Labor Can Stop Beating The Inequality Drum

The Labor Party’s new Inclusive Prosperity Commission is driven by the principle that “equality itself is a driving force for economic growth”, in the words of Wayne Swan.

It is a lovely idea. Inequality is a bad thing. Growth is a good thing. Wouldn’t it be great if by reducing inequality we would also be boosting economic growth? A true win-win. For Labor, it would be a win-win-win, given that it would align with their philosophical interest in redistributive tax and welfare policies anyway.

Unfortunately for Labor, this is voodoo economics – ideological wish-fulfilment dressed up as analysis. The proposition that equality and growth are intrinsically linked is weak.

Two extremely high-profile documents published last year made the economic case for action against inequality. The first, “Redistribution, Inequality, and Growth” was published by the International Monetary Fund (IMF) in February 2014. The other, “Trends in Income Inequality and its Impact on Economic Growth”, was published by the Organisation for Economic Co-operation and Development (OECD), in December.

(There was of course another other major inequality document of 2014: Thomas Piketty’s Capital in the Twenty-First Century. I looked Piketty’s book on The Drum when it was published.)

Now, there are lots of reports published every year by these and other bodies. The IMF and OECD have been talking a lot about inequality recently. But it was these two papers that most clearly spelled out a causal relationship between reducing inequality and boosting growth. It helped that they came from the IMF and OECD – two apparently neoliberal, conservative organisations. It wasn’t so long ago that the IMF was protested as a bastion of anti-poor plutocracy.

Hence the prolonged press coverage. This Guardian story on Labor’s new Commission cites the IMF paper. A piece breathlessly citing the OECD report was published in The Age this week.

Yet there were less to these reports than the media coverage suggested.

The IMF report is actually a staff discussion note with the usual “does not necessarily represent IMF views” caveat. It found a correlation between less inequality and growth. That’s not new. Remember that correlation does not equal causation. The real question is: what is the economic impact of policy designed to reduce inequality? The IMF paper concluded that income and wealth redistribution does not harm growth. This was the finding that made global headlines.

But there’s an important qualification in the paper. The IMF authors were only willing to say that redistribution is “generally benign”. In “extreme cases” they found that redistribution does harm growth. So what is an extreme case? As the economics journalist Tim Worstall points out, what the IMF paper calls extreme redistribution is the exactly sort of redistribution many first world countries indulge in.

You can see the key chart in figure 7 on page 23. According to the IMF paper’s findings, the United States could afford to do a little more redistribution without harming growth. Countries like France and Germany do too much – that is, if they’re worried about growth.

Australia is dead on the line between extreme and benign. If this is right, any more redistribution would hurt our economy. Is this really the story that Wayne Swan and Labor want to tell right now?

So much for the IMF report. It shows exactly the opposite of what is claimed in the Australian press.

The story contained in the OECD report is a little more complicated. Again, it’s not a report – it’s a working paper with the standard caveat (“should not be reported as representing the official views of the OECD” etc.). This paper says that increasing inequality has a causal effect on growth, and “it follows” that reducing inequality is necessary to sustain long term growth. That’s all well and good, as far as it goes.

But the paper also has some strange findings. For instance, its modelling finds that investment in human capital – that is education – has no positive effect on economic growth. (They write: “the results … do not point to a positive effect of human capital on growth. Those findings are in fact hard to reconcile with the large amount of evidence on the positive consequences of education on individual productivity … and on the significant contribution of human capital to aggregate growth”.)

Huge, if true. All the money we put into skills and education as individuals and as society as a whole does little to grow the economy. If that’s not strange enough, the economist Eric Crampton observed that the OECD paper nonetheless calls for greater spending on education. Huh? If the authors don’t believe the own findings of their own model, why should we?

Yet despite these issues, the OECD and the IMF papers are Exhibits A and B for political action on inequality.

Let’s be fair. Comparisons between countries are fraught. Untangling the relationship between inequality and economic growth is complicated. The mechanisms by which one affects the other are controversial and unclear. Thomas Piketty’s book was one attempt, and a very idiosyncratic one at that.

