A Bright Future Fund

Peter Costello – take a bow!

In securing Melbourne as the headquarters of the Future Fund, the $140 Billion Investment Fund to be set up by the Federal Government to invest surpluses from the Telstra Sale and future Government surpluses, he has reversed the Sydney centricity of the Federal Government and guaranteed Melbourne as a strong financial centre forever.

Melbourne is a creative, vibrant and entrepeneurial city that has created and driven most things which Australians hold dear. From Dame Edna Everage, Fosters, Vegemite and the “Aussie” Holden to “Little Kylie”, Hey Hey It’s Saturday and our wonderful game of Australian Rules Football, everything that is and was good and great about this country has been born in Melbourne.

Such will be the Future Fund.

Water into a leaky bucket = An empty bucket

A very interesting article in the English Version of DER SPIEGEL, the respected German Newspaper.

It is with Kenyan Economist James Shikwati, who PLEADS with the West to stop aid to Africa.

In essence, what he is saying is something I have long believed in: That climate and history are not the causes of poverty and starvation in Africa, it is simply the lack of good government. The longer we pump money into the corrupt and incompetent African Governments, the longer they stay in power and keep the good people of Africa in a socialistic and subservient means of existence.

When we can free Africa from the grips of poor/socialistic/non-democratic Government, then the better of they will be. Look at Zimbabwe for example. It was a country which was democratic, free, capitalistic and prosperous. the Mugabe took over, used Government discretion to change things, impose his own wage, price and market fixes, and the next thing you know STARVATION occured.


“Relieve Me” or “How I Sacked the Taxman”

I have long believed in small government and small taxation.

In Australia, this has seemed like a pipe dream due to the lack of control of the Senate and state governments by a truly liberal force.

However, now it seems there is a liberal force in Australian Parliament. Two relatively new members of Parliament, Sophie Panopoulos and Mitch Fifield, have brought about an informal policy group which is pushing for real tax reform in Australia.

Very, very happy
Better than tax relief

The GST package was a good start, but not good enough. Australia is still heavily taxed and still has an extraordinary number of taxes and taxes by another name: levies, charges, surcharge, fees etc., all of which contribute to distortions, inequities and reams of paperwork for people and businesses in Australia.

Taxation reform is necessary on the most basic levels because, when choosing whether or not to work, you trade spare time with the ability to earn. Most of us don’t have a choice – we work to support our lives and families. But others, namely retirees and part time workers, are essentially punished if they choose to work. The incentive is not there.

Further, Australia is facing a skills shortage as the population gets older. Part of this problem is that older people don’t want to work too late, but also because, as the Aussie tradition goes, many bright young things piss off overseas as soon as they can plug themselves into the global job market. Whether it’s London, Singpore or elsewhere, many of the most talented and high profile Aussies have no interest in staying in a country which takes close to half of everything they earn in tax.

What makes a lot more sense is a simple progression of the GST system. Firstly, take away every single tax that exists apart from the GST and income tax – stamp duty, bank levies, blah blah blah – there are literally hundreds.

Then take away deductions. People shouldn’t be able to deduct anything from tax. It causes inefficiencies. If people such as plumbers feel hard done by, then they should charge more – the effective market rate for their services.

Then, take away the weird scale rates of income taxation. Make it simple: No tax payable up to $20,000. 10% up to $40,000. 15% payable up to $60,000. 20% up to $80,000. 25% up to $100,000 30% payable on everything over that.

Then boost the GST by maybe 5% – so that it’s a 15% GST. (Mind you these figures may not add up in terms of a decent revenue base but you never know…)

So – Aussies pay a maximum 30% of their wages to tax (matching the corporate tax rate and doing away with the stupid and wasteful 17% shelf company industry) and 15% on consumption with no deductions for food or any other distortions.

