Tag: The Sunday Age

Deregulation Can Save The Taxi Industry From Itself

The regulation of Melbourne’s taxi industry was a mess from the beginning.

Taxis were new, smart and efficient when they were introduced in 1908, but they were a threat to the existing horse-drawn hackney cab lobby. As The Argus newspaper said, “once the Melbourne public has ridden in a taxi-cab it will ride on one always, in preference to the horse-drawn vehicle”.

The mechanical competition was an ominous challenge to the hackney cabs, so when the city council considered the new taxis, the hackney cabmen had demands. First they said the cars might scare the horses, and should not be let on Melbourne’s streets.

Then they said motorised cabs should share the ranks with the horses-drawn ones. That way customers wouldn’t have a choice as to whether to take the new cars or not. They could only take the next one in line.

The politicking between hackney drivers and the new taxi company meant it took the city council until October 1910 for the cars to get licences to ply their trade.

More than 100 years later, vested interests, and the outdated regulations those interests rely on, are still a serious impediment to taxi services in Melbourne.

If Ted Baillieu is searching for a serious reform to hang his hat on – and he should be – he’s found one with taxis.

The Premier has announced an apparently wide-ranging inquiry into Melbourne’s taxi system, headed by the former federal competition regulator Allan Fels.

Transport Department research suggests Victorians have more complaints about taxis than trains. And we hate trains.

But the real problem with Melbourne’s taxi fleet isn’t their lack of cleanliness. Or the poor language skills of drivers. Or their low salaries. Or that some drivers don’t know where they’re going – something which could, you would think, be resolved with a GPS unit.

The problem is there’s not much reason for taxi operators and owners to make them better.

State governments have artificially limited the number of taxi licences, virtually eliminating competition and with it the incentive to provide a better service.

The licensing system is one of the few remnants of our old, stale, highly regulated economy – a relic that should have been discarded when we discarded egg marketing boards and laws limiting how far you can transport bread.

But on it has trundled, until today, when the market price of a single taxi licence has blown out to $500,000.

That extraordinary figure should be all the evidence needed to suggest something is wrong with the system – half a million dollars for the privilege of driving drunks home at 4am.

Taxi journeys are expensive, yet driver salaries are low. Much of the difference between the two is the cost imposed by the limits on taxi licence numbers.

To compound all that, taxis have strictly regulated fares, which further reduces competition.

It’s not a system unique to Melbourne – taxi licences are limited and highly regulated in most places in Australia and around the world. And there’s an overwhelming consensus that this doesn’t work.

A few countries have bucked the trend. New Zealand has deregulated its taxi industry. So has Ireland, the Netherlands and Sweden. Darwin, too.

A comprehensive survey in 2006 by economists Adrian Moore and Ted Balaker concluded that taxi deregulation would be successful. And not just in theory – every case study Moore and Balaker canvassed found that deregulation worked.

Allan Fels said this week effective taxi licence reform could cut the cost of a ride by a third. The experience from overseas suggests this is not just possible, but likely.

Considering that the poor, the elderly and those with disabilities (in other words, people who cannot drive or afford a car) are disproportionately large users of taxis, reducing the price and improving the service would seem like an important task.

But taxi regulation has never been set by impartial governments seeking only the best thing for consumers.

Current licence owners have a lock on taxi policy. They will no doubt aggressively lobby against any attempt to eliminate licence limits. That’s understandable, because they bought licences in good faith, and paid a premium. Licences will have to be bought out or, at least, the limits phased out predictably over time.

That challenge should not be seen as an excuse to avoid reform.

Back in 1908, the frustrated manager of the new taxi organisation complained far and wide that “public convenience” was being “subordinated to the interests of hackney coach owners”.

The situation is not so different today.

No reform will be worthy of the name unless it tackles – for good – the archaic limited licence system which increases costs, reduces quality of service, and is rigged to favour just a few wealthy licence holders at the expense of drivers and consumers.

Climate Change Can’t Be Stopped, But We Will Adapt

Julia Gillard is half-right. The world is acting on climate change. But not acting to stop it – to adapt to it. In the 1920s, an average of 240 people out of every million died every year from extreme weather events: drought, flood, windstorm, landslide, earthquake, extreme temperatures and wildfire.

According to data from the International Disaster Database, last decade that figure dropped to just three per million.

Actually, the numbers are even better than they first look. The 20th century saw a 99.9 per cent reduction in the risk of death from drought. And the risk of death from floods came down almost as much: 89 per cent. Floods and drought – two of the most commonly mentioned consequences of climate change. We’re getting much better at managing and surviving them.

The causes of this remarkable decline in mortality are many. Better transport and communications help move food to where it’s needed, quicker. Globalised trade gives producers an incentive to do so. Hardy modern agriculture can survive not just long-term climatic shifts, but the more pressing problem of bad growing seasons.

