikey yesterday, the White Paper is so enamoured by the romantic image of the family farm and the Nationals heritage that it couldn’t encourage such corporatisation.

This is the true heart of the supermarket debate: a romantic vision of small family farming clashing with consumer demand for ever cheaper and more convenient groceries.

Anyway, if you remember it wasn’t so long ago anti-supermarket activists were concerned grocery prices were too high.

In 2008 Kevin Rudd launched GroceryChoice – Labor’s policy to tackle the Coles and Woolworths menace. GroceryChoice was a website that compared the prices of a basket of goods at the different outlets. The goal was to help consumers navigate the apparently turgid waters of retail competition.

The irony was that according to GroceryChoice’s calculations, sometimes Coles was cheaper than Woolworths, sometimes Woolworths was cheaper than Coles, usually Aldi was cheapest than either of them … but if you wanted to save on your grocery bills you should almost never, ever, shop at an independent supermarket.

So, yes, GroceryChoice empowered consumers. It empowered them to rely more on Coles and Woolworths. This was a classic populist own goal. The website was shut down within a year.

Now the concern has seamlessly changed from Coles and Woolworths being too expensive to a concern that Coles and Woolworths are too cheap.

In his book Supermarket Monsters, Malcolm Knox writes about supermarkets in trenchant, morally-laden terms. He suggests the Australian population is either wary or openly hostile to Coles and Woolworths. Those who do not shop there are “conscientious objectors”. He throws every charge he can at the two companies, hoping some will stick.

In this interview with ABC’s PM program, Knox clarifies his basic economic objection: having pushed prices down, Coles and Woolworths might one day push consumer prices up. They might beat all those new competitors, corner the market, abandon their cutthroat competition, and decide to jointly exploit customers. One day $1 milk will be hiked to $5 milk.

Speculating about the future is a fun parlour game. Yet right now, Australia has what looks like an incredibly competitive and dynamic grocery sector pushing prices down, attracting new entrants, and obviously benefiting customers.

The idea that the Abbott Government wants to unleash the competition regulator onto this unambiguously competitive market is absurd.

Constitutional Confusion And The Movement For Indigenous Recognition

Constitutional recognition of Australia’s Indigenous people is a conceptual, legal, and political mess. The release of the cross-party parliamentary report last week demonstrates this beyond a doubt.

It’s been nearly a decade since Kevin Rudd’s 2020 Summit, from which the modern move towards recognition stems.

Now, in 2015, there are multiple, contradictory proposals on the table. The purpose of recognition is, if anything, getting less clear. The whole cause is, almost certainly, looking more hopeless.

It’s true that political momentum appears to be building. But momentum for what? For what specific change?

The most obvious amendments to the constitution would be the elimination of two clauses that clearly reflect the values of a previous time.

The first is section 25. This section penalises states if they remove the vote from Indigenous people by reducing those states’ population numbers for House of Representatives seats. The concern is that this section implies the states might do such an abhorrent act. But the section is basically a dead letter, just sitting there reminding us of the past. There is near universal agreement that this section should go.

The second is section 51(xxvi). This allows the Commonwealth to make laws with respect to “The people of any race for whom it is deemed necessary to make special laws”. Now section 51(xxvi) is clearly illiberal, allowing Parliament to treat people differently according to their ethnicity or origins. The section is colloquially known as the “race power”. There is also near universal agreement that it should go.

But section 51(xxvi) also happens to be the power which the Government has used to get through policies seen as beneficial to Indigenous people. To get rid of this section might undermine the constitutional foundation of, say, native title.

So the proposal is to replace 51(xxvi) with something that allows Parliament to make laws for the Aboriginal and Torres Strait Island people – perhaps specifying those laws must be for their “advancement”.

In other words, the idea is to replace one race power with another race power.

The best one could say about the proposal is that it is cosmetic. A more honest observer would have to say the race power switch is disingenuous.

Removing discriminatory language from the constitution is one of the most fundamental elements of the recognition project. But it can’t be done without risking things like native title. If constitutional recognition progresses any further, watch its advocates dance around that basic conceptual problem.

But of course a desire to slightly modify the language of the race power isn’t what’s driving the Recognise movement.

Hence the other proposals that have been lumped under the Recognise banner. For instance, a prohibition on racial discrimination by state and federal governments. The possible contradiction with a new race power would be resolved by a caveat that laws could be imposed to help overcome disadvantage, remedy past discrimination, protect Aboriginal culture so forth.

