Are criminals dumb?

This is what happens when you walk into a store and act like an undercover policeman.

Objective We aimed to assess change in the availability of illicit tobacco in small mixed business retail outlets following the December 2012 introduction of plain packaging in Australia.
Methods 303 small retail outlets were visited in June and September 2012 (baseline months), and in December 2012 and February, April and July 2013. Fieldworkers requested a particular low-cost brand of cigarettes and then pressed the retailer for an ‘even cheaper’ brand. The cheapest pack of cigarettes offered was purchased and later examined to assess any divergence from prescribed Australian packaging regulations. The price paid was compared with tax liability and recommended retail price for the particular brand and pack size. In a sub-set of 179 stores, fieldworkers then asked the retailer about availability of unbranded (chop-chop) tobacco.
Results Thirteen (2.2%) of 598 packs purchased pre-plain packaging were either non-compliant with Australian health warnings and/or suspiciously priced. Four packs (1.3%) of 297 met either or both criteria in the December implementation month, and five (0.6%) of 878 did so in the three collection months following implementation. Chop-chop was offered upon enquiry on 0.6% (n=2) of 338 occasions prior to implementation, 0.6% (n=1) of 170 occasions in the December 2012 implementation month, and 0.6% (n=3) of 514 occasions postimplementation. The likelihood of a ‘positive’ response (either an offer to sell or information about where unbranded tobacco may be purchased) did not differ across preimplementation, during-implementation and postimplementation waves.
Conclusions Overall, packs judged likely to be illicit were sold in response to requests for cheapest available packs on fewer than one percent of occasions. Offers to sell unbranded tobacco were rare. No change in availability of illicit tobacco was observed following implementation of plain packaging.

The first problem with this study is the lack of a control group. Think about the fieldworkers. To get an idea as to their inate ability to track down an illegal product they should have been required to also acquire a sample of, say, marijuana or something similar.

Posted in Take Nanny down | 67 Comments

IPCC: Warming cost are small and less than costs of forcing carbon abatement

The IPCC is rolling out its “Fifth Assessment” horse-choker Working Group papers and slim-line Summaries for Policymakers.

In this era where film stars with carbon footprints 100 fold those of common folk exhort us to reduce consumption levels to save the world, the fascinating question is ‘How much damage does the IPCC think a doubling of carbon dioxide levels brings and what is the cost of measures to prevent this doubling’?

The IPCC puts the warming from the anticipated doubling of atmospheric carbon dioxide at between 1.5 and 4.5 degrees (perhaps in response to 17 years of the planet refusing to warm in defiance of the climate models, the lower boundary was reduced in the present Assessment).    The most respected of all climate scientists, MIT’s Richard Lindzen, estimate the maximum warming possible for human induced greenhouse gases is 1 degree.

The IPCC lists only three post-2008 studies that attempt to estimate the net losses from global warming as a result of doing nothing.

Of these

  • (Nordhaus 2008) estimates a loss over the next 50 years of 2.5 per cent with a 3 degree warming.
  • Bosello et al have a 0.5 per cent loss with a 1.9 degree warming.
  • Rosen and van der Mensbrugghe have a 1.8 per cent loss for a 2.3 degree warming and a 4.6 per cent loss for a 4.9 degree warming.

There is also a lot of guff in the IPCC’s Fifth Assessment about some possible scenarios where much higher warming takes place but this is about as likely as little green men being sighted in a Mars probe.

The hysterical Summary for Policymakers glosses over the numbers and concentrates on the scary rhetoric, an outcome that led to the resignation of Richard Tol, co-chair of a key Working Group and one of the few non-socialist economists involved in the IPCC.  This was followed by the predictable green left’s spleen-venting reaction to an apostate.

So, the angst and tens of thousands of scientists, politicians and other green warriors jetting from world city to world city to mingle, trumpet and convive is all about preventing a loss over 50 -100 years of about half to one year’s annual growth in world income levels.  And the calculus of doom massively overstates the losses from warming (magnifying ocean rises, the need for new infrastructure, losses from tourism, the great rainfall shrinkage,  inventing dengue fever outbreaks, new security scares, etc.) while downplaying plant and food growth from more atmospheric carbon dioxide.

