Ideas@TheCentre – The Centre for Independent Studies

Ideas@TheCentre

Ideas@TheCentre brings you ammunition for conversations around the table.  3 short articles from CIS researchers emailed every Friday on the issues of the week.

Senate inquiry misunderstands company tax

Simon Cowan

04 May 2018 | Ideas@TheCentre

Company tax is one of the most economically harmful taxes and in global terms Australia is more dependent on company tax than many other comparable countries. Countries around the world, and in our region, have either cut rates or already have substantially lower rates than Australia does.

Yet the Senate is inquiring into a commitment by the BCA to increase investment, employment or wages prior to passing a company tax cut.

Both the concept of the commitment, and the resulting system to monitor performance, suggest a misunderstanding of how company tax cuts will affect the economy.

Making tax cuts conditional on these commitments is another form of regulation, based on the notion that it is only government control that can ensure businesses will do ‘the right thing’ and invest more.

Yet the benefits of the company tax do not flow to wage earners on the basis of a commitment by companies to ‘use’ the proceeds to boost wages or hire new staff. It does not require charity or a social contract with business. In no sense are the benefits reliant on a ‘trickle-down’ effect.

It is the self-interested market that will drive increased investment, particularly by foreigners who receive a higher rate of return than they have done previously.

However this is not the only reason a system of measurement for compliance with any such commitment is not a good idea.

Another important reason is that the corporate tax rate is only one factor of many that determine where a company chooses to invest. In observing movements in investment, wages, productivity and employment in the years following a company tax cut, it will be impossible to separate out the effects of the cut. This is especially the case as the cut is phased in over a number of years.

Evidence of wage growth at companies making the commitment would not necessarily be associated with company tax cuts, nor would any increases in investment necessarily be caused by that commitment. Both could be the result of external effects in the economy.

Nor would the counterfactual in any analysis be current levels of investment, wages or employment. By standing still, Australia risks losing investment to other countries. Investment may have declined in Australia in the absence of a cut.

So not only is such a commitment unnecessary, there is no way to know whether the companies involved met their commitment or not. The Senate should instead look at company tax on its merits.

Simon Cowan and Matthew O’Donnell presented our arguments on tax reform to a Senate Economics References Committee.

Listen to the audio here.

Gonski 2.0 another expensive missed opportunity

Jennifer Buckingham, Blaise Joseph

04 May 2018 | Ideas@TheCentre

Education ministers from around the country have been summoned to a special meeting of Education Council today, for a briefing on the Gonski 2.0 report released on Monday.

The Gonski 2.0 report was commissioned by the federal government last year to give advice on how to increase the odds that the additional billions allocated to schools over the next 10 years will actually lead to better quality education (unlike the previous 10 years).

The committee’s task — clearly stated in the terms of reference — was to examine the evidence on teaching and learning strategies that lead to improved student outcomes, as well as the governance structures and arrangements that would facilitate them.

We have been highly critical of the report primarily on this basis: it did not meet its brief. While many of the proposals have merit, they are will probably take 5-10 years to implement and we have no idea whether they will have the desired impact. It contains too many cliches, motherhood statements, and unsubstantiated claims to be considered a ‘blueprint’ or even a guideline.

As can be expected from any official report on education these days, the conceit that we have an outdated ‘industrial’ model of schooling was front and centre. This apocryphal factory school must be replaced with one where every child’s individual progress must be continuously assessed, and teachers must ‘tailor’ their teaching to the learning needs of every child.

Sounds great in theory, doesn’t it? But the report offers no example of this ever having been done before and no real evidence base for the claim that it will actually improve student achievement. And the report doesn’t address the mind-boggling teacher workload the proposal implies. Individual learning plans would be a big enough job for a primary teacher with one class, let alone a secondary teacher who sees more than 100 students every week.

This continuous assessment would seek to ensure that another recommendation of the report is met: Every child makes at least one year of learning progress for each year of school. Again, it sounds like a plausible goal but no evidence is offered to support the concept of a year’s learning growth.

As Victorian school principal Peter Hutton wrote in The Guardian: “How do you measure this one year’s progress? Who defines that? Can you reliably measure creativity? Try measuring teamwork. Can you really measure accuracy within a month or two, even a year or two? ’Mrs Nguyen, Michael has only made 10 months progress in creativity this year. He was only able to come up with 52 uses for a paperclip, the benchmark for a year’s growth was 60.’ ”

Gonski 2.0 is yet another expensive missed opportunity. It is an archetype of education policy making — big on visionary theory and noble intent, and low on expertise, evidence and practical feasibility.

Ron Barassi and the marvel of spontaneous order

Matthew O’Donnell

04 May 2018 | Ideas@TheCentre

Before the rise of the AFL, when our sporting heroes ranged the muddy pastures of long forgotten suburban grounds such as North Sydney Oval, Leichardt, Victoria Park and Windy Hill, our great nation was split along the Barassi Line.

The Murrumbidgee, and the Riverina in particular, denotes the dividing line between where the social life of towns revolves around local AFL clubs or rugby league clubs.

This Barassi Line is an example of spontaneous order, where social institutions are the result of human action — but not of human design. The Riverina’s preference for AFL was not created by government fiat, devious planning by the VFL Commission, or based on state borders but rather social connections. The Riverina’s trade tends to flow south, many of its children board at Melbourne schools and most Riverina families have their annual ‘big shop’ along Bourke St Mall rather than Pitt St. Regular exposure to AFL subtly impacted consumer preferences — which ultimately affected the composition of local sporting clubs.

Spontaneous order is a powerful reminder that economies and societies in general create successful institutions to solve practical problems without the need of conscious design. Which side of the escalator we stand on, the common English we speak — even the vernacular slang, memes and emojis we use to communicate — are all examples of social institutions that weren’t consciously designed.

The greatest of all forms of spontaneous order is the market system itself. Every day goods and services are bought and sold by the millions without any central planner pulling the strings. It is truly wonderful how our daily needs are met with no one have any semblance of overall control.

The burgeoning wealth of capitalist societies compared to the failure of every central planned socialist state confirms that the market system more efficiently allocates society’s resources than any consciously designed system could ever hope to. So the next time you wonder why things work so well, don’t look for a central planner, thank the marvel of spontaneous order.