Bait and switch

In the course of raillery with the famously scabrous Thames watermen, Boswell reports that Dr Samuel Johnson triumphed with the line “Sir, your wife, under pretence of keeping a bawdy-house, is a receiver of stolen goods”‘

That insult is applicable, with minimal modification to the Institute of Public Affairs. The IPA advocacy of dams in Northern Australia, long notorious among economists as the worst kind of boondoggle is the kind of scandalous behavior analogous to running a house of pleasure. But, as various interactions on Twitter and elsewhere have made clear, the IPA isn’t really keen on dams – that’s just bait to bring in the nostalgic believers in what Bruce Davidson famously called “The Northern Myth”

The real agenda is the creation of a special economic zone in Northern Australia, with lower taxes and less regulation, but apparently still receiving the same flow of public funds from the national government as at present[1]

Proposals for dams are mostly harmless since so few of them are likely to stack up, even with subsidies. But the suggestion of special tax treatment for businesses located in one part of the country rather than another is the worst kind of distortion[2], the public policy equivalent of receiving stolen goods.

And we don’t have to look further than the front page of the IPA website to see the promoter and biggest single beneficiary of this proposed ripoff – none other than Gina Rinehart, Australia’s richest woman and one who has done nothing to earn her wealth except to be very successful in Family Court.[3]

It’s a tough call whether the IPA has reached its lowest possible point in proposing that ordinary Australians should pay more taxes and get less services, in order to provide a targeted tax handout to Rinehart. That’s low, but arguably not as bad as lying in the service of the tobacco industry.

fn1. The NT government is easily the biggest per capita mendicant in the country, as can be seen from its massively oversized Parliament, more suitable to a medium-sized country than a population of 200 000.

fn2. Individual taxpayers already get a concessional “zone allowance”, but it’s small enough not to constitute a serious distortion. By contrast, the corporate handouts being pushed by the IPA could be huge.

fn3 As pointed out in comments, it was actually in the Supreme Court which deals with inheritance disputes, such as those between Rinehart, her stepmother and her children. The Family Court is only for divorces.

101 thoughts on “Bait and switch

  1. IPA running a confidence trick here money is scammed of rich crackpots like Gina to produce joke reports & cross subsidise Chris Berg’s output, it’s the equivalent of Glenn Beck flogging gold.

  2. Minor point: Gina’s actions (against Rose and now her children) were played out in Supreme Courts, not the Family Court. (Referring to the Family Court makes it sound like she got rich via a property settlement with an ex husband, rather than the inheritance.)

  3. Good points John. I’ve wondered where northern Aust begins and ends and whtnwe should be subsidising mining companies or farmers who seem to get quite a bit already. As for the land itslef, the soil is trash in many places and could not sustain agriculture

  4. John McCarthy, when I was working in Emerald in the 1990’s and partially responsible for some of these issues I recall a landholder day at our BHP mine where I gave a presentation on groundwater. I was subsequently approached by an employee (and loved friend) whose husband was a nearby farmer objecting that another presenter had called their land trash. It turned out that she had simply referred to the land classifications in the Capella area which were not too flash actually given that the topsoil tends to be skinny! Black soil may be fertile but not necessarily conducive to irrigation!?

  5. 1. let he whose favoured subsidies are without sin cast the first stone.

    2. the optimal rate of tax on income from capital and from capital gains is zero.

  6. I wish I could share your optimism that the Coalition won’t indulge relatively small-scale pork-barreling and environmental lunacy to secure agrarian socialist support for large scale transfers of wealth from the southern cities to Gina Rinehart.

  7. I second Brian. A nice big fat tax on Gina Rhinehart’s unearned wealth be a wonderful thing.

  8. The IPA, even with the help of their munificent patroness, would run the least patronised bawdy house in the history of whoremongering.

  9. I don’t know if northern irrigation schemes are completely without merit. According to my calculations, provided world food prices stay high it might now be possible for an irrigation dam on the Ord River to pay for itself.