A simple piece of tax legislation which would eliminate the need for thousands of jobs at the ATO, thousands of pages of boring and complicated tax legislation, complicated and hassled tax returns. All these tax minimisation schemes and arrangements would be useless and money would be directed to effective, growth fulfilling investments instead of the most tax effective ones.

The bigger picture: attracting back the skills and talents of the over 1 million Aussies who live overseas. Growing Australia’s skill base. Making this country the most progressive, modern tax regime in the world.

The Rich Get Richer and the Poor get EVEN RICHER!

Shout it from the rooftops.

The rich are getting richer in Australia – but the poor are getting richer quicker!

According to this report, average income in the bottom 20 per cent of earners rose 18.5 per cent from 1997 to 2004, compared with a rise of 17.5 per cent for median income families.

So what does this mean? Simply that globalisation, outsourcing, free trade, labour market flexibility, tax reform, competition policy and all of the multiple developments in the Australian and international economy ARE RELATIVELY BETTER FOR THE POOREST PEOPLE IN THE ECONOMY!

So why is it that socialists whinge and moan about the “injustices of globalisation” and “fair trade not free trade”? Because they have no understanding of the realities of economics.  Only the hype of capitalism-hate.

What a fantastic result. To freedom!

Kyoto will be bad for energy prices and the economy

Mark Latham has been talking about a “secret tax” on energy to fund renewable resources.

A concern – and not necessarily something to be believed.

The Coalition doesn’t (and shouldn’t) believe in Government discretion and the levying of taxes on markets to distort outcomes. The MARKET can achieve this without the Government doing it.

So using the example of renewable energy, if people want to put solar panels on the roof and buy “green power” from their electricity retailer, then they can do it. They, the market, the consumers can do it of their own free will. If they believe so strongly in the environment, then they should sign up for green energy at home. If they don’t want to, then they shouldn’t have to. (As an aside, how many Greens have actually signed up for “green power”? You know the old saying that money talks?) For a government to levy a tax just doesn’t make sense, unless you are from the left, in which case legislated theft is utterly normal.

Latham will have you believe that signing the Kyoto Protocol is good for Australia. My view is it will be a DISASTER!

Firstly the key to Kyoto is reducing emissions to 8% above 1990 levels. Australia is currently only 1.8% above those levels anyway, so there’s no real need.

Secondly, and most tragically, if Australia signs the agreement, it will open up international carbon trading. I am torn on this issue. Emissions trading is a great idea in that it attaches a price mechanism to pollution. The Government puts a cap on the total amount of pollution in the air and then everyone is allowed a “share” of that pollution allowance. If someone decides that they will not longer pollute, they get credits worth the difference of their polluting and non-polluting levels.

Then, each credit can be traded worldwide. Currently, such credits, which are measured in tons of carbon dioxide are estimated to be worth between $10 and $700 per ton. Let’s assume that it is a conservative midpoint of around $200 per ton.

What most of Victoria’s coal fired power plants will do is immediately weigh up the profit they make from selling electricity versus the profit they will make from shutting down the plants and reaping the rich rewards from carbon credits and selling them on the open markets. Obviously the environment will improve, but the price of electricity will then SKYROCKET to maybe 8 or 9 times its current price (according to Ken Edwards, the CEO of NextGen Energy), or at least until the profits from the sale of electricity equal the profits from the sale of credits.

If you believe that it’s not so bad if coal-driven baseload energy prices skyrocket – as “we can always cut down electricity usage or get some solar panels”. But the big point, and this has barely been discussed, is that industry, particular Victoria’s manufacturing industry, which thrives on cheap coal fired electricity may have to shut down. One study showed immediate losses of at least 15,000 jobs and a reduction in Victoria’s GDP of 8% in the first year. We are talking a cataclysm, or at least some very serious ramifications for baseload heavy industry.

