Home > Economic policy > She who pays the piper

She who pays the piper

March 26th, 2014

I’ll be on Radio National Bush Telegraph this Friday, talking about the proposals for massive tax expenditures on a “Northern Economic Zone” being pushed by Gina Rinehart, her lobby group Australians for Northern Development (ANDEV) and the Institute of Public Affairs, now heavily reliant on funding from wealthy individuals of whom Rinehart, directly and via ANDEV is the most prominent.

Back in 2000, the IPA was describing the Alice Springs to Darwin rail link, a heavily subsidised Public Private Partnership, as “the modern equivalent of the stupendously wasteful Ord River irrigation scheme“. This was one of the rare occasions on which I agreed with the IPA.

And it has historically been critical of deductions, rebates and other tax expenditures, correctly describing them as a disguised form of public spending
. Again I agree. It’s very rare to find a tax subsidy that achieves a public policy goal more cost-effectively than direct spending.

Having been exposed to Ms Rinehart’s persuasive mode of argument, the IPA has changed its tune, and plays a melody sweeter to her ears. It’s now fully on board with dams, tax subsidies to promote Northern development, and even special visa conditions on migrants, a policy that ought to be repugnant to libertarians of all kinds.

I’ll be interested to see how the IPA reconciles its former free-market line with its current position as advocate for yet more subsidies for someone who is arguably the world’s greatest welfare queen.

Categories: Economic policy Tags:
  1. TerjeP
    March 26th, 2014 at 21:13 | #1

    How about a compromise. No federal funding for the NT. No federal taxes for the NT. Better still how about the same deal for all the states and territories.

  2. March 26th, 2014 at 21:16 | #2

    If it looks like fascism, quacks like fascism, walks like fascism…. there’s a good chance it’s fascism.

  3. paul walter
    March 26th, 2014 at 22:33 | #3

    Shout that woman a drink.

    Actually just there from another site, Club Troppo, that has a good article up from Tim Dunlop on think tanks and the sort of people employed by them, free of equivocation.

  4. SJ
    March 26th, 2014 at 22:46 | #4

    “How about a compromise.”

    Personally, I’d prefer a different compromise, where Terje unplugs his government provided electricity, water, healthcare, roads, etc., and launches libertarian bull***t at us via smoke signals.

  5. J-D
    March 27th, 2014 at 06:20 | #5

    @TerjeP
    That would amount to the complete dissolution of the Commonwealth. A fine idea if you ask me, but not one that has the remotest chance of actually happening. Federation was a mistake, and in 1900 I would have voted against it, but the ship’s sailed.

  6. Alistair Watson
    March 27th, 2014 at 07:19 | #6

    John,

    Does not take long for the erstwhile TerjeP to try and derail a thread. In your talk on RN Bush Telegraph, I suggest you ignore the sideshow of Ms Rinehart and the IPA and concentrate on economic fundamentals, pointing out the numerous economic mistakes that are encouraging renewed interest in northern agricultural development, subsidised or unsubsidised. In particular, the furphy of the ‘Asian food bowl’, which takes it for granted that increasing incomes in Asia and higher agricultural prices mean that northern agricultural development will be favoured relative to southern Australia. The economics of location, essentially labour and transport costs, still applies. There is no compelling reason to believe that the north will be advantaged should higher agricultural prices eventuate. Moreover, the simple version of this story ignores the way agriculture in Asia will adapt to economic development and changing demands for products. Where the musings and ravings of Rinehart and the IPA is interesting is that modern irrigation technology would allow private decisions in the north about limited proposals for irrigation development, with not much need for involvement by government.

    Best Al.

  7. John Quiggin
    March 27th, 2014 at 07:27 | #7

    Hi Al,

    Yes, I thought I would get this off my chest now and try to explain why this is a bad idea when I get the chance on radio.

    I know from my own family that substantial farm dams are viable in parts of the north, which would obviate the need for the PPP boondoggles being backed by the IPA

    Readers should be aware that Terje has previously supported this massively interventionist policy, so his derailment is just an attempt to dodge the concession of error he knows he needs to make, and the abandonment of a core tribal ally this would entail (something he is invariably unwilling to do, even in such an indefensible case as this).

  8. Collin Street
    March 27th, 2014 at 08:08 | #8

    Is terje your brother-in-law or something? Seems to me you don’t get any personal benefit from letting him use your blog comments as a platform for his personal opinions.

  9. Paul Norton
    March 27th, 2014 at 08:10 | #9

    “Northern development” is an economically illiterate concept because it is ecologicallly illiterate, and is probably going to become more so due to climate change. The IPA’s embrace of the notion shows that the Right’s tribal attachment to ecological irrationalism has trumped its putative commitment to economic rationalism.