Still, politics rarely waits for scholarship to come to a conclusion. What one New Yorker writer recently said about the British election could stand in for the entire inequality debate:

While [John Maynard] Keynes was being unceremoniously booted out the front door of Labour’s headquarters, Thomas Piketty was being ushered in through the side entrance.
It’s obvious that the Australian Labor Party needs a new agenda – particularly after the grubby politics of the Rudd and Gillard years. And they probably think focusing on inequality is a nice counterweight to the Coalition with its rich mates and its unfair budget.

But it’s not obvious that tackling inequality will grow the economy. If Labor is looking for an agenda, it would be wise to look elsewhere.

Conservative Voters Blindsided By Coalition Tax Increases

What exactly is the point of a Coalition government if it offers the same sort of tax increases as voters expect from Labor and the Greens?

It’s disturbing how quickly the Abbott government has turned its attention to boosting government revenue rather than reducing government spending. It’s only been in power 18 months.

First, there’s the planned deposit tax, a levy imposed on all our bank accounts purportedly to pay for the deposit insurance introduced by Labor during the global financial crisis.

When Kevin Rudd proposed the deposit tax in August 2013, Joe Hockey, then shadow treasurer, said it showed how “Australians end up paying for Labor’s waste and mismanagement”. So what does it say now the tax is being mooted by the Coalition?

Then there are all the possible changes to the GST. The GST-free import threshold of $1000 might be lowered. The government is drawing up legislation to impose GST on digital downloads – the so-called Netflix tax. There’s even been discussion of broadening the GST base to include things like fresh food, health and education.

There’s also a Google tax on the horizon. Hockey said last month companies that do not pay the “legitimate level” of tax are “thieves”. But tax minimisation is perfectly lawful. We all do it when we fill out our tax forms. In fact, firms have an obligation to their shareholders to minimise tax.

To change corporate tax law as Hockey wants wouldn’t be recouping money that is rightfully the Treasury’s. It would be increasing the corporate tax burden, and increasing investment uncertainty while it’s at it.

Likewise, the government wants to tackle what is described as the superannuation tax “concession”. Here it is on a virtual unity ticket with Labor.

Don’t be fooled by the word concession. It is a euphemism. The issue here is that while income is taxed progressively – rich people pay proportionally more than poor – superannuation is taxed at a flat rate of 15 per cent. The government thinks wealthy people are putting too much money into super, avoiding high marginal income tax rates, and depriving Treasury of money. Let’s be blunt: to eliminate superannuation concessions would be just another tax increase.

But there is a more fundamental point. Superannuation is taxed at a lower rate to counterbalance the income tax system’s bias against savers. All those so-called loopholes and thresholds and concessions exist for a reason. Many of them exist to prevent perverse and unfair taxation, to treat different assets equally, to avoid double taxation, to encourage saving. And all of them were instituted as part of a democratic bargaining process. Eliminating a loophole is the same as raising a tax.

The Coalition should know this instinctively. Liberal parliamentarians campaigned under the slogan “Our Plan: Lower Taxes”. When he became leader Tony Abbott declared “there will not be any new taxes as part of the Coalition’s policies”. Now his team are lining up alongside Bill Shorten and Christine Milne to push for new and higher taxes. Let’s hope they’re embarrassed.

I haven’t even mentioned bracket creep, the process whereby inflation slowly pushes wage-earners into a higher tax bracket without making them wealthier.

The tax system is full of little revenue-scrounging tricks like that, tricks of language and mathematics and perspective that hide who pays and how much.

Funny how those tricks always work in Treasury’s favour. Bracket creep could be done away with once and for all by indexing income tax to inflation. Malcolm Fraser’s government experimented with such a policy, but abandoned it. It is in the government’s political interest to let bracket creep work its subtle expropriating magic.

The government’s problem is spending, not revenue. The public spat this month between Hockey and Peter Costello was revealing. If you missed it, Costello criticised Hockey’s desire to raise tax. Hockey responded that he wished he had the sort of revenue Costello enjoyed in government.

But hold on: Hockey does have that sort of revenue. If we adjust the figures for inflation, Hockey has $18.6 billion more revenue than Costello received in his last budget. (The most recent reported figures appear in the December Mid-Year Economic and Fiscal Outlook.)

The government’s other budget excuse – that the iron-ore price is bottoming out – isn’t convincing either. Yes, iron ore could go as low as $US36 ($46) a tonne. It was nearly $US200 a few years ago. But that was under Labor. Costello hadn’t been so lucky. Iron ore only lurched above $36 after the Howard government left office.

