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.

Reform retreat a tax-fest

Robert Carling

24 July 2015 | Ideas@TheCentre

ideas-image-150724-1Paul Keating once warned, “Never stand between a state premier and a bucket of money”. Rarely has the hazard been more on display as state premiers lined up this week to nominate their favourite Commonwealth tax increase to take the heat off their own budgets. What their behaviour boils down to is that they want a great big tax increase legislated by the federal government to save their budgets from the relentless growth in public hospital costs.

On Wednesday the premiers and the prime minister went into a ‘retreat’ that was supposed to discuss reform of the federation. The premiers wanted the retreat to be a tax-fest and the outcome kept their hopes of higher taxes alive. The premiers’ tax ideas do not constitute reform of anything; they are just straight out tax increases, and very large ones at that.

On the one hand we had NSW premier Baird’s daring call for a 50% increase in the GST —   not to rebalance the tax system away from income tax and stamp duty (which might have some merit) but to raise many billions more in revenue for the states. In the competing camp, his counterpart in Victoria favoured a 50% increase in the Medicare levy, only to be out-bid by the Queensland premier’s suggestion that it be doubled. Neither appears to understand or care that the levy is not a separate tax but part of personal income tax. Its disincentive effects are no less just because it has a ‘Medicare’ label attached to it.  Tax reform needs to lower the burden of personal income tax, not increase it.

Instead of demanding more Commonwealth grants funded by Commonwealth tax hikes, the premiers should be looking for ways to get the Commonwealth out of their sphere of constitutional responsibility, reduce costs, and take on responsibility for raising more of their own revenue. That’s fair dinkum reform.

Brave new 21 st century

Patrick Carvalho

24 July 2015 | Ideas@TheCentre

ideas-image-150724-2The recent advancements in the information and communications technology – in particular the advent of the internet and smartphones – are fundamentally reducing transaction costs and improving production efficiency. And this is just the start of a new industrial revolution.

While as unsettling as any deep transformational change, this one offers a world of opportunity and socio-economic prosperity. For instance, humanity soon will be able to effectively deal with global extreme poverty and raise living standards in ways unimaginable decades ago.

This is not to say there are no challenges. Yet resisting — like modern luddites — the colossal transformational forces is not a wise approach. Better instead to adapt and turn the new technological capabilities in our favour.

The current spat over ‘sharing economy’ apps such as Uber is a good example of counterproductive resistance.

In France, taxi drivers promoted violent protests; in California, the Labour Commissioner just [mis]ruled that drivers should be treated as employees, not independent contractors; in Australia, the ATO was quick to impose GST on all drivers, regardless their income turnover.

These drastic and misplaced actions are against the interest of consumers and competition. Accordingly, Harper’s Competition Policy Review already points in the right direction, by recognising that: “Mobile technologies are emerging that compete with traditional taxi booking services and support the emergence of innovative passenger transport services. Any regulation of such services should be consumer-focused, flexible enough to accommodate technical solutions to the problem being regulated and not inhibit innovation or protect existing business models.”

Australia should lead the change and reap the benefits with a clever regulation environment that fosters entrepreneurship and innovation. It’s time to look forward and embrace this brave new 21st century.

Fiat Lux!

Inconvenient truths

Lachlan Philips

24 July 2015 | Ideas@TheCentre

ideas-image-150724-3Activists are trying to make the world a better place. So it’s okay if they occasionally spread things that aren’t technically true… right?

While activists may be pure in their motivations, they do not have the checks and balances imposed on companies in a public debate. Company releases are heavily scrutinised both internally and externally – a scrutiny activists are free from; enabling them to flood, overwhelm and heavily sway public opinion.

Activism relies on a united front, whether to oppose natural gas or promote public transport for the environment’s sake, sometimes disseminating simplistic advice with unintended consequences.

Buses first.  It’s assumed they’re better for the environment than cars. If a bus is running, of course it’s preferable to be on it than driving a car. But does this make them good for the environment overall?

On densely populated routes, yes, but sparse suburban routes often see huge empty vehicles rolling around the roads. On average, bus emissions are comparable to cars per occupant, and in a sparsely populated country like ours buses are not always better; especially as cars become increasingly efficient.

Another piece of green movement rhetoric may too be overly simplistic; that walking is environmentally friendly. This seems intuitive. However, by eating more to replace the energy lost by walking instead of driving, in many cases the emissions created by that additional food production are larger than those from driving.

Green activism that has disrupted coal-seam gas projects in NSW is another example. The US has reduced its greenhouse gas emissions by 10% since 2005, hitting a 17 year low in 2012; all at a time of annual population and real GDP growth of 0.85%  and 3% respectively.

How? In 1990, coal generated 53% of US electricity and natural gas 10%. In 2012, coal had fallen to 38%, oil had been eliminated and natural gas had grown to 30%. Unsurprisingly, gas is the cleaner fuel, but remains economically viable. Anti-gas pipeline activists might want to reconsider.

The double standards of activists are not only unfortunate, but can cause negative economic and environmental outcomes.