  10. March 27th, 2014 at 08:20 | #10

    Some libertarians (e.g. Bryan Caplan) would say that immigration with conditions is better than no immigration at all. I think it’s a shame that debate about immigration in Australia seems restricted to asylum seekers, which should be a relatively insignificant topic. What about letting more people escape the poor institutions in their own countries and have better lives here, even if they are under threat from nothing more than poverty? (I’m not disagreeing at all with the OP — except to point out that libertarians may support second-best solutions)

  11. Salient Green
    March 27th, 2014 at 09:15 | #11

    While the Adelaide Darwin rail failed to make a profit to 2008 when it was sold, the new owners Genesee are very happy with their purchase, the Australian sector of their business being the best performing.
    A major reason for previous unprofitability and need for subsidisation of railways is that road transport is massively subsidised.
    It takes around 9000 passenger vehicles to do the same damage to the road as 1 double axle semitrailer and so nearly all of the non-weather damage to roads is due to heavy transport.
    Then one has to factor in the extra costs of road accidents, pollution and fuel inefficiency of heavy transport.
    The only development I would like to see in the north is for eco-tourism. The Adelaide Darwin railway is an important part of northern tourism as would be the building of more railways in that part of Australia.

  12. Alistair Watson
    March 27th, 2014 at 09:19 | #12

    Paul Norton,

    You write as if questions of economic and environmental policy are open and shut rather than empirical, dependent on technical and economic facts and circumstances of particular cases (including northern development). The role of government and how risk is handled also need to be considered. Categorical statements are unhelpful in resolving these issues.

    Alistair Watson

  13. Hermit
    March 27th, 2014 at 09:42 | #13

    @Salient Green
    The Adelaide-Darwin railway seems to illustrate the expression ‘build it and they will come’ from the movie Field of Dreams. Several current and prospective projects have been enabled by the creation of low cost transport. An unambiguous example is said to be the Bootu Ck manganese mine near Tennant Ck which ships ore to China via Darwin port. Without the new rail line the cost may have been prohibitive.

    A possible criterion for large public investment may be ‘low regret’. By that I mean 30 years from now will it still be filling a useful role. Example; Snowy Mountains hydro, counterexample Collins class submarines.

  14. Paul Norton
    March 27th, 2014 at 09:44 | #14

    Alistair, what I meant is that, both historically and on the grand scale of some recent proposals, “northern development” as a development paradigm has generally tended to be and is likely to continue to tend to be economically unsuccessful, and that neglect of ecological constraints and opportunities has been and is an important reason for this (e.g. Ord River project). I did not mean that no form of northern development whatsoever will ever work.

  15. Julie Thomas
    March 27th, 2014 at 09:59 | #15

    @Collin Street

    Terje has fewer ‘character flaws’ than Bolt. That is worth encouraging, you know like using positive reinforcement as a tried and true method of behaviour change.

  16. TerjeP
    March 27th, 2014 at 10:27 | #16

    Readers should be aware that Terje has previously supported this massively interventionist policy

    I’ve said I’m open to special economic zones. A lot depends on the specifics. I haven’t seen a lot of specifics so I’m prepared to flirt with the concept.

  17. TerjeP
    March 27th, 2014 at 10:34 | #17

    J-D :
    @TerjeP
    That would amount to the complete dissolution of the Commonwealth. A fine idea if you ask me, but not one that has the remotest chance of actually happening. Federation was a mistake, and in 1900 I would have voted against it, but the ship’s sailed.

    Yes federation was a big mistake. But of course that is with the benefit of hindsight. It probably seemed like a good idea at the time. I agree it is unlikely to disappear but we can still push to shrink the federal government and get it out of the grants business and to return powers to the states and to the people. Special economic zones can be a catalyst for that if they truly do represent some level of withdrawal of federal government tax and spend from those residents in the region.

  18. wilful
    March 27th, 2014 at 10:41 | #18

    It amuses me that Gina Rinehart with her immense wealth and obvious dedication to her own interests is such a poor player of Australian politics. Maybe in the coal and iron ore business you can get away with an unsophisticated megaphone approach, but for all her dedication to her own interests, she doesn’t get very far. She bought Andrew Bolt and has now obviously bought the IPA (and it seems all the sad libertarians that hang off it), but she was far less influential than the BHP board in the MRRT debate and she’ll get nowhere with this pet project of hers. Why can’t she work it out? I guess because she suffers massively from a Dunning-Kruger effect, thinking that her success as a mine developer means she’s also a successful political deal-maker. Why doesn’t she just buy the NT government (both sides)? I bet they’re affordable.

  19. Doug
    March 27th, 2014 at 11:01 | #19

    NT politicians may be affordable but completely uncontrollable changing parties more often than Billie Hughes

  20. Collin Street
    March 27th, 2014 at 11:17 | #20

    I guess because she suffers massively from a Dunning-Kruger effect, thinking that her success as a mine developer means she’s also a successful political deal-maker.

    Rich reactionaries pretty reliably make the bulk of their money in rent-heavy sectors.

  21. Tim Macknay
    March 27th, 2014 at 11:33 | #21

    @Collin Street

    Is terje your brother-in-law or something? Seems to me you don’t get any personal benefit from letting him use your blog comments as a platform for his personal opinions.

    To be fair to Terje, the reason his opinions have appeared to dominate several of the last few threads is largely because other commenters have taken the bait, as it were, and chosen to have a conversation about Terje’s opinions rather than other aspects of the OP.

