Australia's latest attempt to loot the productive sectors of the country to enable the continuation of the welfare-warfare state comes in the form of a "super" profits tax[1]. They have justified it using typical Marxian rhetoric, the classic example being that Australians deserve their "fair share". I am not going to examine this tax through the lens of the opposition, in other words by attacking it on details (question their figures and so on) but will rather object to it on principle and economics alone. This tax, quite simply, is backdoor nationalisation and just steepens the road to serfdom which, it would appear, is the end game for the Labor party.

Profit, "Super" Profit and our "Fair Share"

"It is necessary to guard ourselves from thinking that the practice of the scientific method enlarges the powers of the human mind. Nothing is more flatly contradicted by experience than the belief that a man distinguished in one or even more departments of science, is more likely to think sensibly about ordinary affairs than anyone else." - Wilfred Trotter

If you listen to what the proponents of this tax say - and you have no choice now that they are spending $38m in tax dollars 'spreading the word' [2] - this tax is all about getting Australians a "fair share...a tax which encourages investment and growth in the industry[3]." First of all, what is "fair" is completely arbitrary. Secondly, the logic used by Rudd is straight out of the Marxian doctrine of exploitation, where the "exploiters" are clearly withholding "unearned" profits from the people and therefore it is up to the government to curtail their generosity and reclaim some of this wealth. This attitude is in line with what every dictator throughout history has done: steal the property of people who cannot defend themselves against the encroachment of the state. As we will touch on later, this has serious repercussions that will - despite what is being promised by the government and their economic models - restrict investment in new capital, output, innovation and, consequently, the wellbeing of the average Australian.

Encouraging Investment and Growth in the Industry

Men are qualified for civil liberties, in exact proportion to their disposition to put moral chains upon their appetites: in proportion as their love of justice is above their rapacity." - Edmund Burke

The Labor party is under the impression that confiscating profit from the miners will improve the material wellbeing of all those not in the mining industry. Unfortunately, basic economics disagrees. By removing a large part of the profit motive, losses that might be incurred fall upon the miners[4] while a significant share of the profits go to people not involved in the whole process (and in the end it goes to the government NOT 'Australians' - the issue of government vs. private spending will be omitted here). When profits are taxed away from productive enterprise and instead redistributed by the government, a larger portion of it will be consumed rather than reinvested. There is then less capital available for the establishment of new mines and the entire state of production and innovation, adjustment, improvement and progress is forcefully held back. This, contrary to the rhetoric we are hearing, will impoverish the average Australian.

The Greedy Miners

"Experience should teach us to be most on our guard to protect liberty when the government's purposes are beneficial. Men born to freedom are naturally alert to repel invasion of liberty by evil-minded rulers. The greater dangers to liberty lurk in insidious encroachment by men of zeal, well-meaning but without understanding." - Justice Louis Brandeis

The attacks on mining magnates such as Clive Palmer stem from an erroneous interpretation of the operation of the market economy. What makes a firm big in a market economy is how well it succeeds in meeting the demands of the consumer. If they fail in this task, they would not be big for long. Large profits are nothing more than a signal sent by consumers that the producer is doing a good job; it is proof that they are rendering a desirable service. These profits do not come at the expense of the average Australian; in fact, everyone is better supplied than they would have been in absence of this profit. If you remove the opportunity to earn profits in mining, then the incentives to innovate, cut costs, increase production and so on are stunted - the best and brightest people, the people who know how to utilise the factors of production in the best way - would simply not bother if a large percentage of gains they might make are to be taxed away.

