Preserving freedom, democracy and prosperity

Chris Berg points out that politicians don’t know what they are doing with the laws they are enacting regarding security legislation. He made a similar point in a previous article attacking the government’s attempt to close down secondary boycotting which Get Up, Greenpeace and other enemies of prosperity used as the cornerstone of their own lobbying campaign.  The Green Left favoured censoring their enemies under Gillard and Rudd but find freedom more appealing under conservative governments.

Chris Berg’s start point is a commendable support for freedom of speech and association. But, as Janet Albrechtsen in The Australian today pointed out:

In the real world, combating terrorism means pursuing the least worst options. There are no absolutes. No absolute right to freedom of speech or freedom of association. Given politicians can do only what we allow them to do, it’s critical we understand the threat, the gaps in existing laws, and that the freedom of the majority depends on treading on the liberties of a few. … We are in the midst of another extraordinary war that requires extraordinary powers because without security, liberty is a meaningless Pollyanna dream.

In a wider sense Chris Berg is pointing to inherent deficiencies in representative democracy. I have previously written on the contradictions that democracy may pose and its potential to allow majorities to loot the rich and thereby undermine income generation, issues that were uppermost in the minds of the American revolutionary fathers, (see Quadrant articles  here and here).  Chris Berg’s concerns appear to be the opposite: that laws may constrain the people giving full expression to their views and modifying laws in accordance with them. But that without constitutional restraints would surely leave the vast majority, the politically passive people, hostage to extremists of many different stripes.  Liberty itself can be undermined at the ballot box as seen in Italy (1924), Germany (1933) and Egypt (2012) and wherever Islamofascism is voted into office.  In a smaller way it is reduced whenever laws are passed affecting freedom to work, build houses, import goods and services and so on.

There are clearly fragilities in creating and maintaining what might be regarded as the objectives of good government.  But if representative democracy cannot work what system that will work? And if it remains the only acceptable form of government how do we ensure that it does not impinge on liberty and how do we prevent its corollary – freedom of speech and association – from undermining it?

 

Posted in Freedom of speech, Tough on Crime, tough on criminals | 12 Comments

It’s not how many votes you get that counts but who gets to count the votes

Even blacks in Chicago are coming out against Obama and the Democrats. It could be a wave election, except for this:

Early voting just started last week in Maryland, but there are already accusations that some voting machines are changing Republican votes to Democrat.

There is a case to be made that Democrats – indeed any old standard issue politician of the left – are interested in not much else other than power for themselves and not particularly fastidious about how they get it.

Posted in International | 9 Comments

Obstruction, Intimidation, and Harassment in Obama’s Washington

You should dwell on this para from John Hinderaker at Powerline for a very long time and then read the article to truly appreciate the kind of world we are in. He puts the word “if” at the front, but if you read the article, there is no if about it. This is the sentence:

The Obama administration hacked into a reporter’s computers, used them to spy on her, and even prepared to frame her for a potential criminal prosecution by planting classified documents.

“If this were a Republican administration,”he further notes, “every reporter in Washington would be on the story, as would various law enforcement agencies.” There would literally be no end to it, a Nixon plus McCarthy moment never to be forgotten. Indeed, this is such a moment, and one that ought to be but won’t.

As for who we discussing, we are, of course, talking about Sharyl Attkisson since there is literally no other reporter from the mainstream American media to compare and about whom the American government was so enraged. But after the IRS, there is virtually nothing a Democrat President can do that will get him into serious trouble with the media, and therefore with the electorate at large. For journalists, however, things are entirely different. The risks of stepping out of line are enormous. Only someone with the highest of profiles would be even relatively immune and she got the sack, so in reality, no one is immune. There’s a lot of years of not being on CBS ahead of her, an outcome virtually no one else with the same kind of profile would be willing to endure.

I will have to read her book, Stonewalled: My Fight for Truth Against the Forces of Obstruction, Intimidation, and Harassment in Obama’s Washington although I suspect it will do no more than confirm all of the beliefs about the American media and government I already have. But if you haven’t understood the nature of the American Republic in the second decade of the twenty-first century, this may provide a glimpse.