Hockey said he was kicking off a national conversation about tax and efficiency when he launched his tax discussion paper last month. Economists – particularly the sort of economists that populate treasury departments – spend a lot of time thinking about what is the most efficient tax system. The discussion paper reflects a lot of that thought. It judges taxes on how much they distort our incentives to work and produce.

However, efficiency isn’t the only thing we want in a tax system. Too often politicians use the word efficiency as a synonym for ingenious. The 17th-century French finance minister Jean Baptiste Colbert famously described the art of taxation as “plucking the goose as to get the most feathers with the least hissing”. You can understand his view. For a treasurer the most important thing is maximising revenue.

But it’s not obvious why we should be pleased the government wants to pluck more of our feathers. A Coalition government, no less.

A Single Drink Puts Media Over The Limit

Tony Abbott skolled a beer this weekend.

The Australian press made sure this skol received the hyperbolic, wall-to-wall coverage it deserved.

No doubt you read about it in the Herald Sun, The Australian, the Canberra Times, the Sydney Morning Herald, the Courier Mail, the Guardian, the Adelaide Advertiser, or the West Australian.

You would have read that the Prime Minister was cheered on by a football team at Sydney’s Royal Oak Hotel. You would also have read that the act took him about six seconds, although whether this is a fast or slow pace for drinking a schooner in one go has unfortunately been left un-analysed.

And finally, you would probably have read that this was a bad example for a prime minister to set to young people. The Foundation for Alcohol Research and Education expressed concern that it sent the wrong signal.

Journalist Judith Ireland said Abbott was “supposed to be a vocal advocate against binge drinking”, and that this sort of macho behaviour seemed to go against his claim to be “also the Minister for Women”.

Another writer, Andrew P Street, immediately connected this single skol with the binge drinking”scourge that’s destroying Australian society, turning our young men into animals”.

It would be hard to invent a better symbolic clash between the Australian self-image as larrikin and the po-faced posturing of the media than Abbott’s drink.

It is now apparently impossible for any public figure to stray outside the incredibly tightly prescribed rules of behaviour – prescribed, not by the public, but by the press, who of course would be horrified if those standards were applied to them.

The idea that a politician’s personal behaviour influences the behaviour of the public is pretty dubious.

Nevertheless, Abbott violated no cultural norm, his actions pose no ethical dilemma, they were neither reckless nor self-harming, and they had no political, economic, or social consequences. It was one beer. Abbott is a fitness fanatic. He’s famous for having once ordered a light beer shandy with 60 per cent lemonade. The weekend’s skol would be barely worth mentioning in a colour piece.

Yet once we hear from earnest prognostications of public health lobbyists, downing a single drink in one go becomes symbolic of a deeper, dangerous, threatening moral panic about alcohol consumption.

Alcohol consumption and risky drinking has been steadily declining, as the statistics from the Institute of Health and Welfare have consistently shown. The proportion of Australians drinking daily is at a 20-year low, and young people are taking up drinking at a later age than ever before.

These facts contrast with the frenzied, and well-funded, anti-booze movement who pop up in the bottom half of every news story tangentially related to alcohol.

Take the suggestion aired over the weekend that the Abbott Government might make a step towards volumetric alcohol taxation in the May budget.

If you were designing an alcohol tax from scratch, you’d want it to be volumetric – that is, levied on the alcohol content, rather than the type of drink. But we’re not designing a tax system from scratch. In the middle of a budget crisis what is really being proposed is a simple tax increase on one specific good.

Yet the story was quickly filtered through a paternalist prism: “Cheap cask wine is a serious health issue in many communities,” one public health activist said.

Thus the Government might be able to dress up a tax hike that disproportionately affects poorer Australians as if it were a compassionate health measure.

Last week the NSW Bureau of Crime Statistics and Research (BOSCAR) released research suggesting the Sydney liquor licence lockout had achieved its stated goals by dramatically reducing the number of assaults in Kings Cross.

Determining cause and effect in a complex system is incredibly hard. But BOSCAR found that one of the possible reasons that the assaults declined is because the number of people visiting Kings Cross declined dramatically. Business groups say revenue in Kings Cross is down 20 to 50 per cent. The City of Sydney says footpath congestion in Kings Cross is down 84 per cent. And BOSCAR says foot traffic at night from Kings Cross station is down too.