Emotion for Political Gain

"When words lose their meaning, people will lose their liberty." - Confucius

The common view that mining companies are profiteering from non-renewable resources with little benefit to the average Australian is a strong emotional argument largely emanating from the government. The problem with this argument is that it serves to discredit the benefit that the average Australian receives from the development of these natural resources. The mining companies take the risk onto themselves by spending billions on exploring and studying the potential of mine sites; passing government regulations; raising capital; building infrastructure (this includes things like building new ports and providing access to electricity, healthcare, education and so on which all reduce the costs of future expansions, to other business ventures that might otherwise have been uneconomical and raises the standard of living of the people involved); and all of this occurs often before anything has been mined. While it is true that the non-renewable resources are more often than not sent overseas, the benefits come back in the form of cheaper cars and other goods that many Australians might not have been able to afford otherwise. After all of this value-add (and there is much much more before you even look at the taxes they already pay), the government still wants to take away an even larger portion of the benefits that the people who shouldered a share of the (considerable) risk - the people who voluntarily decided to cooperate with the owners through investing in the development of the mine - stand to gain if their investment pays off.

The End Game

"Fanatics may suppose, that domination is founded on grace, and that saints alone inherit the earth; but the civil magistrate very justly puts these sublime theorists on the same footing with the common robbers, and teaches them by severe discipline, that a rule, which, in speculation, may seem the most advantageous to society, may yet be found, in practice, totally pernicious and destructive." - David Hume

If policies like this one are continued - and believe me, if this gets passed their greedy eyes will relentlessly scour the land for their next target - eventually there will be no one left as profit will have been virtually abolished altogether. Every step toward the elimination of profit serves as a disincentive to the driving force of the market - entrepreneurship - which is based on real judgments and risk taking. Instead of progressing towards a higher standard of living for all Australians, this tax will do nothing but progress us further towards social disintegration. When you eliminate profit and loss it is impossible to have a non-socialist economy - but then again, is that not the ultimate end game for the Labor party?

[1] "Super" being defined as anything above the government bond rate. Source.

[2] http://www.abc.net.au/news/stories/2010/05/28/2912548.htm

[3] http://www.perthnow.com.au/business/kevin-rudd-to-backflip-on-mining-tax-rate/story-e6frg2qc-1225871857168

[4] I understand there might be some kind of 'loss floor' or loss compensation package in place. Once again, this ignores how the the market economy works. It operates on a profit and loss system - the carrot of profits and the stick of losses. Trying to counter balance the loss of the profit motive by lessening the punishment for failure will simply keep bad businesses alive for longer and delay vital restructuring processes. It will encourage moral hazard and - as we have noted in prior posts - if the China bubble bursts, this 'super profits' tax could end up costing the taxpayer through subsidies more than it brings in!

The latest ongoing debate amongst our political nomenklatura is about the $14 billion hard-earned tax dollars that are being spent on knocking down and rebuilding school buildings. When you consider that fourty-two percent (yes, 42%) of Australian families either don’t pay tax or receive more in government benefits than they pay in tax, this amounts to a significant ‘investment’ in education – but is it actually going to provide any long-term benefit for Australia or is it simply yet another example of the broken window fallacy [see Bastiat or Hazlitt], in other words a colossal waste of resources?

I’ll spare you the banter that’s being thrown around in parliament (a brief summary: Labor is defending the spending, saying it will “…modernise school facilities and support jobs in the local community,” and that it represents “…value for money;” the Liberals are calling it “wasteful and reckless spending.”) and instead focus purely on the numbers and whether or not it will ‘stimulate’ the economy – which was, after all, the whole point of it.

Fourteen billion dollars ($14,000,000,000) equates to almost $1,800 for every tax-paying Australian (assuming only 8million people pay tax). Now that’s a significant amount of money those taxpayers no longer have to spend or save – in other words, our omnipotent government has decided that they know how to spend the money better than you, the person who earned it. Whereas the taxpayer earns their income by satisfying the infinite and ever changing wants and needs of the consumer (whether as an entrepreneur or employee of an organisation that does), the government is under no such obligation. They’re not bound by profit or loss; indeed, on the contrary, all they care about are the various interest groups to whom they sold their souls to move up the political ranks.