Better flood control and prevention, weather forecasting and more responsive emergency services all help reduce the damage from floods. Never have we been better at protecting ourselves against nature.

If the past is any guide to the present, that’s how we’ll deal with further changes in climate (whether caused by human activity or not): through adaptation. Especially considering there’s next to no chance of serious international action to reduce carbon emissions. Sure, if Australia introduced a carbon price now, we would not be “leading the world”. Other countries have introduced their own. But there’s action on climate, and then there’s “action on climate”.

The only purpose of carbon pricing programs is to achieve deep emissions cuts. By that measure, they’ve been a dismal failure. Those jurisdictions that have introduced them have been slowly backing away from serious reductions. The coalition of 10 American states acting on climate that Gillard often cites will soon be nine: New Hampshire is planning to withdraw.

European climate policy is pushing bravely ahead. But if nuclear power is off the table after the Fukushima scare then cutting emissions there will be a dead end. As George Monbiot wrote in The Guardian last week, “the energy source to which most economies will revert if they shut down their nuclear plants is not wood, water, wind or sun, but fossil fuel”.

And China has been increasing its carbon dioxide emissions by an average of 12 per cent every year this century. By 2020, China will be emitting nearly 500 per cent above its 1990 levels, even after their highly publicised emissions reduction efforts.

The goal of public policy must always be to increase human welfare. One lead author of the Intergovernmental Panel on Climate Change, Richard Tol, has pointed out that many studies of the economic impact of climate change have excluded the possibility of adaptation entirely – as if potential sea level rises will be met by humanity with a stoic fatalism, rather than levies and insurance. (Tol, it’s worth pointing out, is no climate sceptic.)

Nor do enough studies consider the positive effects of temperature increases. In a warming world, marginal land can become productive for agriculture, just as often as productive land can become marginal.

Given how we’re getting better at coping with extreme weather events, there’s reason for optimism. Taking all peer-reviewed studies of the economic consequences of temperature rises into account, Tol estimates that climate change could cost just a few per cent of global GDP over the next 90 years. That’s about one year’s economic growth. The cost of climate change is the equivalent of a bad recession, spread over nearly a century.

With the economic cost of climate change so low, Tol suggests (at most) an optimal carbon price would be $2 per tonne – a lot less than the $26 to $40 per tonne suggested by the government and commentators. But at $2, the cost of collecting such a tax would seriously eat up its revenue; hardly worth doing at all, and a bit trivial to be ”major economic reform” on which Julia Gillard could build her legacy.

The most damaging consequences of IPCC-projected climate change will be in the Third World. But developing countries aren’t disproportionately vulnerable to climate change because they’re in more dangerous parts of the globe, but because they’re poor.

Wealth and sturdy institutions are critical for handling natural disasters and climatic changes – as we’ve seen in the difference between the 2010 Haitian earthquake and the 2011 Japanese earthquake. This makes the real climate change question a question about economic development. How can the world’s poor get rich quick?

If her government is serious about tackling the consequences of climate change, that should be the one question exercising Julia Gillard’s mind. Her carbon price is, at best, a distraction.

Hands Up If You’re In Favour Of Cheap Milk … Anyone?

One would be forgiven this week for assuming low prices are bad.

Coles’s January decision to sell house-brand milk for $1 a litre was followed by Woolworths deciding to do the same, which was, in turn, followed by cries from the dairy industry about monopoly and unsustainability. Leading, over the past few days, to a Senate committee sitting in judgment over $1 milk.

But the controversy is little more than the cries of producers seeking a political solution to competitive pressure.

In its submission to the committee, Bega Cheese expressed great concern. As did Clover Hill Dairies, Amalgamated Milk Vendors, the South Australian Dairyfarmers Association, and the Southern NSW Collective Bargaining Group.

All up, there were 116 submissions, from businesses, lobby groups, and politicians. Only three supported cheap milk.

Coles’s critics weave a terrifying story: that the supermarkets together want to drive out small dairy farmers from the industry.

Some farmers and industry groups have even seriously suggested that Coles wants to eliminate fresh milk from Australian supermarkets. Australians will then have to be satisfied with UHT, which is cheaper to store. The dairy industry will collapse. Rural towns will disappear. Then, once the milk plan has played out, on to eggs. Then meat.

But when has destroying your own product ever been a good business strategy?

Predicting the collapse of the Australian dairy industry is a long bow considering all that’s happened is a sale on milk.

Coles says it is covering the cost of reduced retail prices itself.

But if the chain were to demand savings from producers in the next round of supply contracts, it would be doing exactly what it should be doing: pressuring suppliers to reduce costs and to find ways to be more efficient.