No future Parliament is going to believe it is imposing laws on Indigenous people against their best interests. Thus, the upshot of such an amendment would be to handball to the High Court the responsibility not only of deciding if law is simply constitutional, but if it is good. Tony Abbott calls this a “one clause Bill of rights”, to which he is opposed.

There are other options. All have problems. Many Indigenous leaders reject a mention of Indigenous people in the preamble as mere symbolism. Anyway, John Howard’s preamble in 1999 – which would have mentioned Indigenous people – failed to get up. Noel Pearson wants an advisory Indigenous council written into the constitution itself. Pearson’s seems like an ambit claim.

What is the goal of the recognition movement? Its advocates are clear: they don’t want symbolic change, but constitutional change that would lead to material advancement. This was the firm conclusion of last week’s parliamentary report.

Yet that dismissal of symbolism sits uneasily with the claims that the constitution is our great national document which should reflect the principles of Australian society – an assertion that is, fundamentally, about its symbolic role.

Far too much hope for material well-being has been tied up on this referendum. It is not obvious that constitutional change is the low-hanging fruit of Indigenous advancement.

The whole debate is being conducted in the shadow of the 1967 referendum, which removed two discriminatory provisions from the Australian constitution. It was the most successful referendum in Australian history. But the debate which underpinned that referendum was characterised by overstatement and confusion.

In 1967, the Yes advocates pitched the referendum as offering Indigenous people citizenship, even though the actual proposals on the table did no such thing. The long confused legacy of 1967 is so great that, in their book on constitutional recognition, Megan Davis and George Williams write that to get a Yes vote in 2015 or 2016, advocates will first have to clarify in the public mind what was agreed to five decades ago.

There is much racial goodwill here. But racial goodwill does not rewrite constitutions.

The Weight Of History Bears Down On Shorten

Bill Shorten is a classic tragic figure of Australian politics.

To be fair, it’s not all his fault. Even if Shorten was a political mastermind, his performance as leader flawless, and the incumbent Government universally despised, one-term governments at the federal level are exceedingly rare.

It is unlikely that the first leader after an election loss will take their party to a victory. Many opposition leaders don’t even last long enough to lose an election. The Coalition cycled through Brendan Nelson and Malcolm Turnbull before they alighted on Tony Abbott.

So Shorten’s first tragic error was to seek the leadership in the first place.

Why do politicians do this, knowing the probabilities are so stacked against them? Yes, their best case scenario is leading their party to a stunning victory, transforming themselves into a party legend. But the most likely case is they are rolled or defeated at an election and go down in history as a disappointment, and a historically marginal figure.

You need boundless self-confidence to seek a career in politics. Often that same self-confidence is the cause of a political downfall.

Now, some observers are starting to think that after the fall of the Baillieu/Napthine and Newman state governments we’re entering a new era of one-term rule.

This very well might be the case. But it’s not obvious we can extrapolate political lessons from one level of government to another. The voter-government relationship is very different at the federal level than it is at the state level. The issues are different, the media attention is different, and voter awareness is different.

Virtual unknowns can become premiers. The same is not true for prime ministers. There’s just so much more scrutiny in Canberra.

There’s another reason for the unhappy lot of a first-run opposition leader. Every government ends its life with wounds and regrets and embarrassments. The ABC is going to air another round of those wounds, regrets and embarrassments at 8.30pm tonight. By necessity leaders are chosen from the second tier of the former government. They almost always own the failures of their predecessors.

So the odds are stacked against Shorten before we consider his flaws as a political leader, his complicated political past, or his weak electoral strategy. And there is much to consider.

If Julia Gillard’s fatal flaw was her inability to explain why Kevin Rudd was dumped as leader in 2010, as Annabel Crabb convincingly argued, then it is striking that Shorten has not even begun to explain his role in the events of June 2010 and their sequel in June 2013. Nor has he apparently felt any need to.

From the get-go this has given Shorten his public impression as a backroom heavy – looking scarcely better than those semi-anonymous backbench Labor senators in The Killing Season with their plots to roll prime ministers.

Shorten was widely acknowledged as the kingmaker of the last Labor government. Kingmaking is an earthy, political, even dirty profession, but kings are supposed to be divine – they’re supposed to be above the betrayals and treachery that got them into power.

Just look at how desperate Gillard has been to separate herself from the plotting that got her into the Lodge.

