Tag: ABC The Drum

Can We Really Afford To Go To War?

On Tuesday morning Prime Minister Tony Abbott categorically ruled out introducing new taxes to pay for Australian participation in the third Iraq war.

Thank goodness. Imagine that: a war tax. But the episode – sparked by Finance Minister Mathias Cormann’s refusal to rule out such a tax over the weekend – demonstrates one thing clearly.

Despite the Abbott Government’s turn towards national security and foreign policy, it just can’t get away from its budget problems.

Abbott has suggested the mission might cost Australian taxpayers about half a billion dollars per year. David Johnston, the Defence Minister, says the mission will last many months.

Let’s take both those guesses with a grain of salt. The cost of military action always blows out.

In early 2003 estimates for our participation in the invasion of Iraq were about $500 to $700 million.

John Howard thought the war would last at most several months.

In the end, according to the Australian Strategic Policy Institute’s latest Cost of Defence report, our participation ended up in the order of $3 billion over eight years.

And for all its follies, the original invasion of Iraq had relatively clear goals – overturn the Baathist regime and install a democratic government.

By contrast, this war’s goals are as open-ended and obtuse as they come.

Pressed to give some indication of how the Government will measure its success, all Abbott could say was when the Islamic State is “in retreat, not in advance”.

The Australian Government is talking about months, but British prime minister David Cameron is talking about years of war against the Islamic State.

Another big difference between 2003 and today: Howard had a budget surplus. Abbott has a deficit, a deteriorating economy, an unpredictable senate, and an unfulfilled election promise to return the budget into the black.

Joe Hockey has been trying to manage expectations as he prepares for December’s mid-year economic and fiscal outlook statement.

Yet the cost of military action always seems to be a second-order issue for governments making a decision to go to war.

Financial issues always take a back seat to loftier visions about foreign policy and the role of Australia in the world, to humanitarian concerns and the stability of the geopolitical order, to questions of morality and casualties.

But the mundane reality is that military intervention is a public policy decision like any other and has to be paid for with scarce funds.

Even in peacetime defence is a notorious money sink. The Australian Auditor-General regularly lashes defence procurement processes for poor, over-budget delivery.

(A few years ago in The Drum I noted that one of those projects to have gone 20 per cent over budget was a logistics system specifically designed to reduce waste.)

American estimates of the cost of keeping a single soldier in Afghanistan for a year range between $US815,000 and $1.4 million. That’s many multiples of a soldier’s basic salary, which is between $20-30,000 per annum.

The current guess of how much it will cost to send Australian troops to the staging post in the United Arab Emirates is about $670,000 per soldier.

The high financial cost of warfare has been one of the great drivers of human history.

Indeed, liberal democracy itself was built in the shadow of war finance. Tudor and Stuart kings found themselves reluctantly asking parliament for more taxation in order to fight on the European continent. Parliament used these opportunities to eke out more power relative to the monarchy.

The First World War gave Australia the federal income tax. This was an innovation post-war politicians were happy to retain once hostilities were over.

Between the wars the reparations scheme imposed on Germany to pay for Allied war debts sparked the rise of Nazism.

In WWII Western governments introduced income tax withholding – a neat little innovation that obscured how much tax the government takes.

The cost of stationing troops in West Berlin during the Cold War nearly sunk the Bretton Woods system of managed exchange rates – and therefore the entire global monetary framework.

The spiralling cost of the Vietnam War spelled the end of the Kennedy-Johnson liberal reform program and created the setting for the rise of the conservative movement.

The American fiscal crisis has in large part been caused by the $2 trillion cost of the 2003 Iraq War. (Recall that the federal budget was already broken when the subprime meltdown hit.) We can blame that fiscal crisis for the dysfunctional nature of contemporary Washington politics.

Those ambitious neoconservatives who sought to reshape the world after September 11 imagined the financial cost of their military interventionism as a minor detail. Who could be so crude as to quibble about money when democracy and liberty was at stake?

More than a decade later few American taxpayers would be so blasé.

An old military saying is amateurs talk strategy, professionals talk logistics. Given the state of the Commonwealth budget, perhaps we ought to start talking finance first.

The Redundancy Of New Anti-Terrorism Laws

Incitement to violence is against the law. It’s always been against the law.

Every Australian state penalises incitement. The Commonwealth makes it unlawful to incite the commissioning of any criminal offence, not just violence.

This legal framework has developed over centuries. The prohibition on incitement has ancient common law roots. It is robust. It is coherent. It is a long-established and very well-founded limit on free speech.

So here’s a question: with the rich and robust law against incitement, why is the Abbott Government introducing the new offence of “advocating terrorism”?

Last week the Counter-Terrorism Legislation Amendment (Foreign Fighters) Bill 2014 was introduced into Parliament. Like the first national security bill that preceded it, it is dense and complex – a mix of sensible change mixed in with redundancy and extraordinary overreach.

I argued in The Drum a few weeks ago that the foreign fighter threat is both genuine and pressing. We’ve seen over the last fortnight how events in distant Iraq have materially changed the security environment in Australia. Many proposed legislative changes – particularly to foreign evidence laws and passport confiscation powers – make sense.

But the new bill goes much further than that.

The bill makes it illegal to visit some parts of the world without proving to a court that you visited for family or humanitarian reasons. It extends the control order regime and expands detention powers held by customs.

And it makes it illegal to advocate – counsel, promote, encourage, or urge – the doing of a terrorist act or the commission of a terrorist offense. (The section in the new bill is 80.2C.)

On its face this is extraordinary. The word terrorism is a term of art. A lot of people call Israel a terrorist state. Others respond that Palestine is terroristic.