  10. I have spent a lot of time working in remote parts of Aus, most of them north of the tropic of Capricorn. There were some subsidies but I am sure all those places I worked were net contributors, not supplicants. It used to irritate me when we were told our town couldn’t have some service that was available in Perth “because it would cost too much.” This was because the service in Perth was being paid for by the taxes and royalties being paid by the sort of places where I lived.
    One of the reasons costs are high up North is that supplies come from down South instead of lower cost, closer sources. This might be construed as the North subsidizing the South?
    I am in favour of using zone allowances to offset high living costs but not tax concessions that are worth far more to the rich.
    Dam decisions should be made on the basis of economics, strategy and climate change predictions. How far North on its own should not be a consideration.

  11. The real agenda is the creation of a special economic zone in Northern Australia, with lower taxes and less regulation, but apparently still receiving the same flow of public funds from the national government as at present[1]

    I was half expecting footnote 1 to reference the claim that they still want the same flow of public funds. But alas the footnote was merely an aside not a source for the particular claim.

    In my view the optimal place to put a special economic zone is somewhere in which there is currently nobody resident. In practice there is usually always somebody present but the point is that it is a place of very little economic activity where you would like to create activity. Either for strategic reasons or as a relief valve for other places. Or as a proof of concept for libertarian ideals or some other model of alternate governance.

    I’m not overly familiar with the work the IPA has done on this topic but the general concept has pretty wide support amongst libertarians so the notion that they have sold out on libertarian ideals seems a little ludicrous.

    Here is one such similar proposal that has been discussed a lot amounts Australian libertarians:-

    And here is the most extreme form of the idea:-

    The idea of charter cities is embedded in the constitution of California and they have several such cities. San Francisco being the most notable.

    It’s not hard to imagine a scenario in which such an idea does create a windfall for Gina Reinhardt. But it’s also quite possible to create a special economic zone in northern Australia that is a genuine project for liberty. Interpreting the merit and intent depends greatly on the specifics.

    Finally here is a great Ted talk on the idea.

  12. “I was half expecting footnote 1 to reference the claim that they still want the same flow of public funds. ”

    Easy to document that this region is a net beneficiary. If Rinehart the IPA wants to cut public expenditure on Northern Australia they should say so.

    As you say, it seems that the Australian libertarians generally support the IPA idea. Given the IPA/Catallaxy overlap there would be some pretty big ructions otherwise. And, if you’re prepated to accept the majority judgement of your fellow libertarians then I guess we can conclude that your support for special tax subsidies is consistent with libertarianism, at least in Australia.

  13. “In my view the optimal place to put a special economic zone is somewhere in which there is currently nobody resident.”

    This sounds more like social engineering, paternalism, protectionism and ultimately racketeering and not conforming with free market/libertarian theory. Perhaps the “free market” is only “anything goes”.

  14. This whole turning back the rivers, making the deserts bloom idea misses a couple of very important points.

    Firstly, water running to the sea is not wasted, it feeds our estuaries where the majority of our commercial fish species spend at least part of their lifecycle. Recreational and commercial fishing is worth around $4 billion a year to the Australian economy, this is twice the value of rice and cotton combined.

    Secondly, most of the soils are impoverished and infertile with the majority of nutrients leached out hundreds of millions of years ago, there are a couple of decent spots around, Roebuck Plain (WA), Barkley Tableland (NT) and of course the Ord but the rest of it is pretty crap (the Grevilleas are spectacular but they’ve evolved to live in crap soil), huge and expensive fertiliser inputs would be required to get decent crops out of it.

    Even the best soils in these areas are fairly average when compared globally, we really only have a few patches of world class soils, areas where there’s been volcanic activity over the past 50 or so million years, The Atherton Tablelands, Darling Downs, Liverpool Plains (and adjacent Merriwa Plateau), a patch or two in SA and a little in Tasmania and that’s about it.

  15. 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.