Then there is Shorten’s union problem, which exploded onto the political scene this week.

Whether Shorten did dodgy backroom deals and sought employer side-payments in the interests of his union rather than his union members is still unclear. But traditionally, a Royal Commission appearance is not a stepping stone to the prime ministership.

And it is illustrative of the same problem that characterises his past as a factional kingmaker: the political dealings that made him an effective union operator now cast a shadow over his leadership.

Institutionally, Labor is a party of the unions, but only 18 per cent of Australian workers are union members. A past life as a union boss is unlikely to be any great political asset.

Even so, could Shorten have done better once he gained the leadership? Could he still?

More than two decades after Fightback! it’s a bit pointless to complain about an opposition adopting a small target strategy. But the Abbott Government has managed to turn that strategy into a serious problem for Shorten. The problem with a strategy to shadow the government is that the government will shift its strategy to suit.

This is what we’re seeing in the national security debate. The Government is keeping the focus on an issue where the Labor Party is desperate to remain bipartisan. Abbott is constantly daring Shorten to split away, and exploiting every tiny division between the two parties.

In the face of this onslaught, Shorten looks like a weak political punching bag. He is unable or unwilling to abandon his strategy, even as it drags his authority – and his leadership – down.

All up, a typical political career, really.

The TPP Isn’t The Bogey-Treaty That We Think It Is

The debate about the Trans-Pacific Partnership (TPP) has gotten far, far ahead of itself.

On Friday morning, the US House of Representatives voted down the Trade Promotion Authority (TPA), a legislative agreement between Congress and the president that would effectively delegate trade negotiation authority to the latter.

The idea was to help “fast track” the TPP negotiation. The president’s authority could quickly be yanked back if Congress decided he was exceeding his mandate. Either way, the whole agreement or each individual parts would have to be voted on by Congress after the diplomacy was over.

In trade policy, acronyms build up very quickly. The TPA isn’t the TPP. But everyone knows without the TPA an American president is unlikely to get any final TPP through Congress. So it’s been used by American opponents as a proxy for the broader agreement.

The US union movement thinks “fast track trade deals” lead to “fewer jobs, lower wages, and declining middle class”. In Australia, GetUp! describes the TPP as “the dirtiest deal you’ve never heard of”.

This sort of hyperbole is likely to derail the TPP (if it hasn’t already been derailed by the US Congress) with very real and damaging consequences for the global economy and anti-poverty efforts in the developing world.

Because the potential benefits from a regional free trade deal are enormous. Analysis by the US-based Peterson Institute for International Economics finds that there are potential economic gains from the TPP in the order of US$1.9 trillion. A further analysis argues that by far the biggest winner out of the TPP would be Vietnam – that is, a poor, developing economy.

Now, there’s a standard caveat when we talk about bilateral or multilateral trade agreements. The benefits of free trade accrue to countries that liberalise their own trade barriers. This means unilateral liberalisation is best. But as I argued in The Drum last November, there are strong political reasons to welcome multi-country agreements, insofar as they create the political conditions often necessary for domestic reform.

There’s another caveat specific to the TPP. Right now, the TPP is highly secretive. A lot of the detail that we know about the TPP we know through WikiLeaks. Legislators who want to take a look at the negotiating text have to sign a rather absurd confidentiality agreement.

This secrecy is excessive and is damaging the free trade cause.

But trade negotiations are usually held privately between the upper levels of foreign governments. Diplomacy is about compromise, and the process of compromise is easier when kept off newspaper front pages.

The TPP negotiations are not much more secret than any other legislative agenda prepared by a bureaucratic department “secretly” before being introduced into the legislature.

The second stickler with the TPP is intellectual property. I find it hard to get agitated about what might possibly be in the final version of the TPP regarding intellectual property, given what the Australian Government is proposing to do in the copyright space right now.

With or without a TPP, advocates of increased patent terms or copyright penalties need to demonstrate these measures would inspire new innovations or creative works.

Still, it would be lot better – and the negotiation process a lot smoother – if intellectual property was not in the TPP. Copyright harmonisation is not going to boost economic growth. Copyright harmonisation is not going to do anything for poor people in Vietnam.

The devil of these multilateral trade agreements is that they rest on dozens of quid pro quos.

So the questions we may have to face if the TPP is finally concluded are not easy ones to answer. For instance, would we accept longer copyright terms in Australia if it meant other countries lower tariffs, which, in turn, would boost the incomes of poor Vietnamese clothing manufacturers? Maybe. Maybe not.