More concretely, the Commonwealth Criminal Code defines a terrorist act as any action that a) causes or threatens harm to life, property, risk to health, or disruption of electronic infrastructure; b) is motivated by a political, religious or ideological cause; and c) is intended to intimidate the government or the public in general. (See section 100.1 of the Commonwealth Criminal Code here.)

The definition is broad because it has to be. What we describe as “terrorism” is really a collection of offenses. Every part of a terror plot is potentially prosecutable under laws that have been around for centuries. These include the most obvious – murder and attempted murder – down to things like conspiracy and weapons possession.

Indeed, as Bret Walker, the former Independent National Security Legislation Monitor, told the Australian Human Rights Commission’s free speech conference in August: “One of the best arguments against the counter-terrorist laws is that we didn’t need any of them, because we’ve long criminalised murder, conspiracy to murder, and incitement to murder.”

There are, certainly, some conceptual distinctions between traditional crime and terrorism. The latter is primarily intended to create fear. And governments hope to prevent terrorist acts rather than just punish them after the fact. Those differences perhaps justify some distinct anti-terror legislation.

But since September 11 governments have seemed intent on severing the concept of terrorism from its constituent parts – cleaving it off into a distinct body of law. This has created, as Bret Walker pointed out, massive redundancy, complication and confusion. The real winners from this decade of security hyper-legislation are lawyers.

Just how much redundancy has been piled into our anti-terror laws?

Well, in 2005 the Howard government passed sedition law reform that, in the words of the then-attorney general, Philip Ruddock, was intended to prohibit “any conduct or advocacy that is likely to encourage somebody to carry out a terrorist act”. Sound familiar?

It’s striking how little justification the Government has offered for the new advocating terrorism offense – let alone an account of why existing incitement or the 2005 sedition laws are inadequate.

But it appears the advocating terrorism offence isn’t just one of the dozens of new crimes and security powers in the Government’s voluminous anti-terror bills.

No, it seems to be the key to whole thing. It has deep political significance.

Think back to August, when the Government announced its turn towards national security. That announcement was made at a press conference where Tony Abbott also said he was abandoning the promise to repeal section 18C of the Racial Discrimination Act. We were told this was a matter of clearing the decks so everybody could get behind Team Australia.

Yet last week Fairfax reported Abbott shelved free speech reform so section 18C could be used against Islamic hate preachers.

This makes the August press conference even more disingenuous than it appeared at the time.

It seems the Government believes advocating terrorism and offending, insulting, humiliating or intimidating on the basis of race or ethnic origin are two sides of the same coin.

The promised reforms to section 18C weren’t a “complication”. They were directly contrary to the Government’s desire to suppress speech that would otherwise be free.

The Unspoken Benefits Of Tax Avoidance

Few things excite a treasurer more than tax avoidance.

The idea conjures up fantasies of great pots of untaxed money – money the government is morally entitled to but for one reason or another (the weakness of previous administrations, probably) is being denied.

No surprise then, as his budget savings fade away into nothingness, Joe Hockey has turned his mind to the old corporate tax avoidance chestnut.

On the weekend in Cairns the G20 finance ministers agreed to tackle “base erosion and profit shifting … to make sure companies pay their fair share in tax”. Our very own Hockey, as G20 host, is leading the charge.

Profit shifting refers to the fear that multinational firms are structuring themselves to route profits through lower-taxing countries.

Base erosion is the fear that this profit shifting is eroding the tax base, starving governments of funds.

The Organisation for Economic Co-operation and Development (OECD) started focusing on base erosion and profit shifting last year, pushing it to the front of the G20’s agenda.

They’ve been amply backed up by breathless newspaper stories about the complex tax structures of firms like Apple that have divisions in Ireland and the Netherlands.

All very interesting except for one thing. The profit shifting problem isn’t that much of a problem.

It’s true that in the 1990s, when economists and policymakers first turned their mind to how multinational firms plan their tax liabilities, they looked at aggregate country-level data and concluded (as one of the first major studies said) “companies locate a sizable fraction of their foreign activity in tax havens”.

This early work implied profit shifting was both real and substantial.

But now economists are working with more fine-grained data specifying how firms structure their internal debt around global affiliates. And as they look closer at those affiliates, the evidence is telling a very different story.

A 2014 overview of the empirical literature by one of the major scholars of global tax avoidance, Dhammika Dharmapala, concludes “in the more recent empirical literature, which uses new and richer sources of data, the estimated magnitude of (base erosion and profit shifting) is typically much smaller than that found in earlier studies”.

There is even, as Dharmapala points out, some evidence to suggest profit shifting has been declining in the last decade, not increasing.

We’re now talking about multinational corporations shifting somewhere between 2 per cent and 4 per cent of their profits to tax havens.

Two to 4 per cent is not nothing, of course.

But these lower numbers help resolve the big profit shifting puzzle. If the corporate tax base is being eroded, then why is revenue from corporate tax going up?

Between 1965 and 2007 corporate income tax revenue increased from 2.2 per cent of GDP to 3.8 per cent of GDP in OECD countries. (Revenue fell somewhat during the Global Financial Crisis but is on the rebound.) This despite the fact that corporate tax rates have been lowered over the last 40 years.

Even the OECD, in its 2013 paper Addressing Base Erosion and Profit Shifting, thinks the stability of corporate tax revenue is a bit odd (see here, page 16).

Perhaps the answer is simple: profit shifting isn’t as big a deal as newspapers and treasurers think.

At least, if nothing else, those facts ought to engender some scepticism about whether there really is a profit shifting crisis. Let alone one that requires urgent, internationally coordinated action.

So where is that scepticism?

