Unleash Competitive Federalism: IPA Sparks National Conversation on GST Reform

This week the Institute of Public Affairs released a new report Time to End GST Redistribution, authored by IPA Research Fellow, Morgan Begg.

The report reveals that over the life of the GST, Western Australia has lost $16 billion (22 per cent) of the GST revenue that was raised in that state. By contrast, almost $19 billion (24 per cent) of South Australia’s GST revenue is raised in other states.

The report was featured in The West Australian in this story by Economics Editor, Shane Wright.

Morgan Begg joined 6PR in Perth to discuss the report:

The report was also featured in the Australian Financial Review, under the title ‘Institute of Public Affairs advocates state income taxes’

The article says:

Free market advocates have called on Prime Minister Malcolm Turnbull to revisit the debate about state-based income taxes, claiming GST equalisation “propped up” states like South Australia.

The Institute of Public Affairs warned the lack of political will to fix the flawed GST distribution system was holding back more sweeping reform of state-federal relations essential to the economy.

IPA Executive Director John Roskam weighed in on the issue:

IPA executive director John Roskam said the changes would unlock the benefits of competitive federalism.

“The heavy centralisation of fiscal responsibility has been a drag on Australia’s economic performance,” he said.

“When we talk about declines in productivity and flat lining wages that is something that I don’t think people in Australia have spent enough time talking about.”

Mr Roskam said premiers had “run away at a million miles an hour” last year when Mr Turnbull raised the prospect of states and territories applying their own income taxes from 2020.

“Our position is one of competitive federalism, that the states should be able to compete on rates of tax as they do in nearly every other federation, as states do in the United States and as provinces do in Canada,” he said.

“The trouble is (state) politicians have found it easier just to blame Canberra rather than take responsibility.”

It wasn’t long before poor performing states started making noise about potentially having to rely on their own economic performance instead of leaching off other states. This story was featured in the Hobart Mercury.

This story in the Adelaide Advertiser titled ‘SA Treasurer Tom Koutsantonis slams proposal for states to introduce their own GSTs’ clearly shows the Treasurer’s frustration.

A PROPOSAL for the states to introduce their own GSTs has been slammed by the South Australian Government and Business SA.

The Institute of Public Affairs has called for an end to the system where revenue from the consumption tax is divided between the states based on need and suggested that each jurisdiction instead levy a GST at a rate of its own choosing.

Another option was for each state to receive all of the revenue raised from the GST within its borders.

IPA researcher Daniel Wild said ending the current system of revenue-sharing would encourage states such as SA to be more competitive.

“There would be more direct pressure on state governments to be engaging in reform that’s going to grow their economies and grow their revenue base,’’ Mr Wild said.

SA Treasurer Tom Koutsantonis said scrapping the current system would result in American-style inequality where standards of government services depended on where people lived.

“This is an offensive report that gets all the facts wrong on GST, from a right wing lobby group for the Liberal Party,’’ Mr Koutsantonis said.

The IPA’s favourite South Australian Daniel Wild spoke to Leon Byrner on 5AA Adelaide about what the IPA’s proposal means for South Australia.

Andrew Bolt joins The Young IPA Podcast

Herald Sun columnist Andrew Bolt joined The Young IPA Podcast this week to talk about a range of topics. Here are some highlights.
Why he spoke at Milo Yiannopoulos’ events.

“I saw a clip of the Western Australian premier Mark McGowan saying ‘Milo Yiannopoulos isn’t welcome in Western Australia, we won’t extend any government building.’ And I thought ‘you bugger’ and I got really cross. And I thought I’d come out of my cocoon just to stick it up his kilt and so I went there and opened. Here’s a state with the rabbit-proof fence, now they’ve got a conservative-proof fence.”

How Milo has built his audience.

“He’s done it in a way that sometimes is yuck but done in a way that we notice. I put exactly these points to him on stage and he said ‘everyone else has failed.’ And I said if we dropped the civility that we believe conservatives stand for then we’ve failed already. But on the other hand, he’s part of a mega-reality show in which the audience are willing recruits, extras in it. And part of that is by saying certain things no more rude than the average leftist comic or commentator – in fact, less rude – and provoking an over-the-top reaction and a violent one that you never see outside a Barry Humphries thing. And the audience sits there and they are loving the fact that he’s tweaking the nose of the bear because conservatives and libertarians have been taking it for years without hitting back. Seeing those hypocrites [of the left] fume is pretty good.”

What the Liberal Party completely disassociating itself from Milo means.

