Ideas@TheCentre – The Centre for Independent Studies


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.

Fiscal sausages

11 January 2013

The laws made by the United States Congress are like sausages: it’s best not to see them being made. This was confirmed by last week’s fiscal cliff-hanger, and the absurdity of Congress sitting at 2:00 a.m. on New Year’s Day to resolve an imbroglio of its own making. There is at least one more act to come in this drama, as reality collides with the debt ceiling next month. Never mind that it is illogical to have a legislated debt ceiling separate from the legislated spending and tax policies that feed the debt monster in the first place. The solution is to change the spending and tax policies. But the Republican majority in the House of Representatives can hardly be blamed for using whatever levers it has to impose its policy will. That is the American system: three centres of elected power; strong checks and balances; and hurdles in the way of change. Hence the messy legislative process.

Even if we overlook the process and focus on the result, what emerged from Congress on the first day of 2013 is as unpalatable as the worst-made sausage. Congress brushed aside a large cut in the budget deficit – which is what the US needs, even if the cut due to come into effect on 1 January was badly structured – and replaced it with another fiscal band-aid. It perpetuates the myth that more tax on the rich is key to taming the budget deficit and debt, while avoiding much-needed tax reform and turning a blind eye to the health and social security programs – the main sources of the budget problem on the expenditure side.

As well as the House and the Senate, there is of course a third player in this drama, namely President Obama himself, who has been more responsible than anyone for propagating fiscal myths. The increase in taxes on the rich, even if they raise the expected revenue (which is doubtful), constitute arithmetically about one-twentieth of a complete solution to the budget problem. They enable Obama to boast that he restored the top income tax rate to where it was under the last Democrat president; as if anything less is delegitimised merely by association with a Bush or a Reagan.

An increased tax on the rich is supposedly one of the signature achievements of Obama’s eight years in office. No doubt some will see it that way, but to many others it will cement his reputation as one of the most determined class warriors in American political history. Obama would be less deserving of that reputation if only he would embrace the other half of the Clinton administration’s formula for fiscal success.

Under Clinton (and a Republican-controlled Congress), federal spending shrank from the low 20s to the upper teens as a percentage of gross domestic product, albeit under more propitious economic and national security conditions than currently prevail.

The best case that could be made for increasing the top income tax rate is not that Bush had dared to lower it but that it provides political cover for a broad attack on the budget deficit, which would inevitably also involve taking money away from people much further down the income scale, even if only in the future. But Obama – even though he can no longer claim the excuse that he wants to be re-elected – is apparently unwilling to use his freshly replenished political capital to push for the reforms of entitlement programs that are essential to a resolution of the budget problem.

The spending side of the budget will come into focus again as part of the looming debt ceiling cliff-hanger. The outcome is likely to be another unpalatable sausage unless the blunt, lop-sided and automatic spending cuts that were deferred for two months from January 1 are reshaped to include at least a start to reform of entitlements.

Robert Carling is a Senior Fellow at The Centre for Independent Studies.

Improving welfare or wasting money?

11 January 2013

The debate over the adequacy of the dole flared up again last week when Minister Jenny Macklin MP said that she could live on the base rate of Newstart Allowance – or $35 a day.

Given that Macklin, a senior cabinet minister, is on a salary of approximately $900 a day, the ‘gaffe’ appeared to be made by someone aloof and out of touch with reality.

More accurately, Macklin fell into a trap that was set by the welfare lobby to reignite their campaign for an increase of the base rate of Newstart Allowance by $50 a week.

Government estimates placed the cost of such an increase at $15 billion over four years. Rival estimates commissioned by the Australian Greens put the cost of such an increase at $8 billion over four years.

Whichever figure you choose, if the welfare lobby is successful in increasing the Newstart Allowance by $50 a week, it will cost taxpayers billions of extra dollars every year. That is on top of existing spending commitments for the National Disability Insurance Scheme and the Gonski school reforms.

Such an increase in the Newstart Allowance will also necessarily entail wasting hundreds of millions of dollars of public money too because the data shows that even at $35 a day, Newstart Allowance seems to be serving its purpose as a short-term payment between jobs.

Around 30% of Newstart recipients move off income support within three months and more than 70% of Newstart recipients move off it within 12 months. Increasing Newstart by $50 a week will result in a windfall financial gain for these individuals without changing their behaviour.

Hundreds of thousands of Newstart recipients will receive this windfall gain if the government caves in to the welfare lobby and increases the base rate of Newstart Allowance. What this means is that the government will spend hundreds of millions of dollars of public money for no public gain.

It would be the very definition of government wasting taxpayer money.

Andrew Baker is a Policy Analyst at The Centre for Independent Studies.

Civil disobedience demands courage of convictions

11 January 2013

Anti-coal protestor Jonathan Moylan became a cause célèbre in some quarters this week after issuing a fake press release, the contents of which precipitated a temporary plunge in the value of Whitehaven Coal on the Australian Stock Exchange.

Greens leader, Christine Milne, was quick to praise Moylan’s antics as ‘part of a long and proud history of civil disobedience, potentially breaking the law, to highlight something wrong.’

ASIC is now investigating – it raided Moylan’s ‘camp’ in northern NSW on Wednesday morning – and the proper authorities will rightly determine if any laws have been broken.

If criminal charges are laid, we may well see the Greens and their fellow travellers on the Left launch a Julian Assange-style outcry against the persecution of an innocent, well-meaning activist.

As with the global campaign for the leader of WikiLeaks to escape trial in the United States for publishing classified intelligence documents stolen from the Pentagon, these efforts to evade the legal consequences of illegal behaviour will profoundly misunderstand the principle of civil disobedience.

Any anarchist, vandal or malcontent can disobey the law. What makes civil disobedience morally and politically powerful is the willingness to pay the penalty for an act of conscience protesting unfair or immoral government policies. By demonstrating the courage of one’s conviction, the aim is to sway opinion and convince governments to rectify the injustice that motivated the self-sacrifice of liberty.

This was the principle of civil disobedience at the core of Gandhi’s campaign of passive resistance against British rule in India. The Mahatma ordered his followers to submit to arrest and obey all subsequent orders from the authorities.

He also practiced what he preached and, when arrested by the British, asked to receive the highest penalty under the law. Had Gandhi sought to evade imprisonment by fleeing the country, say, acting like the proverbial thief in the night would have diminished the moral force of his anti-colonial movement, and it is unlikely he would have become an international figure and rallying point for Indian independence.

In complete contrast to Gandhi are the modern agitators and their supporters who want a get-out-of-jail free card for acting illegally for the self-proclaimed greater good.

To truly belong to the ‘long and proud history of civil disobedience,’ Assange and his like should display the courage of their convictions and willingly surrender to lawful authority. Like Gandhi, maybe Assange would do greater service to his cause (whatever that is) banged up in the US penitentiary instead of hiding in the Ecuadorian Embassy in London.

Jeremy Sammut is a Research Fellow at The Centre for Independent Studies.