We’ve seen how quickly commentators look for self-interested political motivations behind government pronouncements on national security and foreign policy. This is healthy. But all that valuable distrust seems to disappear when we talk about crackdowns on corporate tax – a field where political self-interest is blindingly obvious.

Hockey admitted earlier this month Australia has “amongst the strongest anti-avoidance laws in the world”.

Like many other countries, Australia has a general anti-avoidance rule, a catch-all law that allows a court to override any scheme it believes is designed primarily to produce a tax advantage.

Our anti-avoidance rule is incredibly broad and creates enormous uncertainty. But it is also extremely powerful. If there was really a tax avoidance problem in Australia the authorities would be well equipped to handle it.

Multinational corporations have to make choices when deciding where they should base themselves. Different countries have different labour costs, workforce skills, levels of infrastructure, protection of the rule of law, and, of course, different tax rates.

The G20’s real gripe is that they are being forced to compete for the tax affections of the world’s biggest companies.

You can understand why the treasurers of the world think tax competition is harmful. They want to maximise their government’s revenue.

It’s not obvious why we should share their concern.

At the end of the day, consumers and workers benefit when corporate tax rates are low and attractive. Anything that pressures our governments to keep those rates low is a good thing.

Will We Kill Civilians In An Effort To Save Them?

The humanitarian intervention problem is that the following two propositions are both equally true.

First, there is a moral imperative to prevent humanitarian tragedies. Any notion of state sovereignty has no force when that state is murdering its own citizens. And “it’s none of my business” is not an appropriate response to foreign atrocities.

But second, military interventionism is unlikely to be effective at anything more than achieving immediate, short-term goals. It is certain to have unanticipated and unintended consequences.

At best the results of intervention will be unpredictable. Preventing tragedies in one time and place may indirectly contribute to tragedies in another time and place. At worst we end up killing civilians in an effort to save them.

Neither of these two propositions ought to be controversial. The former is an obvious moral truth. The latter has unfortunately been demonstrated over and over again.

It’s easy to think of instances where military intervention has been ineffective or counterproductive. It’s less easy to recall examples of clear success. The successful reconstruction of Germany and Japan after World War II seem more like mysterious outliers than models to emulate.

Despite this sad record, there is an emerging doctrine in international law and relations called the “responsibility to protect”. The idea is that while states have the ultimate responsibility to look after their citizens, those that fail to do so are liable for foreign intervention – from gentle diplomatic suasion right up to military action.

Known informally as “R2P”, this doctrine was first acted upon in 2011 with the military intervention in Libya.

Few dictators deserved to be overthrown more than Muammar Gaddafi. But three years later Libya is in chaos. Just last month Human Rights Watch was reporting war crimes in the ongoing battle for control of Tripoli. There are a quarter of a million militia fighters in Libya.

So unless R2P advocates only care about the very short term, it is fantasy to describe the Libyan intervention as a success.

Yes, it is possible that Western military action prevented something worse. But that counterfactual is impossible to test. The measure of humanitarian intervention can’t be simply whether we can defeat third world dictators in battle. We can. What happens after the initial intervention matters too.

I’m sure the legal validity of R2P has been carefully worked out by international lawyers and scholars. But as a guide for policy, it is a triumph of hope over experience.

It is sometimes claimed that the 2003 invasion of Iraq would have been a clear success if Barack Obama hadn’t withdrawn troops in 2011. Like Gaddafi, Saddam Hussein deserved his fate. Perhaps if coalition troops had stayed then we wouldn’t be facing the Islamic State problem now. (See, for instance, this recent piece in the Washington Post.)

However, if the success of the 2003 Iraq war was really dependent on a never-ending military commitment, then it was hopeless from day one. Domestic political constraints make permanent occupation impossible. The public tolerance for casualties and deficits is finite. Eventually voters turn against war. This domestic reality has to be factored into intervention planning.

And yet … it is simply impossible to watch overseas tragedy unfold without wanting to prevent it. One 2010 book put this way:

Even those who are deeply suspicious of armed humanitarian intervention and deeply sceptical about its prospects of success may still admit that it might, in theory, be justified when a humanitarian crisis is sufficiently serious.
That intervention has failed in the past does not mean it inevitably fails in the future. No doubt there are some Libyans alive because of Western action.

But what’s not acceptable is the “it’s the thought that counts” school of humanitarian intervention which washes its hands of long-term consequences in order to bray about quick military victories and our altruism-by-force.

Take, for instance, this Guardian piece after the Libyan intervention: “No large-scale military intervention ever comes free of moral hazard.”

Or this one by the former US State Department official Anne-Marie Slaughter, proclaiming the moral goodness of intervention and Western values and all that, then casually admitting at the end that “Libya could disintegrate into tribal conflict or Islamist insurgency, or split apart or lurch from one strongman to another”.

Overseas atrocities present a genuine and tragic dilemma. The case for protecting civilians against IS is unimpeachable.

But Tony Abbott told ABC radio yesterday that he could not “promise perfect success”. This is not a good sign. And the mission’s goals are already hopelessly confused.

Attorney-General George Brandis says IS is an “existential threat” for Australia. Yet, on the other hand, we’re also being told what’s planned is “a humanitarian operation to protect millions of people in Iraq from the murderous rage of the ISIL movement”.

So which is it? Are we at war to defend Australia or to protect Iraqis? The distinction isn’t minor. Is our goal to contain the threat or to destroy it?

Contrary to what the Prime Minister has said, fighting IS is hardly a “specific and clear objective”. It seems like the exact opposite: vague and open-ended. Maybe we’ll defeat IS. Or maybe, in Obama’s words, we’ll just “degrade” it.