“I addressed on tour with Milo a couple of Liberal Party meetings where the mood was sombre, angry, defeated. Particularly angry at the Liberals not standing for anything and not fighting for anything. Speaker after speaker in the Q&A sessions I did with Mike Nahan, former Executive Director of the IPA now opposition leader in WA, were furious about this, and despondent and wanting to fight back. Well, Milo Yiannopoulos does fight back – not with the weapons I’d choose – but he does fight back. And the energy in his audiences, by contrast, was amazing. I’m thinking if the Liberals can’t engage with these people, then who are they engaging with? These are libertarians, the people who are sick of political correctness, identity politics and all that. The Liberals aren’t engaging them – Milo is.

How the Liberal Party can be restored.

“When I went to Western Australia, people were saying ‘we’ll lose five seats here’. And then you go and look at the seats – Christian Porter, who’s actually been doing great work, Andrew Hastie, the future, his seat would also be gone. This is the thing. When we think ‘let’s destroy the Liberal Party in order to rebuild it’ the cockroaches will probably live and the good ones will be all dead.”

“It’s a big knock on me – I’m so mean to Malcolm Turnbull that all I’m doing is paving the way for Bill Shorten and that is infinitely worse, and that the Labor Party will have won. And I think hasn’t the Labor Party already won? What’s the point of a Liberal government that implements many Labor ideas?
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New Businesses Fallen By 60 Per Cent: Government Report

A new report from the Department of Industry has found that the Australian entrepreneurship downturn is worse than previously thought.

Earlier this month the IPA’s new report on entrepreneurship, Reigniting Australia’s Entrepreneurial Flame, found that there were 15,000 fewer new businesses created in 2016 than in 2003 and a fall in business entry rate of 16 per cent. This finding, which was based on analysis of the ABS business counts data, is despite working age population growing by almost one-fifth in the same period.

However, a new government research report finds entrepreneurship in Australia is even worse than ABS data indicated.

Department of Industry economist Sasan Bakhtiari has found that Australia’s business entry rate has actually fallen from 15 per cent in 2003 to 9 per cent in 2015. That is, a fall in the rate of new business entry by 60 per cent in just 12 years.

This means fewer new businesses creating jobs, competing with existing firms, providing consumers with products and services, increasing productivity and growing the economy. The essential dynamic process of ‘creative destruction,’ as described by Joseph Schumpeter, in which new firms compete with older businesses to ensure that jobs and investment are allocated to the most worthwhile ventures, is lacking in the Australian economy.

Nine of Australia’s top ten largest companies were founded before 1925. In contrast, 88 per cent of the United States’ top 500 firms did not even exist fifty years ago.

Bakhtiari finds Australia’s business entry rate has fallen behind the United Kingdom, Canada and New Zealand, however remains ahead of the United States. This indicates a less dynamic economy that will threaten Australia’s living standards.

The new report makes use of micro-data from the Business Longitudinal Analysis Data Environment (BLADE), which combines Australian Bureau of Statistics surveys and Australian Taxation Office (ATO) firm data. BLADE uses a precise definition of entrepreneur, measuring only unique producing entities with productive and employment activities.

Despite correctly identifying Australia’s entrepreneurship problem, the report failed to diagnose the cause of the fall in entrepreneurship.

‘Above all, I find it quite puzzling that entrepreneurship in Australia reacted to the GFC at all and that the effect lasted for several years,’ Bakhtiari writes. ‘All of this happened despite the government putting into motion a sizable stimulus package and despite the fact that through this epoch the Australian economy out-performed almost every other advanced economy in the world in terms of growth and stability.’

The IPA has identified three major causes of Australia’s entrepreneurial woes: red tape, which is costing our economy $176 billion a year in lost economic output, Australia’s archaic industrial relations system, and high taxes, particularly corporate tax which discourages investment.

Australia must undertake serious economic reform to unleash our entrepreneurs.

Highlights of Professor Sinclair Davidson on The Young IPA Podcast

Professor Sinclair Davidson, IPA Senior Research Fellow and Professor of Institutional Economics at RMIT University, joined us on The Young IPA Podcast this week. Here’s some of what he had to say:

Why Australia hasn’t seen meaningful tax reform since 2007

Well there’s two things that have really happened. The first is we’ve had a lack of economic leadership. Peter Costello leaving the Parliament was a huge loss to Australia, so that sensible economic leadership we saw during the Hawke, Keating and then Howard years kind of came to an end. And at the same time our budget has been in deficit ever since 2008. And what has actually happened is the federal government panicked, overreacted to the Global Financial Crisis and massively ramped up spending.

How do we get economic leadership back?

