Mining taxes anyone?

This article is cross-posted at Peter Rohde’s Blog.

The Mineral Resource Rent Tax (MRRT), aka the Mining Tax, is a big issue in Australia lately. For the non-Australian readers, this is a tax on non-renewable resources that are exploited by the mining industry on Australian territory. Most people from my side of politics vehemently oppose the Mining Tax, criticising it as “yet another tax”. If it is indeed yet another tax, then I certainly fit into the category of not wanting additional taxes. However, if it is a replacement for other taxes – notably income tax or company tax – while remaining revenue neutral (i.e. the total tax burden hasn’t increased) then I would strongly support such a tax.

To justify this position, let’s consider why taxes on companies in general are bad. In a globalised economy, it is very easy for businesses to shuffle around on the world stage. If company tax is too high in Australia, companies will begin moving offshore and we miss out on their jobs, productivity and tax contribution altogether. It is the fluidity of commerce in the globalised era that stipulates we must remain competitive by keeping company taxes to a minimum. This is a philosophy with which I very strongly agree.

Companies exploiting non-renewable resources are somewhat different however. These companies make their profit by digging up and processing what’s under the ground. Unlike other forms of business, what’s under the ground doesn’t and can’t get up and move to the other side of the world – it remains under the ground on Australian territory, irrespective of government policy. While it’s true that excessive taxation on the mining sector might undermine companies’ incentive to exploit our natural resources, who might instead turn to reserves in other countries, this isn’t nearly as big a disincentive as company tax on the non-mining sector, where business operations are much more dynamic and can much more readily cease their operations here and resume somewhere else – the options for mining coal in other countries are much more limited than the options for running a tech startup.

So, do I support more taxation? No. But do I support introducing a mining tax if we are spending every cent of the additional revenue to offset taxes on non-mining companies? Absolutely. The question to me isn’t “should we have more taxation?”. I presume everyone knows where I stand on that issue. To me the question is “some level of taxation is necessary, so what method of applying it has the least adverse impact on the economy?”. Thus, if presented with the question “should we have higher company taxes and no mining tax, or a lower company tax with a mining tax, but with the same net level of tax revenue?”, my answer is squarely that a mining tax is the way to go.

I believe both sides of politics in Australia are arguing for and against the mining tax in the wrong way. If the government were to sell the mining tax using the logic I just presented, I think many more conservative/Liberal voters would see the sense in a mining tax. Small business, which makes up a significant conservative voter base, and a substantial fraction of the economy, would be attracted to the idea of a lower company tax.

It is frequently argued in the media that the Mining Tax will drive away investment in Australia. No doubt this is true. But if it were used to offset other company taxes, the flip side of the coin would be that it would attract investment in other sectors which are more dynamic. Unfortunately the level of political debate in the country is rather low and this issue is being argued by the media in a very simplistic manner – as is the norm in the Australian media these days (I’ll save my issues with the media for a future post).

Marijuana law reform

This article is cross-posted on Peter Rohde’s Blog

An issue which I feel very strongly about, but which for some reason I’ve never blogged about before is the legalisation of marijuana. While I don’t advocate marijuana use, in my mind there is no moral justification for the criminalisation of marijuana for numerous reasons:

1. Marijuana has been systematically shown to be less physically harmful and less addictive than both alcohol and tobacco, both of which are legal. The following plot comes from Wikipedia (see article for reference), which shows affinity for dependence and the physical harm of many common drugs. Notice that marijuana is less harmful than both alcohol and tobacco on both axes.

2. If people want to harm themselves, this is a personal choice and individuals need to decide for themselves whether they are willing to accept the risks. This is exactly our policy on alcohol and tobacco, so why not for marijuana? Tobacco, which is consistently rated as more harmful than marijuana, including numerous fatal illnesses, is tolerated on exactly this basis – it’s a personal choice and people need to make the decision for themselves.

3. Marijuana use does not cause violent crime and anti-social behaviour in the way that alcohol, heroin and crystal meth do and therefore there is no moral justification for treating marijuana users in the same way as violent criminals by throwing them into jail.