The truth is of course we are only returning to Iraq as part of an American coalition. That the mission is unclear is a reflection on the Obama administration rather than the Abbott Government.

Either way, the question that policymakers have to confront is not whether we have a responsibility to protect Iraqis and Kurds from the IS menace. The real question is whether we are capable of doing so.

Romanticising Reform: We’ve Set The Bar Too High

Is major economic reform no longer possible?

That’s the conclusion Paul Kelly draws in his recently released history of the Rudd and Gillard governments, Triumph and Demise: The Broken Promise of a Labor Generation.

Yet it’s a strange conclusion, because the story Kelly tells over 500 pages is one of near-constant ineptness and dysfunction by Kevin Rudd and the architects of Julia Gillard’s 2010 coup.

If Kelly’s narrative is correct then surely getting rid of those characters would allow reform to pick up again.

Of course there’s much more to a political system than politicians. If Australia is unreformable then it must be for institutional reasons. Not simply because we’ve had a rubbish bunch of recent leaders.

Kelly offers a few institutional explanations for why political culture has changed. First, the pace of personal and social life has intensified. Second, social fragmentation and technology mean that “sectional interests have more power than before”.

These aren’t really answers though. Why has the pace of personal and social life intensified? And surely sectional interests were more powerful when – for instance – the major parties specifically represented sectional interests, as the Labor Party did for trade unions and the Country Party did for the agricultural sector?

The last major reform success Kelly identifies was John Howard’s GST in 1998. The question is what has changed since. There are a few possibilities. For instance, Australia is richer and more populous. But it’s hard to see why that would make us less open to reform.

Technological change is one obvious institutional explanation. As technology has destroyed the business models of the big news outlets, it has also undermined the clubbish nature of Australian politics.

In the past policymakers were able to call up a handful of key journalists and media owners and they’d be virtually guaranteed press gallery support for their agenda. The cramped quarters of Old Parliament House meant that journalists and politicians lived on top of each other.

When a journalist tried to break out of the club – as Max Newton did when he left The Australianin 1965 and set up his own publishing outlets – it was scandalous. (The story is best told by a press gallery insider who opposed his reintroduction to the gallery, Alan Reid, in the 1969 book The Power Struggle.)

Now the mastheads are collapsing and the gallery is starting to be populated by outsiders. TakeCrikey and the Guardian, for instance. Political commentators – as opposed to gallery journalists – are even more diverse and uncontrollable.

There are more outlets, those outlets that exist have fewer staff, and digitisation means those staff can be spread around the country.

It’s now entirely impossible to line up the press behind a major new policy with charm alone.

This is a good thing though. If it is hard for politicians to railroad through reform because our democracy is richer and more vibrant, well, too bad for reform.

There are two popular technological explanations for our political malaise that we need to rule out: social media and the 24-hour news cycle.

Social media has democratised political debate but it would be hard to blame Twitter for Kevin Rudd abandoning his emissions trading scheme or the lack of consensus on Joe Hockey’s GP co-payment.

Anyway, social media is hardly the first time the political class has faced media democratisation. Talkback radio was a virtual revolution when it was legalised in 1967. Talkback delivered passionate, virtually instant political feedback. Politicians and parties struggled to adjust their campaign and communications strategies accordingly.

But they managed. As they will with Twitter and Facebook. It’s easy to forget how recent any of this stuff is. In 2007 merely posting a video on YouTube – as John Howard did during the campaign – was remarkable.

And the 24-hour news cycle? Yes, 24-hour television is a relatively recent innovation in Australia. But nobody really watches it. We’ve had 24-hour radio for decades. We certainly had it during the great reform era of the 1980s.

Too often the political class is deluded into thinking voters care about day-to-day politics. “Winning the day”, as Kevin Rudd tried to do, means nothing for those people who tune into the political news at most a few times a week.

In other words, the problem is less the technologies that govern politics but the way political strategists adapt themselves to those technologies.

If the world has changed, the political class is just going to have to learn how to change with it. They’re in the middle of this process. They haven’t yet reached a comfortable equilibrium.

Nor is it clear that the technological empowerment of activists and corporate interests presents a roadblock to reform.

Take the now iconic example of resistance to government policy – the anti-mining tax campaign in 2010. This campaign was actually as traditional as they come. An industry peak body took out television ads.

In practice this campaign was not much different from the anti-bank nationalisation campaign run by the banks nearly 70 years ago.

One year into the Abbott Government and it’s easy to think the worst of the political system. But over-rating the past in order to reflect poorly on the present is an old human pastime.

Kelly more than anyone has created the hero story of Australian political history. His 1992 book End of Certainty made Paul Keating and Bob Hawke out as larger-than-life figures whose decisions were confident, epoch-defining, and Australia-changing. (The contrast between Kelly’s bombastic End of Certainty, and Laura Tingle’s gloomier Chasing the Future, published just two years later, is striking.)

Our political class has imbibed a thoroughly romantic interpretation of the 1980s and early 1990s.

Against it, any modern leader would fall short.

Don’t Rush To Act On Terrorism Threat

Specific policy problems demand specific policy solutions.

So the Abbott Government has done us a favour by being very specific about the new terrorist threat: Australian residents fighting in Syria and Iraq who come home even more radical and potentially violent.

These “foreign fighters” are a specific threat that demand specific legislative change. It does not demand an overall increase in broad and adaptable police and national security powers.

Let’s start, as all policy discussion should, by being clear about the problem.

One in every nine jihadists who travel overseas to fight in foreign conflicts return to attempt terrorist attacks in the West, according to the best estimate we have.

Considering there could be more than 100 Australians fighting in Syria and Iraq, that ratio is worrying.

