Think tank uses fake figures to calculate mining sector tax

We received a disgruntled phone call followed by two grumpy emails (one of which is at the bottom of this story) from a Mr Roderick Campbell of Manuka, ACT, after exposing TAI’s fake claim that the mining industry paid just 15 per cent corporate tax on a $498 billion profit the last ten years.

As I pointed out in my column for The Australian on Tuesday, when you stop making up the figures and look at actual profits and actual tax paid, it shows the mining industry actually paid a little less 30 per cent in company tax.

And the Institute claimed the mining industry had made a $498 billion profit in the last ten years. The real figure is $353 billion. But what’s the odd $145 billion between friends?

Campbell, the TAI’s research director, doesn’t dispute the 30 per cent figure (29.3 percent, to be precise) – even though it is twice the figure claimed by his colleague David Richardson in this letter to the Australian Financial Review in January:

AFRLetter

Error One: TAI took a wild guess at how much corporate tax the mining industry had paid. They took the total mining tax take, included royalties for the last 11 years – $185 billion – and made the brave assumption that only 41 per cent of that – or $76 billion – was corporate tax.

Error Two: The fanciful figure of $76 billion was based on data for 11 years, not ten. TAI seemed to think that didn’t matter and called it a ten-year figure anyway.

Error Three: They used the wrong ABS table to identify mining profits from 2006 – 2016. TAI took the profit for the entire resource sector – oil, gas, exploration and support services included – to arrive at a ten year profit of $498 billion. The figure they should have used, 10 year profits mining alone, without oil and gas, is $353 billion.

Error Four: There was no need to calculate an “assumed” figure. The actual figure for corporate tax payments – $103 billion, not $76 billion – was staring them in the face. It appeared in the January Deloitte report they used for other figures.

Summary: For the benefit of Richard Denniss and his crew we’ll take them through that again.

  • Actual profit for 2006-16: $353 billion
  • TAI’s fake figures: $498 billion
  • Actual corporate tax payments: $103 billion
  • TAI’s stab-in-the-dark figure: $76 billion
  • Actual rate of corporate tax paid: 29.3 per cent
  • TAI’s fake rate: 15 per cent

If we had time, we’d also explain to the Institute the difference between a before-tax profit with inventory changes, and one without. But that’s a rounding error compared to their wild misstatement of the Mining Industry’s tax payments.

Conclusion: The Australian Institute cannot be trusted in this, or any other, debate.

Email from TAI research director Roderick Campbell:

AIemail

 

 

Nick Cater is the executive director of the Menzies Research Centre. The Menzies Research Centre fights for policies that enable business to flourish in Australia, and for Australians to enjoy the rewards of liberty and hard work. Please consider helping us by becoming a highly valued subscriber.

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Posted in Taxation | 17 Comments

Forget Putin, we need to fear Russia’s weaknesses

Today in The Australian
Like Casablanca’s Captain Renault, who was “shocked, shocked” to discover gambling was taking place at Rick’s nightclub, the Democrats on the US House of Representatives’ intelligence committee have barely been able to contain their outrage at evidence of Russian interference in the 2016 presidential election.

Posted in Uncategorized | 5 Comments

CSIRO – Blockchain slides

Earlier today I gave a talk to a CSIRO conference. My powerpoint slides are here.

Posted in Cryptoeconomics | 4 Comments

SA Pest Energy Policy

Now Spartacus is not an energy policy expert.  Perhaps Alan Moran will deconstruct the details better in the coming days.  But it appears that the SA Pest Party and their Dear Leader, Mr Nick Xenophon have announced their “energy policy“.

The arrogance of the man and his party drip like the fat off a roasting chicken.

Get this (as reported in the Australian).  Mr X-Phon does not want to be part of the executive government, yet he has proposed a half cooked policy which he expects whomever forms government to implement.  And if, whomever is supposed to implement this policy fails to achieve a 20% reduction reduction is prices, they should resign.  How do you like them apples?