We need to be in a positon whereby the Treasurer and the Finance Minister can say to people “no new spending until we’ve got all spending under control.” The 2013 federal election was a huge missed opportunity. There was a change in government, the Coalition came in, and they almost immediately validated all of Labor’s irresponsible spending. And then they’ve built on top of that.

Getting debt under control and getting back to a zero net debt position should have been the number one priority of the Abbott government. And to be honest they just didn’t even try.

The current leadership of the major parties are very underwhelming. It’s been very disappointing. The Labor Party gave up on economic reform in the mid-1990s. The Liberal Party unfortunately [saw] all the sensible, hard-headed economics people all left after 2007 so we’ve got all the big-spending, airy-fairy economic types. We don’t have any serious people who are prepared to make tough economic arguments and tough decisions to actually bring budgets under control.

Why debt is such a big problem

Government can only finance itself, more or less, through taxation. That basically means you can tax the money now and spend it now, or you can borrow money, spend it now and then tax it later. So debt is simply a form of deferred taxation.

The government is taking money away from people in the future to pay for things now that we don’t really need. It’s not like they’re building massive infrastructure that’s going to last forever. And the young people of today are going to be paying those bills in future.

Why are tax cuts seen as the government doing us a favour?

This is the notion that we are somehow all tax slaves. That our pre-tax income belongs to the government and they let us keep some of our own money.

We have a system where the majority of the population actually comply with tax obligations because they know it’s the right thing to do. And when you start abusing people, start taking them for granted and start insulting them [through high taxes], you have to be unsurprised when you find yourself out of office.

 

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What Books You Should Buy For Christmas

With Christmas fast approaching, here are some books published this year that IPA staff members think would be great presents:

 

John Roskam

The Road to Somewhere: The Populist Revolt and the Future of Politics by David Goodhart

David Goodhart’s The Road to Somewhere: The Populist Revolt and the Future of Politics is the best analysis of the meaning and consequences of Brexit and Donald Trump.  The book’s central argument is simple – politicians are completely out of touch with the views of their constituents.

Scott Hargreaves

Climate Change: The Facts 2017 edited by Dr Jennifer Marohasy

Scientific, economic and cultural views on the global obsession with global warming; the reasons for hysteria in the media, why it’s warming less than they say and not necessarily because of CO2, and why remedial policies are damaging human prosperity beyond even official estimates of potential costs of warming.

Dr Bella d’Abrera

The Road to Little Dribbling: More Notes from a Small Island by Bill Bryson

Bill Bryson’s first travel book in 15 years is an irreverent look at the British and their idiosyncrasies. But, at the same time, Bryson is full of admiration for them. It made me laugh out loud, but also slightly homesick.

Simon Breheny

What Happened by Hillary Rodham Clinton

Hillary Rodham Clinton’s explanation, in her own words, for why she lost the 2016 US presidential election. A genuinely fascinating insight, if an utterly tiresome read, into the mind of the embodiment of political establishment. Sad!

Matthew Lesh

The Strange Death of Europe by Douglas Murray

In this thought-provoking book Murray argues that Europe has lost its mojo, its sense of self, its purpose and identity. And yet at the same time Europe is welcoming people from other cultures on a mass scalebut ultimately failing to integrate them.

Dr Darcy Allen

Applied Mainline Economics by Matthew D. Mitchell and Peter J. Boettke

Applied Mainline Economics traces a line of economic thought that has spanned over 200 years—including the spontaneous order of Friedrich Hayek to the public choice theory of James Buchanan—and links those ideas to tackling real public policy issues.

Andrew Bushnell

The New Philistines by Sohrab Ahmari

The New Philistines by Sohrab Ahmari is an enjoyable polemic about modern art that will give people who suspect the culture of the West is self-immolating new vindication. It makes very good points about the influence of identity politics into contemporary art.

Evan Mulholland

Anti-Piketty: Capital for the 21st Century edited by Jean-Philippe Delsol, Nicolas Lecaussin & Emmanuel Martin

The perfect gift for those sick of the ‘inequality’ nonsense. In this edited volume from the great Cato Institute preeminent economists tear to shreds Thomas Piketty’s now infamous Capital in the Twenty-First Century on evidential and logical grounds.

Daniel Wild

Understanding Trump by Newt Gingrich

Former Republican Speaker of the House Newt Gingrich shares what he learned from being with Trump on the campaign trail, election and the opening few months of his presidency. He expertly outlines the key ideas underpinning Trump and ‘Trumpism’: anti-left, anti-stupid, anti-political correctness, and pro-American.