The one-in-nine figure was assembled by Thomas Hegghammer and published in the American Political Science Review in February 2013. It’s based on jihadists from the West between 1990 and 2010.

The Syrian conflict started in 2011, outside Hegghammer’s analysis. In an excellent piece in the Age in August, Andrew Zammit detailed some instances of Syrian returnees going on to plot domestic attacks.

One-in-nine is hardly an iron law of terrorism, of course.

Fighting in foreign wars is a very old phenomenon – think George Orwell in the Spanish Civil War – and the motivations for fighting in foreign wars and conducting domestic terrorist attacks differ enormously.

Terrorism remains an extremely low probability event.

But one thing we could say about foreign fighters is that they’ve done law enforcement agencies a huge favour – they’ve self-identified as security threats. As Hegghammer points out, experience in jihad overseas is the biggest predictor of future terrorist intent. So they’re good candidates for close monitoring.

Or good candidates for immediate prosecution. It is illegal under Australian law to engage, or intend to engage, in hostile activity in foreign states. An exception is joining the armed forces of a foreign state. (Australians can’t join Syria’s pro-Assad military, though – we have sanctions prohibiting that.)

Here’s where Parliament can get to work. This law was originally developed to prevent mercenary activity in Angola and Rhodesia in the 1970s. Today it is not particularly fit for purpose.

Bret Walker, until recently the Independent National Security Legislation Monitor, has repeatedly argued for reform of the law governing foreign fighters. Walker’s last annual reportexposes a number of inconsistencies and concerns that the Abbott Government needs to fix.

For instance, it’s hard to prosecute foreign fighters in Australian courts. Laws governing the collection of evidence overseas require the cooperation of foreign states, but what if the offence occurred in a region with no functioning or cooperative government? This is a problem in both Syria and Islamic State-controlled Iraq.

In these very limited circumstances it might be necessary to relax some of the restrictions on what evidence can be admitted into court.

One popular argument is that we should just let foreign fighters go – better they fight and die for jihad overseas than plot terror attacks in Australia. But not all do die.

This New York Times piece points out that many foreign fighters plan to stay in Syria and Iraq for good. Some show their dedication by symbolically burning their Western passports. Yet plans can change.

Anyway, why should we be any more tolerant of those who travel to train and fight in Syria or Iraq than we were of the previous generation of jihadists who joined training camps in Afghanistan? Zammit points out that many of them intended to fight in regional conflicts before being recruited by Al Qaeda to attack the West.

Regardless, it’s probably best that Australia does not act as a staging base for terrorist attacks on foreign civilians. There is no fundamental human right to wage sectarian war.

Walker has identified some serious inconsistencies between the criminal code and the foreign fighter laws.

In large part this is because successive governments have piled terrorism offense-upon-offense into the statute books, rather than systematically reviewing what sort of conduct is already criminalised. George Williams calculated that after the September 11 attack the Howard government introduced new anti-terror legislation every 6.7 weeks.

The Abbott Government is heading down the same path.

The Attorney-General George Brandis has proposed reversing the onus of proof for Australians who travel to dangerous parts of the world – the prove-you’re-not-a-terrorist proposal. Undermining the presumption of innocence is an incredibly ham-fisted way to tackle a genuine evidentiary issue.

The foreign fighter threat doesn’t justify the dangerously broad restrictions on reporting security operations contained in the legislation introduced to Parliament in July.

Nor do a few dozen Australians waging jihad in Syria go anywhere near justifying – for instance – a mandatory data retention scheme, which, by requiring internet service providers to create a database of information solely for the purpose of law enforcement, would treat all Australians as potential criminals.

Taking the foreign fighter threat seriously justifies some legislative change; minor change, yes, but important.

It is not the case that any legislative change will do.

The Cold Calculations Of The GFC Stimulus

Wayne Swan’s memoirs of his time as treasurer, The Good Fight, spend a great deal of time on the global financial crisis.

As Swan presents it, the case for massive fiscal stimulus was a slam dunk. Only fools and knaves would disagree.

There’s no sense in his memoirs that fiscal stimulus was a policy experiment under conditions of enormous uncertainty. The stimulus is just used as evidence that Swan isn’t afraid to make the big calls, isn’t afraid to back himself etc., etc., etc.

So more interesting than anything in the book is a memo, two short pages, prepared for an August 2008 meeting in the Lodge between Swan, Kevin Rudd, treasury secretary Ken Henry, and their staff. Swan released it as part of the pre-publicity for his memoirs. It’s available here.

The memo underlines the policy trade-offs behind the stimulus decision, how political considerations swamped economic ones, and brings back into the picture an apparently forgotten pillar of Australian economic management: the poor old Reserve Bank.

In other words, this two-page memo is a better policy history of the GFC in Australia than anything yet published.

The memo was prepared just before the September collapse of Lehman Brothers turned an American housing crisis into a global financial one.

(For context, the first Australian stimulus package, $10.4 billion, was announced in October 2008. The big one came in February 2009. It was $42 billion.)

Economies with central banks have two policy options on the table when there’s an economic downturn – monetary policy and fiscal policy.

The monetary response comes from the Reserve Bank as it adjusts the cash rate to balance inflation and growth. This happens once a month, in good times and bad, no matter what the elected government does.

The fiscal response has two parts. First are the “automatic stabilisers”: economic downturns lead to increased government welfare spending. Second are discretionary stimulus packages, determined by political considerations and the sluggishness of policy implementation.

Why is fiscal policy needed? Well, monetary policy, it is widely believed, has a limit. When the cash rate is at or near zero (the “zero-bound”) it can’t go lower.