Apparently Mr X-Phon also said:

There is nothing like focusing the mind of a government if they think they are going to lose office by not delivering on a core promise

Oy Nick.  Listen up.  The 20%/2 year promise is not their’s.  It’s your’s!

How about this as an alternative.  Whoever wins sufficient seats to form a government implements their policies (for better or for worse) and you, Mr X-Phon, resign.

What a joke.  As part of his policy, Mr X-Phon has proposed :

the creation of a member-based, not-for-profit electricity retailer – to be named the Community Electricity Trust of SA – that would provide power to households with an annual below $75,000 and small businesses with power bills under $20,000.

Ok.  Let’s just assume for a moment that this retailer can properly run as a not for profit (BIG assumption).  What are you going to do about the cost of generation and the cost of distribution (the poles and wires)?

The cost of generation has gone through the roof thanks to the renewable energy target that you support and advocate for.

Perhaps there should be a 4th party for South Australia, the SA Mortein Party.  That would be a perfect counter to the SA Pest Party.  At least in Spartacus’ mind.

Follow I Am Spartacus on Twitter at @Ey_am_Spartacus

Posted in Uncategorized | 27 Comments

Unwinding the politically induced crisis in Australian energy

More grist! From an article of mine in The Australian on the politically induced crisis in Australian energy, its causes and its solutions

The catastrophic outcome of government energy market interventions is palpably clear. As the latest new regulatory body, the Energy Security Board, diplomatically puts it: “Fifteen years of climate policy instability … (have) left our energy system vulnerable to escalating prices while being both less reliable and secure.”

Australia has seen electricity prices double since 2015 and the once reliable supply is now suspect. From enjoying the world’s lowest cost electricity a decade ago, Australia now has among the most expensive.

The main cause has been subsidies and regulatory favours to renewable energy — chiefly wind — that have forced the closure of reliable coal-fired generators, particularly Northern in South Australia and Hazelwood in Victoria. Without these subsidies, costing about $5 billion a year, there would be no wind or solar. Not only are customers and taxpayers slugged with the subsidy costs but the outcome also has been to raise prices and reduce reliability.

The ESB has been tasked with creating an electricity market blueprint that marries lower carbon dioxide emissions with lower costs and greater reliability. This is an impossible task and would require massive new regulatory interventions.

The ESB’s proposals would add new dimensions of complexity to electricity supply, bringing a further proliferation of administrative resources within the bureaucracy and the industry.

We can restore our latent competitiveness in cheap energy only by abandoning all the intrusions and distortions that are in place. Donald Trump has achieved success from such an approach and we may have to await full recognition of this before our politicians adopt similar deregulatory policies.

In the same issue, Rupert Darwall has a very fine piece today in Quadrant.

 

Posted in Uncategorized | 27 Comments

Pope Francis and the Caring Society

Pope Francis has sparked uproar with inflammatory comments on capitalism and markets based on his passion to help the poor and his experience of crony capitalism in Argentina. He has called for a dialogue on building a compassionate society and the Independent Institute has responded with a high powered collection of papers led by the late and great Michael Novak who wrote the Foreword not long before he died in February last year. The book is Pope Francis and the Caring Society.

Many of the contributors are Christian believers of various kinds and they have bent over backwards to embrace the dialogue (an awkward posture) on the assumption that Pope Francis is genuine in his humanitarian concerns and in the hope that he might be prepared to learn some economics like the great Polish Pope John Paul. Economic issues are thoroughly treated, especially the power of markets to liberate the poor if only there is a framework of law and property rights and a vibrant civil society. Several contributors pay attention to the Pope’s wayward and scientifically illiterate views on the environment and ecological issues.

Highlights of the book. To buy the book.

Posted in International, Rafe | 15 Comments

Cycling into the sunset

Spartacus suspects that he will be slammed for expressing the following view, and so be it. But the time has come for Tony Abbott to ride off into the sunset. Mr Abbott. You had a chance to be the leader you wanted to be and should have been, yet you blew it. You failed to convince, you failed to explain. And rather than dealing with stuff that mattered, you instead deployed Knights and Dames.