Figuring out whether the trade-offs in a huge deal like the TPP are worth it is only possible once the negotiations are finished and the document as a whole is up for public scrutiny.

If the US Congress has already killed the TPP by voting down the TPA, that chance may never come. The TPP will remain a secret bogey-treaty, on which special interests can project their deepest, wildest fears.

But if agreement can be found, there’s a lesson there too. The Australian public should not accept the argument made after the Australia-United States free trade agreement was signed a decade ago – that the enabling domestic legislation had to be passed because its terms had already been agreed to at the international level.

Because, ultimately, it is Parliament that decides what is in the best interest of the people of Australia, not our trade negotiators.

Magna Carta: Archaic Tax Document And Icon Of Liberty

The Magna Carta turns 800 years old next week.

The document has become an icon of liberty, variously credited with establishing everything from parliament to the rule of law. It is such a fixture of popular political thought that it is still rhetorically powerful eight centuries later. The Abbott Government’s proposed citizenship law changes have been widely condemned as a violation of its principles.

This is strange for something so archaic. The Magna Carta consists of about 3000 words of 13th century legalese about inheritance, feudal payments, land tenure and customary rights, in Latin, reflecting the economic and political concerns of a world distant from our own.

There’s one simple reason that the Magna Carta became the document of individual rights and a check against power that it is today.

If you want to understand the Magna Carta, you need to understand that it is about tax.

Most commentary on the document is written by lawyers looking for the origins of the English common law and rights like habeas corpus. This means delving through the complexities of medieval land law and legal systems.

Yet the vast majority of the provisions of the Magna Carta are specifically designed to limit how much tax the king can take from his subjects. As the historian David Carpenter writes, the document was “above all about money.”

If our liberties can be traced back to the Magna Carta, then it is in resistance to tax that they were forged.

By 1215, King John had spent 10 years soaking England for as much revenue as he could in order to reclaim his family’s European possessions.

John’s royal family had presided over an empire that stretched from Ireland to the French-Spanish border. But John had lost much of the continental empire shortly after taking the throne in 1199. John needed money to build an army to recapture his patrimony.

He levied feudal dues far beyond what Englanders were used to, ramped up customary legal charges, sold privileges and otherwise grabbed opportunistically at the wealth of the kingdom. Some historians have described John’s fiscal approach as “asset stripping” England.

John eventually invaded Europe in 1214. But he lost. This defeat sparked a civil war in England. The barons, a tiny, extremely rich sliver of the population, were sick of paying for John’s futile foreign adventurism.

The Magna Carta was supposed to be a peace treaty between the king and the barons. Hence, the shopping list of provisions that constrained the king’s revenue collection.

But it is one thing to write rules about what government may lawfully do; it is quite another to enforce them.

The Magna Carta did not invent parliament. Parliament-like bodies appeared in England several centuries earlier. But the Magna Carta gave parliament its purpose – and its leverage over the monarchy. One provision stated that feudal charges could only be imposed “except by the common counsel of our realm”. This rapidly became a political norm whereby the parliament had to approve any requests for new tax.

For centuries the English parliament used the threat – sometimes implicit, sometimes explicit – of withholding funds to carve out more power against the monarch.

Over time this evolved into a basic assertion of political equality. The cry of “no taxation without representation” was used by the American revolutionaries and the 20th century suffragettes alike.

Now, the tax revolt that led to the Magna Carta was a revolt of elites, not the general population. And in many ways what the barons won in 1215 enhanced their position in comparison to everybody else.

Obviously, the mere existence of parliament is no guarantee of liberty. A rebellion in 1381, the Peasant’s Revolt, was sparked by parliament’s predatory introduction of a poll tax. The elites that controlled parliament were happy to impose repressive taxes on those below them.

There was no Magna Carta after the Peasant’s Revolt. The rebels were massacred. Yet it wasn’t until 1989 that an English government attempted to introduce a poll tax again, and that time it led directly to Margaret Thatcher’s downfall.

There’s a tradition of history, derided as ‘Whig history’, in which the past is studied firmly with an eye on the present. In this tradition, the practice of history consists primarily of identifying the origins of contemporary practices and institutions, skipping over what makes the past alien and different – the historical dead ends and forgotten beliefs.