There are buyers and sellers all down the retail chain – from farmers and processors, to supermarkets and us. Everyone should be trying to get the best deal. And if Coles thinks it can buy milk for less than the cost of production, nobody will sell it to the chain.

People will always want fresh milk, no matter what dastardly strategy is cooked up in a boardroom. Demand, meet supply.

And cheaper milk will lead to more milk sold, not less. The dairy industry is booming – in 2011 dairy cows are selling for 25 per cent more than two years ago.

There’s a lot backwards about the rhetoric over milk prices. For years we’ve been told supermarkets are a cosy duopoly; that Coles and Woolworths were less competitors than a cartel in a conspiracy against working families.

But the point of a cartel is to raise prices, not decrease them. If this is a cartel, it’s the most counterproductive in history.

Not only that, but cartel-mate Woolworths has joined the chorus saying Coles’s strategy is unsustainable. Woolworths is trying to turn public opinion on its rival.

More likely, it’s what it looks like on the surface – Coles being competitive, and Woolworths being forced to follow. Yet that’s enough to get the wheels of Parliament spinning wildly.

So who’s standing up for consumers? Unfortunately not the Australian Consumers Association, known as Choice.

Choice claims ”to ensure the consumer voice is heard loudly and clearly”. But its statement to the Senate says cheap milk ”is not a ‘win’ for consumers”.

Instead, it has taken this price cut to a household staple as a chance to push an ideological barrow – a grand national food policy with which the government can sustainably and benevolently guide agriculture, rather than leave production to the market.

No surprise, perhaps. Choice sees consumer interest as a side issue at best. The self-described association of consumers is more interested in fashionable environmental mantras such as food miles and ”green living”.

Each to their own. (Although the government thinks Choice represents all consumers. The non-profit was paid to run Kevin Rudd’s ill-fated GroceryChoice website.) With Choice off on a tangent, nobody is defending consumers against dairy producers who want protection from competitive pressure. It seems the only body truly acting in the interests of consumers is Coles.

Selling Out The Koran

First Tunisia, then Egypt, and now Libya: Muammar Gaddafi looks set to join the cohort of fallen Middle East dictators. And about time too. Under Gaddafi’s tribe-centric Stalinism, Libya has consistently ranked in the bottom 10 countries for economic, social, political, and press freedom.

Libya is not alone. The Arab world fills the lower ranks of all these indexes.

The causes of the region’s discontent are obvious. It has escaped nobody’s notice that the Arab world is almost uniformly undemocratic and illiberal. And poor – the 22 member states of the Arab League have a per capita income less than a third of that in the Western world.

Those truths colour the developed world’s view not just of the region, but of its 360 million people. And, just as importantly, their majority religion.

But how did the Arab world get that way?

A ground-breaking book released last year by the Turkish economist Timur Kuran, The Long Divergence: How Islamic Law Held Back the Middle East, couldn’t be more timely. Kuran is a professor of economics and political science at Duke University in North Carolina.

The title of his book is very specific: Islamic law limited economic growth in the Arab world. Not Islam per se, but the legal framework which built up over centuries in Islamic societies.

After all, the Koran is pretty good on economic growth: it encourages entrepreneurship; it promotes commerce; it praises the acquisition of wealth, instructing Muslims to “seek the bounty of Allah”; it endorses private property.

Muslims were once some of the world’s greatest entrepreneurs. When bandits captured the Chinese city of Guangzhou in 878, they found more than 100,000 Middle Eastern traders there.

So if 1000 years ago you were to wager what religion would dominate the next millennium, Islam would have seemed fairly safe money. Christian Europe was far behind. A European touring the Middle East would have met people who had much higher incomes. So what happened?

Kuran argues Islamic law primarily failed to develop the concept of a corporation: an economic and legal construct, separated from family and tribal loyalty, designed to encourage investment and profit sharing.

Islam’s early strength – shared faith to unite warring tribes – became a weakness, as it manifested itself in hostility towards smaller, corporate, capitalist forms of organisation.

As corporations multiplied in Europe from the 17th century, the Arab world’s relative success disappeared. It needn’t have been so. There’s nothing particularly un-Islamic about the corporation – the organisation was embraced by Muslims in the 20th century. Kuran shows Islamic law is flexible enough to change, but a failure to encourage economic growth meant Arab nations slipped behind the West.

Today, the other economic positions taken by the Koran – the importance of commerce, the defence of private property, and the freedom to seek wealth uncompromised by state action – are notably absent in the Arab world.

A rich country tends to be a liberal country. Wealth and freedom progress together. So too does social development. Women and minorities in the First World have respect and rights that are the envy of those in the Third World.

Conversely, poverty feeds social backwardness, which reinforces that poverty.

The relative economic decline of the Arab world in the 20th century caused its political decline. The political vanguard in the Middle East has careened from assertive nationalism, to Soviet client socialism, to Islamism.

