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.

Insulting the rich for giving to charity

14 March 2014

helen-rittelmeyer Do the rich give too much money to charity or too little? Both, according to an article in the Sydney Morning Herald this week, 'Freedom & Control Are Why the Rich Are Really Charitable.' Remarkably, the article manages to insult the charitable donations of thousands of Australians not once but twice, and in contradictory ways.
 
The basis for the article is the Tax Office's data for charitable deductions from 2010-11, data which can be interpreted in a number of different ways. The SMH chose to compare donors in the very top band (those making $1,000,000 or more), who gave away an average of 1.8% of their taxable incomes, and those in the very bottom band (those making $6,000 or less), who gave away an average of 22%.
 
This is a misleading breakdown for several reasons. Those in the lowest tax band who give to charity may give generously, but very few in that band give at all – only 6.3%, compared with 63.8% of those in the top band. If non-donors were included in the calculations for that bracket, the average would come out to 1.4% of taxable income.
 
Secondly, a large number of those in the $6,000-or-less band are retirees with significant net worth but little income, who, as Professor Myles McGregor Lowndes explains, 'give away substantial amounts so they don't have to pay income tax.'
 
Both bands came in higher than the national average for charitable deductions, which was 0.35% of taxable income.
 
These figures hardly justify the SMH reporter's claim that 'the rich pinch their pennies,' and they definitely do not justify Community Council for Australia CEO David Crosbie's assertion in the article that the poor 'feel a sense of collective ownership of our wellbeing,' while the rich 'tend to be more disconnected from the broader community.'
 
The second half of the article's one-two punch is even more objectionable. The reporter insinuates that the rich actually give too much money to charity, since those dollars would have otherwise gone to the government in taxes.
 
'Taxpayers cannot control how public funds are distributed but because charitable donations are voluntary, they let people feel in control of at least part of the tax pie,' the reporter writes. She adds: 'Whether individuals are more effective than the government at redistributing wealth is questionable.'
 
Instead of referring to 'the tax pie' in the above quote, the reporter might more accurately have referred to 'their own money.' The 'control' to which she gives such a derogatory spin is in fact a perfectly laudable desire to put one's donations where they will do the most good, even if that means less for the tax man. The proper response to such generosity is not 'Too much!' or 'Too little!' but simply 'Thank you.'

Helen Rittelmeyer is a Policy Analyst at The Centre for Independent Studies.

Scapegoating foreigners for home-grown policy failures

14 March 2014

kirchner-stephen The debate over housing affordability is over-populated with scapegoats and under-populated with policy solutions. The most popular scapegoats are domestic and foreign investors.
 
Foreign investors are an odd target because by definition they do not live here (although they or family members may be resident in Australia temporarily). Foreigners are also restricted from buying established housing. The rationale for this restriction is weak since it still gives rise to indirect competition for established dwellings, but most of the Australian housing stock is technically off-limits to foreign buyers.
 
When foreigners buy domestic property they transfer overseas wealth to Australians, making us richer. In the first instance, this will likely be to property developers building specifically for foreign and domestic investors. Once built, the property is available for rent or subsequent purchase in the secondary market. The developers' profits can be used to fund further investment in housing. Foreign and domestic investors induce new dwelling supply.
 
Chinese buyers have become a particular source of angst in recent years, although they remain minority players compared to investors from countries such as the US, the UK and Canada. These more traditional sources of foreign investment attract less attention, no doubt because buyers from these countries are harder to distinguish from the locals at auction.
 
When the federal government established a 'community hotline' in 2009 so that locals could snitch on buyers supposedly breaching the foreign investment rules, it turned up some 'Chinese' buyers whose families had been in Australia since the 19th century. The so-called 'hotline' is just a 1800 number for the Foreign Investment Review Board (FIRB).
Concerns about foreign buying of residential property are driven more by anecdote than data. The oft-quoted FIRB statistics are not very insightful. They do not distinguish between residential and other forms of property, only reflect approvals rather than actual investment and are not even comparable over time.
 
Foreign buyers play a much greater role in the London market, which does not have Australia's restrictions on foreign investment. In the UK, Australia is now unfortunately seen as a model for how to turn away transfers of foreign wealth to locals. In reality, Australia demonstrates that housing affordability problems are entirely home-grown, not imported. The enemies of affordable housing are not investors who live abroad, but the taxing and regulating activities of Australian governments that raise the supply price of new housing.

Dr Stephen Kirchner is a Research Fellow at The Centre for Independent Studies.

US power the best bulwark against China's assertiveness

14 March 2014

benjamin-herscovitchFrom the Korean Peninsula to the South China Sea and on to the Indian subcontinent, Beijing seems intent on riding roughshod over the territorial claims of its maritime and continental neighbours.
 
Chinese Foreign Minister Wang Yi confirmed this suspicion when he said earlier this month: 'There is no room for compromise in territorial and historical issues.' In other words, China will not be content until it has seized vast tracts of land and sea from Japan, South Korea, Vietnam, the Philippines, India and other Asian nations.
 
Despite these worrying signals, Taiwan's experience shows that a US security guarantee can keep Chinese territorial demands in check and underwrite smooth relations with Beijing.
 
Since the nationalist Kuomintang withdrew to Taiwan at the end of the Chinese Civil War, the reunification of what Beijing considers a 'renegade province' with the 'motherland' has been a non-negotiable core plank of Chinese Communist Party policy. Nevertheless, Beijing has come to accept, albeit reluctantly, indefinite de facto Taiwanese independence.
 
The Taiwan Relations Act (TRA) – which has governed US-Taiwanese relations since Washington formally switched diplomatic recognition from Taipei to Beijing in 1979 – establishes a strong US commitment to safeguarding Taiwan's security and resisting any non-peaceful Chinese attempts to reintegrate Taiwan.
 
By authorising arms sales to Taiwan and requiring that the United States maintain the capacity to resist threats to the island nation's security, the TRA has chastened China's appetite for control of Taiwan and provided the backdrop for warming Sino-Taiwanese relations.
 
With President Ma Ying-jeou's election in 2008, Taipei initiated a policy of engagement with Beijing on the basis of the 'three no's' – no unification, no independence, and no use of force.
 
By focusing on mutually beneficial economic ties with China and deferring the push for de jure Taiwanese independence, the Ma administration has presided over a boom in business links, and in February this year, even secured the first official meeting between Taiwan and mainland China since 1949.
 
The Taiwanese test case shows that Chinese threats to wrest control of territory are no barrier to peace and fruitful commercial ties.
 
With the constraining influence of US military might, Beijing's bullish territorial claims may be all bark, no bite.

Dr Benjamin Herscovitch is a Beijing-based Research Fellow at The Centre for Independent Studies and author of Preserving Peace as China Rises I, released on 13 March 2014.