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I hope IPA executive director John Roskom took his team out for a celebratory single malt last night. With the passage of Morrison’s income tax cuts, the Institute of Public Affairs (IPA) have shown once again that they are a radical force in Australian political-economy.

Other civil society groups can only dream of having the influence they do. And I wonder, did our friends over at the IPA look around the crowded taproom, at the happy knock-off drinkers, those labourers in their blue Italian suits, or their hi-vis and steel caps, and think “there is no society, only individuals and families”? 

Did they see the young woman behind the bar, working to pay rent while she earns her bachelors degree? Did they see the students she serves, who after a modest pot and a round of trivia, can return to the books, safe in the knowledge that their monthly allowance would turn up in their bank account and the heat would be on in their family trust owned studio apartment? Did they see equivalence? 

We are meant to understand that “flattening” the progressivity of income taxation is fair.

It is fair because if you work hard and earn more throughout your life, you should not be discouraged. The government should not discourage you by taking your earnings and using them to ensure all children receive an equally good education, for example. The logic of “market outcomes as fairness” assures us that deserving children are only born to the well-off and the industrious. 

Let’s pretend for a second that “deregulated” labour markets produce outcomes that reflect people’s effort. If all other things are held equal: if I have equal access to the gifts of nature (inner-city locations, genetic material, a flourishing biosphere) if I have equal access to the deep spring of human knowledge and its technological innovations (Locke’s Treatises, microprocessors, synthetic insulin); if somebody (anybody) builds the bits and bobs that private firms won’t build because the benefits can’t be fenced off, or it is just too costly to go it alone (sewerage systems, electricity grids, freeways). If all other things are held equal, then ‘flattening’ income taxation could be great for the economy! 

People should be rewarded for their efforts, and our rewards should be commensurate with the contribution we make (we can think about unpaid reproductive work another time). 

But what if our income doesn’t reflect effort or merit, but is derived from government-granted privilege? 

Let’s take IPA life member and money-bag in residence Gina Rinehart as an example. For a university dropout, she is stonkingly rich. Hey, university isn’t for everyone, and neither is inherited wealth. Along with her siblings, Gina inherited her father’s mining exploration business. According to our open-source knowledge commons (wikipedia), Lang Hancock’s mining activities were mainly related to exploration and the accumulation of vast mining leases. Mining leases are a super valuable government granted privilege.

We, the collective that co-creates an entity we call Australia, give you, Gina Rinehart of Hancock Prospecting, permission to dig up the mineral wealth that belongs to us all. We admire your enterprising spirit. We like steel. Go for it. One caveat: given that this is a once in a trillion years, finite resource we think it’d be fair if the spread of benefits reflected the fact that this is not your iron ore, it is our iron ore that we are letting you dig up (we could have let anyone dig it up, but you were there first). 

These mining rights are so valuable, Gina doesn’t even have to dig it up herself, she can sit back and let Rio Tinto dig it up and get 50% of the profits. Gina Rinehart’s cut is a return to the monopoly we granted her dear old dad when we issued the mining lease. In economic parlance, it is a rent; income drawn from the resources that were found on this earth, not created.

Rents are a tricky area for free market, small-government libertarians, whose values and worldview permeate the Morrison Government’s policy agenda. They quote the wisdom of classical liberal philosophers on individual freedoms and property rights, but fail to pick up the passages on the biggest boondoggle of free markets. It’s not government, it’s monopoly. Or what should be John Roskom’s worst nightmare, monopolists in government. 

Here again, Mrs Rinehart provides a neat illustration in part because you know who she is, and you know who she is because Gina led the campaign to scuttle the Mineral Resource Rent Tax (MRRT). 

If we indulge in small-government logic, put on our Rothbardian coloured-glasses, the MRRT looks like a tax grab by a government determined to destroy investment in the extractive industries. Progressive income tax rates look the same: a tax grab by those who don’t work as hard. 

Yet they are not morally (or economically) equivalent. When we treat ALL tax as theft, we lose sight of ALL the gifts imparted by property rights. Chief among them, the right to keep super profits you did diddly squat to earn. 

This is not the voice for freedom. It is a voice for rent-seeking and entrenched hereditary advantage. 

So by all means Prime Minister ‘flatten’ the income tax rates. But you’ll need to increase taxation on economic rents and monopoly to make the field fair and favour-free. Here’s a few suggestions: 

  • Reinstate a carbon tax. Free-emissions are like a free-lunch for vested interests. This gift of open slather atmospheric and oceanic carbon dumps is exceedingly generous (and risky). A carbon tax would encourage the diffusion of better technology and new create new jobs in these nascent industries. 
  • Reinstate a functional MRRT with some teeth. Make the PRRT work (like you said you would). Auction exploration rights more often.
  • Make everyone pay land tax, not just businesses and property investors. Yes, that means taxing the land under the family home, but you know what property markets do an excellent job of pricing those locational benefits. Land tax comes with built-in progressivity.
  • Get serious about the implications of intellectual property and platform monopoly and start developing policies to ensure a public return on all the money we’ve poured into education, research and development.
  • Keep the banking levy. We issue banking licenses to create credit and charge interest on those loans. These licenses are a privilege that have enabled vast fortunes to be built.
  • Stop giving away development rights in the form of land rezonings and then telling us you can’t afford to build a high speed rail network. We call bullshit on that. It’s called Value Capture (talk to John Alexander MP, he knows all about it).
  • Stop outsourcing welfare to the government-created racket that is job network service providers. If you think welfare is unfair, put the MRRT revenue in a sovereign wealth fund and pay everyone a basic income with the capital interest.
  • Stop treating mining, property, financial services as value-creators in your economic policy. They are value-extractors for the most part.

 

unsplash-logoMatthew Kerslake