The stimulus spending on education will not help our economy one iota. Yes, it will create, or rather maintain jobs in the building and construction industry. But at what cost? Going back, what about the $1,800 that taxpayers no longer have to spend or save? Lets assume this money was saved in a bank – that money would added to the national pool of savings which, due to supply and demand (and the subsequent reduction in the interest rate), would lower the cost of borrowing for businesses who would then been able to expand (invest) and spend on ‘productive’ consumption – that is, consumption that will enable future production and increase the total productivity and wealth of the nation. Not only that but it would create jobs in the process; jobs allocated by the market rather than through bureaucratic whims. The difference? One is sustainable while the other can only continue for as long as the stimulus does.

To answer my initial question, will the ‘stimulus’ of knocking down and rebuilding schools help the economy? Will it enable an increase in future production? Will promoting malinvestment and creating jobs in areas where they’re simply not needed achieve anything other than furthering political careers by gaining support from certain unions and interest groups? Unfortunately, no.

“Experience shows that nothing is operated with less economy and with more waste of labour and material of every kind than public services and undertakings. Private enterprise on the other hand naturally induces the owner to work with the greatest economy in his own interest,” Ludwig von Mises

Aside from boosting GDP statistics in the short term, the only thing that will be achieved by this stimulus (aside from shiny new school buildings for the kids of course) is a delay in the necessary reallocation of scarce resources from areas of malinvestment to areas where they’re most urgently needed. The reckless spending embarked on by this government is incredibly short-sighted and there is no doubt that in the process they have lowered the standard of living for all future Australians.

Hey everyone,

So Justin is going to be away for a little while and I've been staring at the home page of aussienomics for the past few days blankly, waiting for some sort of inspiration to descend or arise upon me... sadly nought.  I do have several small thoughts that I guess I can post as regularly as I can until I come up with something long and profound to post.  In any case, feedback and interaction makes the experience better for all of us.

Recently I watched the movie 1984, based off the novel written by George Orwell.  I don't recommend people watch the film, unless you want to see the fantastic acting performance by Richard Burton.  The book is sensational, I'm about 10% of my way through the book myself.  What hit home to me today is that governments around the world are heading for that dystopian destination.  I once thought that it was virtually impossible for that level of tyranny to occur within my life time... I now believe differently.  Sadly, the level of apathy and disengagement of the population has me worried about the future.  My beef is not with the politicians, as they are just men and women with the same power complex that average individuals possess.  My discontent is with you, the person reading this article and the persons who are not reading this article.  My disappointment is with all of us, past and present, who have allowed, either actively or passively, this monstrosity to occur.

What am I talking about, it's simple: legalized tyranny.  In this country you cannot defend yourself with a weapon without fear of imprisonment, they restrict the ability to defend yourself by making it virtually impractical to have a gun in your home and use it for self defense.  The crazy thing about it is, people actually think this is a great idea.  My response is this, if a murderer breaks into your home, which scenario would you prefer:  1) Call the cops and wait 10-20 minutes before they arrive OR  2) Have the means and ability to personally defend yourself without fear of imprisonment for manslaughter?  How about economic tyranny... an income tax, a GST, a corporate tax, property tax, capital gains tax and now, the upcoming carbon tax.  I've said it before, one day the government will find a way to tax you for every breath of CO2 you exhale.

Last in this tirade, but not least, the inflation tax... the debasement of the value of the money you keep in the bank.  I've discussed this previously, but did you know that the money you keep in the bank depreciates in value despite the interest you earn in the bank?  The central bank of Australia (i.e. the RBA) continues to print and print money, perpetuating a fraudulent banking that loans money into existence.  Now as I wrote this sentence I know that people's brains have 'glazed over', they don't know what I'm referring to.  The term 'fractional reserve banking' is a foreign term, much like 'magna carta' or 'habeus corpus'... concepts and principles too difficult to invest time for learning.  And what is the price for this ignorance, this intellectual slavery to our overlords... it is not the suffering that we are enduring now, no that would be too obvious.  The penalty for our unconsciousness is the fact that people LOVE to be enslaved and will defend tooth and nail to 'return to Egypt, for it was better for us there...'.

This is an angry post, and I am angry at all of us... we must wake up before it is too late and we all end up distracted by 'Dancing with the Stars', 'Master Chef' or 'Gossip Girl' and surrender our brain, wallet and soul into the hands of a Beast.