Islam’s critics focus on the obviously archaic and often brutal views held by Islamists. They blame them for the problems of the Arab world. Fundamentalist Islam seeks not only to restore premodern social relations, but premodern economic structures as well. The future caliphate will shield itself from the dynamism of contemporary capitalism.

But it was defective legal institutions that originally put the Arab world behind, not culture or religion. Hence reasons for optimism.

Institutional failures have institutional solutions. An Arab nation that adopts the very best political, economic and legal structures of the developed world could be just as rich, successful, and liberal.

And the pro-market Koran won’t need to be discarded to do so. Timur Kuran’s findings suggest Islamic faith is perfectly compatible with modernity.

Research published in February in the journal Public Choice, “Economic freedom, culture and growth”, backs this up.

Using the World Values Survey, the most comprehensive database we have on global beliefs, two economists empirically answer the question of whether culture is a barrier to development. It is – up to a point.

If a country’s economy is not free – if it labours under the burden of an overbearing government, high taxes, and high regulation – then culture matters a lot.

But the importance of culture disappears as a country becomes economically free. Once a nation has the “peace, easy taxes, and a tolerable administration of justice” Adam Smith described, it will grow rich. Regardless of religious or cultural baggage.

That’s a lesson the revolutionaries trying to liberate the Middle East will need to quickly understand.

Right now, in Egypt, Tunisia, Libya and Bahrain, the revolt has a liberal character. A lot of time has passed since the Iranian revolution in 1979. Today, even radical Islamists in those countries are agitating for democracy above all else – not theocracy.

Whether the revolutions remain liberal is far from certain.

But if the citizens in the Middle East wish not to just discard tyranny, but grow rich and prosperous too, they’ll need to enact not just political but institutional change. A free, capitalist economy is the foundation of a free society.

Why We’re A Nation Of Homebodies

Most Australians think of themselves as highly mobile. We’re a nation of immigrants, after all. The phrases ”sea change” and ”tree change” are commonplace. But the data suggests otherwise. Compared to the rest of the world, we don’t like to budge.

An immigration department analysis in the 1990s found that the median distance Australians moved was just 16 kilometres over an entire decade. So when Julia Gillard doubled the places in her Job Seeker Relocation Assistance Package, it was actually quite a big deal.

A 2010 election promise, the program gives unemployed workers grants of up to $9000 to travel to find work. It has been expanded to help rebuild Queensland. But the package has an importance that extends beyond welfare, or the Queensland floods. It’s a recognition that Australian job seekers aren’t very mobile.

Perhaps fair enough: Australians like their home towns. As Dr Johnson put it, people ”have a strong attachment to the habitations to which they have been accustomed”.

Yet compare us to the United States. Migrating within the country is a big part of America’s employment culture. Americans are twice as likely to move interstate as Australians. We all know of New York as a city of migrants, but those migrants are as likely to be from within the US as beyond.

The World Bank has demonstrated a clear empirical relationship between high levels of population mobility within a country and that country’s economic growth. In the US, those who travel to find work earn, on average, around 10 per cent more than those who do not. And, unsurprisingly, internal migrants are substantially more likely to be employed.

No surprise then that internal migration is an even bigger deal in the developing world. Right now, China is in the middle of the Spring Festival, an annual event where around 130 million Chinese travel back to their home towns to celebrate Lunar New Year. In 40 days during January and February, there are more than 2 billion journeys taken by migrant workers, reflecting the enormous shift of Chinese labour from the country to the city.

The boom in the Chinese economy is just as much to do with this migration as it is with the slow introduction of liberalised trade. If the 20th-century United States had one of the great mass internal migrations, as the World Bank argues, then the migrations within 21st-century China will be tenfold more spectacular and a hundredfold more significant.

So why are Australians so stagnant? It’s not just a cultural thing.

A big cause of American internal mobility is tertiary education. American students typically travel across the country for the university that’s best for them. Then, when those students look for work, they cast a wide net with an open mind.

But in Australia, our government’s higher education policies encourage uniformity, not diversity. All our top universities offer pretty much the same courses, taught in pretty much the same way, and confer pretty much the same quality of degree. Students can’t justify moving to attend a university offering the same service as a university in their home town. Then, when graduates look for jobs, they only look for jobs near home.

America’s more flexible labour market makes for more entrepreneurial and assertive employees. Just like international immigration, there are few more entrepreneurial activities than leaving home to find a better life.

The Howard government had a similar relocation program to that being introduced by Labor.

Like the Howard-era policy, Gillard’s relocation isn’t just a free ride to Queensland. The package contains penalties. Workers who take the money but ditch their new job within six months are ineligible for unemployment benefits for 12 weeks, if they don’t have a reasonable excuse.