Obviously shutting down Kings Cross was going to reduce assaults in Kings Cross. But this is an extraordinary disproportionate response to what was a policing problem.

HL Mencken thought that one of Australia’s best contributions to the English language was “wowser”. The word’s origins are obscure but some wowsers at the start of the 20th century liked to say it stood for “We Only Want Social Evils Remedied”.

Yet in going after social evils, Australia’s wowsers have rarely been able to avoid attacking the harmless, knowing choices of people who are perfectly capable of making decisions about their health, and who can distinguish between a prime minister having a joyful, boisterous single drink and serious alcohol abuse.

Shorten Must Start Thinking About Life After Opposition

One of the unsurprising consequences of Tony Abbott’s modest poll recovery has been the new focus on Bill Shorten.

If you’ve read one column on Shorten, you’ve read them all. The Opposition Leader doesn’t stand for anything. He promised a year of policies but hasn’t yet offered any policies to speak of. And (for a certain type of commentator) he’s abandoning the Hawke-Keating legacy of reform and so forth.

All this is obviously true. But come on. Would you do any different if you were in his shoes?

Almost every incentive Shorten faces is telling him to stay quiet about his plans for government – to avoid making any potentially divisive statements or holding any potentially controversial positions. (I’ll return to the word ‘almost’ later.)

This is perfectly rational. No matter what the opposition does – no matter how opportunistically or rashly it acts – popular dissatisfaction with the economy or society will be directed towards the government of the day. The opposition’s job is to gently fan the flames, confident they are unlikely to be caught in the backdraft.

The last thing Shorten wants to do is get caught up in a debate about the specifics of what he would do in government. Detail is death. Better to keep the attention on Tony and his unfair-out-of-touch-just-don’t-get-Aussie-mums-and-dads Tories.

Oppositions that have tried an alternative strategy – outlined detailed policies, even transformational agendas – have been torn down by incumbent governments, who have the entire bureaucracy at their disposal to fact check and nit-pick anything the opposition throws up.

Think John Hewson, Mark Latham. Whatever your view of their political philosophy, they both tried the big-picture, year-of-ideas, stand-for-something strategies people are urging Shorten to pursue. And look at them today.

So now tell me you’d do anything different. Don’t blame Bill for Labor’s fecklessness. He’s just a company man.

In the simple model of political competition outlined in Anthony Downs’ seminal 1957 book An Economic Theory of Democracy, political parties will delay announcing any policy for as long as possible. The winner will be the party that announces last.

But incumbent governments can’t put off making choices forever. They can’t fully participate in this game of policy chicken.

The best strategy is the one that wins government, and maximises longevity in government, and allows the most flexibility to implement policies.

The need to govern benefits the opposition. Government policy announcements helpfully identify what the electorate hates. So the simplest opposition strategy is to copy the government’s popular policies and oppose the unpopular ones.

Abbott was an especially talented opposition leader. He didn’t just oppose unpopular policies. He managed to make policies unpopular, seemingly through sheer force of will.

Shorten as Opposition Leader looks as if he’s trying to mimic Abbott’s example. Yet Shorten is drawing the wrong lesson.

Remember that ‘almost’? The optimal opposition strategy isn’t just the one that wins government. It’s the one that wins government, and maximises that party’s longevity in government, and allows them most flexibility to implement their policies.

The Abbott team has learned – apparently to its surprise – that strategies adopted in opposition constrain what can be done in power.

Voters expect some promises to be broken, as I argued in the Drum last year. Yet this is only true within a certain range. The public wants to know what they are buying, even if they have a reasonable tolerance for products that do not exactly match the packaging. Expectations still matter.

The Coalition forgot this. The Coalition did not prime the electorate for the sort of policies it introduced within its first six months. Having pared its campaign message down to the most memorable essentials, voters were surprised to learn that End The Waste and Cut The Debt actually involved large-scale policy change, not just swapping one party in power for another.

Even in government the Coalition tried to hold back the policy reckoning as long as possible. It disavowed the Medicare co-payment when it was first discussed in Christmas 2013. It delayed the Audit Commission until the eve of the budget.

I won’t bother recapping how everything has played out since. But the legacy of that opposition strategy has left us with a badly denuded Coalition government. It is shell-shocked and weak. It is unable to pursue its own agenda. Now it grasps at whatever it thinks will keep it stable and in power until the next election.