  22. Salient Green
    March 27th, 2014 at 11:47 | #22

    @Hermit
    Another example is the Adelaide trams.
    I don’t think one can use anything defence related as a counter example as it is more in the insurance line, although promoters of some infrastructure projects like to cite defence as a pro.

  23. Julie Thomas
    March 27th, 2014 at 12:51 | #23

    @Tim Macknay

    Not really taken any bait. Terje is unusually honest and forthcoming – for a rightie – about the cognitive processes that underpin his opinions.

    That is not a trivial pursuit IMO.

  24. Hermit
    March 27th, 2014 at 13:37 | #24

    @Salient Green
    I’m trying to think of a transport white elephant. Even the Sydney Monorail 1988-2013 moved a lot of people geometrically speaking. Perhaps the mooted new Sydney airport will be a dud if Peak Oil hits hard. I wonder if Sydney is the Goldilocks climate zone neither tropical nor chilly that’s why its 4.6m denizens will never move to Australia’s far north.

  25. J-D
    March 27th, 2014 at 13:46 | #25

    @TerjeP
    It’s easy to say that Federation must have seemed like a good idea at the time. This is typical of the sort excuse offered for bad judgement by people in the past, and the analysis that invalidates it follows the usual pattern. Obviously Federation seemed like a good idea at the time to some people, but the evidence that it was possible even at the time for people to perceive it as a bad idea isn’t significantly harder to locate. It was put to the vote, after all. Yes, the majority voted YES, but there were plenty of people who voted NO.

    You and I agree on the shared position that Federation was a mistake. But there is not a valid logical step from there to your conclusions that, in the current situation, where Federation has in fact been established, any moves to reduce the size of the Federal government, to terminate Federal government grants programs, or to transfer powers from the Commonwealth to the States are automatically good things. That program does not in fact get us one whit closer to the theoretically desirable but practically unattainable goal of defederation.

  26. JamesH
    March 27th, 2014 at 14:07 | #26

    When Federation came in it was largely about enabling free trade between the colonies, which is why the Constitution pays so much attention to enabling internal free trade, having uniform customs duties, preventing states passing laws which discriminated against residents of other states, etc (Chapter 4). It also harmonised many laws, provided for a unified defence force as opposed to a multitude of uncoordinated militia, and did many other things that made government easier and cheaper. I fail to see why these changes are seen as bad by our resident libertarians.

  27. J-D
    March 27th, 2014 at 14:30 | #27

    @JamesH
    If the expression ‘resident libertarians’ is intended to include me, I don’t know why: I don’t describe myself that way. However, if that was your intention, then you are attributing to me positions I did not state. I said I thought federation was a mistake; I didn’t say that I thought all the specific changes you mentioned were bad things.

    The assertion that federation was largely ‘about’ free trade is one I will accept only when I see the evidence that establishes it, but in any case it doesn’t tell us whether federation was a good idea. If the self-governing colonies had wanted to establish free trade without federating, they could have done so. This is something that was known even in 1900, the evidence for it already being available then. Federation did not by itself automatically harmonise any laws, many laws remain unharmonised, it’s not clear that harmonisation of laws is in itself a desirable goal; I note also that Australia and New Zealand have achieved harmonisation of laws in some areas (when both countries wanted to) without federating. The benefits of a unified defence force are also unclear to me: the Australian and New Zealand defence forces are not unified and I don’t see that either country is any the worse for it. The assertion that federation made government cheaper seems in principle to be testable: produce some data and perhaps we’ll see, but it’s not obviously true on the face of it. As for the assertion that federation made government easier, a first impression of the history of Commonwealth-State relations does not suggest it’s been an easy process.

    I am committed to the principle of democracy in the sense of allowing people influence over decisions that affect them. The larger any group, and the more complex its structure, the harder democracy becomes. That’s why I think Federation was a mistake. Naturally I don’t expect people who don’t share my commitment to the principle of democracy to share the conclusions I draw from it.

  28. Fran Barlow
    March 27th, 2014 at 14:53 | #28

    @J-D

    And for the record, I would head in the opposite direction. I’d want to get rid of the states (in favour of the Commonwealth) and get rid of local councils (in favour of regional government).

    The states are too big to deliver most of the local services they deliver (and uniformity is lacking) and too small to bargain effectively with large companies effectively (from which so much revenue flows). It’s clear that services such as health, education, transport, the environment and prisons should be funded and governed at a national level to ensure consistency and equity whereas local planning, local roads and so forth should run at a regional level (perhaps with subcommittees to run the very parochial matters).

  29. J-D
    March 27th, 2014 at 15:29 | #29

    @Fran Barlow
    If the Australian colonies had not federated, then services like health and education would be funded and governed at the national level: New South Wales would be a nation funding and governing those services at a national level; Western Australia would be a nation funding and governing those services at a national level; and so on, just as New Zealand, having chosen not to join the Australian federation, is a nation funding and governing those services at a national level.