4. The effects of jail are far more heinous than marijuana use. When you throw someone into jail you destroy their lives – their career, financially, their family, and you leave them with a criminal record, ensuring that they will never have a decent job again. This is far worse than the effects of even heavy marijuana use.

5. It’s totalitarian for a government to trot into people’s living rooms and tell them what they can and can’t do in the privacy of their own homes. This is on par with the anti-sodomy laws of countries like Singapore.

6. Studies have consistently found that legalisation of marijuana does not result in a noticeable increase in marijuana use. Most notably, a recent study in Portugal found that decriminalisation of marijuana did not lead to an increase in marijuana use. Additionally, Holland, which has the most liberal marijuana laws in the world, has lower teen marijuana usage rates than Australia, the UK and the US, all of which have relatively tough marijuana laws.

7. In recorded medical history there has never been a single recorded case of marijuana overdose. Experts believe that to overdose on marijuana would require smoking several kilograms of marijuana, which is impossible. Furthermore, marijuana does not cause physical dependence – heavy alcohol use does.

8. Marijuana has many proven medical applications, including in the treatment of eating disorders, depression, mania, bipolar disorder, anxiety and panic disorders, loss of appetite associated with chemotherapy or HIV medication, and pain relief. Before the invention of aspirin (which causes thousands of deaths worldwide each year) in the 19th century, marijuana was a popular and effective form of pain relief.

9. Education, rather than criminalisation, is the correct approach to discouraging marijuana use. This is what we do with alcohol and tobacco – every cigarette packet contains a health warning, and there are countless media ads highlighting the dangers of alcohol and tobacco use. In the last decades the percentage of Australians who smoke has been drastically reduced. It’s not because of criminalisation, but because of our investment into educational and awareness campaigns.

10. Legalisation of marijuana could potentially contribute billions of dollars to the budget if it were taxed in the way that alcohol and tobacco are. If this money were invested into education, rehabilitation and health, the benefits would be enormous.

11. By removing marijuana from the black market and bringing it above ground, organised crime groups would lose a major source of their revenue, reducing criminal activity.

12. We have spent billions of dollars wasting law enforcement and judicial effort on enforcing petty cannabis laws. Instead of wasting billions of dollars, why not gain billions in tax revenue.

In summary, I believe that criminalisation of marijuana is excessive, counterproductive and downright immoral. It is wrong to treat people as criminals for doing something in the privacy of their own homes which hurts no one other than themselves – marijuana use is a victimless crime. The Australian government should immediately reconsider its approach to marijuana in light of well established scientific and medical facts. The social, economic and individual benefits would be substantial.

On the labour market

This is the speech I gave recently to the Liberal National State Council on the labour market.

Ladies & Gentlemen,

The labour market is a particularly important issue facing our society at the present time. It affects many different areas of our society, including the unemployment rate, workplace conditions, people’s income and job satisfaction.

In particular, I’d like to discuss the ups and downs of different approaches to the labour market and what I think is the optimal approach.

The labour unions have long advocated a highly regulated approach to the labour market. They strive to enshrine workplace conditions, salaries and the content of workplace contracts in law.

One area in particular that unions actively try to enshrine in law is salaries. The unions have long tried to regulate incomes in the form of minimum award wages. This approach is fundamentally misguided. Legislated minimum conditions achieve only one thing – to make it illegal for people to work. If someone has a productive capacity of $6 an hour and the minimum award wage is $5 and hour, that person will have no difficulty getting a job. If we now increase the minimum award wage to $8 an hour, that person is not going to get a salary increase to $8 an hour – they’ll be out of work. And all other labour market regulations have a similar outcome. They price people out of jobs, undermine their ability to negotiate the terms of their workplace contracts, and make the labour market extremely inefficient and uncompetitive.

I advocate a different approach altogether. There should be only one workplace law, and that is to enforce contract. The contents of a contract ought to be something that is freely negotiated between the employee and the employer. But once that contract is signed it needs to be respected – by both parties. And enforcing this contract should be the role of government.

