Catallaxy Files

There is exactly one person in the whole of the Parliament at the present time who has the potential to steer Australia through these treacherous times and that is the current Prime Minister. The two identikit soft left alternatives – with Shorten strangely preferable to Turnbull – would transform Australia in ways similar to the damage Obama has done to the United States. They are both people with a vastly misplaced confidence in their own abilities. It is Abbott or the abyss.

I read the biography at the end of the following article, and when it said that the writer was an academic, my assumption was that he was set to sell out the country in a way not much different than three-quarters of our media. Instead, it is an article to read: It’s time to take serious steps in the fight against terror. Oh so right he is, and who would you trust more than the PM with our national defence at a time like this. From the article:

It’s time to take serious steps to counter the radical ideology that is driving much of this carnage. This will take decades and there will be setbacks but it is the only truly strategic approach we have. Everything else is ­reactive.

In Australia it’s time to get serious about local counter radicalisation and de-radicalisation programs. Our young are being ­assailed on a daily basis by home- based terrorist proponents and foreign propaganda that is flooding uncontrolled into the country. It has to be stopped.

We censor movies and video games, why not this rubbish. Young Australians are now more likely to be recruited to the terrorist cause. The internet has brought them into the orbit of the radicals.

Countering the ideology of hatred has to be led by Muslims. Well done to the Muslim community leaders in Australia who are showing real leadership. They need our support.

The Prime Minister is right in involving the public in national security matters at home. It has an impact on all of us and if some of our individual rights and liberties are to be restrained then we need to know why. This is likely to be a long and constantly changing fight so let’s hope we see a serious strategic ­assessment on national security presented to parliament at least every six months.

Seriously, would you put Shorten or Turnbull or anyone else at the top at a time like this? The Prime Minister would be the first to acknowledge he is not a perfect man. But he is serious about recognising these dangers and dealing with them head-on. Who else talks like this, and means every word?

WE have seen the beheadings, the mass executions, the crucifixions and the sexual slavery in the name of religion. There is no grievance here that can be addressed. There’s no cause here that can be satisfied. It’s the ­demand to submit or die.

Anyone who doesn’t know that should not sit in the Parliament, never mind aspire to the highest office in the land.

No single piece of financial advice is more widely accepted by academics and savvy investors than portfolio diversification to increase returns and manage risk. Divestment advocates typically assume that investors can exclude fossil-fuel stocks with little or no loss. One California-based investment manager, for example, was quoted in a recent Rolling Stone article as saying that divestment would have “very low impact. If you take the fossil-fuel companies out, you’re still very well diversified.”

Our research shows the opposite: Of the 10 major industry sectors in the U.S. equity markets, energy has the lowest correlation with all others—which means it has the largest potential diversification benefit. The sector with the second-lowest correlation with others is utilities, which includes many fossil-fuel divestment targets such as Southern Company and Duke Energy .

That’s Daniel Fischel writing in the Wall Street Journal describing the results of a new paper he has just released.

I particularly like this calculation:

While each of the individual costs discussed above is meaningful in isolation, taken together these costs have the potential to substantially impair the future value of endowments and other investor funds. For example, a 0.5 percent decrease in portfolio performance impact on the estimated $456 billion in university endowment assets would decrease annual growth by over $2 billion annually. An increase in compliance costs of 1 percent on the estimated $23 billion of those endowments invested in energy stocks would further decrease annual growth by an additional $230 million. A reduction in wealth of this magnitude could have a substantial impact on the ability of universities to achieve their goals, such as the research, scholarships and services that universities are able to offer.

That is for American universities, but the same principle applies in Australia – divestment is poor investment practice.

Drinks and Lecture
Wednesday, 18th March 2015
5.00pm for 5.30pm until 7.00pm
InterContinental Melbourne, The Rialto
495 Collins Street, Melbourne

This event is $15 for IPA members, $30 for non-members and free for IPA Young members. Drinks will be provided.

Book Now!

Remember the WA anti-smoking agency that tried to ban Carmen because the story takes place in a cigarette factory? They were out of control then – but it seems they’re more than over-jealous bureaucrats imposing their wowser views on the opera-loving public.

THE West Australian government’s controversial anti-smoking agency Healthway is embroiled in a corporate perks scandal after an investigation found that its chairwoman and senior executives wrongfully obtained VIP tickets for family and friends to attend sporting and arts events as part of the group’s sponsorship deals.

A damning report released today by the WA Public Sector Commission found Healthway’s top brass enjoyed tickets and hospitality worth $220,000, which was “inconsistent with the obligation to be scrupulous in the use of public resources”.

Let’s look at that in a bit more detail:

A Public Sector Commission investigation of a sample of 58 Healthway sponsorship agreements over four years found 15 included extra hospitality entitlements, giving Healthway access to more than 1150 general admission tickets to “elite sporting events and concerts” and more than 650 opportunities to attend events with VIP level access and catering.
…
Healthway gets $21 million a year in taxpayers’ money and last financial year distributed $11 million in sponsorship to sport and arts organisations to spread messages about tobacco and alcohol, physical activity, nutrition and obesity.