  16. Easy to document that this region is a net beneficiary. If Rinehart the IPA wants to cut public expenditure on Northern Australia they should say so.

    If you have not noticed the IPA calling for cuts to public expenditure then you really haven’t been paying attention. And if you have not seen them criticise the way federal grants are dolled out then what can I say. Maybe the following will wet your appetite for some more research.

  17. Special economics zones were central to china’s economic transition.

    Yep. Cronyism is the handmaiden of rapid economic development, regardless of the name on the label slapped on the governmental system.

  18. @TerjeP

    To restate, I haven’t noticed any calls for reductions in expenditure on Northern Australia to offset the proposed preferential tax treatment. Obviously, the IPA would prefer that tax cuts for Gina Rinehart be financed by reduced expenditure, rather than higher taxes, for everyone else, but that is not the point. At least, not for an economist – libertarians apparently think their ideology justifies selective rent-seeking.

  19. Jim – I would support a roll back of federal government powers (to the point of even abolitioning the federal government). And I would support the creation of additional states. I think NSW should be split in three. And Northern Queensland should be a separate state. I’m not into the “one nation” philosophy popular amongst many. I’d be quite happy to see Australia split up. So long as we retained free movement (like we currently do with NZ) and appropriate mechanisms for defence, I’d see a break up as opening up creative possibility. And positive competitive forces.

  20. Well, TerjeP has just blown himself completely out of the water and lost all credibility. The only consistent position for a free market libertarian is to reject ALL subsidies and tax breaks. I could at least respect consistency if the Libertarians demonstrated it but they do not.

    Special concessions for any sub-group is socialism and welfarism. Now, consistent proponents of socialism and welfarism want it used to redistribute some wealth and opportunity where there is entrenched inequity, to deal with market failure and to secure the advantages of sovereign resources and natural monopolies to all the people equally. Libertarians expose their true morality and agenda when they support welfare for the rich and below-subsistence wages for the poor by supporting Gina Reinhart and her class of capitalist oligarchs.

  21. John – if you can substantiate your point that the IPA wants taxpayers across the rest of Australia to pay for infrastructure and services in a tax free zone, and that their support for such a zone relies on this assumption of external government funding rather than private investment and local taxes, then I’ll happily join you in criticising them. But I have not seen anything that substantiates your claim, other than what looks to me to be some clumsy misinterpretation of intent.

    If you personally don’t think taxpayers in one zone should prop up services in another zone then I presume you would agree that the federal government should not be doling out grants to the states on the basis of “need” and propping up states like Tasmania. That it should abolish the grants and cut the tax rates used to raise these funds. I’d be very happy to learn that you support this. However I suspect you quite like the federal government subsidising some zones in Australia. But feel free to surprise me.

  22. I’ll extend the challenge in my last paragraph to Ikonoclast and any other recent converts to the notion that the Federal government should not subsidise zones in Australia. I’ll be happy for them to join me in opposing such zone based subsidies.

  23. @TerjeP

    Unlike the IPA, I don’t support zone-based subsidies. Where there are specific problems with cost of state service delivery, they can be addressed directly through special purpose payments.

    Since I don’t present myself as a free-market advocate, I don’t feel any particular passion on the issue, except when it involves targeted handouts to Gina Rinehart. Still, it seems that I’m a better free marketeer than the IPA or Australian “libertarians” generally.

  24. @TerjeP

    I am not the one being inconsistent. I have noted, even ranted, in the past that I am a democratic socialist. I have noted that I support socialism and welfarism where those programs are used to redistribute wealth and opportunity to deal with entrenched inequality, to deal with market failure and to secure the advantages of sovereign resources and natural monopolies to all the people equally.

    So, I have no problems with Federal grants to address horizontal fiscal imbalance and to address regional and social disadvantage. (I may or may not be quite in the same camp as J.Q. on the point of regional disadvantage.)