For economists like Paul Krugman, Brad DeLong and Larry Summers in the United States, the fact that interest rates are at the zero-bound means monetary policy has been neutered and fiscal policy has to take over. (For that argument, see this 2012 paper by DeLong and Summers.)

An alternative view is provided by Scott Sumner, who argues that the zero-bound doesn’t mean monetary policy is ineffective – central banks have more tools than just the cash rate. (You can read Sumner’s argument here.)

It’s an interesting debate. But from an Australian perspective it’s beside the point. We never got to the zero-bound. We never met the initial condition for discretionary fiscal stimulus. In Australia, monetary policy still had a lot of room to move.

The August 2008 memo opens with the observation that the RBA was deliberately trying to slow the economy down in the first half of that year. But the RBA had overshot. The slowdown was “occurring more sharply than initially anticipated”. This was the context for the early stimulus planning – a bad RBA error.

In October 2008 the RBA changed course and cut the cash rate by a full percentage point. In his book, Swan writes how the rate cut news came during a cabinet committee meeting into stimulus planning. The committee was stunned into silence.

“Without doubt this changed the entire dynamics of events over the next 18 months.”

What extraordinary timing. But should the October rate cut really have been such a cause for panic? Only insofar as it demonstrated how badly the central bank had misread the economic climate. Over the course of the next six months the RBA completely reversed its earlier policy, plunging the cash rate from 7.25 in August 2008 to 3 per cent in April 2009.

Tony Makin pointed out a few years ago that, from the perspective of individual consumers, this interest rate fall made the $900 cheques look like chicken feed.

But there it stopped. The cash rate never approached zero. It never got close. Even as the stimulus package was being rolled out the RBA began to lift rates. First in October 2009. Then in November. Then in December. Then in March, April, and May 2010.

Those increases were predictable. It’s what the memo said might happen: “The Reserve Bank through its control over interest rates, determines the overall level of aggregate demand in the economy, and the Bank would likely take account of any fiscal stimulus in its monetary decisions – that is, more spending would keep interest rates higher than otherwise.”

As Stephen Kirchner writes, that’s a pretty good description of the “monetary offset”. When a country has a central bank targeting inflation and growth, fiscal stimulus is redundant. It’s both costly and unnecessary.

So why did the Rudd government push so hard for stimulus? Once again, it’s right there in the document: because of “the potential political costs of being seen to do nothing in the face of slower growth and rising unemployment”.

Monetary policy is hardly nothing. But the government couldn’t take credit for it.

The decision to deploy massive fiscal stimulus set in train all the events and personality clashes that defined Labor’s term in government.

The debt racked up in those few months crippled Kevin Rudd’s policy agenda, undermined every one of its future budgets, and, by liquidating the surplus in an instant, damaged its economic management credentials.

And for what? To avoid “the potential political costs of being seen to do nothing”.

Mandatory Sentencing: A King Hit For Courts

You can smell the air of an election in Victoria. On Sunday the Napthine Government announced it wants 10-year mandatory minimum sentences for “one-punch” killers.

The Labor Opposition retorted that it would prefer a new offense of death by assault that would offer up to 20 years in prison.

Obviously the November election is going to be a standard law-and-order auction.

At least when New South Wales introduced its mandatory minimum sentences for one-punch laws in January it did so in response to a massive media-driven moral panic about alcohol-fuelled violence.

Let’s be clear. One-punch killers deserve the maximum possible penalty that is proportionate to the crime that has been committed.

But mandatory minimum sentences have a special place in the tough-on-crime pantheon – there is almost uniform intellectual agreement that they are a bad idea.

The title of one 2009 survey on the evidence about mandatory minimums led with its conclusions: The Mostly Unintended Effects of Mandatory Penalties: Two Centuries of Consistent Findings. It argued “the decent thing to do would be to repeal all existing mandatory penalties and to enact no new ones.”

Opposition to mandatory minimum sentences isn’t a left-right thing. In 2000 the conservative Samuel Griffiths Society published a paper describing mandatory sentences as a “tragedy”, “unjust”, and violating the “fundamental principle of law that a sentencing court should not impose a punishment which does not fit the crime”.

So why? The purpose of mandatory minimums is to reduce the discretion judges have in determining sentences, replacing that discretion with a bright-line rule determined by the legislature.

The idea is that judges tend to be soft on criminals, apparently giving lower sentences than the public would like. So the legislature has to step in. Furthermore, imposing a mandatory minimum sends a message: this is an especially serious crime.

But removing judicial discretion in the sentencing process can lead to serious miscarriages of justice – forcing judges to give disproportionately tough sentences when the circumstances may demand more leniency.

Nor, as the 2009 survey cited above makes clear, is there any consensus that mandatory minimums have particularly powerful deterrence effects – at least no more so than discretionary sentencing.

And rather than imposing parliamentary control over sentencing decisions, mandatory minimums shift discretion from judges to prosecutors.

This latter point is the most important. Mandatory sentences aren’t mandatory, in any real way. Every criminal system, by its nature, has to involve a great deal of discretion.

Under a system with mandatory minimums, the key issue becomes what the prosecutor intends to charge – the charge with the mandatory sentence, or some other collection of charges? That decision encourages prosecutors and accused criminals to bargain about what charges will be bought and what facts will be admitted before any trial takes place. This is particularly prominent in the United States where mandatory minimums are extremely common. Suspects and prosecutors engage in a game of arbitrage, negotiating around the suite of potential charges.

As one Australian paper argued, mandatory sentences “make pre-trial decisions the key to the outcome of a case”. They don’t eliminate discretion. They just shift it to prosecutors. Hardly any more democratic, but much more opaque.