This is not a commentary on Mr Abbott’s policy views, many of which Spartacus strongly agrees with. But if Mr Abbott wants to be a pundit, he needs to get out of the Parliament. And in as much as he may respect and admire Howard, Menzies and Churchill, he is not Howard, Menzies or Churchill.  Sorry Mr Abbott, there won’t be a second act for you.

Earlier this week, Mr Abbott spoke at the Sydney Institute and among other things, suggested that there be a reduction in immigration in Australia. He suggested that the levels of immigration were putting pressures on house prices, public infrastructure and wages.  These are all fair observations.

Now don’t get me wrong, Spartacus believes that such matters of public policy should be discussed. Absolutely positively. For one, when it comes to immigration, Spartacus does not have a view on quantity, but does have a view on quality; in that Australia accepts too many low skilled and older migrants who will likely be a net drain on the community. The subject of immigration should be discussed, as should any matter of public policy.  No matter of public policy should be quarantined from debate.

However, the way Mr Abbott goes on about this matter and other matters, including renewable energy, you would think that he was a humble back bencher hungry for a chance to get into the executive. For heaven’s sake Mr Abbott. You were the Prime Minister for 2 years. And to suggest now, as he did on Andrew Bolt’s show earlier in the week, that he was constrained by a difference of opinions in Cabinet is just disingenuous. He had no problem making a Captain’s picks on his economically insane paid parental leave scheme, but to touch the equally economically insane renewable energy scheme apparently required cabinet consensus. Please.

Mr Abbott. You are crowding out other younger, hungrier conservative back benchers. And for what purpose? No matter the virtue in what you propose, it will always be seen from the prism of a Turnbull-Abbott dispute meaning that no matter how bright or brilliant an idea you propose, it will unlikely be implemented for political reasons. Much as for the same reason that the Prime Minister probably did not support the “Warringah Motion” because it came from your Warringah branch.

We thank you for your service Mr Abbott, but your service is over. It’s time to move on.

Follow I Am Spartacus on Twitter at @Ey_am_Spartacus

Posted in Uncategorized | 72 Comments

Kate Sills: The Promise of Smart Contracts

                     STAN
Jerry, we’re not just going to
give you seven hundred and fifty
thousand dollars.

WADE
What the heck were you thinkin’?
Heck, if I’m only gettin’ bank
interest, I’d look for complete
security. Heck, FDIC. I don’t
see nothin’ like that here.

JERRY
Yah, but I — okay, I would, I’d
guarantee ya your money back.

WADE
I’m not talkin’ about your damn
word, Jerry.

Fargo (1996)

Fargo is primarily a movie about promises, implicit and explicit. It asks whether we will keep our promises to others, even against our own self-interest. What makes the movie fascinating is that many of the promises aren’t backed by the court system, for very good reason — the deals are illegal. Fargo asks if we can trust each other even if there is no government force making us comply. In other words, can we make contracts in the state of nature? In 1651, Hobbes argued that we couldn’t:

“If a covenant be made wherein neither of the parties perform presently, but trust one another, in the condition of mere nature (which is a condition of war of every man against every man) upon any reasonable suspicion, it is void: but if there be a common power set over them both, with right and force sufficient to compel performance, it is not void. For he that performeth first has no assurance the other will perform after, because the bonds of words are too weak to bridle men’s ambition, avarice, anger, and other passions, without the fear of some coercive power…”

In other words, we need some external mechanism to enforce our promises, to make it so that other people can depend on our commitment. Making credible commitments is the foundation of business and society in general. Like Hobbes, we tend to assume that the government’s coercive power is the only way to create contracts. Nobel Prize-winning economist Oliver Williamson called this view legal centralism, the assumption that “the legal system enforces promises in a knowledgeable, sophisticated, and low-cost way” (Williamson, 1996, 121).