    If the Australian States were independent nations, some of them would be larger nations than New Zealand, although some of them smaller. It would be nice to think that being much larger than New Zealand makes Australia more effective in bargaining with large companies, but is that what the evidence shows?

  30. TerjeP
    March 27th, 2014 at 15:34 | #30

    Federation may have removed a few tariffs on cross border trade but over time it introduced massive tariffs on inter household trade.

    As for consistency what is this fascination. What is really meant is conformity. But I see no reason why a hospital in Hobart should conform with a Hospital in Perth. They have different demographics in terms of both patients and staff, different cost structures, different circumstances but they are supposed to conform. Why for pity sake? Because it makes the central planners life easier?

  31. John Quiggin
    March 27th, 2014 at 16:12 | #31

    J-D, If you want to cite NZ as a counter-example, you ought at least to mention their massive decline in income per person relative to Australia, discussed at length on this blog in the past. I don’t think scale economies are a big issue. Rather, NZ’s position as a small unitary state enabled the Market Leninists of the 1980s and 1990s (Douglas, Richardson etc) to ram through disastrous ‘reforms’ that were taken much more slowly and carefully here.

    Terje, you are aware that hospitals are a state responsibility? The whole point of federalism is to try to allocate governmental functions to the level best able to handle them, trading off the advantages of diversity and consistency, and to promote intergovernmental co-operation for things that fall between the cracks.

  32. rog
    March 27th, 2014 at 16:19 | #32

    @TerjeP There are savings to conformity eg there used to be various standards for simple things like 1st aid, where one states certification was not recognised in another and various statutory authorities like Workcover had differing attitudes to compliance. Now one certificate is sufficient for all over Australia and also complies with international standards. Differing State regs on standard procedures eg medicine serve no purpose except to increase bureaucrats workload.

  33. J-D
    March 27th, 2014 at 16:39 | #33

    @John Quiggin
    By definition, a counter-example exists only within the context of a generalisation to which it is serving as a counter-example. If the generalisation is ‘Federation enables funding and governance of health and education at a national level’, then New Zealand is a valid counter-example, because New Zealand has funding and governance of health and education at a national level without Federation. If the generalisation is ‘Federation enables harmonisation of laws’, then Australia and New Zealand collectively are possibly a valid counter-example to the extent that they have have achieved harmonisation of laws without Federation (although that’s not the only point I made about harmonisation of laws).

    But if the generalisation is, in the style of 1066 And All That, ‘Federation is a “Good Thing”‘, then I don’t offer New Zealand as a counter-example, but instead ask ‘How?’

    If the answer to that is that Federation protected Australia from the over-hasty implementation of so-called market ‘reforms’ that were so disastrous for New Zealand, then my responses are (a) to suggest, respectfully, that it would be interesting to have a larger sample than two to draw on for comparison; and (b) to point out that it’s something that could not conceivably have been foreseen in the 1890s and therefore falls short of explaining or (I contend) justifying the decisions made then.

  34. J-D
    March 27th, 2014 at 16:43 | #34

    !

    Blast unpaired tags!

    Sorry!

  35. Fran Barlow
    March 27th, 2014 at 17:27 | #35

    @TerjeP

    As for consistency what is this fascination. What is really meant is conformity. But I see no reason why a hospital in Hobart should conform with a Hospital in Perth.

    You’re mixing things up. The hospitals should have uniform standards for common procedures and processes and funding based on their mix of services, and the capacity to pay the same emoluments to staff with comparable responsibility. The size of the jurisdiction and their revenue base under federation should be irrelevant.

  36. Fran Barlow
    March 27th, 2014 at 17:34 | #36

    @J-D

    At an impoverished national level. They could dutch auction their bidding for services from the private sector. People would live better or worse based on random factors such as the resource base of the “nation” but every “nation” would fare worse than now. There would also be a need for all of them to have separate armies and air forces and navies. Who would fund the northern defence? South Australia? Queensland?

    You can be sure that tariffs would have had to stay. Can one imagine the mess in social security? The water question? And climate change? Gosh …

  37. TerjeP
    March 27th, 2014 at 17:36 | #37

    Terje, you are aware that hospitals are a state responsibility?

    JQ – yes I am aware of that. Are you aware that Fran thinks hospitals should be the remit of national government.

  38. sunshine
    March 27th, 2014 at 18:57 | #38

    I believe Ginas dad said Aborigines should all be told they can only get their dole payments from one place so they all gravitate to there , then the water should have drugs put in it to sterilize them all . Lovely. I cant remember where I heard that – can anyone recall it ? True to type there are rumors he didnt mind having sex with Aboriginal women tho.

    Why doesnt Tony just make Gina ‘Princess of the Australian Special Economic Zone’ . Bigotry would be allowed there .

  39. Patrickb
    March 27th, 2014 at 22:41 | #39

    @J-D
    I think that Western Australia, despite its recalcitrance, had little or no choice but to join the federation. Overall the tendency during the late 19th century and early twentieth was towards federation rather than away. I suppose that those present at the time saw this as delivering the best chances of survival and growth within the ‘sovereign’ geographic areas. All in all I’d say they were right, the breaking up of some of these federations in Europe hasn’t necessarily led to the resulting small states being able to survive without significant subsidies. It’s yet another example of the folly of libertariansm, pure ideology leading to unsustainable outcomes.