Of course, most voters would prefer harsher penalties for crime, particularly thuggish crimes like king hits. If they didn’t, then tough-on-crime policies wouldn’t be politically effective. One global study concluded that mandatory minimum sentences are popular … as long as they are discussed in general terms. But when presented with specific cases that popularity ebbed away.

That finding accords with a more general observation that different expectations about sentencing between courts and community disappear when specifics are examined. (See this Tasmanian study, for instance, or this Victorian one. The NSW parliament has a recent overview of research here.) The reason is simple, if a bit uncomfortable: courts follow public opinion more than they care to admit.

The original mandatory sentence was the death penalty. Capital punishment is as final a punishment as you can get. It was loved by the tough-on-crime politicians of the 17th and 18th century, when long-term incarceration was too expensive to be an option.

It is said that Edmund Burke once commented he could “obtain the consent of the House of Commons to any Bill imposing the punishment of death”.

But even in that era the judiciary tried to vary the punishment to fit the circumstances of the crime.

Stuart Banner points out in his 2002 book the Death Penalty: an American History there were a surprising number of ways executions could be varied to make them more lenient or more punitive. Sometimes a hanging was staged up to the very last moment, when the condemned was released to their surprise. Sometimes the execution was merely theatrical. For the worst crimes, hanging was combining with, for instance, dismemberment.

In other words, even in a world with just one possible punishment in theory – execution – the judiciary and executive government saw the need for substantial variation in sentencing.

Legislation is a blunt instrument. To impose a general rule on human society it is necessary to abstract away from specifics; to slide over details and particulars in order to come to a broader principle that can be applied to an unpredictable and diverse mixture of conduct in the future.

Discretionary sentencing is a fail-safe mechanism to prevent laws conceived in the abstract from becoming absurdities in practice.

It is one of the foundations of our common law system. Judges must have the flexibility to impose sentencing in proportion to the crime, taking into account all the circumstances and specifics and the necessity to punish those who have done wrong.

This principle is too important to abandon just because an election is coming up.

Going Against The Grain On Data Retention

George Brandis claimed last month that data retention was “the way Western nations are going”, but the opposite is true. Australia would be going against the grain, writes Chris Berg.

It would have been good if, at their press conference last Friday, the Australian Security Intelligence Organisation and the Australian Federal Police had been joined by all the other government bureaucracies that passionately support mandatory internet data retention.

Because data retention is not about national security. It’s about collecting data on every Australian for every law enforcement and regulatory compliance agency to use. And for everything from serious crimes to trivial infractions.

So David Irvine of ASIO and Andrew Colvin of the AFP could have been joined by Chris Jordan of the Australian Taxation Office, Rod Sims of the Australian Competition and Consumer Commission, and Greg Medcraft of the Australian Securities and Investment Commission. All have been pushing for data retention in committee hearings and inquiries.

And then, for completeness, we could have had a few of the dozens of state and federal agencies who currently enjoy authorised access to private communications data under the existing Telecommunications (Interception and Access) Act.

Squeeze on stage the Western Australian Department of Fisheries, Racing Queensland, New South Wales Health Care Complaints Commission, RSPCA South Australia, and Wyndham City Council. They would all be beneficiaries of mandatory data retention.

In other words, data retention is hardly a targeted anti-terrorism measure.

There were, in fact, two separate data retention proposals last week.

The first was announced by Tony Abbott and George Brandis on Tuesday. We’ve all seen the muddled interviews but the broad strokes of the policy itself were relatively clear. The Government was planning to force internet service providers to record both the internet protocol (IP) addresses of their customers and the IP addresses of the websites that those consumers visited.

This is sometimes known as “session logging”, or more popularly as “browsing history”.

Abbott and Brandis clearly left the National Security Committee last Monday night, and Cabinet on Tuesday, thinking session logging was what had been agreed to – it was the “in-principle decision”.

Then something changed. A second proposal was announced by Malcolm Turnbull, and confirmed at the ASIO and AFP conference on Friday. In this, the only data that is to be kept is IP addresses matched to customer details. Not a record of all the sites the customers visit.

With the data provided by the Abbott-Brandis session logging policy, it would be possible to map out a person’s entire world. No ISP keeps such a record of its customers’ online lives. Why would it? Anyway, doing so would be in breach of Australian Privacy Principles, which state that no more information ought to be kept than is necessary for business purposes.

The Turnbull policy is still useful for law enforcement, but much, much narrower. It’s only a small step away from billing information. And a few ISPs do keep this data. Storing it consistently might be expensive – very expensive for some ISPs – but it’s hardly the giant threat to privacy and liberty that the Abbott and Brandis policy constitutes.

Most importantly, it is not the mandatory data retention policy proposal that has been on the table for years – large-scale session logging – the policy that Malcolm Turnbull described in 2012 as “the latest effort by the Gillard government to restrain freedom of speech”.

Thank goodness.

As Bernard Keane has found, the Attorney-General’s Department has been pushing for the full version of data retention since at least 2008.

The intellectual genesis of this policy goes back 2006, when the European Union passed the Data Retention Directive. (Australians rarely come up with these ideas themselves.)

The directive instructed all EU member states to retain large quantities of communications data – both source and destination – for the investigation of “serious crime”. You can read it here. Article 5 outlines how just how large those quantities were to be.

European countries did as they were told.

Their experience shows that Tony Abbott was spot on when he said on Wednesday that data retention was designed to fight “general crime”, not just terrorism.

In a sample 12-month period, an Austrian review found that the most common law enforcement use of retained data was for cases of theft, followed by drugs, followed by stalking. Terrorism didn’t rate.

Internet traffic data retained by Poland’s scheme is being used “more and more” for civil disputes – even divorce cases.