Williamson and other Nobel laureates, such as Elinor Ostrom, built their careers on proving this assumption wrong. In many instances, the court system is costly and time-consuming, and sometimes corrupt. Moreover, people are often surprisingly able to enforce promises and maintain order in their own communities without government.

Promises, Promises

Reputation is extremely useful in small communities with repeated transactions.

Trust is the bedrock of society. Without it, life would look a lot like Hobbes’ state of nature — constant suspicion, backstabbing, and insecurity. A person might make a promise, but given the opportunity, they might break it and pursue their own self-interest, a scenario which Williamson calls opportunism. However, business deals depend on being able to trust that a promise will be kept, otherwise our society would be limited to instantaneous exchanges. Fortunately, there are a number of mechanisms that can be used to secure a promise, all of which have advantages and disadvantages [1].

For instance, we might depend on personal ethics and only make promises with people who have a strict moral code. The advantage of relying on personal ethics is that they don’t require institutions or outside coercion, but ethics also have a severe limitation: it’s difficult to know very many people well enough to trust them to do the right thing, and even the best people might break their promises.

Another enforcement mechanism is reputation. Before making a contract with someone, we can ask around and find out how their previous interactions went. Reputation is extremely useful in small communities with repeated transactions since, if someone breaks their promise, they will be labeled untrustworthy and will be excluded from future interactions. However, reputation is more difficult to apply when interacting with strangers.

Other enforcement mechanisms for promises include strategies like vertical integration in business (where opportunism is curbed through the alignment of incentives) and the use of collateral.

The Internet Problem

But the Internet, currently a state of nature if there ever was one, presents new difficulties. Personal ethics, of course, are always helpful, but there is no guarantee that a random stranger will be ethical. Reputation is more difficult because pseudonyms like email addresses and usernames are often used instead of true names. When a person breaks their promise, they can simply erase their history by creating a new pseudonym with a clean reputation.

It’s clear that many of the enforcement mechanisms are hard to apply to the Internet.

Being able to cheaply create a new pseudonym in order to dodge a bad reputation is called whitewashing (Nisan 2007, 682). There are various ways to handle the problem of whitewashing. One is to distrust all newcomers since they could have a new identity to hide a bad reputation. Another possibility is to ensure that any pseudonym is tied to a real person or business so that a bad reputation can’t be escaped.

So why don’t we just create a global reputation system connected to our real-life identities? China is doing just that. As Wired explains, people with low ratings (including those who speak out against the government) will be punished in nearly every aspect of their lives: slower internet speeds, restricted access to restaurants, and the removal of the right to travel. They will have extreme difficulty being hired, renting apartments, and getting loans. In other words, a global reputation system can become less about trustworthiness and more about allegiance to authority.

It’s clear that many of the enforcement mechanisms are hard to apply to the Internet. Personal ethics are ideal but unreliable. Reputation systems that attempt to enforce societal or organizational norms must be carefully designed lest they turn into “basically a big data gamified version of the Communist Party’s surveillance methods” (Botsman 2017).

Lastly, laws cannot be easily applied to people in different countries, since each geographic jurisdiction has its own separate legal system, and there’s little chance of forcing a person from the Internet (especially if they are anonymous) to appear in court in a different country.

A Tool Is Only Good if It’s Useful

We tend to forget that there is such a thing as technological progress in contracts.

It is important to realize that all of our enforcement mechanisms are merely tools to be used when helpful. Like a hammer or a screwdriver, each tool might apply in a different situation. Moreover, like tools, our enforcement mechanisms are subject to innovation. For hundreds of years, since Hobbes, we’ve tended to think of contracts as legal agreements that must be enforced by the court system. However, court enforcement is only one of many ways to enforce promises, and we need to hold open the possibility that we can improve on it.

As public choice economist Gordon Tullock pointed out, “We tend to forget that there is such a thing as technological progress in contracts. People discover new ways of making agreements, and over a period of time we obtain considerable benefit from this sort of technological progress” (Tullock 1970).