Posted in International, Media | 11 Comments

The University of New South Wales on divestment

Yesterday UNSW Vice Chancellor Fred Hilmer sent staff this email:

Dear colleagues

At the University Council meeting on Monday 20 October we discussed our investment approach. The following statement summarises our position.

“UNSW currently holds investments of about $50m in a portfolio of $309m in companies involved in fossil fuels (see link). These investments are held indirectly, as the University invests in unit trusts whose managers decide on specific stock allocation.

The University Council recently considered this matter and resolved overwhelmingly to maintain the current approach rather than withdraw from fossil fuel investments.

This position was reached against the background of UNSW taking very seriously the issue of greenhouse gas emissions and global warming. We are significant contributors over many years to research into cleaner coal, alternate energy technologies, low carbon living and climate change. Our world-leading work in solar energy began in the 1960s.

Moreover, we conduct this research by working closely with industry and government, believing we will have greater impact in addressing climate change through partnerships than via token political actions. And we back our views with our behaviour, running a campus with the lowest emissions per student of any of the reporting universities, according to the Clean Energy Regulator. We also invest in a range of clean energy sources such as solar panels and co-generation.

We recognise that fossil fuels will be needed for many years to come to provide the energy and materials on which millions of lives depend.

In reaching our position, we note the words of Drew Faust, President of Harvard, who warned of the risk of using investment funds in ways

that would appear to position the University as a political actor rather than an academic institution”.

Conceiving of the endowment not as an economic resource, but as a tool to inject the University into the political process or as a lever to exert economic pressure for social purposes, can entail serious risks to the independence of the academic enterprise. The endowment is a resource, not an instrument to impel social or political change.

Yours sincerely

Fred Hilmer
President and Vice-Chancellor

(HT: SK)

Posted in Divestment | 31 Comments

Does the Tax Justice Network understand taxation?

The so-called Tax Justice Network recently released a very dodgy report into corporate taxation that got a run on the front page of both The Age and Sydney Morning Herald. As we pointed out here at the Cat, and both the Australian and Australian Financial Review indicated, the Tax Justice Network analysis was fundamentally flawed.

Treasury at Senate Estimates have confirmed how flawed the analysis was:

Senator CANAVAN: I have a follow-up on that. I know a few years ago Treasury made a lot of comments about the effect of the economic downturn on accumulated losses and its subsequent effect on tax, particularly corporate tax revenue. How is that washing through the system now? Is that still impacting on companies’ liability for tax, those forward tax losses, accumulated over the years?
Mr Heferen: I am sure there are still some companies that will have losses that are still being carried through the system and, of course, there will still be companies that post the GFC would still make losses in a particular year. With those losses, of course, the company has to carry those losses forward to a future year under the tax system until they have the profit to offset that against, and so there would no doubt be an element that would carry over from the GFC and there would be some generated in years after the GFC.
In an accounting profit sense those losses are accounted for then, but in the tax world they have to be carried forward. Hence you can easily see a situation where a company in a particular year, and particularly as some reports have looked at, say, in the 2012-13 year or the 2011-12 year, would be at the sharp end of still having to account for their carried forward losses.
Senator CANAVAN: So, given that relationship any analysis which relied on gross profit and not taxable income would have even larger errors given the recovery process?
Mr Heferen: It is more fundamental than that. It is not just an error. It is just comparing an apple with an orange and not being about fruit. With accounting profit and taxable income for some businesses some of the time there could be a degree of similarity, and, in fact, a recent report said that if you used accounting profit a lot of firms are earning 26 per cent rather than 30. I must confess I was surprised it was so high. But when you get right down to it, there are intended significant differences. Research and development tax concessions are a classic. Accelerated depreciation is another standard. The carried forward loss is another one.
For our ASX 200 companies, for the large ones, what would be critically important would be the fact that if they have foreign income, so they have an investment overseas, when the dividend comes back it typically would have been paid in the other country, so when it comes into Australia it is treated as non-exempt, non-accessible income. Yet from an accounting profit point of view, it could still show up as a profit. Once you go to that level then it is a situation where for a company to work out its taxable income, which starts with the accounting profit and then says, ‘What do we need to deduct?’. The other one is interest cost.
Senator CANAVAN: Is it your understanding that the Tax Justice Network report did not cover those factors?
Mr Heferen: It did not go anywhere near them.
Senator Cormann: They did not look at taxable income, because if they had looked at taxable income it would have shown that these top 100 ASX companies actually paid the corporate tax rate of 30 per cent. That was very misleading.