Welfare lobbies and the Greens have embraced the idea of more social assistance, but they bristle at the penalties. We’re used to that: these groups are always happy introducing more cash incentives to get into work, but never happy with disincentives to fall out of it. Mutual obligation has been a tried, tested, and largely bipartisan feature of Australia’s welfare system. Anyway, it’s hard to imagine any better way to protect the scheme from manipulation.

What little debate has surrounded the relocation package has focused on this penalty. But let’s discuss what the package means: why Australians are so reluctant to move for a better job, and the policies that have unintentionally made us that way.

Drowning In Gillard’s Flood Levy Spin

The Prime Minister first raised the prospect of a flood levy 10 days ago. Her government wants taxpayers to believe the levy is an unavoidable consequence of the natural disaster in Queensland – imposing a special tax is regrettable, but out of the government’s hands.

Yet the day she signalled the flood levy also happened to be a day when her minister Kim Carr quietly announced the start of the government’s Automotive Transformation Scheme. This scheme packages up $3.4 billion of taxpayers’ money and wires it directly to the dilapidated (but very well connected) car industry.

No one begrudges spending to fix Queensland’s damaged infrastructure. The flood reconstruction is not an optional spend. But the money the Rudd and Gillard governments have pledged to give the car industry over the past few years has been.

All up, the government will spend $5.6 billion on flood reconstruction in Queensland, New South Wales and Victoria; $1.8 billion of that will be raised by the flood levy. The rest, certainly, will come from budget cuts. For instance, Julia Gillard announced she would cut $234 million of automotive subsidies to help pay the Queensland bill. But that is a paltry sum, considering the rest of the government’s car programs will continue. Especially considering eliminating the balance of these programs would easily cover what the flood levy is intended to raise. The full New Car Plan for a Greener Future totals $6.2 billion.

Same with the cuts to climate programs. It may sound like Gillard has made hard decisions cutting $250 million out of carbon-capture research and $160 million from the solar hot-water rebate scheme. But simply trimming a couple of the most embarrassing programs – such as the ”cash-for-clunkers” election promise – is hardly aggressive budget cutting. Governments should be congratulated for any cut of wasteful spending. But there’s nothing about Gillard’s cuts that makes the levy a necessity. It is still a very avoidable tax hike, despite the Prime Minister’s claims.

She gave the game away at the National Press Club on Thursday, when she said: ”The great majority of Australians are ready to contribute” to Queensland’s rebuilding. Special levies are only enacted when the government feels confident taxpayers will fork out with minimal resistance. The Howard government was comfortable imposing a gun buyback levy in the wake of the Port Arthur massacre because public opinion clearly demanded action on guns. We are never charged special levies for unpopular things. There has been no automobile subsidy levy; no Kevin-Rudd-wants-a-spot-on-the-UN-Security-Council levy.

So the worthier the use of public funds, the more likely the government will charge taxpayers extra for it. What is funded out of existing revenue and what is funded with a special levy is a political calculation – made by politicians with a close eye on what the opinion polls will bear – not a public finance calculation.

This is the context in which we have to understand the flood levy. But instead we have heard claims that critics of the tax resent helping flood victims. Or that the spirit of ”mateship” requires the government to temporarily increase taxes. These are emotional arguments designed to achieve political goals.

The politics of the flood levy underlines how momentous the government’s decision was to flush the economy with stimulus spending during the financial crisis. You only get one surplus to spend on a national crisis. Rudd’s ”kitchen cabinet” decided that crisis was the GFC: $90 billion worth of spending commitments between September 2008 and May 2009 plunged the federal budget into deficit. We won’t ever know how our economy would have fared if it saved the surplus for a later crisis – such as the floods.

But the Treasury admitted last year there was no statistically significant correlation between the size of an OECD country’s stimulus package and its economic recovery. Some countries – Japan, for instance – spent more than us and yet suffered worse than us.

The debate over the stimulus package is well rehearsed. But the flood levy makes it necessary to revisit. The federal budget is rich with fat. Yet Gillard suggests she cannot find spare change to rebuild the country after an unprecedented natural disaster. If she genuinely can’t – if there are really no government programs left to cut, no funds to spare and no alternatives to a tax hike – then the decisions taken over the past few years, which have placed the Commonwealth budget in such a dire fiscal situation, need to be scrutinised more than ever.

Why Greedy Gerry And His Mates Will Win In The End

Gerry Harvey is not Australia’s most popular man right now. It would have taken a hell of a campaign to convince Australians that imposing GST on internet retail purchases under $1000 was not just good policy, but the only fair thing to do.

It’s hard to feel bad for the retailers’ coalition, which includes Myer, David Jones and Target as well as Harvey Norman, because it seems like they’re trying to divert attention from higher prices in their shops, which have nothing to do with the GST at all. Hence the popular backlash.