The unions are very critical of this approach. They argue that people deserve better conditions than what they agreed to in their contracts and they resort to extortion tactics to achieve these better terms of contract. They engage in strike action, immoral political lobbying, rallies and sometimes even violence to achieve this objective.

The unions also argue that they are there to represent workers. Let there be no mistake, unions do not represent workers – they represent paying members. They represent people who pay a significant amount of money to be represented by these organizations. As a result, people who choose not to join a union are left at a competitive disadvantage. Even worse, people without jobs are at a huge competitive disadvantage because not only do they not receive any union representation, but they are priced out of the market by artificially high minimum award wages.

Essentially what unions do is to artificially pump up salaries and conditions that are not commensurate with productivity gains. This has exactly one effect, and that is to create inflation. When people earn more, without a corresponding increase in productivity, people have more money to buy goods with, but the amount of goods to buy hasn’t changed. So money loses its value, which is inflationary and results in higher interest rates. And when interest rates increase, people are paying more on their mortgages, more on their car loans, more on their credit card debt, and so any gains made by increasing their salaries is completely wiped out by the higher interest rates. This is completely counterproductive.

There is no better person to decide the terms of their contract than the prospective employee. Employees don’t need to have their terms, conditions, and salary dictated by either unions or the government. In a free society, people should be at liberty to negotiate these things for themselves.

Australian internet censorship

One of the main communications policies being advocated by the Australian government at the moment is the introduction of nationwide internet filtering to block illegal and ‘inappropriate’ material and to ‘protect children’. The government proposes doing this using a blacklist of sites which internet service providers (ISPs) will be legally obliged to block. While protecting children from inappropriate material and preventing the dissemination of child pornography and terrorist material are certainly amiable objectives, a nationwide internet filter is the least effective and most unworkable approach, and one with an enormous potential for misuse.

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Why I am opposed to an Australian Bill of Rights

This article has been cross-posted at Peter Rohde’s Blog

There has been a lot of discussion in the Australian media recently about the introduction of an Australian Bill of Rights. Such a bill would, presumably, enshrine into the Constitution freedoms such as freedom of speech, freedom of religion, freedom of association, and other freedoms reminiscent of what appears in bills such as the United States’ Bill of Rights. While the aforementioned freedoms are certainly essential in a modern democracy, enshrining them into the Constitution brings with it serious problems.

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100 Megabits

One of Kevin Rudd’s main goals is to implement a blazingly fast nation-wide 100Mb/s national broadband network, at a cost of around $43b. This would place Australia at the pinnacle of world broadband networks.

Frankly, I can’t think of a single bigger waste of tax-payer’s money than this (especially when we are due to run huge deficits). After all, what does one use 100Mb/s for? Movies, music and porn – that’s it. I’m a fairly heavy internet user, yet I can’t for the life of me think how I would use anywhere near 100Mb/s. You don’t need 100Mb/s to check your email. You don’t need 100Mb/s to do research for your high school essay. You don’t need 100Mb/s to chat to your Mum over Skype. All you need it for is BitTorrent. Should the government really be spending several tens of billions of dollars of taxpayer’s money on subsidizing BitTorrent? I don’t think so – especially given that governments around the world are spending billions of dollars trying to fight copyright infringement. It would be much more cost effective to subsidize rental video outlets and adult stores, which would have the same effect for a fraction of the cost.

I see two possibilities for how this scheme could develop. First, given that it is estimated that use of the network by the end user will cost around $200/month, there is a very real possibility that few people will want to pay the price to use it, in which case the resources will have been wasted. Alternately, lots of people might start using the network for its speed which will put private sector ISPs out of business, since they will be unable to compete against this newly created, heavily subsidized behemoth. This could have devastating implications for the telecommunications industry and might effectively socialize this critical sector of the economy. Either of these possibilities is undesirable.

In Australia, like in other developed countries, the market has proven very effective at providing broadband services to our residents. If a 100Mb/s network hasn’t already developed in the market, this is probably a fairly good indication that such a network would be economically unviable and therefore shouldn’t be pursued by the government.

This post has been cross-posted at Peter Rohde’s blog.