The Danish Justice Ministry found only two cases where session logging has been useful in half a decade. Neither concerned terrorism. Denmark gave up data retention in June this year.

Germany’s Federal Crime Agency concluded that data retention had no statistically relevant effect on crime or crime clearance. Crime continued its long-term decline even after data retention was abandoned in Germany in 2010.

We could go on. Brandis claimed last month that data retention was “the way Western nations are going” but the opposite is true. Data retention is being wound back, repealed, and abandoned. In April this year the European Court of Justice found that the EU directive was unconstitutional.

Australia already has a powerful, robust mechanism to monitor suspects online: targeted data preservation notices on the telecommunications of suspects. This regime was updated just two years ago.

But that, perhaps, is beside the point. The last week has demonstrated that the debate over telecommunications surveillance is held in widespread ignorance – ignorance about our existing capabilities, the constantly evolving legal framework, and the architecture of the internet.

Not surprising, of course. This stuff is complicated. Technology policy is hard enough. Add onto that our labyrinth telecommunications intercept laws.

But politicians ought to try to understand the laws their departments insist they introduce.

Abbott and Brandis seem to have thought that merely mentioning the word “terrorism” would be enough to ensure their policy an easy run.

Yet no matter how real the terrorist threat, the pre-emptive surveillance of every single Australian would be an extraordinary policy in every sense of the word – way outside the bounds of proportionality, and way outside the boundaries of legitimate government action in a free country.

Abbott Needs To Hit The Reset Button

The Abbott Government is about to learn that the hardest political manoeuvre is changing direction.

In their times, Kevin Rudd, John Howard and John Hewson tried this tricky exercise. Each fumbled.

Rudd shelved the emissions trading scheme in April 2010. This did nothing to restore his prestige. Rudd was shelved by his colleagues two months later.

Howard tried to adjust WorkChoices when it was clear that the policy lacked popular support. The new fairness test, introduced in May 2007, did not placate WorkChoices’ critics. Howard lost government and his seat.

Hewson released Fightback! in November 1991. Over the next year the Coalition bled support. Hewson tried to relaunch a softer version of the package in December 1992. It didn’t help.

But those leaders had it easy. The Abbott Government is likely going to have to pull this manoeuvre quite a number of times over the next few months.

The Medicare co-payment is going to have to be restructured and revised if it is going to pass the Senate. (Even that may not be enough. Clive Palmer yesterday announced he would vote against any co-payment, no matter how small.)

The mining tax will have to be decoupled from the measures it was supposed to fund – the schoolkids bonus, for instance.

The changes to welfare are unlikely to pass in their current form, so it’ll be back to the drawing board with those as well.

The Government hasn’t even begun the university fee deregulation debate, but when it starts it will be bruising.

And then there’s the paid parental leave scheme – not formally part of the 2014 budget but its generosity casts a shadow over every austerity measure. PPL is meant to be up and running next year.

What makes the Government’s problem even worse is that it’s trapped by both legislative forces and public opinion. Tony Abbott’s prime ministerial predecessors have only had to deal with one, rather than both.

Take Rudd’s emission’s trading scheme. The scheme wasn’t overwhelmingly popular, sure. But, in mid-2010, it was hardly a government-killer. Rudd’s real problem was legislative gridlock. His error wasn’t delaying the scheme – the parliament had already done the delaying for him – but taking responsibility for that delay.

Howard didn’t have an obstructive senate. In fact, he had the opposite problem – a compliant upper house that offered no check on his government’s longstanding urge to centralise labour market regulation.

And of course the unpopularity of Fightback! was fatally manifest long before Hewson had a chance to test it in parliament.

The bottom line for Abbott is this, and it’s dire: the Government is unable to legislate policies that voters don’t want anyway.

So it’s hard to see any alternative. The Government has to effect a policy reset – a mini budget. The budget needs to be redone and relaunched. Contentious policies have to be revised, and, critically, argued for on their own terms. If the Government wants to reform Medicare, then great: let’s hear the case for reform. We haven’t yet.

The longer the Government delays that reset, the more trouble the festering budget is likely to cause.

The protracted Senate negotiations are starting to manifest in discipline problems within the Coalition itself.

The canary in the coal mine here is the paid parental leave scheme.

Abbott’s Liberals were never strong supporters of PPL. The Nationals always hated it. But the longer the PPL scheme remains unlegislated, the more internal dissent is revealed.

There has been an uptick in anti-PPL sentiment over the last few weeks. Madonna King’s Joe Hockey biography – which revealed that Rupert Murdoch knew more details of the scheme than Abbott’s treasurer before it was launched – didn’t help.

Fairfax papers reported on the weekend that the only supporter of the scheme in cabinet is the Prime Minister himself.

Paid parental leave has, perhaps, been an exception for which disloyalty is excused. It was the subject of internal grumblings from the moment it was announced by Abbott.

Yet we discovered yesterday that the culture of dissent around PPL is spreading to other issues. Coalition backbenchers are now freely floating ideas about how to adjust the co-payment to make it more equitable and popular.

And more concerning still is the infighting revealed in this piece by Peter Hartcher – backbenchers and ministers lining up to apportion blame for the budget’s unpopularity. It is apparently easy to find Government members willing to anonymously rag on their colleagues.

Something needs to change. Some commentators have called for a reshuffle. There are, after all, a large number of young and talented politicians in the outer ministry and backbench, and a few too many Howard-era holdouts in the cabinet.

A reshuffle is a drastic thing, especially so early in a first term of government. Yet it wouldn’t fix the budget gridlock, or make the individual items in the budget more popular.

The problem, in the end, is that budget. And the only way to resolve it is to reset it.