16/06/2011 - 00:00

People put trust in government post-GFC

16/06/2011 - 00:00


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You won’t see many sights stranger than thousands of people rallying in support of a tax.

‘PLEASE sir, I want more taxes.’ Apologies to Charles Dickens, who immortalised a line similar to that when his character, Oliver Twist, asked for more gruel, but that is what some Australians sound like as they cheer on a government with tax on its brain.

Recent rent-a-crowd demonstrations calling for a carbon tax come after similar public outpourings of support for the minerals resource rent tax (MRRT).

Soon, the same mob might even be demanding the imposition of the goods and services tax on sales made over the internet, which is fast emerging as a cause in the US where retailers are doing it as tough as they are here.

For some utterly bizarre reason, higher taxes have become popular with people around the world in the belief that government knows how best to spend their money.

No-one doubts that governments need cash to perform public services. Healthcare is the classic, along with police and roads.

But since the global financial crisis there has been a rush to embrace government in the belief that it will do a better job running the economy than businessmen and bankers.

In Australia, we’ve had a dose of that in the form of the ceiling batts scandal, the solar subsidy scandal, the school building scandal, and countless other examples of government wasting taxpayer funds – with the latest being massive cost overruns on the air warfare destroyer building program.

It’s the same story in the US, “home of the best and the worst”, to nick another quote, this time from Leonard Cohen.

In the US where the worst of the bank mistakes and outright frauds were committed, there is also a belief that government knows best.

However, it can also be argued that the seeds of the disaster were sown by government in 1994 when US president Bill Clinton famously called for home loans to be made more readily available to poor and under-privileged families.

From that noble sentiment grew a type of government-approved loan called sub-prime, and with that came the double-barrelled corruption of bankers lying about the terms of the loans, and borrowers lying about their ability to repay. The rest is history.

Today, we have government offering a solution to the world’s financial ills in much the same way it offered a solution to the woes of people who couldn’t afford to buy a home in the 1990s.

The new approach from government is a massive tax attack to retire the debts taken on in the name of saving the banks, which were in trouble largely because of a government mandated sub-prime mess.

The carbon tax is being sold as a lead-up to an emissions trading scheme. When it becomes a trading scheme it might do some good. Before then it is a tax masquerading as an environmental saviour.

The MRRT is a tax on the only part of the Australian economy performing strongly. It’s driven by the belief that, if you tax the rich in the mining states you can help the poor in the south-east corner, when it would make more sense to encourage the south-east to get with the plan and encourage resources development in their backyards.

Sadly, we are entering an era of rising taxes around the world as we are seeing in Australia, and in these examples.

• GST on internet sales is attracting support among law makers in the US, and that means it will flow to Australia. Retailers in the US, like here, are being hit hard by internet competition, though with a variation. Over there, sales tax (as it is called) is collected on some internet sales if the seller has a shop in the state where the sale took place. No shop, no sales tax, which is good news for pure-net vendors such as Amazon. A proposed law is now making its way through the US government, which would apply sales tax on all internet sales.

• Indonesia is joining the higher mining tax brigade with a plan to boost mining royalties. Big miners, such as Freeport McMoran and its giant Grasberg copper and gold mine, are the first target for the increase.

• Tanzania has also chimed in with plans to whack goldminers with a ‘super-tax’ on high profits. It follows a push for higher taxes across Africa, with Australia’s attempts to launch its MRRT used as a supporting argument.

In time, perhaps long after this column has had its last word, voters will realise the error in allowing government to jack-up taxes at will in the name of running an economy better than the private sector.

That’s why the sight of demonstrators cheering on higher taxes has to be one of the strangest events since man learned to walk.

Tech wreck

SPOTTING the first daffodil is a time-honoured pursuit in Britain because it is said to mark the start of spring – whereas spotting the first lame duck technology development could mark the start of the ‘tech wreck mark II’.

Currently most investors, especially in the US, can only see a tech boom. They will change their tunes as they look closer into what is really being sold, because most of the promises will never lead to viable businesses.

Groupon is the technology development with the title of most likely to flop, triggering a cavalcade of failures.

The problem with Groupon, as some critics have spotted, is that it is nothing more than an up-market variation on gift cards, or dining card books sold to households in the name of getting people to try local restaurants that offer a one-off free meal for a party of four, or something similar.

Everyone knows that the dining books are a gimmick. They work for a while, but very few people go back after they’ve got their free meal. Groupon, which is being valued at more than $US6 billion by investors, is doomed to go the same way, heralding ‘tech wreck mark II’.


“Taxes are not levied for the benefit of the taxed.”

Robert A Heinlein


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