A year ago the question was whether the Coalition was bold enough to tackle industrial relations head on. Today the question is whether the Coalition will ever feel confident enough to tackle the deficit it was elected to reduce.

No doubt Bill Shorten likes to imagine he can win the 2016 election. It’s not impossible. But winning is only half of it. He needs to start imagining how Labor’s small target strategy might harm him if he does win.

Moral Panic Overlooks Real Company Tax Problem

with Sinclair Davidson

The corporate tax profit shifting debate is a classic example of moral panic. First, it’s incredibly complicated. How many Australians could explain how company tax is calculated, let alone what business practices a “double Irish Dutch sandwich” refers to?

Second, it’s driven by hyperbolic and simplistic reports of companies paying little to no tax. These stories pivot on even more complicated scandals, such as “Lux Leaks”, and the technicalities of foreign tax systems.

And third, it’s wildly overstated. The best current estimates of how much corporate tax is shifted across borders is in the realm of 2 per cent to 4 per cent of total corporate tax.

It’s true that earlier estimates in the 1990s were much more than that. It was those high estimates that got the Organisation for Economic Co-operation and Development interested in the issue. But the firm- and affiliate-level evidence is better now. It’s pointless to scrutinise a moral panic for the clarity of its claims. But the corporate tax debate is missing the point.

As a society we don’t value firms for the money the government extracts from them. We value firms because they produce goods and offer services that make us richer, our lives easier, more convenient and more enjoyable, and our standards of living higher.

We ought to design our tax system to encourage foreign firms operating and doing business on Australian shores, bringing investment and jobs. Any attempt to tackle profit shifting that raises uncertainty or lowers Australia’s investment climate would be a disaster.

The corporate tax is not a good tax. As a recent Treasury paper pointed out, it is one of the most inefficient taxes levied by Australian governments. The burden of the corporate tax is scattered and obscure.

Greens leader Christine Milne has been running around this week accusing companies of not paying their “fair share”. But that fair share is always and inevitably passed on to someone else. The literature on the incidence of corporate taxation suggests the burden of corporate tax is worn in the short term by investors, and in the long run by a combination of investors and workers. Of course, under our superannuation system every worker is an investor as well.

Few of the standard justifications for the existence of corporate tax – particularly in a small, open economy – are compelling. One fear is that company owners might divert their personal income into the company. But they’d still have to pay capital gains tax on the way out again. Another argument is that corporate tax is an easy way to get money out of multinationals. Absurd, we know.

That’s why there are academic tax papers with titles such as “Why is there corporate taxation in a small open economy?” and “Can capital income taxes survive? And should they?”

For the political class, the corporate tax has one great advantage: it’s unclear who ultimately pays. It’s easy and comfortable to beat up on corporations, just as long as you stay mum about who actually ends up paying corporate tax. The whole system rests on this clever one-two trick. Who could sympathise with big bad business?

But even if the government wishes to keep the corporate tax fiscal illusion going, there’s hope. For all the handwringing about the double Irish Dutch sandwich, one point often missed is that Ireland has been very clever. That country’s low corporate tax rates have brought in multinationals, and with them jobs and investment.

It’s not obvious those low rates have come at a cost to the Irish budget. Corporate tax revenue as a percentage of total revenue in Ireland is almost exactly the OECD average. There’s no reason we couldn’t copy the Irish example – get in on the Irish-Dutch sandwich ourselves. The Irish make their own luck. So should we.

This Small Business Fetish Has Gone Too Far

As part of its back to basics campaign, the Abbott Government has telegraphed a small business tax package for the 2015 budget.

The plan, as far as we know, is that small business will get a tax cut of about 1.5 per cent. Big business will be left paying the standard rate of 30 per cent.

The Coalition has long had a romantic attachment to small business as a sort of moral heart of Australian private enterprise, but this policy is the worst sort of small business fetishism.

It threatens to further undermine an already complicated corporate tax system, confuses the sources of economic growth, and will distract policymakers from the much more fundamental task of opening protected areas of the economy up to competition.

Let’s take these one at a time.

It beggars belief that while the political class is banging on about the convoluted the tax code, “unfair” tax concessions, and clever corporate tax minimisation, the Government is planning to increase the complexity of the corporate tax system.