Now let us compare that with what Richard Murphy – the founder of the Tax Justice Network – understands about taxation – from an exchange at his blog:

Adrian: … As it stands (as I recall), using company accounts to understand tax calculations is at best, a fairly broad brush approach with a wide margin for error. It seems a fairly pointless and misleading exercise.
Richard Murphy: … Your argument is that because the two figures are not the same we should try to make no reconciliation between the two. That is the standard argument of the tax abuser. My argument is that we should improve the quality of the reconciliation. This is entirely possible and desirable and an essential part of holding corporations to account for the privilege that society grants them, which is limited liability. If that is not possible then the right reaction is not to give up, but to withdraw the privilege.

The only way you’re right is of the company maintains two wholly separate sets of books

Are you saying they do?

That companies have separate sets of books is one way of describing what happens. Accounting systems generate at least three categories of information – financial information for investors, cost and revenue information for managers, and tax information for the taxation authorities. All that information must and will be internally consistent – assuming no fraud or incompetence. Not all of that information, however, will be in the public domain or if it is, it might not be easily accessible. Attempting to reconstruct tax information from financial information as the Tax Justice Network attempt, however, is very likely to result in misleading results.

To sum up, the differences between tax rates as calculated by financial accounting data and tax data are normal, natural, and as intended by the Parliament.

Senator DASTYARI: Your submission, though, is that that is not really a problem?
Mr Heferen: That is right. In fact, I will go further. I would say that to me it is clearly not a problem.
Senator Cormann: It is as intended by the parliament.
Mr Heferen: The intention of those elements—where a firm undertakes the eligible research and development activity—
Senator DASTYARI: I was not saying research and development per se. I was saying the whole series. You listed them yourself.
Mr Mills: I can answer the question and just by way of example, if you have an Australian company where most of its operations are actually based in the US it will pay tax in the US. We will not seek to try to tax it again when it comes back to Australia. Its apparent rate of tax might be zero, but in fact it has been paying 35 or higher in the US. That will not necessarily come through, depending on what the structure is. That is why there is a lot of noise in this thing. The other point that I wanted to make is—
Senator DASTYARI: We are worried that it is more than just noise.
Mr Mills: Unfortunately there is a lot of noise. I do want to make this point.
Senator DASTYARI: So, you guys are saying there is no problem?
Mr Mills: No. I want to make a few points about the structure. Because of changes over recent years we have probably the strongest anti-avoidance and transfer pricing rules in the world. We have a system where companies, particularly listed companies, like to return profits and they like to tell the world that they are making profits. That then goes, in part, although they are different bases, it goes to an encouragement of ensuring that there is a taxable income. Why? Because they pay tax. Why does that matter? Because they can frank dividends. The market wants them to frank dividends and they will punish them if they do not. We actually have some of the structural things in place that encourage Australian companies to pay Australian tax.

(HT: Adrian)

Posted in Taxation | 20 Comments

Government must get out of the way

Keynesian economic theory has turned out to be a device for the rich to rob the poor, for the unproductive to raid the incomes of those who work. We are supposedly all to be made better off through massive diversion of the wealth of our nations into the pockets of the crony capitalist friends of our ruling elites and union leaders who fleece their members in the name of protecting them from the employers who gave them their jobs.