Dr Washo

PS    Love mercy, truth, freedom, knowledge, wisdom, understanding and love itself rather than entertainment, lust and greed.

It must be the most revered word ever uttered by a politician: "fair". All the people want is a "fair go"; a "fair wage"; "fair prices"; their "fair share"; a "fair deal"; ad infinitum. They use it every day to justify anything they please to cheers from the people. One policy where it is used without fail, which (almost) no one questions, is the progressive tax system.

Somehow a free society, one where individual property rights are vehemently protected, people are free to keep what they labour for, what they save, what they buy (i.e. their own property), is "unfair". Unsurprisingly, Professor Peter Whiteford from the University of New South Wales in last Friday's Australian Financial Review (AFR) reported that we now have the most progressive tax system in the whole of the OECD:

“Australia had the most progressive tax system in the Organisation of Economic Co-operation and Development, redistributing more tax from rich to poor than any other country.”

It's a good time to be poor in Australia, as the ..."poorest 25 percent receive 12 times the benefits of the richest 25 percent" while they contribute considerably less in tax (ibid). Of course, very few people are voluntarily in the bottom 25 percent. It’s the policies of government that encourages them to stay down there with generous welfare payments; minimum wage legislation; and an annual debasement of the currency of approximately 10-20%, creating a moving target that they're unlikely to ever reach. The government has effectively created a class that is solely dependant on the state for its very existence.

Here's a great quote from Lysander Spooner's No Treason No. 6: The Constitution of No Authority (1870):

"The highwayman takes solely upon himself the responsibility, danger, and crime of his own act. He does not pretend that he has any rightful claim to your money, or that he intends to use it for your own benefit. He does not pretend to be anything but a robber. He has not acquired impudence enough to profess to be merely a “protector,” and that he takes men’s money against their will, merely to enable him to “protect” those infatuated travellers, who feel perfectly able to protect themselves, or do not appreciate his peculiar system of protection. He is too sensible a man to make such professions as these. Furthermore, having taken your money, he leaves you, as you wish him to do. He does not persist in following you on the road, against your will; assuming to be your rightful “sovereign,” on account of the “protection” he affords you. He does not keep “protecting” you, by commanding you to bow down and serve him; by requiring you to do this, and forbidding you to do that; by robbing you of more money as often as he finds it for his interest or pleasure to do so; and by branding you as a rebel, a traitor, and an enemy to your country, and shooting you down without mercy, if you dispute his authority, or resist his demands. He is too much of a gentleman to be guilty of such impostures, and insults, and villainies as these. In short, he does not, in addition to robbing you, attempt to make you either his dupe or his slave.”

The only people who would lose in a truly "fair" system where people are entitled to reap the fruits of their labour are the politicians, their academic allies and the thousands of interest groups that exist solely to lobby the government for "favours". The progressive tax system along with other policies that target "fairness" or "equality" punish everyone from every income bracket, decimating productive activity by discouraging hard work and rewarding sloth and waste. If it is morally correct to forcefully take from some and give to others or to favour one party at the expense of another, where does it end? Would it not be better to just take everything anyone earns and redistribute it accordingly? The progressive economy we have is ever increasingly leading us down the road towards a command system. The whole moral compass or "fair go" justification for a progressive tax system is one big reductio ad absurdum, unless of course socialism IS the goal. One wonders if Julia Gillard ever gets elected whether or not she will take these logical steps and lead us into poverty, sorry, “equality”.

What is wrong with a system where the people who have earned money are entitled to keep it in its entirety? Surely individuals who have proven that they can best satisfy the wants and needs of consumers, who continually seek to make cheaper and better products than their competitors, can be trusted to provide benefits for "society" more than politicians who earn their stripes by conciliating pressure groups and supporting projects that will win them votes. Surely the entrepreneur who time after time risks his own money to finance products and drive down prices for everyone is better placed than a politician who never risks his own money and is always subject to bribes and corruption. Surely a system where savings and wages aren’t continually eroded is better than the constant debasement of the currency under the guise of maintaining a “steady price level” where inflation and unemployment often run rampant.