One such example of technological progress is the invention of smart contracts. Smart contracts are a new mechanism for enforcing promises, allowing us to make credible commitments with each other on a blockchain, including commitments with strangers in other countries. To be clear, smart contracts are not legally enforceable, but that’s part of their unique advantage. Smart contract commitments are enforced outside of the law, outside of legal jurisdictions, without government enforcement.

Given that our legal jurisdictions are primarily tied to our geographic location, and many countries have frail or unreliable legal institutions, this is a huge societal advance. It means that given an Internet connection, someone from one of the poorest countries in the world can make business deals and credible commitments with someone in the US as easily as if they were American. By creating trust where there was none, the world will be opened like never before.

Smart Contracts

Smart contracts are immutable, meaning that the code by default cannot be changed.

The idea of smart contracts originated in the mid-90s when programmer and legal scholar Nick Szabo published a series of articles explaining their potential [2]. Like a vending machine, smart contracts rely on machinery for enforcement. However, instead of using physical machinery, smart contracts are literally code that runs on a blockchain, a kind of open, distributed ledger that runs on the computers of thousands of users, and which has no central authority.

Contrary to their name, smart contracts have nothing to do with artificial intelligence. “Smart” refers to their self-enforcing quality. Smart contracts are immutable, meaning that the code by default cannot be changed. For the purposes of the contract, this is a good thing, since it’s impossible to break a promise if you have no opportunity to do so.

However, for programmers, immutability presents a special challenge. All code has bugs, and code that cannot be altered needs to be written carefully to try to minimize the number of mistakes since the bugs can’t be fixed after the fact. Thus, writing a smart contract is like trying to write code for NASA — correctness matters a great deal, and the consequences of bad code can be dire.

Smart contracts cannot access outside information unless it is written to the blockchain.

A smart contract might be as simple as a transfer of money from one account to another after a certain time, or it might be very complicated. However, one major limitation is that smart contracts can only transfer digital assets that are defined on a blockchain, such as cryptocurrencies. This might seem like a show-stopper given that cryptocurrencies aren’t yet widely accepted, but transferring money subject to certain conditions is all that many contracts do. Also, even contracts that include actions with physical objects can potentially be enforced by putting up bonds that will be lost if the promise isn’t kept.

Another limitation is that smart contracts cannot access outside information unless it is written to the blockchain. For instance, a smart contract by itself has no access to weather data. To condition a contract on the temperature, for example, there must be a third party that takes the data from a weather API and writes it to the blockchain in a way that is accessible to other users. This trusted data source is called an oracle.

There Are Advantages and Drawbacks

Smart contracts have many limitations. However, we tend to forget that the courts have limitations as well. We shouldn’t compare smart contracts to an idealized version of court-enforced contracts. When we view both critically, it becomes clear that court-enforced contracts have intrinsic flaws. First, access to the court system is rationed, and there are many people waiting for their turn simply to use the service. This means that cases may take years or even decades. Because of the slowness of the courts, businesses often use private arbitration clauses in their contracts that allow them to settle out of court.

Another often-overlooked limitation of the court system is that because the court is an external third party, it can only guess at the true damages if the contract is breached. This is problematic because the court system determines what will be given to the aggrieved party.

Even in countries with the best institutions, court-enforced contracts have intrinsic limitations and paternalistic aims.

Unfortunately, simply asking the aggrieved party how much the performance of the contract was worth to them isn’t going to work — they have no incentive to be honest in reporting their damages. Therefore, the court system tries to use its best judgment to determine what the damages are, but as Georgetown Law professor Randy Barnett points out, “Any assessment of legal damages attempts to quantity or objectify that which is actually subjective and essentially unmeasurable…” (Barnett 2010).

The solution is for the parties to write their valuations explicitly in the contract, as liquidated damages. However, the courts may decide not to enforce these if they think they are unfair. Thus, even in countries with the best institutions, court-enforced contracts have intrinsic limitations and paternalistic aims.