The Magna Carta holds a preeminent place in Whig histories as the source of English freedom. And not wrongly, either. Because those obscure Latin clauses became, in the hands of propagandists and revolutionaries decades and centuries after June 1215, a document symbolising general limits on royal power.

Anachronistic misunderstandings of the Magna Carta were themselves a force for liberal progress.

So to celebrate the Magna Carta is to celebrate 800 years of its history, not the specific rules it imposed about, for instance, the receipts of an estate’s earnings while it was held in wardship.

It is to celebrate how this strange, failed peace treaty established a permanent relationship between tax resistance and political freedom in the English-speaking world.

Things Get Messy When Popularity Trumps Policy

Hard to believe it, but the 2015 budget was delivered just three weeks ago.

Already the Abbott Government seems eager to move on.

Last week Tony Abbott announced the creation of a terror tsar, a new minister for counterterrorism, and a policy to strip Australian citizenship from dual nationals suspected of terrorist activities.

National security is important. And the Government has been telegraphing the citizenship changes for months. But the question is: why now? Why so soon?

The budget was delivered on Tuesday, May 12. National security week was launched on Monday, May 25. That’s 13 days. Really just 12, if you factor in the budget lockup and newspaper print deadlines.

This quick hop from economics to security is indicative of a broader problem with the Abbott Government’s populist push. It knows it doesn’t want to be unpopular. But it’s not sure what it wants to be popular about.

The 2015 budget is nothing like the political catastrophe that the 2014 budget was. If anything it has been well received. Everybody likes the accelerated depreciation changes for small business. The fiscal reckoning has been postponed, and nobody but sticklers, obsessives and economists could object to that.

So Labor has struggled to gain traction against the budget. That “fairness” thing, so potent last year, looks a bit sad when thrown at a budget specifically designed to avoid such attacks. It’s been widely observed that Abbott is doing better in part because Shorten looks played out.

National security week didn’t last long. The process was derailed by Joe Hockey’s Monday night Q&A blurt that he was open to exempting tampons from the GST, Bill Shorten’s announcement that he was going to introduce a gay marriage bill on Tuesday night, then the publication of incredibly detailed leaks out of cabinet about the citizenship stripping proposal.

Whatever momentum national security was to provide the Government was well and truly stalled by mid-week.

The Government has haplessly tried to put the gay marriage issue back in the box by saying that it is focused on getting the budget through Parliament. Marriage can wait. There are small business tax concessions to be passed. Yet this argument would be more convincing if the Government hadn’t already moved its attention from the budget to national security.

It’s very messy.

One of the conceits that the political class have is that they can host “public conversations” about the issues that matter to them; that the tone and topic of debate in the public sphere can be directed by the Prime Minister’s Office.

Sometimes this does work, admittedly. Hockey did manage to genuinely spark a discussion about tax earlier this year with the release of the tax discussion paper. The discussion took a turn the Government was not necessarily pleased about. Every special interest group used the space to air their proposals for new taxes. Still, at least everybody was on-topic. More often the public isn’t interested in talking about what PMO is.

Very quickly the national security issue became less about the threat of terror and more about divisions within cabinet and shadows of the leadership question. The imminent legalisation of gay marriage had more public “cut through” than the creation of a terror tsar. Perhaps even more than it would have, had the Government been less reluctant to talk about Shorten’s proposal. Nothing is more interesting than division in the ranks.

Now the Government wants to have a “national conversation” about the meaning of citizenship in an age of terror. This does not promise to be a particularly enlightening conversation. Nor a fruitful one, as it looks to simply expose the wavering support within the Government and its backbench for the rule of law.

Last week wasn’t just a case study in how policy debate can go off the rails, but a more significant indication of the long term importance of the 2015 budget.

Budgets usually loom large in the Australian political calendar, but the 2014 budget was a vortex sucking in everything around it. This year’s budget is a bit of a return to form. Parliament and the public are much calmer.

Yet a forgettable budget is hardly what the times demand.

The Australian Bureau of Statistics reported that capital investment in Australia fell in the March quarter by the largest amount since the Global Financial Crisis.

If this is a harbinger of things to come, Tony’s Tradies are going to need more than accelerated depreciation to ride out the storm.

Political historians will remember the 2014 budget for the heartache it gave the Government. But economic historians will remember this year’s budget for having reconciled the country to decades of debt and deficit.

Abbott’s eagerness to move on from economics to security is unfortunately more revealing about the future direction of this Government than anything his Treasurer released last month.

