The IPA: Less scruples than Billy Hughes

A prominent figure in Australian politics in the first half of last century, Billy Hughes, ‘the Little Digger’, was famous for his flexibility, having successively led the Labor Party, National Labor, the Nationalists and then the United Australia Party, before serving in Labor’s Advisory War Council and then joining the Liberal Party. According to legend, he was once asked why he had never joined the Country Party (now the National Party) and replied ‘You have to draw the line somewhere’.

Starting about the time Hughes retired, the Institute of Public Affairs has been similarly flexible, serving first as a Liberal Party slush fund, and then combining a high-minded line in free-market ideology with hackish advocacy on the part of all kinds of vested interests. But, unlike Hughes, the IPA has decided not to draw a line anywhere.

The IPA has been a consistent servant of the tobacco lobby, from denying the science on passive smoking (a dress rehearsal for its role in the climate change debate) to promotion of absurd claims about intellectual property in relation to plain packaging laws. As well as promoting absurd science denial on climate change, the IPA engaged in some pretty stunning hypocrisy, supporting front groups that have engaged in the worst kind of NIMBYism regarding wind farms.

But, as with Hughes, the IPA maintained one bright line: it consistently condemned infrastructure boondoggles like the pseudo-private Alice Springs to Darwin railway (a rare point on which I’ve agreed with them). That’s why I was a little shocked to read Mark Latham in today’s Fin, pointing out that the IPA is promoting Gina Rinehart’s Northern Australia and then some. Worse, it’s calling for special tax concessions for dams in Northern Australia.

If there is one type of project that epitomises infrastructure boondoggles in Australia it is irrigation dams, and if there is one region where the boondoggle aspect is worse than anywhere else, it is Northern Australia. The disastrous Ord River project spelled the end of dam mania for a generation or more, but now the IPA, along with the Murdoch press, is helping to revive it.

Given our friendly relations, I can’t refrain from pointing out the close relationship between the IPA and Australia’s leading centre-right blog. I’ll be fascinated to read their defence of this exercise in rent-seeking or, more likely, amused by their embarrassed silence.

95 thoughts on “The IPA: Less scruples than Billy Hughes

  1. @Ikonoclast

    @Ikonoklast : you can use Google as well as I can. Why don’t you find the links and post them for me. But to respond very quickly

    Given that I’ve been banging on endlessly about carbon pricing, my views on fossil fuel subsidies don’t need regular restatement, I would think

    As regards FHOG, of course I’m opposed, but it seems pointless to keep going on about it

    On negative gearing the real problem is concessional treatment of capital gains. Without that, negative gearing would be legit.

  2. @nottrampis

    Are you assuming that all interest is taxed elsewhere?

    This may not apply in the case of small credit unions. from ATO website;

    Interest derived by small credit unions is exempt from tax if all of the following apply:

    – the credit union is an approved credit union
    – the interest is paid to the credit union by its non-company members in respect of loans it made to those members.

    Also if rent is taxed at landlords marginal rate, it may be better for the community than if the same funds were taxed at the company rate?

    Is there a better system?

  3. Chris,

    Negative gearing is thus,
    You are paying $300 in interest but getting only $200 in rent.
    It exists for buying property or shares however it is only , naturally, in property where extremely generous depreciation provisions come in.

    You can claim that but ask any company who invest in a project where the yield is less than the interest on the loan. how many do they do?

    none!

  4. @nottrampis

    It is more complicated.

    Obviously where the yield is less than loan interest, an investment is marginal. However companies do this when they are engaging in loss-leading.

    But negative gearing is not just this. Negative gearing is deducting interest from rent revenues also when you pay $200 in interest but get $300 in rent.

    Then if you have a deficit, you can deduct this from unrelated income – eg salaries. Thus wealthy middle class professionals, ie graduates, can move their taxable income from (eg) 47cents in the dollar marginal rate down to, possibly, 35cents in the dollar, while building up an asset using their tenants purchasing power.

    Presumably also, the interest on loans may also be unrelated to the rented property or shares. For example, you can mortgage your house, buy shares, and deduct mortgage interest from share dividends received.

    This damages public revenue if this myriad splitting reduces overall tax payable by shifting multiple income levels below different thresholds. The burden is then increased on lower wage earners who do not have surplus for investing in shares and rental properties etc. and therefore access to splitting. This social strata then pays higher PAYE (and all of the GST and all rates if purchasing their home).

    IN effect, the rich get richer and the poor get poorer.

    Would it not be better if interest payments received by banks were taxed at the marginal rate they would have been taxed before neg. gearing, eg at 47cents in the dollar (or top marginal personal rate).

    Depreciation is another lurk for middle class elements. Then there are more complicated schemes – trusts, etc. This is another issue.

    This common policy kow-towing to the middle class was demonstrated in the GST debates 20 years ago. Today, the rich and poor pay the same tax per item where GST applies, and the better off consequently end up with more to play with than under alternative arrangements.

    Sales tax, supposedly inefficient, distinguished between luxuries and common commodities, and between imports and domestic products etc. This system supported greater social efficiency.

    We now have domestic factories closing, and masses of working poor. A blunt “economically efficient” taxing regime but massive social inefficiency.