Having been forced to acknowledge that the much feared global warming has only a trivial effect on real levels of human welfare, the IPCC has to ensure that its estimates of the costs its pursuit of the New Jerusalem are not too great.  Forcing a radical transformation of society by banning the use of oil and coal and demanding that we reduce energy consumption and shift to horrendously expensive renewables and mythical technology like carbon capture and storage is depicted as a cake walk, made difficult only because myopic politicians fail to recognize that industries and consumers can do without low-cost energy.

But even in the heroic assumptions about shifting to the mythical low-cost new energy technologies and saving energy by using less of it, the researchers are unable to torture the data to reveal the same level of trivial costs of forced emission restraint as are evident in the costs of doing nothing.  It turns out that the costs of policies like forcing Australia and other developed nations to reduce carbon emission to 20 per cent of current levels does not come cheap, even though the modelers gloss over the fact that the replacement for fossil fuels is horrendously expensive and would bring de-industrialisation.  Economic modelers can only bend facts so far and, even with an optimistic gloss on taxes and regulations, they cannot avoid coming up with an emission suppression cost of 2.7 per cent in 2050, a cost that is amplified threefold if the carbon capture and storage does not work, nuclear is phased out and the renewables cannot take more than 20 per cent of world energy.

Bottom line.  If global warming is taking place it will not be very harmful.  If it is taking place, attempts to prevent it, even if politically feasible in a multilateral world of nations with different interests, would cost more than any damage the emissions may be causing.


Posted in Uncategorized | 185 Comments

Q&A Forum: April 14, 2014

Posted in Open Forum | 328 Comments

Me against the world… or the revenue lobby, at least

Due to popular demand, I post a transcript of my recent ABC Drum piece about the fiscal constitutionality underpinning the GST design framework.

To my mind, one of the more astounding aspects of the effective prohibition against free-wheeling GST rate and base amendments is that the political propagators of the “thou shalt only change the GST unanimously” rule quite possibly had never read James Buchanan and Geoffrey Brennan, The Power to Tax, which placed great import on explicit tax rate and base constraints not unlike those in force today.

In fact, I am quite certain that not many senior policymakers within federal Treasury at the time had done so, either.

Nonetheless, the design features of the GST have saved Australians from the worst of the fearful discretionary tax hikes seen elsewhere, thus far. To the extent that we remain lumped with this terrible “monster tax” (HT: Paul Keating), long may the fiscal constitution reign!

The transcript is below:

Australia should get its excessive spending under control without resorting to the tempting but unwarranted consumption tax grabs we have recently seen in other countries.

That’s why the current institutional arrangements for managing the GST should be preserved in the face of recent pressure from revenue lobbyists like Martin Parkinson and Ken Henry.

As a mid-ranked bureaucrat in the Commonwealth Treasury during the late 1990s, I witnessed first-hand the first agreement signed by the Commonwealth and state governments concerning the distribution and administration of the GST.

Signed by former prime minister John Howard and treasurer Peter Costello along with the state premiers and some senior bureaucrats, the Intergovernmental Agreement on the Reform of Commonwealth-State Financial Relations ensured that the states receive all GST revenues (less administrative collection costs).

Importantly, the agreement also contained a set of provisions aimed at protecting Australian taxpayers from policies to increase the GST.

The original agreement stated plainly (Part 3: 32-36) that changing the GST rate or base required unanimous support from the Commonwealth and all states and territories, as well as the successful passage of legislation through Parliament.

These arrangements have been maintained in a revised Intergovernmental Agreement signed in 2008, and remain in force to this day.

The importance of this GST ‘fiscal constitution’ becomes clear when one recognises the frequency of increases in similar taxes in other developed countries.