Toyota, Holden, Ford, Comalco, Alcoa just to name five big manufacturers, will find that their already substantial electricity bills will go through the roof. It will not be worthwhile or economically feasible to operate in Victoria anymore. While we currently have one of the lowest electricity costs in the world due our massive reserve of coal under the LaTrobe Valley (500 years worth at last count), by turning our back on coal and forcing Australians into green we do so at great peril.

Labor’s idea of Kyoto is warm and fuzzy but it is a false economy. Idealistic, but extremely bad outcomes.

For a detailed examination of the Kyoto Protocol and the disaster it promises to be for Victoria, download this report prepared for the Victorian Government.

Free trade is music to my ears

The fear and loathing which has poured from the creative industries about the upcoming Free Trade Agreement (FTA) with the US is an ill-informed and ill-performed stage show. The creative industries have got to be less outraged and more aware of what the FTA truly means, as they stand to benefit from such a change in our terms of trade.

There are multiple barriers to entry and distortions that governments all over the world set up in the name of protectionism. However protectionism serves only to destroy economies and harm the ability of consumers to pick and choose the best, rewarding the best and most efficient producers. Protectionism promotes complacency from the protected companies and producers of product and it lessens the ability for consumers to pick and choose goods and services that meet their needs the best, whether from Australia, the USA or any other country.

With the removal of trade barriers, the biggest winners are consumers. We find products at lesser prices, with a greater range. The savings we make on cheaper products we either save or spend on more products. The economy grows and the “dead weight loss” of protectionism leaves us wealthier.

However there are vested interests and arguments that have skewed the coverage of the negotiations. Whether these arguments are spurred by anti-Americanism (hypocritically, while the creative industries have their main source of inspiration and Mecca in the US, they find it easier to mock and ridicule its influence), or whether it is a total ignorance of economics and the advantages of allowing willing and informed people to trade with one another without the interfering arm of Governments standing in the way, or whether it is an unwillingness to stand accountable to investors and critics, the creative industries have been rabid. But much like Governor Schwarzenegger’s most recent films, their argument is a lot of interesting hype and no substance.

The Australian film and TV industry has been particularly vociferous in their argument over the retention of Aussie content on film and TV. They argue for the retention of quotas due to their perceived easy substitutability of foreign product. As their argument claims, TV shows are much of a muchness – an Aussie drama is the same as an American drama only more expensive – therefore we have to protect the Aussie content from being overrun.

Also, because the TV broadcast quotas affect the consumption of the product, that is that TV shows are services and as such are simultaneously produced and consumed and cannot be stored on the shelves and purchased later, they argue quotas are necessary otherwise it is possible that there would be no means for Australians to watch Australian TV shows.

These arguments are totally false in that they assume that people’s tastes are irrelevant and that they will consume what is served up to them, come what may. This is the same stupid argument that is used when people argue against other corporate (read American) behemoths such as Coke, McDonalds and Starbucks.

“Local restaurants will close and all we’ll have to eat are Big Macs,” they proclaim. “My local espresso shop will be driven out of business”. Their argument implies that all it takes for world domination is enough money and geographic spread. The tastes, preferences and simple, plain obvious evidence that people like their local coffee shop or local fashion label or local sport or local TV show because it provides something different and unique at high quality are ignored in this absurd argument.

A similar argument exists in the music industry. Radio quotas mean that Australian radio is obliged to play Aussie music at least 25 per cent of the time. Without these quotas, the music industry argues, radio stations would blindly adopt playlists of foreign radio stations and there would be no Australian music on the radio. This would, they argue, result in the end of the Australian Music industry. However this argument is again fundamentally flawed.

First, what is “Australian Music”? Radio stations that play a new song by Kylie Minogue could barely be playing Australian music, could they? A song funded by an English record company, written by foreign songwriters, published by a multitude of foreign music publishers, recorded, mixed, mastered overseas and sung by an artist who herself lives a majority of the year in the UK could barely be called “Australian content” could it? But it IS! AC/DC, a band that has not lived, nay visited, Australia in years is still regarded as Australian content for radio purposes. As is Natalie Imbruglia, who was signed out of BMG UK (therefore controlled and marketed from the UK) and for all intents and purposes is an English artist. If the basis of broadcast quotas is to encourage Australian culture, then how is it being aided in these instances?