A Welcome Mutiny Against Protectionism

It’s sometimes thought that the economic disputes that characterised the 1970s and ’80s are finished. The debate over protectionism, for instance, has been displaced by more modern debates over inequality and the environment.

Two issues raised by the Government in the last week show how untrue that is.

On Wednesday, Warren Truss outlined the Government’s plan to deregulate Australia’s coastal shipping industry, and yesterday the Australian Financial Review reported the Government was considering opening up domestic air routes in the north to foreign airlines.

I was critical of the Government last week for being reform-shy, but these proposals are very, very good.

Both coastal shipping and airlines are governed by cabotage rights – a peculiar 19th century term that refers to the right to transport passengers and goods between two points within a single country.

The issue here is whether foreign-registered or owned or crewed ships and planes have cabotage rights. For instance, can British Airways fly domestic routes in Australia? Under Australian law, only in emergencies. Are Chinese registered vessels allowed to ship goods between Brisbane and Sydney? Under highly regulated conditions designed to dissuade them from doing so.

Australia’s cabotage restrictions are protectionism by another name. They are restrictions on what economic activity foreign firms can conduct in Australia. And, as with any protectionist policy that limits competitive pressure, they raise costs to consumers and hinder economic growth.

Let’s start with coastal shipping.

Over the last few decades, the number of Australian registered ships used in coastal shipping has been in a dramatic decline. In 1996 there were 75 Australian registered ships in the coastal trade. Truss told a conference last week that number was now just 15. This is mostly due to the heavy burden of Australian industrial relations laws that apply to maritime workers on Australian vessels.

In 2008 a parliamentary committee declared the industry was in “crisis” and “many in the Australian maritime industry (believe) Australia would benefit from a revived and expanded coastal shipping sector”. One of those voices, of course, was the Maritime Union of Australia, whose members were losing out from the decline of Australian coastal ships.

So in 2012 the Gillard government passed a large package of reforms to the shipping industry that dramatically increased restrictions on what foreign vessels and foreign-crewed vessels could do in Australian waters.

Anthony Albanese, then infrastructure minister, made plain the protectionist purpose of the reforms: “Australian vessels paying Australian wages and providing jobs to Australians will be given preference to carry Australian goods on the Australian coast.”

As the former Productivity Commission head, Gary Banks, pointed out at the time, the government admitted these reforms were “strictly inconsistent” with the principles of competition policy that have driven economic liberalisation for the last few decades.

It’s worth recalling that those competition policies were originally established by Paul Keating’s Labor government. Labor now is, of course, opposed to any deregulation. For once that old commentary canard about the modern Labor Party having “betrayed the Hawke-Keating legacy” actually holds true.

Like shipping, aviation has avoided the comprehensive liberalisations of the last few decades. Not many travellers pause to question why domestic air consists almost entirely of Qantas and Virgin. Australia is a rich country. Surely some foreign airlines might want a piece of the busy Melbourne-Sydney corridor?

The Government’s proposal to allow foreign airlines to fly domestic routes is limited to northern Australia. It’s being sold as a “develop the north” strategy. But these sort of region-specific liberalisations are usually meant to be experimental tests for nation-wide reform. If airline deregulation works in the north – if it provides better, cheaper services – then there will be little reason not to roll it out across the country.

Liberalisation is always accompanied by the bleatings of those whose privileges are being taken away. “Qantas and Virgin are fighting a rearguard action behind the scenes” against the proposal, one report said yesterday. More publicly, Albanese complains deregulation would be “unilateral economic disarmament”.

It’s true that granting cabotage rights to foreign airlines is very rare around the world. But so what? Australia used to be a leader in market-oriented reform. A northern experiment would be good to prove these fears are nonsense.

In a sense these proposed Abbott Government reforms feel like the calm before the storm. This is cabotage liberalisation by choice before cabotage liberalisation becomes a necessity.

We are on the brink of an unpredictable yet certain revolutionary change in transport technology. Just as autonomous cars will challenge regulatory frameworks that assume every car has a driver, autonomous ships and autonomous planes will completely change the regulatory – and political – dynamic of these industries.

It sounds all a bit cringingly futurist but the pilotless ships are already seen by Australian unions as a threat to cabotage protectionism. No labour costs means pilotless ships can travel slower, thereby using less fuel. This is good for cheap shipping and the environment.

Likewise, when pilotless commercial aircraft become accepted, the old alliance between air services unions and airlines that underpins Labor’s opposition to deregulation is going to break down.