From 2000, when the Australian GST was introduced, to 2013, central governments across OECD economies increased value-added tax or GST standard tax rates on 35 occasions, including 22 times during the aftermath of the 2008-09 global financial crisis.

Australia hasn’t needed an increase to its own GST rate or base to record a dramatic increase in its GST revenue – it has increased from $23.9 billion in 2000-01 to an expected $50.2 billion this financial year simply as a result of a nominal growth in consumption.

This GST revenue growth was equivalent to an annual growth rate of 6.4 per cent; well in excess of the average annual increase in general prices throughout the Australian economy.

As painful as the GST is, particularly for poorer individuals and families, the prohibition of unilateral GST structural changes has, at least, spared Australians from the extreme discomfort of quicker and easier consumption tax grabs experienced elsewhere.

Even so, politicians, bureaucrats, academics, special interests, and other members of the ‘revenue lobby’ occasionally advocate that all governments band together to loosen the fiscal constitutional constraints, which would allow them to help themselves to more GST revenue.

In his first appearance as prime minister, Kevin Rudd proposed to claw back 30 per cent of GST revenues from the states, in order to boost Commonwealth funding of the states’ public hospitals.

This plan was abandoned after several jurisdictions, particularly Western Australia, raised concerns that the partial federal confiscation of GST would further reduce the states’ fiscal autonomy, and invite future GST revenue grabs for other federal policy purposes.

As well, responding to the growing popularity of online shopping, some state governments and interest groups, such as retailing associations, have suggested lowering the $1,000 threshold below which GST is not payable on imported goods purchased online.

Taxpayers can breathe a sigh of relief – at least for now – knowing that the recent Council for Federal Financial Relations meeting between Commonwealth and state treasurers failed to come to a decision on that base‑broadening proposal.

By and large, the GST fiscal constitution has stuck, but a recent round of tax proposals by current and former senior bureaucrats illustrates that the revenue lobby won’t let go of their GST hike dreams too easily.

In a much-publicised speech last week, outgoing Treasury Secretary Martin Parkinson suggested that those authoring a forthcoming White Paper on taxation should “consider the mix of taxes, including whether there is a role for a greater contribution from indirect taxes”.

Parkinson’s immediate predecessor as the head of Treasury, Ken Henry, claimed a GST increase is inevitable, stating, “Raising the GST rate one day will be seen as necessary to underpin fiscal sustainability.”

These, and similar, proposals to increase the GST tax burden are usually couched as part of a broader shift in the taxation mix from mobile income and capital taxes in favour of immobile consumption taxes.

This tax substitution is generally adjudged by economists to improve economic efficiency, but a key consideration, often overlooked in the contemporary debate, is that any resultant growth in revenues from tax reform is likely to be spent by governments on wasteful programs and activities which, in itself, would hamper the attainment of efficiency gains.

Another dimension of the GST debate which perhaps deserves more attention is that the poor, who generally pay little in income taxes in any case, are likely to financially suffer as a result of increasing the GST because more of their disposable incomes are directed toward everyday consumption items.

It is surprising that many calling for a GST increase probably identify themselves with political-left causes, although there are still some voices from the left arguing the traditional position against raising the burden of the regressive GST.

Politicians generally do not respect fiscal rules for too long, as attested by precedents stretching from the federal government keeping surplus revenues from the states in order to fund age pensions, through to the recent abolition of the federal statutory debt ceiling.

If Australia can overcome its excessive government spending problem, as it should, without fiddling with the structure of the GST, then that would rank as a minor miracle.

Posted in Uncategorized | 34 Comments

Joseph Benedict Hockey, meet Edward William Foxall

Undertaking an analysis of the history of Australian monetary systems, I have been dutifully combing through original nineteenth-century literature examining the nuances of the free banking regime which once existed here. (For the record, I am a supporter of free-banking reform.)

One gem of a piece, though seemingly largely forgotten by modern economic historians, comes in the form of the pamphlet Financial Crises, Their Causes and Symptoms, by the Australian liberal, Edward William Foxall. The pamphlet was published by F. Cunningham & Co. in Sydney in 1895, and serves as a revised version of four articles printed in the Sydney Daily Telegraph newspaper in 1892 and 1893.