How long before we see the first exposé in Fairfax business pages about large corporates rearranging themselves to take advantage of the concessional small business rates?

The proposed small business tax cut would make the Australian corporate tax system explicitly progressive. Just as we pay a higher rate of income tax according to our wealth, firms would pay a higher rate of corporate tax depending on their size. The United States has a progressive corporate tax. Ours is flat – 30 per cent no matter what.

Now, in practice, firms don’t pay the same 30 per cent rate. As my Institute of Public Affairs colleague Sinclair Davidson has documented, all those deductions, offsets and credits mean the effective tax rate – that is, the amount of tax paid – hovers about 25 per cent. On top of this, small businesses tend to have much more variable profitability, so they tend to pay less than big business already.

Even with this caveat in mind, progressive corporate taxes are a terrible idea.

Corporate taxes are very different from income taxes. Income taxes are ultimately paid by the people whom the tax is levied upon. The money comes out of the pocket of the person who fills in the tax return. I’d prefer our income tax to be flat. But progressivity for income tax at least has its own internal logic.

Corporate taxes are very different. The cost of corporate tax is ultimately paid by someone other than the corporation – passed on to consumers through higher prices, or to shareholders, or even to the company’s employees.

After all, companies don’t pay corporate tax, people do.

It’s not at all clear why we would want to tax people who buy products from large firms more than those who buy from small firms. Unless, of course, the small business tax cut is a form of primitive industry policy to prop up small business and make it artificially competitive.

Large firms exist for a reason: to take advantage of economies of scale. Large scale manufacturing is more efficient than small scale manufacturing. Big is beautiful. All else being equal those big multinationals that everyone hates have given us cheaper products and higher living standards.

This hints at a much deeper confusion underlying the Government’s small business fetishism.Joe Hockey likes to describe small business as the “engine room of the economy”. Funnily enough Wayne Swan used to say the same thing.

Of course, no single sector is the engine room of the economy. That’s just rhetoric. (Anyway, what happened to mining?)

But the Government seems to be attributing the economic characteristics of entrepreneurship onto small business. Entrepreneurs bring new products to market, put competitive pressure on existing firms to do better, undercut monopolies, and keep not just the economy going but our living standards improving.

All those giant firms that dominate the 21st century economy – Google, Apple, Microsoft, etc – were originally garage start-ups. Why would we want to penalise the next Google for growing by taxing them at a higher rate?

Obviously by definition entrepreneurs start as small business owners. But not all small businesses are equally entrepreneurial. The defining characteristic of an entrepreneur is that they do something new. They are driven by an idea. We hear from Canberra that big business is a threat to small business. Well, entrepreneurs are a threat to big business. Paper beats rock.

If the Government wants to help entrepreneurs, it shouldn’t be looking first at the tax code. It should be looking at the sorts of things raised by the Harper review into competition policy last week. That is, the regulatory restrictions on entering markets, like the taxi or retail pharmacy markets, which hold back entrepreneurs from exerting competitive pressure on incumbent businesses.

It’s true that the small business tax cut is a lot less objectionable than the tax increases being proposed, like the bank deposit tax and an increase in the GST. Maybe it’s churlish to criticise a tax cut when the real risk is tax increases.

But the Abbott Government says it understands the importance of free enterprise and the market economy. It should want to reduce corporate tax on all firms – not just small ones.

Submission to the Senate Standing Committees on Legal and Constitutional Affairs inquiry into the Copyright Amendment (Online Infringement) Bill 2015

Executive Summary: The Copyright Amendment (Online Infringement) Bill 2005 is an internet censorship bill. It creates a new and potentially dangerous power for courts to censor websites. This power is not proportional to the harm it is intended to ameliorate.

The bill enables copyright holders to apply for court orders against internet service providers to block access to websites whose “primary purpose” is to facilitate the infringement of copyright. This amounts to a form of judicial censorship of the internet in the private interests of copyright holders. It is inappropriate in a free society.

In a submission to the September 2014 Discussion Paper into Online Copyright Infringement, the IPA argued that proposed copyright reforms will “do nothing to tackle the underlying dynamics” that have enabled a shift in social attitudes as to the desirability of copyright enforcement. This submission is substantially drawn from the arguments made in that previous submission. The previous submission, which outlines many of the arguments below in greater detail, is attached.