Second, unlike the TV industry, Australian radio content laws apply only to the playing of music in terms of its role as a promotional tool. Unlike TV which has no other means of consumption, music is primarily produced to be purchased, with radio only playing the part of promotional tool (albeit a major one). Even if Australian radio failed to play Aussie music, it would not cause holocaust (just ask George, who were BARELY played on commercial radio and still managed to sell double platinum and win, ironically, the “Best New Talent” at the 2002 Commercial Radio Awards). And when was the last time a commercial radio station played a John Farnham song?

Furthermore, with the explosion of streaming music stations and portable music formats, radio is finding itself largely irrelevant in the discovery of new acts. How can a quota possibly cope with or be relevant in five years time when most likely we will be able to listen to a wireless digital webcast from a station anywhere around the world?

Third, if quotas were removed, local radio stations would STILL have a commercial interest in playing local music. Just as all politics is local, all radio is local. Radio plays the music that the local audiences want to hear otherwise their ratings suffer and their ability to attract advertisers suffers. Just like the earlier argument in the context of McDonalds and Starbucks, people DO want something unique and interesting; they do want things that are local, Australian, part of their community and importantly of equal or better quality than the other product.

New Australian music will still be played on the radio as long as it is better than the next best alternative. The same applies in every venture; people have unique tastes and local people cater better than foreigners – if they don’t then there has been no loss – we could have had the American Idol broadcast here but instead we have had our own!

Fourth, people are huge fans. People who are fanatical supporters of artists, whether Aussie or otherwise, will always support their band through thick and thin. They will not simply “substitute” their affection for one act for another just because they are playing a similar style of music. Something for Kate fans will not replace their preference for “like” bands and accept it as an alternative – they will want to hear Something for Kate.

There is an argument that in the long term bands such as Something for Kate will not exist to create a fan base if not for the quota system. However these bands currently struggle to get airplay until the quality of their songs, the fortitude of their record company and the size of their fan base (built through touring and other means of promotion) is good enough to convince recalcitrant Music Directors.

The point being if young bands are not good enough, then they don’t get played anyway. They have to be just that bit better to play in a free system. They get better by writing more songs, playing more gigs, taking more time in the studio – the outcome being their songs are very, very good when they are launched upon the world. What’s wrong with that? How is that any different to any other competitive environment?

Free trade has thankfully opened up industries which were bloated and inefficient and has created lean, efficient and largely far more successful products than ever before. The Australian car industry is a great example of this. For years we struggled with low quality, overpriced and generally unappealing locally made cars. When tariffs were reduced, car quality got better as the local manufacturers found themselves less “safe”. Yes, some jobs were lost. Yes, Nissan closed its manufacturing plants. But at the same time, Toyota, Holden, Ford and Mitsubishi have found that the utilisation of skilled and creative Aussie labour has meant cars are now made here which are exported all over the world – this never happened in the “good old days” of protectionism! They could have imported 100 per cent of their cars but they realise that not only is Australia a relevant market to cater to but a relevant market to export from. This is the outcome that Australia’s creative industries should be aiming for.

If (and it’s a very unlikely if, but if) the FTA means the removal of quotas it will hardly make a difference. The fact is that if the product is good, it will get a run in any case. The corollary being if the product isn’t good enough to compete, then what’s the point of even pushing it? If it’s not good enough to compete, will it sell? Highly unlikely. If it can’t get on radio by virtue of the fact that it doesn’t cut the mustard with the latest Madonna or Coldplay single, will it mean the end of the act? NO! It will mean an improvement, a greater incentive to provide a better product from the artist and the company. And the better the product, the more satisfaction from the consumer, and we ALL win.