  40. March 27th, 2014 at 23:18 | #40

    As honorary Chief Economist for Australians for an Antarctic Region Special Economic Zone (ARSEZ) I’m quite baffled by Mr Quiggin’s dislike for SEZs. If government just gets out of the way by spending billions on infrastructure, relocating entire federal departments, and bonding immigrants there in a form of modern-day serfdom – is there any reason why a SEZ couldn’t prosper?

    Read over our plan for a Antarctic Region Economic Zone and then tell me you don’t support SEZs!

    http://www.aarsez.org/ourplan/

  41. sunshine
    March 28th, 2014 at 07:04 | #41

    Worried that my comment at #38 about Lang Hancock may seem outlandish I googled it and it is he is on youtube saying it. Also there was an Aboriginal woman a few years ago claiming to have had a child by him -she wanted DNA testing .I dont know how much chance anyone would have of getting a sample from his family. Apart from that ,I was just wanting to make the general point that it is not uncommon for male racists to have, or want, sex with the victimised race.

  42. Ikonoclast
    March 28th, 2014 at 08:22 | #42

    I am not sure that Northern Australia will ever be a large food producing region. Many of the world’s large food producing regions have very high mountain ranges in the hinterland, large rivers reliably bringing down water and rich silt and wide silt plains built up from this weathering activity.

    The exception to the above statement are wide plains or steppes where black soils and/or irrigation, modern machinery and fertilisers can produce high yields notably of wheat. These are usually in cool temperate zones where snowy winters can provide an annual knockdown of insect pests.

    Northern Australia has poor soils, flat terrain subject to unpredictable annual flooding, a relatively unreliable monsoon, no hinterland mountains of any note, no great rivers and many insect pests.

  43. J-D
    March 28th, 2014 at 10:12 | #43

    @Fran Barlow
    Maybe it will be help to make my position clear if you think about it in these terms: imagine you are transported by time machine to the 1890s, when referenda on Federation are taking place, or at least being discussed. You are confronted by my spiritual predecessor, somebody who’s intending to vote NO. What good arguments are available to you in favour of voting YES?

    If you argue that Federation will enable more generous funding of services like health and education, the NO voter is obviously entitled to ask how, and I’m not sure what you think your answer is. Will Federation create a larger total economic base for government revenue? That’s not obviously the case. Even with the benefit of hindsight, can we say it was the case? The kinds of taxes it was possible to impose post-Federation, whether at State or Federal level (or both), were only the same kinds of taxes it was possible for the separate colonies to impose pre-Federation. The default assumption is that the total set of assets and transactions available to be taxed (income, sales, land, or whatever else) would remain the same. I don’t say that the division of the total revenue between Commonwealth and States would decrease its size, but I don’t see how it would increase it. I haven’t seen any evidence that bigger countries in general raise more government revenue per capita than smaller ones. There’s no obvious plausible basis for that suggestion.

    It is more plausible when you suggest that without Federation some of the separate entities would be better off than others, but as a selling point for the Federation referenda this cuts two ways. If you can convince voters from to-be-States X and Y that they’ll be better off under Federation because they’ll benefit from the redirection to them, in the form of government programs and services, of revenue raised in to-be-States A and B, they may very well see it as a strong argument in favour of the YES case, but if you draw attention to the point aren’t voters in to-be-States A and B going to be swayed to the NO case? In response to an insistence that under Federation there’ll be more for everybody and everybody will be better off, the people of the 1890s would not have responded by calling that Magic-Pudding economics, the book not yet having been written, but I’m sure they could have found other language to make the same argument.

    There was plenty of historical evidence available in the 1890s (let alone now), that defence cooperation (if actually needed) does not require any form of political union or coalescence. If the hypothetical independent nations of New South Wales, Victoria, Queensland, South Australia, Western Australia, and Tasmania had wanted to cooperate militarily, there would have been nothing to stop them (and if they had not wanted to, why should they have been forced?). The same argument applies, as I indicated earlier, to tariffs. Independent nations can set up tariff unions or free trade areas if they want to, and if they don’t want to then they don’t, that’s all. For what it’s worth, I personally don’t see much case in favour of tariffs, but it’s an issue which people still disagree about today, so it’s not an obviously conclusive argument in a hypothetical 1890s context. Time-travelling you tells an 1890s voter that Federation means getting rid of tariffs and the answer might be ‘I don’t want that, and that’s the exact reason why I’m voting NO’. But even an anti-tariff 1890s voter might say, and have historical evidence to prove it, ‘We don’t need Federation to get rid of tariffs, we just need the will to get rid of tariffs’.

    I will put in the mouth of a model 1890s NO voter a shorter answer to your final points (‘Can you imagine the mess in social security? The water question? And climate change?’): ‘No, I can’t’.