It isn’t clear what happened to the other $10 million. It sounds to me that the WA government is simply giving money to busybodies to spend as they please with no financial controls or oversight in place at all. This is the same WA government that regularly rattles the begging bowl for more federal tax dollars. Well there is a $21 million saving right there, and if this is any indication of how financial controls work in WA there are plenty of other savings to be had.

Which is the greater threat to our freedom? The government being unable to get repeal of 18C through the Senate. OR, from the front page of yesterday’s Sydney Telegraph::

Man Moris was not rated in the nation’s top 400 jihadi suspects when he launched NSW’s first Islamic terrorist attack. We now know that among us today there are THOUSANDS more like him.

As The Telly asks: “What are they up to?” Free speech for Nazis was not one of Churchill’s war time policies.

The Goldstein Branch of the Liberal Party invited me to lead a discussion on tax reform this evening. I prepared some slides to get the discussion going.

Robert Carling of the Centre of Independent Studies had a wonderful piece in the Fin last week.  You know when you read something and you think: I wish I had written that.

As the debate about super concessions and the like goes really off the rails (what about ASFA’s idea of confiscating balances above an amount they deem reasonable?  Wow), here is Robert’s piece:

Tax concessions in areas such as superannuation, capital gains and GST are under attack like never before. Those who would slash such concessions say they waste billions in potential tax revenue and distribute benefits ‘unfairly’. In this climate, Treasury’s recent tax expenditure statement – a key exhibit in the case against concessions – is being used as ammunition for a fresh assault.

Campaigns for good tax reform are one thing, but the campaign against concessions lacks balance. Concessions contain elements of good policy as well as bad, and the challenge is to differentiate. Many of the criticised concessions are soundly based and, far from wasting revenue and creating distortions and loopholes, are necessary to remove biases that would otherwise prevent efficient outcomes. Tax expenditure estimates suffer major measurement and conceptual weaknesses. They are at best just one of many inputs to policy deliberation, and at worst rubbery figures based on flawed concepts.

Treasury itself warns tax expenditures can be difficult to quantify; they do not measure the revenue that could be gained by removing concessions (because taxpayers adjust behaviour in response to loss of concessions); they are not additive; and they are only as valid as the benchmark against which they are measured. But these warnings are blithely ignored by critics who can see nothing but ‘rorts’, ‘loopholes’ and ‘subsidies to the rich’.

By far the most important caveat to the tax expenditure billions concerns the benchmark against which they are measured. Treasury advises TES users that benchmarks “involve judgment, may be contentious and can be arbitrary”.

In some cases the benchmark is straightforward. It is clear that GST-free food is a tax expenditure against the benchmark for a broad-based consumption tax. But the benchmark is contentious in the case of income tax concessions such as those for superannuation and capital gains. The enormity of tax expenditures reported for these items is a result of the comprehensive income benchmark that is commonly, but often inappropriately, used.

The notion of comprehensive income tax is that all income regardless of source should normally be taxed at the same rate. This was once generally accepted among tax economists, but the now more widely-accepted principle of optimal taxation says tax policy should take account of the differential economic impacts of taxing different tax bases.

The Henry tax review was at pains to explain that the principle of optimal taxation leads to savings income being taxed at lower rates than labour income (at least when tax on labour income is as high as it is). To do otherwise is to create a systemic bias against saving and investment. The review argued that the tax treatment of superannuation should be assessed against an expenditure (consumption) tax benchmark, under which super fund earnings and contributions (but not end-benefits) would be tax-free. Such limited data as are available suggest that tax expenditure measured this way is a small fraction of that reported.

The consumption tax benchmark seriously undermines, if not destroys, much of the campaign against tax concessions. Many of these concessions are not unjustifiable loopholes at all but a route to more efficient taxation. For example, scrapping the 50 per cent capital gains discount – the most unfairly maligned of all concessions –would score an economic policy own-goal, damaging investment while raising little if any extra revenue.

Dividend imputation and negative gearing have also been challenged, most recently by the financial system inquiry. These are not officially classified as tax expenditures. That should not exempt them from scrutiny, but they exist in the tax structure for good reasons.

A key plank in the critique of concessions is that they are poorly targeted because most of the benefit goes to those with above average incomes. This views tax concessions as if they were social benefits, which largely they are not. The case for taxing saving and investment at reduced rates applies at all income levels, and the concessions ought to apply neutrally. Judgments about distributional effects are most sensibly based on the tax/transfer system as a whole, not component parts of it.

Tax expenditures and concessions more generally should not escape scrutiny in the forthcoming white paper tax review. But we need an informed and balanced debate, not a one-sided campaign wrapped in dodgy data and the new politics of inequality.

 

In The Australian today

“With jihadist violence continuing to escalate, the acid test of today’s national security statement will be the actions it proposes.”