But despite their tone deafness, the retailers have identified an issue that will be huge in the future. For better or worse, the government will eventually be forced to close the GST-free loophole. The alternative is to admit an efficient consumption tax is impossible in a world of global commerce.

Sure, in 2010, only a tiny percentage of retail sales were online. But there is no reason to believe Australians’ engagement with online retail and services has peaked. After all, it took some time to get where we are today: people had to get comfortable with buying goods, sight-unseen, from a website or auction seller.

There’s a generation gap too: 82 per cent of Australians aged 25 to 34 reported purchasing goods online, compared to 38 per cent of those above 65.

And the cost of international shipping is becoming trivial.

The UK-based site, Book Depository, is somehow able to beat almost all Australian retailers on price and ship its products across the world for free. It’s a volume game: the more they ship, the cheaper the shipping for each individual item becomes. The courier discounts the site has negotiated mean many Australian books are cheaper to ship from the UK than to buy at a bricks-and-mortar store here.

Sites like Book Depository use air freight. The savings are even more substantial when you ship.

The rise of the shipping container since the 1960s has reshaped and propelled globalisation more than any other innovation. Where earlier goods would be stowed haphazardly on pallets in small cargo ships, they are now shoved into metal boxes of uniform size, which has changed international commerce to the extent that transport costs are becoming irrelevant.

That’s two disruptive changes working in concert. Driving one side of retail, the revolution of the internet has been proclaimed far and wide. But the revolution on the other side, in international transport, is just as significant yet largely unnoticed.

The waves of change in retail and industry are immense and, of course, welcome. Right now, Gerry Harvey may seem like a rent-seeking whinger. But it is a virtual certainty his campaign is just the first skirmish in a long war between government and consumers who are comfortable circumventing domestic taxes.

As long as the loophole remains, we can expect retailers to try to blur the distinction between overseas and domestic retail. As a pre-Christmas gambit, Myer announced it was considering building a Myer-branded website in Shenzhen, China, to exploit the GST-free loophole.

A transparently political announcement, but not a stupid idea. If there’s a competitive advantage to be gained from restructuring a business to avoid paying local tax, someone (not necessarily Myer, but someone) will try.

The retailers haven’t quite made their case. At the moment, the logistical hurdles to imposing the GST at the border are insurmountable. And there’s obviously no way to get every online retailer around the world to comply with Australian tax law.

Julia Gillard said last week that levying GST on international purchases under $1000 may cost more than it would raise. (Customs ain’t free.) That’s as good a reason as any to rebuff the retailers. Yet it’s at best a temporary reprieve. As online commerce inevitably grows, the arithmetic will change. No government will tolerate watching its revenue hollowed out by changing consumer preferences.

The reaction to the retailers’ campaign has been intense, a reminder Australians don’t like paying tax very much. Less tax is better than more tax; better again is no tax at all.

Yet whether now or in 20 years, the government will have to face the fact that globalisation makes it easier and easier for individuals to get cheap deals. This includes seeking the lowest tax liability.

Policy makers and bureaucrats designing tax systems have long struggled with the fact that globalisation makes it hard to impose heavy taxes. We’ve seen this in the mining tax debate, where miners have threatened to take investment money overseas.

So as we now avoid tax by shopping online, perhaps we might rethink our moralising about those miners or, indeed, the wealthy individuals who protect their earnings in tax havens.

With the internet, tax avoidance is no longer just for the rich.

I think that’s a welcome development. Politicians with big spending dreams will disagree. Gerry Harvey mightn’t be popular, but eventually a government will do his bidding.

National Curriculum Gets Our History Badly Wrong

Julia Gillard began the development and implementation of the national curriculum as minister for education in the somewhat happier days of the Rudd government. It hasn’t gone well. The curriculum’s implementation problems keep piling up. It’s not at all ready to be taught.

The plan was to have the curriculum rolled out in the 2011 school year, but only the ACT will meet that deadline.

New South Wales and Western Australia have decided to delay the curriculum to 2013. The Victorian government announced recently it would do the same. But there are problems with what’s in the curriculum too.

Take, for example, the history syllabus. After a full quota of compulsory schooling, Australian students will be none the wiser about the origins and central tenets of liberalism: the basics of individual rights, representative democracy and the market economy, and the importance of civil society.

Not to put too fine a point on it, but these are the absolute fundamentals of Western civilisation. And they are missing from the national curriculum.

One need look no further than how the curriculum purports to teach ”struggles for freedom and rights”, a ”depth study” for year 10 students.

The struggle for liberty against tyranny is one of the most important themes of the history of the past 500 years. From the English Civil War to the American and French revolutions, the proclamation of the rights of individuals has given us a rich inheritance of liberalism and civil liberties. That, at least, is how you’d think it would be taught.