  44. J-D
    March 28th, 2014 at 10:22 | #44

    @Patrickb
    I’m not sure what you mean by saying there was little or no choice about federation. If one accepts that it is possible for human beings to choose at all, then it’s hard to see what could be a more clear-cut example than a referendum in which some people vote YES and some people vote NO.

    It’s obvious that people (even if not all of them) were moving in the direction of federation in the 1890s (meaning, that is, people within what was soon to become the Commonwealth of Australia). That’s not evidence that it was a good idea.

  45. Fran Barlow
    March 28th, 2014 at 12:41 | #45

    test 1

    It seems to me that but for the defence question the arguments in 1890 for federation were quite poor. The US, in its early days was a set of colonies, none of which could afford a navy. There Atlantic shores were regularly raided by p|rates and people were kidnapped and ransomed with near impunity. America was totally dependent on the good offices of the French or British or the Dutch fleets to catch p|rates operating out of places like Zanzibar. A debate arose between those who feared that a navy might lead to a new tyranny and who preferred to just keep paying off the p|rates. (This would almost certainly have been cheaper than having a navy, but of course America wasn’t doing a lot of commercial shipping at the time.)

    The Europeans of the colonies here were similarly worried about “the threat from the north” and as the north was only sparsely populated by Europeans and the British were in no position to render assistance, defence was almost the first question in mind. Defence wasn’t cheap plainly, it was a cost that had to be spread across all of the colonies. Similarly, with tariffs, these were an important source of revenue — a kind of consumption tax which was easy to collect and hard to evade. Federating meant that trade should be free between the states raising the question of how else to fund services that hitherto had been funded by these tariffs. NSW didn’t get an income tax until 1895 and then it was very modest — just 2.5%.

  46. Fran Barlow
    March 28th, 2014 at 12:48 | #46

    OK PrQ apologies for the tests … had to know what the word to avoid was. Please delete all others

    @J-D

    It seems to me that but for the defence question the arguments in 1890 for federation were quite poor. The US, in its early days was a set of colonies, none of which could afford a navy. There Atlantic shores were regularly raided by pirates and people were kidnapped and ransomed with near impunity. America was totally dependent on the good offices of the French or British or the Dutch fleets to catch pirates operating out of places like Zanzibar. A debate arose between those who feared that a navy might lead to a new t_ranny and who preferred to just keep paying off the pirates. (This would almost certainly have been cheaper than having a navy, but of course America wasn’t doing a lot of commercial shipping at the time.)

    The Europeans of the colonies here were similarly worried about “the threat from the north” and as the north was only sparsely populated by Europeans and the British were in no position to render assistance, defence was almost the first question in mind. Defence wasn’t cheap plainly, it was a cost that had to be spread across all of the colonies. Similarly, with tariffs, these were an important source of revenue — a kind of consumption tax which was easy to collect and hard to evade. Federating meant that trade should be free between the states raising the question of how else to fund services that hitherto had been funded by these tariffs. NSW didn’t get an income tax until 1895 and then it was very modest — just 2.5%.

    By contrast with today, levying the population was a good deal harder.

    Roads, communication and transport were far more tenuous between the major population centres and so, once again, the arguments for doing things locally were very strong. Had I been in a position to vote in the 1890s I’d probably have voted against Federation. Australia had just suffered a shocking drought and was also on the wrong end of the first major world economic downturn. Creating a whole new layer of bureaucracy would have seemed mad. Unless you were a xenophobe and bothered by the threat of the “mongolian octopus” what would have been the point? Realistically, there was nothing to have in northern Australia anyway. If there had been, the Europeans would have been better placed than most to exploit it.

    Today of course, we have instantaneous communication, rapid transport by road and air, and it’s very easy to levy the whole population. That changes everything, IMO. It’s now far easier to make choices about which services should be administered and delivered locally, regionally and nationally.

  47. Ikonoclast
    March 28th, 2014 at 13:58 | #47

    These alternative histories are just foolish fantasies. They didn’t happen. USA and Australia federated. USA and Australia and their peoples are wealthier, stronger and more secure because of these federations.

    In Australia’s case, we suffer from some key strategic economic disadvantages. We have a small and dispersed population, a small domestic market and we are a long way from the world’s large population centres for trade purposes. Our federation into one continental nation ameliorates these disadvantages as far as possible. This federation also confers strategic advantages in the national interest: common defence and no land borders with other nations.

    In the absence of a global egalitarian utopia, which even I don’t believe is remotely possible, constitutional democratic nation states are about as good it gets. Australia fits the bill. (Unfortunately, the USA does not as it has an oligarch-written constitution and is an oligarchic republic not a democracy. The USA needs major democratising consitutional reform. I see little likelihood of that happening.)

  48. J-D
    March 28th, 2014 at 15:17 | #48

    @Fran Barlow
    I’m not familiar with the history of piratical raids on North America in the late eighteenth century, but Australia in the late nineteenth century was not a target of piratical raids but rather a source or promoter of them, the targets being Melanesian.

    This doesn’t mean that people at that time weren’t afraid of invasion from the north. Probably they were. But that was a mistake on their part and hence, if a reason for approving Federation, a mistaken one.