Briefly, Foxall widely spreads blame for the early 1890s Depression, with a particular focus upon landowners, mortgagees, other land purchasers, and lenders in fomenting an inflation of land values well in excess of what could be perceived as their ‘fundamental’ values. (Foxall, it should be noted, erroneously subscribed to Georgist notions surrounding land taxation, but he was not alone on that front. For those interested, an excellent critique of this perspective can be found here.)

Almost nobody is exempt from blame, to some extent, for the financial crisis, in Foxall’s view, but he did reserve particular scorn for the meddling role of colonial governments during the period.

Governments not only restricted land supply for the benefit of propertied interests, and imposed legislative edicts allowing financial institutions to reconstruct on terms disadvantaging shareholders and depositors, but unnecessarily contributed to general economic hardship, during a precarious time, through its excessive spending on low-value (and negative value) ventures:

at no former period of our history was there such a load of debt on the country – a debt which, although the burden of the interest upon it is an enormously heavy one, is yet more serious from other considerations in connection with it, closely affecting our industrial and social prospects. For the bulk of this debt has grown from the exercise by successive governments of functions totally foreign to the purpose of their existence.

Foxall referred to some questionable uses to which the borrowings had been put:

while most people are aware that this profligate waste has been going on to an alarming extent, how few ever think of alluding to it as one of the principal causes of the present crisis? Yet such it undoubtedly is. We boast of our town-hall, our post-office, our lands-office, custom-house, and other government offices. We admire their stately designs, their artistic carvings, their granite porticoes, their marble floors, and elaborate fittings, without considering that it is just as possible for a country to go beyond its means in the direction of indulgence in luxurious and palatial architecture – at immense cost – as it is for a private individual; and that the same result must accrue in each case.

This pamphlet contains a quite brilliant explanation of the underlying public choice properties underpinning the exuberant growth in colonial-era public sector debt:

the man who was considered most likely to be able to secure the expenditure of large sums of public money in his electorate was the most likely to be returned as its member. … in a house of parliament composed of a number of such ‘representatives,’ as they were humorously termed, the member for Dead Man’s Flat could only get a bridge against his principal constituent’s door by supporting a similar proposal of the member for Sleepy Hollow. And if the member for White Dog Crossing wanted a railway connecting his electorate with the metropolis, he could only obtain it by promising to support the proposition to divert the route of some other railway 10 or 20 miles out of its natural course, in order that it might go through the land of the aunt of the member for One-Horse Hill.

The insidious effects of the public sector debt boom, wrought by the interplay of political actions that end up spending for today, and shifting paying the bill to a later date, were described by Foxall as follows:

it is very evident that as the power and influence of the state increase, it is at the expense of the importance, the self-reliance, the independence, and manhood of the individual citizen. The state has in this colony been for long the largest employer of labour, and the funds for carrying out the works upon which this labour has been employed have been obtained by mortgaging the future earnings of future labourers, and making present ones pay the interest on it.

The bottom line for Foxall was this:

The days of fictitious prosperity by the lavish expenditure of borrowed money is over.

There is little question that, as a moderate Liberal, Mr Hockey might actually be quite inclined to read Foxall with some interest.

After all, Foxall wrote (thanks for the financial support of liberal politician Bruce Smith) the quintessential critique of the odious and disgraceful ‘White Australia Policy’ in 1903, Colorphobia: An Exposure of the White Australia Policy (an excellent summary of the book has been written by David Kemp). An excerpt from the book, to get a sense of the inherent soundness and basic morality of Foxall’s position:

Throughout the whole of this book no attempt has been made to placate the colour prejudice. It is a sentiment to be apologised for, not apologised to. It is for the man or woman who enunciates the doctrine that a dark skin is something to be abhorred, to show cause why he or she should not be committed for contempt in the Court of Common Sense.