But according to the national curriculum, the struggle for individual liberty started in 1945. Because that’s when the United Nations was founded.

To hinge the next generation’s understanding of individual rights on such a discredited institution is inexcusable. And it says a lot about the ideology of the curriculum’s compilers: as if individual rights were given to us by bureaucrats devising international treaties in committee.

Do we owe our liberties to centuries of effort by moral philosophers and revolutionaries opposed to repressive governments? Or do we owe our liberties to the UN International Covenant on Civil and Political Rights, devised by governments, and which only took force in 1976? The curriculum implies the latter.

Students go on to study the fight for freedom in the developing world and battles for rights of developed-world minorities. Worthy topics. But oppressed minorities were seeking the same rights held by the majority. Aboriginal Australians wanted full political rights. Black Americans wanted an end to discriminatory Jim Crow laws. To teach the struggle for minority rights without mentioning how the idea of universally applicable rights came into being is to distort history.

We could dismiss this distortion as an accident if not for the strong impression it would give students – that the history of Western civilisation is primarily characterised by the oppression of minorities, not the long, slow, spluttering development and expansion of political freedom, liberalism and prosperity.

Rights denied to racial minorities is a stain on our past, but it is not the sole attribute of our history. If the struggle for individual rights against the tyranny of government is one pillar of the history of Western civilisation, the other crucial pillar is the boom in wealth and well-being over the past two centuries.

Here too the national curriculum is distinctly lacking. The year 9 study of the Industrial Revolution includes weeks pondering ”the 19th-century concept of progress” – insinuating that a belief in progress is anachronistic. The syllabus keeps students’ attention on labour conditions, social problems and the slave trade. Again: worthy topics. But it is an accepted historical truth the Industrial Revolution was the bed on which our affluence was born. Hopefully that can be squeezed in between discussions on dark satanic mills, machine-breaking and limits to growth.

And the Industrial Revolution was the period in which slavery was ended. Slavery has been a constant throughout history. Its elimination is humanity’s greatest achievement. But introducing slavery in the Industrial Revolution unit suggests something else: that the invention of modern capitalism was somehow to blame for this ancient crime.

The entrepreneurial spirit of the Industrial Revolution is one we should encourage in students.

Yet the word ”entrepreneur” appears nowhere in the curriculum. And when the curriculum talks about ”wealth”, it only refers to the distribution of wealth, not the creation of wealth.

Sure, the ideological assumptions in the national curriculum are subtle. But they’re pernicious.

Students will not be taught the origins of their world. They’ll learn only of Western civilisation’s mistakes, while staying ignorant about its extraordinary achievements.

So Canberra’s inability to implement the national curriculum may be for the better.

Taxpayers Are The True Victims Of The Global Financial Crisis

About two years on from the financial crisis the world looks very different to the way it seemed in the middle of the economic collapse.
The broad ideological realignment predicted by many never came. But, back in late 2008, it was hard to get away from the hyperbole. Neo-liberalism was dead. Consumerism was dead.
Even deader was the orthodox approach to economics. The entire academic economics profession was looking pretty unwell.
A cover of Newsweek claimed ”We are all socialists now.” French President Nicolas Sarkozy was photographed reading Karl Marx’s Das Kapital.
A clearly overstimulated Kevin Rudd wrote in The Monthly: ”from time to time in human history there occur events of a truly seismic significance, events that mark a turning point between one epoch and the next”.
For Rudd, it was time for governments to grab back the power his prime ministerial predecessors had relinquished.
As the global economy imploded, the ideas of John Maynard Keynes, the economist who suggested government could step in to save it, were always going to be popular.
In retrospect, Australia survived splendidly. We never quite fell into recession. We should be proud. Or perhaps just relieved. Overseas, the outlook is terrible.
The formula that the government claims worked in Australia – pumping money into the economy with reckless haste – has failed elsewhere.
The United States embarked on an unprecedented fiscal stimulus, bailing out car companies and investment banks. But its economy is still moribund, unemployment projected to hover at about 9 per cent for years. Last month it began another round of printing money.
At least the US government is limping along. Across the Atlantic, the wash-up from the crisis has been even worse. Greece is broke. Ireland is broke. Spain looks like it’s about to go broke.
The crisis that was supposed to destroy neo-liberalism seems instead to have hurt big-spending governments.
Economic slumps are stress-testers. Not all businesses fail in a recession. Those that do are either so marginally profitable they were on the edge of failure anyway – think car companies – or had made such poor decisions that they caused the crisis in the first place – including banks that relied on sub-prime mortgages. So too with governments.
The financial crisis was an industrial-scale test of economic wellbeing. Countries that had bad policies before the crisis failed.
Ireland suffered because, having adopted the euro, its interest rates were set by a European central bank more attuned to French needs than Irish ones. Ireland’s economy – its tax cuts and public service bloat – came to rely on a housing boom caused by those theatrically low rates. The boom collapsed.
Greece’s corrupt public sector has engulfed and suffocated its economy over decades – the government was only just able to pay all its employees during the good times, let alone during a crisis. The US economy was weak after a decade of massive overspending under George W. Bush and the trillion-dollar price of military adventurism. Barack Obama’s spending decadence tipped it over the edge. The American economy is paying for years of government irresponsibility.
Yet countries that were robust and healthy – such as Australia with our flexible labour market, good balance sheet and risk-averse Reserve Bank – thrived.
Academic economists are still studying the causes of the financial crisis. One early finding: it wasn’t ”greed”. How important were the American interventions in the housing market, the US Federal Reserve’s artificially low interest rates, Wall Street’s too-clever-by-half mathematicians, or the global capital regulations that inexplicably favoured mortgage-backed securities?
But we know what’s happened since. The moment for Keynes has ended. Now it’s time for free-market economists such as Ludwig von Mises and Friedrich Hayek. The two Austrians said markets should be free to self-correct – better for governments, and better, in the long run, for economies. Governments should have restrained themselves.
Keynes once famously claimed that when the facts changed, he changed his mind. Having ended its flirtation with collectivism, Newsweek now publishes articles about ”The Triumphant Return of Hayek”. Bitter experience will do that.
The real casualties of the financial crisis haven’t been banks or businesses. They have been the rash governments that tried to save them and the taxpayers who provided the cash.