  49. J-D
    March 28th, 2014 at 15:20 | #49

    @Ikonoclast
    I am well aware that Australia did federate, and I am also well aware that there is no significant likelihood of reversing that decision, and I have said so explicitly from the beginning of this discussion.

    What I said was that Federation was a mistake. The fact that something happened doesn’t show it wasn’t a mistake, and the fact that it’s effectively irreversible also doesn’t show that it wasn’t a mistake.

  50. Luke Elford
    March 28th, 2014 at 15:29 | #50

    Returning to the topic of the post for a moment, I think it’s worth noting, for those libertarians who are confused about whether or not the northern development proposals are massively interventionist, that the policy has been panned by that other free market think tank, the Centre for Independent Studies, for example here (http://www.abc.net.au/pm/content/2013/s3826615.htm), where it was also panned by Professor Quiggin and private sector economist Saul Eslake. All three have essentially the same criticisms.

    To be honest, I feel a little bit sorry for libertarians who’ve been hoodwinked by the IPA into at the very least flirting with a highly interventionist policy under the guise of it somehow representing free market ideals.

    I suggest that if they spent more time reading an introductory microeconomics textbook and less time assuming that their tribal allies are like-minded idealists rather than rent-seekers they might do better at identifying interventionist policy when they see it, and working out when it’s justified and when it isn’t.

    The interesting thing about this story is how the IPA has come to endorse such an interventionist proposal. The impression given by the SMH article that Professor Quiggin linked to is that it is the result of an interesting interplay between ideology and corporate interest. IPA’s hard-line conspiracy-theory-laden delusionist stance on climate change—now motivated by ideology, not business interest—has ostracised many of its former sponsors for whom association with such nonsense is a major public relations liability.

    This in turn has left it reliant for funding on a small group of companies and rich individuals (with terrible public images anyway) who are still prepared to be associated with it. And these backers are interested in using it to push their sectoral interests—not free market ideology which might benefit a broader suite of corporate sponsors. Perhaps the libertarians who work for the IPA think that supporting the northern development campaign is a price worth paying to fund their ideological wars on other fronts, or perhaps they’ve fallen for their own distorted logic.

    But the truly vile aspect of the proposals is not the economic distortion for private gain but the attempt to restrict the rights of immigrants in order to capture for some employers the gains which should—and otherwise would—flow to those attempting to improve their lives and the lives of their family members by coming to our country.

    Paul Krugman is currently having a stoush with Greg Mankiw about taxing capital in general and about inheritance taxes in particular, and has a timely post mentioning the political economy distortions associated with the excessive concentration of wealth, of which the northern development campaign is a perfect example. As an advertisement for an inheritance tax, Gina Rinehart just gets better and better.

  51. Luke Elford
    March 28th, 2014 at 15:32 | #51

    Of course, in the time it took me to write my comment, Professor Quiggin has uploaded a post with the same analysis. Damn! I must learn to write faster!

  52. Fran Barlow
    March 28th, 2014 at 15:35 | #52

    @J-D

    It’s unclear what your point is here. They did federate, for reasons that at the time were almost certainly unfounded but which were regarded by most as adequate. The people in charge were as far as can be told, for the most part racist or at least saw racism as useful since wide swathes of the populace were too. Another reason for federation was to ensure uniform race laws that would keep out ‘races’ deemed undesirable by the overwhelmingly British population.

    That the reasoning was wrong and also offensive is moot now of course.

  53. March 28th, 2014 at 22:48 | #53

    @Patrickb

    If I recall my primary school education correctly, Western Australia did vote to secede in the 1930′s, but it went no further than a vote.

    If libertarians are against federation, then that is hardly surprising, as their starting point is that every man is an island…

  54. TerjeP
    March 29th, 2014 at 04:01 | #54

    The interest in special economic zones that is held by most Australian libertarians I know is not based on the work of the IPA. The IPA proposal for Northern Australia may or may not be a good idea but it taps into something pre-existing. Which is the notion that it may be easier to liberate people by providing a proximate opt out rather than trying to fix things through traditional reform processes. This thinking is inspired more by the following sorts of things:-

    Charter Cities – Paul Romer
    http://www.ted.com/talks/paul_romer
    http://www.theatlantic.com/international/archive/2013/07/should-struggling-countries-let-investors-run-their-cities/277720/

    Seasteading
    http://www.seasteading.org

    Principality of Hutt River
    http://en.wikipedia.org/wiki/Principality_of_Hutt_River

    Hong Kong – an interesting British experiment near China

    If you only look at one link I’d recommend the first one, a TED talk by Paul Romer.

  55. J-D
    March 29th, 2014 at 12:37 | #55

    @Fran Barlow
    I’m sorry if I wasn’t clear to you. I’m not sure which of my comments you are now responding to. I got into this discussion originally to respond to TerjeP, but in my most recent response to you I was dealing with points raised by you, whereas in my most recent response to Ikonoclast I was dealing with points raised by Ikonoclast.