Recent newspaper reports that the government is contemplating reforms to the Australian welfare state, which is a key underlying culprit for our contemporary governmental debt bulge, seems like a heartening good start (but strictly only a start).

But yawning public debts forecast to be stretching out into the never-never, especially when the statutory federal debt ceiling was so wantonly trashed only a few short months ago, necessitate that the government clearly, and very soon, outlines its plan to relieve future generations of the burden of ‘freebies’ enjoyed in the present.

As Mr Hockey himself stated, in one of the most important political speeches in Australian history, the ‘age of entitlement’ is over. And so it is. But if he reads the 1895 Foxall pamphlet, as he ought to, he would surely also arrive at the conclusion that ‘the days of fictitious prosperity by the lavish expenditure of borrowed money is over.’

Posted in Uncategorized | 20 Comments

Monday Forum: April 14, 2014

Posted in Open Forum | 1,426 Comments

Reinventing the wheel

This sentence caught my eye in The Australian:

The government should also fund thousands of sub-degree programs to keep poorly prepared students out of university courses until they have the ­academic skills to keep up.

That is from a report by David Kemp and Andrew Norton commissioned by Christopher Pyne.

Small problem though. The government already funds thousands of sub-degree programs – they’re called “schools”. The very purpose of these “schools” is to prepare students – some of them anyway – for university.

To be fair though, one of the reasons why so many students at university appear to be under-prepared is because universities don’t have high “entry standards” anymore. That wouldn’t be such a problem if universities maintained high exit standards.

That is the real choice – either maintain high entry standards or maintian high exit standards. If you have a system of low entry standards, however, the “price” to be paid is high drop-out rates.

Posted in Education | 78 Comments

Restoring trust Labor lost its way to sideline Palmer

In The Australian today:
“That affluence can buy influence is hardly news. What makes Clive Palmer different is that he flaunts it. Repeatedly, he tried to seize control of the Liberal Party in Queensland. When that failed, he set up his own political movement.”

Posted in Uncategorized | 18 Comments

Guest Post: Driftforge – A proposal for Senate reform

In the wake of the recent federal election, and the follow up by-election in Western Australia, the need for reform to the Australian Senate is widely recognised — specifically to the voting process, but also the structure of the senate itself.  However prior to getting into the specifics of those reforms, it is imperative that the purpose and contribution of the Senate is considered.

The Senate is widely called the house of review.  This is quite aimless in and of itself; for review to have value, it must take place on a known and desired basis.  The basis on which this takes place, in practice, is completely determined by the differences between the Senate and the House of Representatives. It is more correct to say that a well structured  Senate functions to limit the worst excesses of democracy through the protection of the abiding principles of governance from the follies of the day.

Only in to the extent that it differs from the House of Representatives, does the Senate provide value.

The corollary to this of course is that the Senate demonstrates its value when it modifies or rejects legislation put forward by the House of Representatives.  For this restraint to be considered worthwhile in the long run, the value of those changes must be greater than the frustration they cause.  They must be clearly in accordance with the fulfilment of the principles of difference that exist between the Senate and the House of Representatives.  Furthermore, the basic principle of the lower house must be known and fulfilled by that house.

The House of Representatives serves to completely fulfil the concept of ‘one person subject to taxation, one vote’.

Once this is understood, it becomes clear that this principle is near irrelevant to the Upper House.  Thus it is not a valid complaint, in respect of the Senate, to point out that Tasmania far fewer people than New South Wales, but the same number of Senators.  On the other hand, it is quite valid to point out and redress mal-apportionment on the basis of population in the Lower House. The Senate does not need to address that principle, except where not doing so reduces its capacity to protect the principles it exists to express.

So what principles does the Senate encapsulate; what additional principles should it capture? 

Currently the Australian Senate maintains differences of greater and lesser effect based upon length of term, proportional representation, and geographic distribution.  The principles behind these differences may be summarised:

Federal Law should not change on the whim of the day but with slow deliberation in concert with change in societal values, giving due consideration to what has held true in the past.