Aaron Lane

Not for the Faint-hearted by Kevin Rudd

Weighing in at 674 pages, the title is an adequate description of this autobiographical account of the making of Australia’s 26th Prime Minister. The book ends before Kevin Rudd even takes office, so if you were hoping for the author’s response to Julia Gillard’s My Story, you should probably just wait for the second volume.

Gideon Rozner

Hillbilly Elegy: A Memoir of a Family and Culture in Crisis by J.D. Vance

A must-read insight into the cultural and economic malaise gripping middle America, where once-proud communities are engulfed by chronic unemployment, welfare dependency and utter despair. A New York Times bestseller and a book that makes Trump’s victory seem inevitable.

Georgina Downer

Definitely Democracy: Stories from the Long Road to Freedom by Condoleezza Rice

Former US Secretary of State Condeleezza Rice gives a thoughtful personal account of her work promoting democracy all over the world. She marvels at its extraordinary growth throughout the world but talks at length about the challenges in making it work.

Stuart Eaton

The Rise of the Outsiders: How Mainstream Politics Lost Its Way by Steve Richards:

An analysis of changes in politics and political parties across the western world. However, what makes this book interesting isn’t the charting of new parties and candidates across the western world but the analysis of the failings of the established parties that allowed them to bloom. As a former Guardian and BBC journalist, Richards raises some points that you may not agree with, but his diagnosis of the symptoms, rather than the outcome as so many other books are doing, makes for interesting reading.

James Bolt

Shattered  by Jonathan Allen and Amie Parnes.

Two Democrat-supporting journalists embedded themselves in the Clinton campaign so they could write an insider account of her historic victory, but ended up with a brutal assessment of just how poor Hillary was as a candidate and how terribly her staff stuffed it up.

Peter Gregory

The House of Government: A Saga of the Russian Revolution by Yuri Slezkine

Released for the 100 year anniversary of the October Revolution, Berkeley historian Yuri Slezkine’s 1,100 page The House of Government chronicles the lives of elite Bolsheviks and their families from their early days of revolutionary awakening and the overthrow of the Tsar, through to their children’s loss of faith. Successfully mimicking Tolstoy’s War and Peace, Slezkine argues that the Bolsheviks were “millenarian sectarians preparing for the apocalypse” rather than ideologues.

Morgan Begg

Martin Luther: The Man Who Rediscovered God and Changed the World by Eric Metaxas

One of my favourite writers, the acclaimed Eric Metaxas – who has previously written bestselling works on Dietrich Bonhoeffer and William Wilberforce – turns his attention to Martin Luther who 500 years ago this year kick-started the Protestant Reformation and whose monumental faith, Metaxas controversially argues, gave birth to the ideas of faith, virtue and freedom that today lie at the heart of Western Civilisation.

Conservative students forced to pay security tax at Sydney University

The Daily Telegraph has reported today on the University of Sydney’s selective charging of conservative students for event security.

IPA campus coordinator Renee Gorman has been forced to agree to pay ‘unlimited security fees’ for The Case for Coal event this evening, and previously students paid $760 for up to 10 security guards for an event on the Dangers of Socialism in August. This fee, which prevented the donation of ticket money to a Venezuelan family struggling under socialism, was required despite no protesters actually showing up.

The University of Sydney’s selective use of security fees is an attack on free speech. The University has a responsibility to not deter controversial speakers or ideas on campus.

As I told, the Daily Telegraph:

The Institute of Public Affairs research fellow Matthew Lesh slammed the fees as a “heckler’s veto”.

“It creates a strong incentive for students to disrupt events and make certain ideas unspeakable on campus,” he said.

“Students should not have to pay for bad behaviour.”

The University of Sydney justified the imposts by claiming that all students can be charged fees when they assess it to be necessary. However, the University appears to have only assessed it to be necessary for libertarian and conservative events, therefore placing the burden on some ideas and speakers and not others.

The use of security fees punishes, and can potentially exclude, unpopular or controversial speakers. It is the responsibility of the university to protect students, and provide for the extra security if required. In principle, the university should treat all events the same in order to ensure a diversity of voices can be heard.

For good reason, the US Supreme Court has declared the selective charging of security fees to be unconstitutional. ‘Listeners’ reaction to speech is not a content-neutral basis for regulation,’ the court declared in Forsyth County v. Nationalist Movement, 505 U.S. 123 (1992). ‘Speech cannot be financially burdened, any more than it can be punished or banned, simply because it might offend a hostile mob.’

The University of Sydney should follow the precedent set by the University of California at Berkeley which, in order to protect free expression, covers security costs of speakers – including over US$500,000 on two occasions this year.