Abolish the income tax and return to sound money by taking the ability to inflate away from the Reserve Bank and the state. That is the key to achieving growth, wealth and a “fair go” for everyone, not more regulation and big government aimed at saving people from themselves.

From the Sunday Herald Sun:

TATTLETALES are dobbing in their neighbours, workmates and former lovers for being tax cheats. More than 152 people a day are informing on friends, business associates and workmates, delivering a windfall of millions of dollars to the Australian Taxation Office.

Well isn't this a flashback to the 1930's where Stalin's NKVD trained their agents specifically in the art of manipulating people to report on their family and friends. As Professor Robert Higgs has shown, crisis generally leads to rapid government expansion as people fall victim to the "siren song" that the politicians know how to sing all too well. As Margaret Atwood's poem "Siren Song" begins:

This is the one song everyone
would like to learn: the song
that is irresistible:
the song that forces men
to leap overboard in squadrons
even though they see the beached skulls.

Fear leads to the misconception, the confusion, that the protective arm of the government is the solution to our woes. The government inevitably expands and becomes more involved in everything to do with our lives. Finally, once the situation "returns to normal", the government may contract, but not to pre-crisis levels; it stays involved with the inevitable trajectory (if it's not stopped) being the creation of a total state.

Encouraging people to "dob in their mates" sets people against each other and will eventually result in an all against all. This divide and conquer mentality is exactly what happened during the creation of the Soviet state. To steal from Prof. Higgs again,

In the present regard, it works every time because the people falsely believe that those who sing it [the siren song] are their protectors, rather than their exploiters. Until people learn to disregard the state's siren song of beneficence and protection, they will continue to suffer and die as victims of the state's wars, foreign and domestic. People yearn for security, and they look to the state to provide it, but they are calling upon a wolf to guard the sheep.

Don't let yourself be blinded by fear or state propaganda: ignore the Siren Song!

THE amount of tax paid by the average Australian has jumped by up to 40 per cent in just five years, according to new statistics -- Source.

Who would have guessed, taxes are increasing already! Just wait until the bill arrives for the Rudd National Broadband Network, stimulus packages and various other 'nation building' projects. Perhaps a return to the 1950s of 75% tax is on the cards in the near future?

Wow, would you look at the size of government soar!

Could we be on the way back up? I think so thanks to all of that Ruddness we're lucky enough to be getting! Stay tuned for an upcoming post on economic growth and government size.

That's right folks, the government estimates that the new National Broadband Network (NBN) they're going to fly solo with will cost working-aged Australians (15-64) approximately $2,935 each. That's assuming the project is completed -- our government has a bad habit of either quitting mid-way (i.e. after an election) or having the project substantially increase in both duration and cost.

• Government rejects all five private sector bidders for the national broadband network, saying they do not provide value for money.
• National broadband "fibre-to-the-home" network now to be built over eight years by a company established by the Government.
• Network will give 90 per cent of homes, schools and businesses a connection of 100 megabits a second, 100 times faster than now.
• Those remaining will get a service of 12 megabits a second through wireless technologies.
• Will support 25,000 jobs a year for each year of construction, with 37 000 jobs in the peak year of construction.
• PM Kevin Rudd says infrastructure project is the biggest ever undertaken by an Australian government.
• Majority share of the company will be held by the Government, with private sector investment capped at 49 per cent.
• Up to $43 billion will be invested by the company in the project, including the $4.7 billion already allocated by the Government.
• Once the project has been up and running for five years, the Government will begin selling its stake in the company. -- Source
  

The government, in their wisdom, decided that the private sector couldn't provide 'value for money'. I suppose nothing would provide government with value though, those pesky private sector companies actually have to think about their customers and shareholders, while the government doesn't pay for anything themselves -- they simply take it from the taxpayers! How is the government creating these jobs? Everyone knows that the government doesn't produce anything, don't they? These 'jobs' are simply jobs that the private sector can no longer create (productive jobs I might add). They're jobs for something the people, individuals, aren't demanding: not only that, but they're jobs plus a layer of bureaucracy, in other words wasted capital.