Rupert Murdoch has spoken on this to the G20, the first person not from a government to be allowed to make such a presentation. Paul Kelly discusses Murdoch’s speech under the heading, Equality at risk in the West, says Rupert Murdoch. It’s a damned sight more than just equality that is at risk, but our very prosperity. We are being made poor across the broad expanse of our communities because governments are now the chief agents for dispensing purchasing power. Obama was right: you didn’t earn it. The government earned it, and you will only be allowed to keep what it decides you should keep. This is part of what Murdoch said:

“In America, the most highly paid 1 per cent now pay 46 per cent of all income tax.” . . . “In Britain, the top 1 per cent pay 28 per cent of all income tax. That is a massive shift from what our society looked like 30 years ago. We should all be concerned about this polarisation which was never the intent of policy but is certainty a consequence.

“Quantitative easing has increased the price of assets, such as stocks and real estate, and that has helped first and foremost those who already have assets. Meanwhile, the lack of any real wage increase for middle-income workers means growing societal divisions and resentment.”

Quantitative easing is a disaster but you will not find out why by reading any economics book that I know of, other than mine. The last two chapters deal with what had once been stock standard economics before the General Theory. Even Keynes dealt with the money rate of interest (the price of credit) and the natural rate of interest (the price of actual resources, such as bricks and mortar), but that was in his 1930 Treatise on Money, which he wrote before he was sidetracked by Say’s Law. We are ruining our economies in the belief that we are actually doing them good by higher levels of public spending and lower interest rates to encourage investment. But we are ruining them, which is a fact that is obvious to everyone. The only thing invisible is why. What Murdoch proposed is absolutely right:

The significance of his nine-page speech is his argument about the limits to both monetary and fiscal policy and the imperative for a new approach based upon the need “for government to get out of the way”. Mr Murdoch called for: labour market reform; lower and more competitive corporate taxes; a crackdown on multinationals — naming Google — for not paying taxes where they make their profits; a rethink on excessive bank regulation, warning “you would have to be mad to join the board of a bank these days”; and recognition that high taxes and over-regulation were damaging economic growth and the public interest.

But if you start from Y=C+I+G you cannot make any sense of what he suggests. Read Chapters 16 and 17 of my Free Market Economics second edition if you would like to understand the classical explanation for what is happening right before your eyes and why these kinds of reforms are needed. I do find it odd that this is the only book I know of, at least one that has been written since the 1930s, that can explain what was once obvious to every economist in the world. But odd or not, that is how it seems to be.

Posted in Classical Economics | 5 Comments

Taxation with no representation

The government will use executive fiat to increase a tax that the Parliament has refused to pass.

The Government has decided to give practical effect to the fuel excise indexation Budget measure by way of tariff proposals to be validated by Parliament within 12 months.

These tariff proposals will be tabled in the House of Representatives this week and will take effect from 10 November 2014.

As per the ‘alcopops’ precedent used by the previous government, these excise and customs tariff proposals will allow the Australian Taxation Office and the Australian Customs and Border Protection Service to collect the adjusted rate of fuel duty from that date.

Consistent with the Budget measure, the increase in fuel excise will be modest.

From 10 November 2014, the rate of fuel duty will increase from 38.143 cents per litre to 38.6 cents per litre, the rate which would have applied if relevant legislation had been passed by Parliament prior to 1 August 2014.

Indexation of fuel duty will then return to biannual CPI indexation from 1 February 2015.

For a typical household, which consumes 50 litres of fuel per week the estimated price impact of this fuel excise indexation will be about 40 cents per week by the end of 2014-15.

While the impact on individual households will be modest, this measure will provide a predictable and growing source of revenue, which will help the Government boost its investment in job creating and productivity enhancing road infrastructure.

Indeed, the Budget measure reintroducing biannual indexation of fuel excise to CPI is expected to generate additional net revenue of about $2.2 billion over the 2014-15 forward estimates and around $19 billion over the next decade through to 2024-25.

To ensure individuals and businesses who are eligible to claim Fuel Tax Credits and recipients of Cleaner Fuels Grants are not negatively impacted, the Government will move amendments to relevant legislation this week, with the intention of having them passed by Parliament during the current Spring sitting.
The Government’s intention is to ensure that there is no financial impact arising from this implementation by way of tariff proposals over the next 12 months for Fuel Tax Credit recipients, as well as Cleaner Fuels Grant and Ethanol Production Grant recipients.