    Negative gearing shifts tax responsibility to where tax is minimised or, in the case of some credit unions, obliterated completely.

    If the middle-class can receive their shares “franked” – then why cannot banks receive their revenues with a tax-debt stapled in the same way? They then remove the tax debt by a payment to tax office from their superprofits.

    So if a bank lends to high income earners it now pays different taxes on interest revenues than when it lends to average income borrowers. It already has the necessary information in its computers.

    Would this fix the problem with negative gearing?

  5. @Chris Warren The rort is where interest is deducted as a cost, the rent netts a loss lowering owners income and therefore income tax liability while profit on sale is largely untaxed due to depreciation and reduced CGT rates. This then encourages over speculation, a distortion or bubble.

  6. There is another name for special economic zones: that is federalism. Different jurisdictions decide their own tax and other policies.

    In the USA, federal, state and local authorities compete on many margins for residents and mobile resources including income and sales taxes, and state corporate taxes.

    Special economics zones were central to China’s economic transition.

  7. @John Quiggin

    Fair enough on all points EXCEPT negative gearing. IMO, Chris Warren raises a number of very valid points in his post above; points which illustrate that the equity, revenue and distortionary problems with negative gearing go far deeper than simply the treatment of capital gains.

    The same general reasoning IMO goes for salary packaging which is a another distortionary rort.

    This country has not even scratched the surface of removing distortionary subsidies, deductions and other inequitable facets of tax policy. Clearly, there is no political will to do so and unfortunately little popular pressure to do so. This is an economic tragedy because it causes great distortion, inefficiency and unfairness in the economy.

    Apart from the capitalist oligarchs, the big problem as Chris Warren points out is the middle class of this country and its political consciousness or lack thereof. There is a great deal of selfishness and social atomisation in the approach of the modern middle class to social and political life. – I speak from experience as a member of the middle class. – Selfishness and social atomisation account for policies which appear to serve the self-interest (from an atomistic point of view) but which actually reduce the summed, enlightened self-interest of the entire class and of the entire society.

    This atomisation is engendered by the capitalist system and its mode of reducing everything to money and money realtions; to the cash nexus. The middle class generally have little or no sense of social solidarity beyond their own nuclear family.

    Earlier, I alluded to the lack of political will to tackle these problems. We could take pre-emptive action if we were conscious enough of what was going on. But apparently these problems will not be tackled until much of the Western middle class begins to slip (as it inevitably will under these current policies) into mass poverty. This is already beginning to happen in the US where the lower middle class is descending into poverty. This collapse of the middle class into poverty and their consequent joining to the working class and underclass will radicalise them.

    I would wish us to have the political consciousness to forestall violent ruptures by using enlightened, equitable, sustainable and forward thinking policies to prevent the descent into a situation where radical ruptures occur. It doesn’t appear we have the necessary collective wisdom so it looks like we are going to have to learn the hard way.

  8. This is a fitting thread for this post.

    Catallaxy, Australia’s self-described “leading libertarian and centre-right blog”, currently features a post by Julie Novak of the Institute for Public Affairs criticising the Fabian Society. The post features a graphic purporting to be the “wolf in sheep’s clothing” logo of the Fabian Society.

    http://catallaxyfiles.com/2013/03/03/the-confession-of-a-fabian-and-rebuttal/

    Having looked into the matter I have found that:

    (a) this is not the logo of the Fabian Society in either the UK or Australia;

    (b) if one googles “Fabian Society” and “Fabian Society” images, one finds that this bogus Fabian logo is prominently displayed on a range of crank conspiracy theory websites and in a video titled “Fabian Society exposed”, alongside climate change denialism, conspiracy theories about Jewish financiers, and the like.

    Catallaxy, Julie Novak and the IPA owe us an explanation of why they have chosen to place themselves in such company.

  9. @Bring back Birdy at Catallaxy

    I’ve often seen this claim put about oat crank sites too, but as most who have been around the left will know, the symbol of the fabian Society is the tortoise:

    cf:

  10. Google reveals that this is a pre-Internet instance of the impossibility of irony. The story apparently traces back to an elaborate joke by GB Shaw, who commissioned a medieval-style stained glass window, featuring prominent Fabians dressed up in medieval gear, and the logo in question as a heraldic device. The window was lost for a century (except for a brief reappearance in 1978) and finally resurfaced in 2005, just in time to become the focus of wingnut conspiracy theories

    http://www2.lse.ac.uk/newsAndMedia/news/archives/2006/FabianWindow.aspx

  11. One more time, this nonsense with the paranoia and witchhunts, in which the pure ideology is being subverted by infiltrators and said ones with the wrong type of ideology must be uprooted by any means necessary…….

    It is well for all of us that this mob of closet authoritarians have so little power.

  12. @David Irving (no relation)

    Actually, my quick search reveals that, as in the original story, there’s a capitalist elephant on top of the worker tortoise – the drawing is apparently due to Walter Crane, the leading children’s illustrator of the late C19.

  13. How embarrassment!

    The Keyboard Kommando of Mum’s Basement are tangled in the tentacles of their own falsifications.

    Memo to the KKMB: you should get out more. Try to meet some people with real jobs.

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