Copyright is not an unlimited right. Copyright enforcement needs to be carefully counterweighed against the rights that such enforcement might limit. Intellectual property enforcement is not a sufficient justification for the abrogation of a more central right: the right to freedom of expression. The Australian government does not censor websites that can encourage much more serious harm than copyright infringement. Internet censorship for the purposes of copyright enforcement constitutes a serious and disproportionate overreach of government power and a consequent threat to freedom of speech.

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.

Why Should We Join Another Development Bank?

Over the weekend Australia announced it will be part of the initial negotiations on the Asian Infrastructure Investment Bank (AIIB).

The AIIB is a global financial institution intended to rival the World Bank and the International Monetary Fund (IMF). The idea is that the AIIB will fund large scale infrastructure development in the region.

But if the AIIB is anything like the World Bank or IMF, then the new body is certain to be heavily politicised, bureaucratic, and imperialistic.

The AIIB is a China-led initiative, so unsurprisingly the bulk of discussion about Australia’s participation in the AIIB has been filtered through a geopolitical prism.

The United States doesn’t want us to join. But then our closest, fondest ally doesn’t have much diplomatic high ground to stand on here.

In Brisbane last year the US gave the Australian government a swipe when Barack Obama tried to make climate change a centrepiece of the Australian-led G20 meeting. Obama did this against the advice of his embassy. So after that very deliberate diplomatic jab, it’s hard to see why their sensitivities about China should be our concern.

And anyway, the US is hardly working to make existing international institutions any better. For instance, the IMF badly needs reform. But the US Congress has a veto over any IMF reform. That intransigence is in part why Britain signed up to the AIIB earlier in March.

Still, it’s easy to understand why the United States is upset.

The establishment of the International Monetary Fund and the World Bank at the Bretton Woods conference in 1944 represented a formal shift in economic power from the United Kingdom to the United States.

Britain had a leading role under the gold standard but Word War II ended that. After Bretton Woods, American leadership of the international economy was reflected in the role of the dollar and the country’s influence over the IMF and World Bank.

Seventy years on, the United States is resisting any sense that it might have its historical role usurped by China.

But the geopolitical symbolism of the AIIB is one thing. Whether the AIIB is a good idea is quite another.

As a general rule, we ought be very sceptical of an economic institution explicitly intended to pursue political, rather than economic, purposes.

The AIIB is part of China’s Economic Belt and Silk Road program to build a regional network of infrastructure that would counterbalance the United States.

So already the AIIB is starting with political goals in mind. Ignore whatever governance structures are imposed on the AIIB by Australia and Britain and other western participants. The AIIB’s investment decisions are almost certainly going to be made on the basis of strategic and political factors, rather than what investments are most economically viable or effective.

How do we know this? Well, because we’ve had 70 years’ experience with the equivalent institutions of the World Bank and IMF.

The IMF and the World Bank are inefficient and interfering and deeply politicised. Often they create the problems they are intended to resolve.

The World Bank has the modest goal of ending extreme poverty. To do so it finances projects in the developing world. This 2006 US News and World Report investigation uncovered a bevy of inefficiencies, wasteful programs, accounting problems, bureaucratic featherbedding, and quasi-corrupt practices in the World Bank. No wonder, as the economist Adam Lerrick points out, “After half a century and more than US$500 billion, there is little to show for World Bank efforts.” Unsurprisingly the World Bank wants more money.

The IMF offers financial assistance to countries in economic strife. But that assistance comes with bureaucratic interference, as the IMF tries to reshape the country they are assisting. Sometimes IMF reforms are worthy, sometimes they are not. But they are always imposed as a condition of assistance, often against the democratic wishes of the people.

The anti-democratic nature of IMF intervention is made worse when it combines with the “moral hazard” created by IMF bailouts. Domestic policymakers feel they can act recklessly because the IMF will save them if they get into trouble.

Development banks are supposed to fund projects that the private sector deem too risky. But a project which is too risky for the private sector remains risky even once funded by a development bank. The projects these banks fund too often fall prey to corruption and poor management. That’s why private investors don’t want to get involved in the first place.

Last week the Wall Street Journal rhetorically asked, “Why does the world need another development bank?”

For China, the answer is to enhance its geopolitical influence. The question Australia needs to ask is: why are we getting involved?