Smart contracts are not legal contracts, and in many cases may not be a good replacement for legal contracts. However, they are a valuable new tool in our limited toolbox. They allow us to make commitments — even with strangers — without government enforcement, something many, for hundreds of years, have assumed was impossible. In the next few decades, smart contracts will give people around the world the power to make agreements with each other despite corrupt and broken institutions, and so transform the lives of millions.

Footnotes

  1. In Order Without Law: How Neighbors Settle Disputes (Ellickson 1991), Yale Law Professor Robert C. Ellickson studied how cattle ranchers in rural Shasta County, California enforced their promises, and categorizes some of the constraints on behavior thusly: personal ethics, contracts, norms, organization rules, and law. Anthony T. Kronman, also a Yale Law Professor, wrote about the ability to make contracts without using court enforcement in Contract Law and the State of Nature (Kronman 1985). He describes a number of devices, such as “hostages,” collateral, hand-tying, and the alignment of incentives by union.
  2. One of the primary pieces is Formalizing and Securing Relationships on Public Networks (Szabo 1997).

Works Cited

  1. Barnett, Randy E. The Oxford Introductions to U.S. Law: Contracts. Oxford: Oxford University Press, 2010.
  2. Botsman, Rachel. “Big data meets Big Brother as China moves to rate its citizens.” WIRED. November 28, 2017. Accessed February 05, 2018.
  3. Ellickson, Robert C. Order Without Law: How Neighbors Settle Disputes. Cambridge, MA: Harvard University Press, 1991.
  4. Hobbes, Thomas, and J. C. A. Gaskin. Leviathan. Oxford: Oxford University Press, 1998.
  5. Kronman, Anthony T. “Contract Law and the State of Nature.” Journal of Law, Economics, & Organization 1, no. 1 (1985): 5-32.
  6. Nisan, Noam, Tim Roughgarden, Éva Tardos, Vijay V. Vazirani, and Christos H. Papadimitriou. Algorithmic Game Theory. New York: Cambridge University Press, 2008.
  7. Szabo, Nick. “Formalizing and Securing Relationships on Public Networks.” First Monday. September 1, 1997. Accessed February 05, 2018.
  8. Tullock, Gordon. Private Wants, Public Means: An economic analysis of the desirable scope of government. New York: Basic Books, Inc, 1970.
  9. Williamson, Oliver E. The Mechanisms of Governance. New York: Oxford Univ. Press, 1996.

Reprinted from Libertarianism.org.

Kate Sills


Kate Sills

Kate Sills holds degrees in Computer Science and Cognitive Science from UC Berkeley.

This article was originally published on FEE.org. Read the original article.

Posted in Cross Post, Cryptoeconomics | 8 Comments

Commonwealth Budget Committee meeting

A picture tells a direction-ally plausible projected number of words.

Posted in Uncategorized | 5 Comments

Who are you going to blame?

This is what Tony Abbott reckons is currently wrong with Australia:

My issue is not immigration; it’s the rate of immigration at a time of stagnant wages, clogged infrastructure, soaring housing prices and, in Melbourne at least, ethnic gangs that are testing the resolve of police.

Okay.  I think sensible individuals can agree that this particular list of complaints is a fair summary of what (some) people are talking about.

It seems to me, however, that everything on that list is due to government. Government is to blame for stagnant wages. Government is to blame for clogged infrastructure. Government is to blame for soaring housing prices. Government it blame for ethnic gangs testing the resolve of police.

The solutions to those problems include:

  • cutting spending, cutting taxation, cutting red tape, and cutting green tape.
  • better coordination, prioritising, and tighter budgeting for infrastructure spending.
  • releasing more land for housing, cutting red tape, and cutting green tape.
  • tougher sentencing for violent criminal behaviour, and truth in sentencing.

To be fair to Tony Abbott, a lot of that involves both the commonwealth and state governments getting off their bums and actually doing stuff.  But quite frankly, until he starts talking about actual solutions to real problems, all this anti-immigration talk is just a waste of everybody’s time.

Posted in Politics, Rule of law | 69 Comments