    Ikonoclast objected to ‘alternative histories’ as ‘foolish fantasies’. As best I can understand that, part of what Ikonoclast was suggesting was that imagining an Australia that didn’t federate is a fantasy. This observation appeared to be intended by Ikonoclast as some kind of rebuke.

    If Ikonoclast’s comment was intended as a rebuke of me, I do not accept the rebuke. I did not in fact engage in any speculation about what Australia might be like if it hadn’t federated, and from my very first comment I emphasised the point that Australia did federate and that decision is not going to be reversed. I did engage in the thought-experiment of time-travel to the 1890s, but thought-experiments, even if they are pure fantasy, are not therefore all foolish. As it happens, I read a good deal of fantasy, and it’s often entertaining and sometimes instructive. If Ikonoclast does not want to engage in that kind of discussion, Ikonoclast doesn’t have to, but that’s no reason why other people shouldn’t.

    It appears that we are in agreement that people in 1890s had their reasons for federating, but that they were faulty reasons, and also in agreement that whatever happened in the 1890s there’s no unscrambling the eggs now (one point of my original response to TerjeP). If you think there’s any other aspect that we might still be in disagreement about, please let me know.

    Ikonoclast seems to think there were good reasons for federating in the 1890s, but I still haven’t seen them, so Ikonoclast and I may still be in disagreement about that.

  56. J-D
    March 29th, 2014 at 12:50 | #56

    @John Brookes
    The story of the Western Australia secession movement (which did go somewhere further than a vote) is an interesting one.

    Australia was, I have read, one of the countries worst hit by the Great Depression, and governments struggled. Over a period of five years, from 1929 to 1934, the Commonwealth, New South Wales, Victoria, and South Australia all voted out non-Labor governments, putting in Labor ones, and then voted out the Labor governments, restoring non-Labor ones, while Queensland, Western Australia, and Tasmania all voted out Labor governments, putting in non-Labor ones, and then voted out the non-Labor governments, restoring Labor ones.

    In Western Australia, the Coalition government of James ‘Moo-cow’ Mitchell, voted in in 1930, saw an opportunity of doing what we would now call ‘wedging’ Labor by seizing on the issue of secession, which had been raised by a vocal grassroots movement. The secessionists were devout British Empire loyalists and wanted the government to appeal to the UK government to allow Western Australia to secede from the Commonwealth. Mitchell and the Coalition calculated that Labor, being more inclined to be centralisers, would be reluctant to support secession, but being more inclined to favour radical democratic measures, would find it difficult to oppose a position supported by popular vote. So a referendum on secession was scheduled to coincide with the State election due in 1933. Labor responded by announcing an officially neutral position on the referendum and promising that if Labor won the election and the YES vote won the referendum, a Labor Government would take up the cause of secession in London. The YES vote did indeed win the referendum, but it turned out that Labor had come off best in the strategic contest with the Coalition: not only did Labor win the election, but Mitchell and every single one of his ministers lost their seats. As promised, the newly elected Labor Government made representations in London on behalf of secession. The UK Government responded by saying that the Constitution of the Commonwealth of Australia was a matter for the Commonwealth Government, not any State Government, and that representations on the subject could only be formally received if they came from the Commonwealth Government (which didn’t support secession and never had, if that’s not obvious). The advocates of secession, being devout British Empire loyalists, had no Plan B to deal with a situation where London refused them assistance, the movement died away, and as economic conditions gradually recovered the Labor Government moved smoothly on to re-election, being able to say accurately that the promise to lobby in London for secession had been honoured and it wasn’t Labor’s fault, in the circumstances, if the attempt had failed.

  57. JKUU
    March 30th, 2014 at 03:13 | #57

    @J-D
    Yes, “The UK Government responded by saying that the Constitution of the Commonwealth of Australia was a matter for the Commonwealth Government, not any State Government, and that representations on the subject could only be formally received if they came from the Commonwealth Government” is formally the reason that the UK Parliament decided not to respond to the WA secession attempt.

    A complementary reason is that the Act to constitute the Commonwealth of Australia was a statute of the Imperial Parliament (1900), and in the Preamble, the union is described as an “indissoluble Federal Commonwealth.” The use of “indissoluble” was no doubt deliberately used in an attempt to prevent the strife that befell the United States, whose Preamble and Constitution do not contain any such language. [Even with such wording, the U.S. civil war would have still occurred]. I suspect that the British lawmakers of the 1930s would be reluctant to second guess their earlier colleagues by ignoring “indissoluble” in the Australian Constitution Act, and so declined to consider WA’s petition.

  58. Jim Birch
    March 31st, 2014 at 09:14 | #58

    The Bush Telegraph program audio can be found here:

    http://www.abc.net.au/radionational/programs/bushtelegraph/nt-tax-free/5344540

  59. Jim
    April 1st, 2014 at 11:22 | #59

    I was feeling a little depressed this morning and needed a laugh to pick me up. So I went to the ANDEV website and had a read. At first I laughed out loud. All those wacky ideas…..

    Then I realised that some of what they are proposing will probably happen over the next few years under the current Coalition administration. Now I am even more depressed….

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