Why It’s OK To Strip Foreign Fighters Of Citizenship

Citizenship is one of the central ideas of political philosophy. But not one most people spend a lot of time thinking about.

The Abbott Government proposes to strip Australian citizenship from dual nationals who fight for Islamic State. (This would only apply to dual citizens as there is a strong presumption in international relations against making anybody stateless.)

And there is legislation before Parliament that would make it harder for children who have lived in Australia for 10 years to automatically qualify for citizenship.

Announcing the citizenship amendments, Parliamentary Secretary to the Minister for Communications Paul Fletcher told Parliament that, “Australian citizenship involves a commitment to this country and its people. It is a privilege which should not be taken lightly.”

Yet beyond fuzzy little nostrums about “membership” and “belonging” it’s not obvious what citizenship actually means.

What principles would allow us to judge whether such legislative changes are good or bad? Is citizenship a right or a privilege? Who should be a citizen? But most importantly, why?

Some countries give citizenship automatically to anybody born on their soil. Australia doesn’t. Here you need an Australian parent too.

The word “citizenship” is absent from the Australian constitution, save an incidental, negative mention in the prohibition on foreign citizens from serving in parliament.

Legally, citizenship is an odd beast. Citizenship is neither necessary nor sufficient for many of the most important Australian rights and privileges.

Citizenship doesn’t give you an absolute right to vote. Underage citizens can’t vote, and neither can citizens who are serving a prison sentence of three or more years.

Citizenship isn’t the criteria for enjoying welfare and publicly funded health. They are protected by our laws. Non-citizens pay taxes and have access to our courts. Permanent residents can buy property.

Non-citizens enjoy our version of free speech – the right to political communication – and the freedom to lobby and protest.

A Senate committee roundtable last week batted around the pros and cons of putting citizenship in the Australian Constitution. (I was one of the participants.)

The idea is that this would offer the High Court some clarity when deciding cases that concern questions of who is and isn’t a citizen for legal purposes.

But if we’re not clear what citizenship is, then why trust the High Court to decide?

At Federation, Australian “citizenship” was based on whether you were a British subject. However, this worldly and cosmopolitan idea co-existed clumsily with the other, racist idea of Australianness that was manifest in the White Australia Policy.

Putting anything that reflected that idea of citizenship in the constitution would have been a disaster.

While there exists a thing called citizenship in Australian law, citizenship is really a philosophical concept not a legal one. And it is a fuzzy concept because the idea of group membership is a fuzzy concept.

Yet, for all that fuzziness, it is central to our notions of identity and politics.

The whole point of citizenship is that it is exclusionary – it is a unique national identity, one that confers specific rights and privileges.

To adopt a nationality is not to join just any old community. At citizenship ceremonies, new citizens transfer their identity and allegiance from the old country to their new one.

Dual citizenship sits awkwardly with even the most modern ideas of citizenship.

One argument for dual citizenship is that formally offering it is something we sell to potential migrants, making Australia an attractive destination for foreigners.

A more powerful argument is that dual citizenship is simply inevitable. Children born to parents with different nationalities automatically receive the citizenship of both. And we have no way of forcing other countries to strip the nationalities of those who become Australians. We live in a complex, globalised world, etc.

Dual nationals who go to fight for the Islamic State are effectively renouncing their Australian citizenship. Many dispose of their passports when they get to Iraq and Syria. It would be hard to imagine a more thorough rejection of democratic values – the values that citizenship is supposed to represent – than going to wage war for a theocratic slave state.

Surely, if we were willing to deny people citizenship because they failed a trivia quiz about Don Bradman, then fighting for Islamic State is also a reasonable disqualification.

Some experts say that giving the government the power to revoke citizenship status from dual citizens makes the very idea of citizenship less valuable. Citizenship is meaningless if it can be taken away.

But this argument confuses the legal concept of citizenship – a contingent and not particularly coherent bundle of privileges and rights – with the deeper philosophical one.

At a philosophical level, dual citizenship is a lesser form of citizenship, as it represents a less than absolute allegiance and national identity.

And just as importantly, if citizenship is most valuable as a bond between members of a political community, then treating the citizenship of those who reject the community as inviolate undermines that bond.

Fuzzy nostrums sometimes matter. And if citizenship is to matter it has to mean something.