When this technological revolution occurs, limits on foreign firms operating in Australia are going to look like the 20th century anachronisms that they are.

An analogue budget meets the digital world

Budgets are a matter of light and shade. You have to get the balance right. And so having spent the weekend talking about its wonderful childcare plans, yesterday the Government paraded Treasurer Joe Hockey in front of cameras toformally announce some of the budget’s so-called “tax integrity measures”.

Yes, tax integrity measures. Treasury’s spinners would have worked hard on that little catchphrase. Funny how measures to strengthen the integrity of a tax system always seem to deliver more tax to the government.

First, the Government plans to adjust anti-avoidance laws to crack down on multinationals shifting their profits to lower taxing jurisdictions. Second, the Government is going to introduce a Netflix tax – that is, try to impose the GST on digital downloads like books, music, videos and so on.

These two are linked, and in an important way that perhaps even Hockey does not realise. Analogue tax system, meet digital world.

Let’s start with profit shifting. I’ve tackled the claims that multinationals are evading taxation by shifting their profits across borders on The Drum before. Long story short: it’s a beat up. But the Government wants a budget that sounds fair and nothing sounds fairer than beating up on big companies. The corporate tax is a diffuse and confusing tax. It’s designed that way.

We are told Australian Taxation Officers have been “embedded” in 30 different multinational companies. We’re not told which companies. And at the press conference yesterday the treasurer didn’t want to tell us how much revenue the new anti-avoidance measures might raise. “It’s billions of dollars, obviously.”

This should be a red flag. It’s true that Treasury doesn’t have a good track record for estimating how much money new taxes will raise – recall the embarrassingly low take from the mining tax. But this looks less like prudence and more like a lack of confidence. Running a media or political campaign against corporate tax avoidance is easy. Trying to reverse engineer the tax accounting of the world’s biggest firms is hard.

The Government’s crackdown has a certain Sisyphean quality. In a world where much value is tied up in intangible intellectual property, it is borderline nonsensical for politicians to command that economic activity occurs in this jurisdiction or that jurisdiction.

It used to be the case that big firms had capital assets you could see and touch. Factories, vehicles, equipment, land. What mattered to firms were things like location, infrastructure, access to markets, the price and skills of the labour force and so on. But now the assets of the biggest firms can be placed anywhere in the world instantaneously. So they tend to be clustered in low tax jurisdictions with established and reliable legal systems. Like Ireland and Singapore.

What isn’t obvious is why this is a bad thing. Yes, higher tax countries like Australia would prefer that firms book their intellectual property here so Treasury could skim some cash off the top. But treating big firms to a publicity focused “crackdown” only harms what we should be trying to improve: the Australian investment environment. Firms should want to put their assets here. Implicitly, the Government’s profit shifting claims suggest they do not.

There is almost exactly the same issue with the Netflix tax. Once again, the Government is trying to shoehorn a national tax better suited for an analogue era into the age of digital globalisation.

“It is plainly unfair that a supplier of digital products into Australia is not charging the GST whilst someone locally has to charge the GST,” Hockey said at the press conference on Monday.

But why? The GST is a tax that the Australian government has chosen to place on Australian businesses. If there is an unfairness here it is an unfairness imposed by the government when it chose to introduce the GST. It is not “unfair” that other countries do not charge the Australian GST.

When we import goods from other countries – real or intangible – they are priced free of the burden of the many taxes and regulatory costs imposed by the Australian government. This does not make international trade unfair. In fact, all those institutional, regulatory and geographic differences between different trading partners are why international trade is so beneficial.

And – as with the profit shifting debate – the Government’s rhetoric is running far ahead of its capabilities. It is absolute fantasy that Hockey and the Australian Treasury will be able to impose our taxes on international digital goods providers in any meaningful way.

Yes, they might be able to convince a few of the big firms to play ball. But many already are playing ball. Apple, for instance, already charges GST. Those online firms with no Australian base and few Australian interests are unlikely to sign up to this new impost. What’s the Government going to do? Censor them?

It was reported last week that the Abbott Government has scotched many of the tax increases on the table in order to free itself to attack Bill Shorten for wanting to increase tax. That’s good, as far as it goes.

But it would be better if they opposed tax increases because they find increasing tax inherently objectionable.

Ultimately, the tax “integrity measures” announced yesterday have to be seen in the context of a Government that thinks the only viable way back to surplus is more revenue.