Federal Law should be reviewed in the presence of representatives of different schools of thought present in reasonable proportion throughout the states.

Federal Parliament should not easily dictate to a state standards that are not in keeping with its regional mores simply because more other, more populated states have different mores.

I would also submit the following for consideration, that is not captured at all in the current system:

The expenditure of Federal Parliament should be subject to review and approval by representatives of those whose primary income is not provided by the government.

Each of these issues is more or less perfectly (in most cases, less) captured in the current system. If we hold that these principles should be maintained, then every effort should be made to see that they are well captured, and not devolved in practice by the perditious political machinations of representative democracy. In detail:

The longer term nature of Senate seats, both in the term of office and the increased likelihood of seat retention works well in capturing the principle outlined above. The only change I suggest in terms of timing is that Senate elections take place on a rolling basis — one state every six months, rather than the three year half cycle we currently have. 

Quite clearly, proportional representation has become unwieldy due to the group voting ticket abomination.  The simplest method of resolving this is to adopt a proven proportional system, such as the Hare-Clarke system we have in Tasmania.  Adopted as is, with a minimum voting depth of 10 and a maximum of 5 candidates per party, the proliferation of micro parties that is occurring solely to take advantage of the current process would be addressed at the source. Furthermore, technological solutions to increase the timeliness of the result can be adopted.  The use of scanning pens in the voting booths that store each individual vote while retaining the existing full paper trail would dramatically reduce the time required for a count, while retaining the same degree of security, privacy, and the same process as currently in use.  A process refined over the course of 100 years is not lightly to be discarded, despite recent hiccups.

The resolution of the issue of geographic distribution was discussed in the comments of my previous post on the Tasmanian situation.  The result of that discussion was a proposal to excise each of the state capitals and their conurbations from the original states, reducing the number of Senators for each state to 8 (leading to a total of 100 senators once the territories are included). The lower house would increase to a scale (200 seats) that allowed an even distribution of electors there, resolving the issues of the over representation of Tasmania in the House of Representatives.  

Finally, it must be noted that the Upper House does not in any means capture the principle behind the original Upper House, the House of Lords.  That is, that those who fund government must have the capacity to limit the expenditure of government —he who pays the piper calls the tune.  This principle requires at the very least that suffrage for the Upper House is limited to those who do not depend upon the state for their primary source of income.  This constraint is deeply divisive but necessary.  It provides a driver for integrity and honour in politics; without it, democracy has a corrosive and corrupting influence upon our politicians first, and our culture second.  If that pressure is not borne by the system, it is borne by the individuals within it, a proportion of whom inevitably fail.

If we are to have democracy, it must be properly restrained. What is proposed here is a Senate intended to do just that; comprised of proportionally elected individuals within the the six states, the six city-states, and the two territories. These Senators represent the long term views of the electors in those regions who are not dependant on government for their primary source of income, and review legislation proposed by the democratic House of Representatives on that basis. In doing so, the capacity for reestablishing integrity in politics, restraint in government spending and limits on government intrusion into our private lives can be

Posted in Guest Post | 120 Comments

Guest Post: Anon – How magnanimous

Adam Goodes doesn’t seem very self aware. 

As a White Ribbon Ambassador since 2009, Goodes had focused his attention on domestic violence against women but last month …

- doesn’t section 18C of the RDA discourage people from speaking out about the domestic violence against women in indigenous communities?

Last May Goodes came to personify the state of racial vilification in Australia when he was called an ”ape” by a 13-year-old girl during the match between Collingwood and the Swans at the MCG.
”Under the old legislation I still didn’t charge her,” Goodes said. ”I accepted her apology and that was it. That was my choice.”

So he actually considered having the 13 year old charged? Do we really want to have a middle aged man having the discretion to have charges laid against teenage girls because of some words they might utter? It is easy to imagine how that situation to could lead to exploitation of young girls. Surely this is another good reason to repeal s18c.

Posted in Freedom of speech, Hypocrisy of progressives | 62 Comments