    I do have a problem with welfare for billionaire mining magnate capitalists disguised as regional assistance. It is very easy to tell the difference. It’s clearly a matter of targetting.

    I have consistently called for the abolition of distorting subsidies like fossil fuel subsidies, negative gearing, corporate welfare, first home owners grant and middle class welfare (including the churning of middle class taxes and middle class welfare). I have even called for a level playing field on energy with no subsdies and proper costing of negative externalities and risk.

    Like J.Q. I can correctly claim to be a better free market advocate than Libertarians. Where the market can be made effective it is the appropriate mechanism. Where it is not effective (always having basic equity and complete sustainability as our highest goals), democratic socialist and dirigist action is the appropriate mechanism.

    The question of capital ownership can be resolved eventually by worker ownership of the economy. There is no need for a separate owner class. What purpose does the separate owner class serve that could not be served by worker ownership?

  25. While I have an intellectual hankering for the drawing board elegance of libertarian nostrums, my historical knowledge tells me. That the only time they were tried was in Britain in the second half of the 19th century. They failed miserably in the face of determined and intelligent statism in Germany, and the US.

    Thus, present day libertarians are like old fashioned communists who claim that Leninism didn’t really fail because those principles weren’t given a fair test in the USSR.

    Blind faith has a tragicomic erosive effect on reason and experience.

  26. Sorry but you’re both deluded. Neither of you is even in the ballpark of being a worthy advocate for free markets.

    Special payments are subsidies. They are no different to general grants in this regard. If you oppose federal subsidies to regions as a matter of principle then you should oppose the grants to Tasmania that are greater per capita than federal grants to NSW. I would happily see these grants and special payments abolished.

    I don’t want special grants or special payments to northern Australia. I don’t see the IPA calling for this either. If you say they are then cough up the evidence and I’ll judge them accordingly.

  27. @TerjeP

    Sorry, TerjeP, but you are deluded. You don’t want special payments but you want a special tax zone. Is that correct? But since tax is negative welfare and welfare is negative tax, special tax concessions equal special grants. Only, genuine special grants are targetted to need if made properly, whereas tax concessions / holidays just favour the upper middle class and rich and white-ant state and social infrastructure through revenue constriction. End result? A Mexican style economy with a small coterie of crony capitalist billionaires and mass poverty everywhere else. Mexico is your economic ideal I guess?

    Also, the under-taxing USA (as in under-taxing the rich) is in great shape now is it? No? It’s a great big libertarian policy laboratory (no taxes for rich, little regulation) and it’s falling to pieces before our eyes.

    I’ll say no more. No point arguing with a delusionist.

  28. Ikonoklast and I didn’t claim to be “worthy advocates for free markets”, just better than the IPA and, it seems, better than you.

    Let’s try one more time. The IPA is advocating a special benefit for Gina Rinehart and others who get their income from a particular part of the country, but not for the rest of us. If they are also advocating cuts in expenditure on Gina and others, as opposed to general cuts for all of us, it’s up to them to say so.

    But, since they aren’t talking I’ll ask you, Terje. You’ve supported the proposal for a fair while. Why don’t you give us a link to the cuts in expenditure, specific to Northern Australia, to finance the specific low tax rates you favor?

  29. As said earlier I would favour setting up a special economic zone where there are few existing residents or infrastructure. That way there are very few cuts to expenditure that need to be funded. So the merit of any given proposal depends on the specifics. If the intent is to make all of Northern Australia a special zone and that means QLD + NT + half of WA then that is quite different to zone of 1000 square km some place in the remote north of Australia.

    The reason I didn’t immediately respond to the specifics of the IPA idea when it was raised in your earlier post was that I consider the idea to be too vague to judge one way or another. However I felt the need to outline my position once you started accusing me of tribalism. It is possible that the IPA have abandoned their libertarian ideals for a fast buck as you suggest. But it seems more likely that they are simply promoting a debate on a concept that is quite libertarian in principle.