Give Unto Others As You Would Have Them Give Unto You

It’s a key part of the human condition: Christmas and the end of the year always inspires a bit of soul-searching. And in the 21st century, that soul-searching is as political as it is personal.
 
So this year, as sure as Christmas pudding, the anti-consumerist Australia Institute has released a survey suggesting most Christmas presents are a waste of money, resources and time: “millions of unused foot spas require enormous amounts of resources”.
 
Better to reject what the Australia Institute’s executive director, Richard Denniss, calls the “growing culture of obligatory giving”.
 
This Christmas, scepticism does have a strand of scholarship on side. Economists have claimed that, at the very least, gift giving appears to be highly inefficient – rarely does a recipient value their gift as much as the giver paid.
 
Obviously, we know what we want better than others do. So we never manage to buy each other quite the right present.
 
In a famous paper, now nearly two decades old but trotted out every holiday season, the economist Joel Waldfogel argued Christmas constituted a major “deadweight loss” – we were all poorer for having indulged in the Christmas spirit. It’s now a book: Scroogenomics.
 
One could respond to Scrooge and the Australia Institute that gift vouchers or cash might be a solution to this apparent dilemma.
 
It’s hardly romantic, but if holiday makers were serious about cutting down the deadweight loss of Christmas, then bank transfers would probably be best. No need for environmentally unfriendly cards either, with an email notifying the recipient of an incoming money transfer.
 
But we don’t just email each other receipts at Christmas. The idea that Christmas is really just an enormous waste of money and resources would make sense if it was simply a transfer designed to increase aggregate financial wealth.
 
But gifts are in the giving. Tallying up the relative value of items exchanged misses the whole point of gifts. Gifts are a mechanism we use to convey private information about the closeness of our relationship with each other. The better the gift, the better the relationship.
 
Waldfogel found the closer the giver is to the recipient, the more efficient their gift buying. (He also confirmed that aunts and uncles are bad at giving high-value gifts.)
 
So maybe giving a loved one a foot spa, despite the cost, waste and how rarely it gets used, actually fulfils a real function – to signal you want that loved one to relax and look after themselves.
 
It may seem like those millions of foot spas are wasted – it’s not clear where the Australia Institute got the “millions” figure from – but the promotion of our interpersonal relationships may be well worth the money.
 
The Australia Institute recommended that instead of giving unwanted gifts, we could instead donate to charity on each other’s behalf. Oxfam offers gift cards that purport to donate goats or sheep or buffalo or seeds to someone in the developing world.
 
Read the fine print. Oxfam are careful to say that just because the card has a photo of a goat, no goats may be exchanged – “your donation might also be covering the cost of buying a goat or the cost of something else . . . tracking each individual item and the community it goes to would be expensive.”
 
In other words, the money may be used for something goat-related, or just for general development. Probably better that than a surfeit of unneeded goats dumped in sub-Saharan Africa.
 
But it’s Christmas. Think of what you’re signalling. Gifts should be about what the recipient wants, not about the giver’s compassion for development.
 
So if the recipient finds donations endearing, then great, and we can only hope your money is deployed effectively. But if not, then donate to charity in your own name later. Christmas gifts are not an ideal medium for broadcasting your conspicuous compassion for the third world.
 
Christmas gifts should be a statement about the strength of our relationships, not a statement about our personal politics.