We continue to implement all of our Budget measures in an orderly and methodical way.

Implementing this important structural fiscal reform will contribute significantly to our efforts to build a stronger, more prosperous economy and to repair the Budget.

This is contempt of Parliament and, more importantly, contempt for the electorate.

Posted in Federal Politics, Taxation | 79 Comments

If the government spends the money then you can’t

When the government does the spending the rest of us are pushed out of the way. Governments cannot create demand, they can only divert it into the production of their own preferences instead of ours, which are sometimes, but not always, the same. The notion that their soaking up our resources somehow magically adds to the sum total available to everyone is the most monstrous of all of the monstrous untruths now found in modern economic theory. Here is an article about the United States that would have a sharp resonance across the world. 7 things the middle class can’t afford anymore is its title. I will only reproduce the first of them. You can then read the whole thing for yourself.

Vacations

A vacation is an extra expense that many middle-earners cannot afford without sacrificing something else. A Statista survey found that this year 54% of people gave up purchasing big ticket items like TVs or electronics so they can go on a vacation. Others made sacrifices like reducing or eliminating their trips to the movies (47%), reducing or eliminating trips out to restaurants (43%), or avoiding purchasing small ticket items like new clothing (43%).

Keynesian theory pretends that if the government spends more of your money, you will end up better off. How out of it do you have to be to believe such a thing?

Found at Instapundit.

Posted in Classical Economics, Economics and economy | 25 Comments

A slightly skeptical take on the Whitlam legacy

Barry Williams, the sometime Grand Vizier of the Australian Skeptics, produced an idea about the legacy of Gough Whitlam which he gave me permission to share. It is very much about the transition from the generation of ALP politicians who were adults during the Whitlam era and the cohort which followed where the members were very much younger or even adolescent during the heady early 1970s.

Almost exactly a decade after the ascent of Gough in Dec 1972 the Hawke administration came to power. A feature of this government was the way it repudiated the extravagance of the Whitlamesque model, quite deliberately, and it likewise strained mightily of avoid the administrative chaos of the 1972-1975 period.

That administration enacted some quite sensible reform, notably changes in the financial system (set in train by Treasurer Howard of the previous regime) and other parts of the deregulation agenda of the Liberal “dries” which achieved bipartisan support. It lasted 13 years, albeit with some disasters like the intervention on the issue of dams in Tasmania and the oxygen that delivered to the Greens, culminating in the train smash of recent times.

Then came 11 years of generally sensible reform and management by a coalition government, before another Labor win. Cats will be more inclined to criticism of that period than Barry, but so be it.

And then, with a passing nod to the successes of the Hawke years, Kevin 07 and his merry band appeared, on a magic carpet ride of good wishes and promises, followed by a resurgence of Witlamesque extravagance of emotive and unsupportable overspending.

Why is it so?

The Williams hypothesis is that the bulk of the Movers and Shakers of the Hawke years were adults during the Whitlam debacle and recognised it for what it was. They therefore set out to distinguish the Labor brand as considerably more responsible and thereby gained a decent time in office (Hawke, Keating, Hayden, Button, Walsh et al).

However the major players in the Rudd/ Gillard years would have been adolescents during the early 70s and retained much of their youthful enthusiasm when they had the opportunity to recreate the ‘Camelot’ on the Mologolo that they rather hazily and falsely remembered.

And so the thesis is that Whitlam’s legacy was a (possibly) permanent adolescentisation of a substantial sector of our society. It might be thought that from now on it will fade into history, as it should, but considering the outpouring of misinformation about the Whitlam years in recent days, the Grand Vizier is not so sure. Many of our senior academics were also adolescents in those days and the mythology is being perpetuated in our academic institutions and elsewhere in the media.

Posted in Rafe | 17 Comments

Q & A Forum: October 27, 2014

Posted in Open Forum | 267 Comments