This isn’t the first time the University of Sydney has been a difficult place for conservative students. In September, there were physical clashes and damage of property at a ‘No’ campaign stall on campus. In April, the student union attempted to block the screening of The Red Pill because it could ‘physically threaten women on campus’. Last year, the Australian Christian Lobby’s Lyle Shelton was unable to speak on campus following the last minute cancellation of a venue booking due to potential security issues.

If the University is to live up to its role in society, to facilitate debate with a diversity of ideas, it should immediately declare that students should not have to pay for event security.

Photo credit: Daily Telegraph

When It Comes To Red Tape Reduction, There’s Reason To Be Hopeful

Last Friday night, IPA Director of Policy, Simon Breheny, appeared on Sky TV to discuss the upcoming Queensland election and some of the election commitments that had been put forward.

When Simon expressed his enthusiasm and support for the State Opposition’s pledge to cut red tape by twenty percent, he was met with a range of comments by his fellow panellists that red tape reduction is a “boring” policy and that the major problem was that it wasn’t “sexy”.

Despite these views, however, there are signs that the demand and appetite for red tape reduction is growing and that progress is being made.

Just last week alone there were a number of statements by significant figures that, while obvious, underline the growing realisation that red tape and overregulation are holding Australia back.

Firstly, two senior members of the business community, NAB CEO Andrew Thorburn and outgoing Wesfarmers CEO Richard Goyder, both referred to the fact that regulation is a handbrake on small businesses and innovation.

Goyder specifically referred to, as he put it, the “instinctive” desire of politicians and bureaucrats to erect ever-greater road blocks to our own small businesses.

Goyder’s view was backed up in the recent “Intergovernmental Review of Business Investment” released by the Federal Treasury Department.  The report stated that business believed “that regulation and intervention are often the first resort for policy-makers to deal with perceived market imperfections but these strategies risk undermining the incentives that drive businesses to invest and innovate in the first place”.

However, despite all of this, two speeches later in the week provided a glimmer of hope for Goyder and others.

Firstly, the Secretary to the Treasury, John Fraser, used a speech on Thursday to acknowledge the very real impact of red tape. Referring to Treasury’s recent report, Fraser said that “businesses feel that the cumulative burden of regulation on business is increasing, not decreasing.” He also said there was “widespread concern about the red-tape cost of doing business in Australia and the impact of the regulatory environment on the investment environment”.

However, one of his most telling remarks, which could almost be seen as a perfect confirmation of Goyder’s remarks, was when he outlined his “fear that policy makers in Canberra and in the States are not as alive to this issue as they should be when designing policy”.

In a neat contrast to these comments, however, Treasurer Scott Morrison finished the week by acknowledging the “need to release the shackles on Australian businesses by allowing them to compete in a global market without the burden of excessive taxation and stifling red tape”.

While these remarks do not achieve change on their own, they do show the growing awareness about the impact of red tape on Australian businesses as they seek to compete in the world.

The other recent factor which has raised the prominence of red tape as a factor when competing internationally is the work by US President Donald Trump to free up American businesses. In a speech last month, Trump said “We have stopped or eliminated more regulations in the last eight months than any president has done during an entire term. It’s not even close.”  While many may dismiss this as Trump hyperbole, the fact of the matter is that the number of new regulations under Trump is close to zero (in contrast to an average 13,000 a year under previous administrations) and he has pursued a policy of removing two regulations for every one new regulation introduced.

A one-in, two-out initiative in Australia, would really help level the playing field for our businesses and I’m sure they’d find such a policy anything but “boring”; perhaps even “sexy”.

Highlights of Simon Breheny on The Young IPA Podcast

On The Young IPA Podcast this week, James, Pete and Simon discussed Indigenous Recognition in the Constitution. Here’s what Simon had to say:

  • “We think that equality means people should be treated the same under the Constitution”
  • “It’s really important that principles we put in [The Constitution] are ones that stand the test of time. I think the idea that we could put words in that are relevant to the policy challenges we face, like for instance the difficult situation that Indigenous people face in remote areas of Australia, I just think is a really strange idea.”
  • “I hate this idea that only Indigenous people can represent other Indigenous people. If Indigeneity, or race, or ethnicity is the number one – or going even further than that – the sole factor behind why you would make political decisions or policy decisions, that’s really worrying to me. And that sort of thing, I think, should be rejected outright by the Parliament.
  • Proponents of Indigenous Recognition “are simplifying individual human beings to being members of a group, and in a lot of ways having…the same ideas. This idea that people, because of their ethnic background, are all going to feel the same way about any issue coming before the Parliament is just bizarre.”

 

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