All day the government has been stressing this is 'stimulus'; yet it's nothing more than fulfilling #6 on the Community Manifesto! We're moving further and further towards a socialist state and the noose around our necks has just been tightened again. If they really wanted Australian's to have fair internet, they would remove all of their regulations and controls on the industry; they would allow the market to function. But we all know Rudd doesn't have the people's interests at hand.

Then they have the galls to say they're going to start selling their stake -- that will surely end well! Why don't the government just skip this middle step (the NBN) and allow private competition with previous government monopolies (Tel$tra) to be free and unhampered!? Privatising this network, when the time comes, is hardly fair: the government has taken from taxpayers around the country to fund this project and is going to ask us to pay them, again, for the privilege of privatisation? Why is the government entitled to the revenue from this taxpayer funded project? It's ridiculous.

I'm not looking forward to being an Australian taxpayer when we eventually have to pay for all of this Ruddish. Expect either inflation (courtesy of the banking monopoly the government has: the RBA) or massive tax hikes or both in the future -- perhaps a return to the 1950s of 75% income tax is on the cards?

Some gold from Malcolm today, he really is running out of ideas. From the ABC:

Opposition Leader Malcolm Turnbull says Prime Minister Kevin Rudd is scaring people by describing global economic conditions as a cyclone.

"Using this type of extravagant language is very counter-productive," he told ABC Radio's AM program.

"Anyone that listens to that is hardly going to take their $900 and spend it - they're going to use it to pay off debt and put it into the bank."

According to Malcolm Turnbull, now that we're too scared to spend we might actually, gasp, start the road to recovery by increasing savings and paying off debt. Yet he chooses to use this as an opportunity to criticise the government?! This shows that both major parties have no idea what they're on about regarding economics. More spending on consumption will not create jobs; it will not pull us out of this crisis. It will only delay the recovery process. We need real savings and for people to pay off the debt they accumulated while living beyond their means. We need a reduction in the size of the state, not an increase. We need to remove the coercive cartel that the state has over banking and money, starting with the RBA. That is what Malcolm should be attacking the government over, not that we're "too scared to spend".

In reply to Malcolm, Wayne Swan chipped in with some usual idiocy,

"I simply reject the notion that there has been no significant impact flowing through from the Government's efforts to stimulate the economy," he told Radio National.

"The alternative is to sit and wait and do nothing and what that will produce is far higher unemployment, far higher lost output and enduring damage to our economy for the long term."

Mr Swan has refused to speculate on whether the country is already in recession but he admits that the nation faces a huge challenge.

"I don't think anybody can say what will occur as we go down the road with this global recession," he said.

Ah, the old "we didn't do enough" fallacy, the "it would have been much worse if we hadn't acted" Keynesian response to the repeated failures of their theory. Their "stimulus" will increase unemployment, it will distort the structure of the economy and will result in further pain in the future.

I have a pretty good idea of what will happen as we go down this slippery road to serfdom: a short-term "fix" through the continuation of a 'stop-go' inflationary policy (in other words, subsidise the banking sector -- Bernanke plans to inflate the money supply to the 'old' level that existed before the bank-created money began to unwind, in effect clearing the banks' debt by devaluaing the currency -- in other words, stealing from anyone who holds USD). Following the 'recovery', inflation will pick up and they'll start to 'tighten' their monetary policy, in the process causing all of the malinvestments that are only around because of the increasing rate of inflation to go broke. In the process, jobs 'created' there will be destroyed and we'll have unemployment in those sectors. We then have the next recession which will come around sooner and will be more severe. Unless these structural issues are resolved, we're destined to have booms and busts, becoming more frequent and severe each time.

Either we have a fundamental change in the way banking and money operate (i.e. free banking) and end this vicious cycle, or...and this is what I'm afraid of...we eventually fall into full-blown socialism.