  30. p.s. And if you want me to nominate where I would place a special economic zone then I’d probably nominate Christmas Island. Although I’d just as readily give it back to Singapore.

  31. There are many examples in the USA of overlapping jurisdictions such as county and city and town governments, schools boards and special-purpose districts. They can have revenue raising and regulatory powers including police powers. In 2007, the U.S. had over 39,000 special district governments and this excludes school districts.

    Special districts include airports, water ports, highways, mass transit, parking facilities, fire protection, hospitals, irrigation, conservation, sewerage, stadiums, water supply, power, and gas. Their boards are appointed privately or are popularly elected.

  32. Earlier I linked to the Ted talk by Paul Romer. I would like to hear any reactions to that talk if anybody took the time to watch it. Here is the link again.

  33. @Jim Rose

    Yep, and now the USA is one big patchwork, decaying, white-anted mess compared to what it still could be.

    Yes, the US has (still) a great economy by world standards. This is mainly a legacy economy. The legacy consisted of the good fortune to;

    (a) annex and possess the richest sub-continental area on earth (in terms of resources);
    (b) become a nation just at the beginnings of the industrial and capitalist revolutions;
    (c) gain mass immigrants from the Old World and other regions;
    (d) benefit like Britain from the technological head start of the industrial revolution; and
    (e) benefit as the natural inheritor of the British Empire’s advantages as Britain declined.

    All notions of Manifest Destiny, American Exceptionalism or inherent superiority of the American forms of government and capitalism are nonsense. The USA’s success is materially explicable in terms of the above five points. There is nothing mysterious or special about the process and outcomes. In addition, the USA pursued broadly Keynesian policies from the early 1930s to about 1970 which certainly was their Golden Age. We can also mention that other advantages from military superiority, to benefits of empire and eventual possession of reserve currency status assisted the USA.

    The benefit of possessing a rich sub-continent is declining in absolute terms but not in relative terms as the whole world depletes its resources. The USA’s real problem is its extreme right wing late-stage oligarchic capitalism which is destroying equity, allowing infrastructure to decay, permitting tens of millions to sink into unemployment and poverty, permitting urban and rural decay, destroying the public education system and facilitating the hollowing out of the real economy by the financial economy and the off-shoring of manufacturing capacity.

    In short, the US still has a great legacy economy because it is declining from a very high base. However, unless politics and the political economy change very radically in the USA then it is destined for collapse and disintegration. If the current corrupt and maladaptive system continues for too long (say another 10 to 15 years) the US will end up looking and performing like the FSU (Former Soviet Union).

  34. Terje, a special economic zone of a few thousand square km somewhere in the remote north sounds like you want to set up a tax haven. What else do you imagine that people would do up there with lower taxes that wouldn’t be economical to do now?

  35. I thought the IPA favoured the free enterprise economic system.

    The north has had about 150 years to be developed by the free enterprise economic system. If it hasn’t happened, surely that is nature’s way of telling us that there are some economic and geographic fundamentals against it?

  36. Gina Rinehart, Australia’s richest woman and one who has done nothing to earn her wealth except to be very successful in Family Court

    This provides a demonstration of the biggest flaw in our tax system, i.e. there is no taxation on a lot of the increase in wealth that came about with no or little effort. Our tax system taxes financial reward for effort (income tax on wages etc., GST) and so discourages productive effort. Yet at the same time it fails to tax windfall profits worth far in excess of the effort required. Our tax system is thus very economically inefficient.

  37. This interesting infographic vid has been doing the rounds. It essentially describes Australia in twenty years if the IPA and “libertarians” get their way.

  38. Ronald

    I’ve done a few studies of new/expanded irrigation schemes in norther Australia over the last few years. I still haven’t found one that actually stacks up without explicit or implicit subsidies.

    It is easy enough to grow the food. it is not easy (or commercially viable) to get it to consumers in an appropriate condition or at a price that is competitive. I can’t see this situation changing in the short to medium term.

    @Ronald Brak

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