The Moral Case for Economic Freedom

Kerrod Gream

Kerrod Gream analyses the effects of economic freedom and the positive benefits for those poorest in society.

“The rich are getting richer and the poor are getting poorer” is the catch cry of the left, but this statement is hardly based in reality. With Australia’s income statistics showing that the lowest income households had an increase of 5% between 2009-2010 and 2011-12, with middle income households having an increase of 4% in disposable income.   This in addition to total share of household income between 2007-08 and 2011-12 increased for low and middle income households, and decreased for high income households. This holds true against the argument from the left.

 

 

Changes in Mean Real Equivaliesed Disposable Income

[i]

It’s common to just look at home for the overall quality of life, but of course being a first world nation even our poorest are well off comparatively to underdeveloped nations. It is however a problem of today that we don’t grant those nations the same benefit we had while developing, with calls to remove cheap energy sources such as coal and force them to use inefficient sources such as solar, and to only continue to buy goods from those of us better off. Economic freedom overall is something that should be looked at and the benefits to the poorest not only in first world nations, but in the most impoverish as well. It does have a casual link between economic freedom and the overall wealth the poorest in society hold.

With this being the case it’d be best to look at the relevant cases as to the effects of income when looking at economic freedom. The Fraser Institute does a yearly analysis of economic freedom based on a variety of factors, these being: size of government, legal structure and private property rights, access to sound money, freedom to trade internationally, and regulation of credit, labour and business.  Australia regularly scores well on this metric having scored between 7.9-8/10 between 2005-2010, and scoring 7.88, and 7.87 in 2011 and 2012 respectively. Having been ranked 5th in the world in 2009-10, in 2012 we had dropped to 8th.

But these statistics are best looked at as a global analysis. Nations that are in the top quartile of economic freedom had higher GDP Per Capita; with the top nations having an average per capita GDP of $38,601 in 2013, compared to $6,986 for those nations in the lowest quartile.[ii] While GDP Per Capita does give a good overview we are best to look at the situation for the poorest 10% in each quartile.

In the top quartile of nations the average income of the bottom 10% was $9,881, with the bottom quartile’s bottom 10% of earners having just $1,629 on average in 2013.[iii] This however has improved since 2008, with the bottom 10% in the nations in the highest quartile having an average $8,474 yearly earnings, compared to $910 for those in the bottom quartile of nations with economic freedom. [iv]

Economic Freedom and the Income Earned by the Poorest 10%

[v]

These benefits of higher income levels result in higher life expectancy, with the average life expectancy in the top quartile nations at 80.1, and the lowest quartile sits at 63.1 years.[vi] Those in more economically free nations report a higher life satisfaction, averaging 7.5 out of 10, compared to 4.7 in those in the least free quartiles.[vii]

This is all before addressing income share, this is the share of income between different sets of people. Income share of the poorest 10% is generally pretty consistent across all quartiles of nations based on economic freedom. With those in the highest quartile of economic freedom having the largest share of income at 2.64% this however isn’t reflected in the second highest quartile with the poorest 10% in those nations having the lowest income share. What this effectively shows is that the income share of the poorest isn’t highly affected by different government policies, and redistribution, but rather that it’s fairly consistent across the quartiles of economic freedom. This also shows that the poorest in society have a slightly greater share of the economic pie in economically free nations.  With the best overall result in not redistributing produced wealth, but by increasing the size of the economic pie, as it were.

Economic Freedom and the Income Share of the Poorest 10%

[viii]

Economic Freedom and Economic Growth

[ix]

Looking on this basis the only moral argument to help the poorest in society is not by centralised government control, as that harms economic growth and income levels of the poor. We should continue to strive towards market solutions, rather than centralised solutions, and increase the overall share of wealth not just redistributing the wealth that we have. While the rich may be getting richer, the poor are also getting richer and the best way to help those in the poorest is to encourage economic growth with greater economic freedom, and less government intervention.

 

Kerrod is President of the University of Sydney Economics Society, and also serves as the chairperson of Australia and New Zealand Students for Liberty.

[i] http://www.abs.gov.au/AUSSTATS/abs@.nsf/Lookup/6523.0Main+Features22011-12

[ii] Fraser Institute, “Economic Freedom of the World 2015 Report”

[iii] Ibid

[iv] Fraser Institute, “Economic Freedom of the World 2010 Report”

[v] Fraser Institute, “Economic Freedom of the World 2015 Report” pg 24

[vi] Ibid

[vii] Fraser Institute, “Economic Freedom of the World 2010 Report”

[viii] Fraser Institute, “Economic Freedom of the World 2015 Report” pg 24

[ix] Fraser Institute, “Economic Freedom of the World 2015 Report” pg 23

The Left’s Smear Campaign on Business Revenue is Nothing but a Dishonest Lie

Kerrod GreamKerrod Gream takes on the perception that companies should be taxed on revenue that the left have been pushing since the ATO’s Corporate Tax Transparency Report for the 2013-14 Financial Year.

Following the release of the ATO’s Corporate Tax Transparency Report for the 2013-14 Financial Year there has been a spewing of memes, and distaste from those of the left about how businesses aren’t paying their fair share. These go along the line of “This company made x amount of revenue in 2013/14 but paid almost 0% tax” ignoring that revenue does not equal profit. Their 0% tax figures comes from comparing total revenue to the tax paid, rather than comparing taxable income(aka profit) to tax paid.

The CFMEU's dishonest attack on Boral, who paid their fair share of tax on taxable income.

The CFMEU’s dishonest attack on Boral, who paid their fair share of tax on taxable income.

The unions, all of which they themselves pay no tax, have been some of the worst on the smear campaign on business. Australian Unions are calling for Spotless to pay tax on their $2.2billion of revenue despite the fact that they made an operating loss in the previous financial year and are perfectly entitled to deduct that from their total tax paid. The CFMEU has quite possibly been the worst of the spread of misinformation, providing the image above but also attacking News Corp  and Brickworks(the offending image as of writing this article has been removed) over revenue and not profit. The left wing lobby group GetUp also continued to spread the misconception. Ignoring that 0.2% of companies pay 58.2% of company tax, as reported by Commonwealth Treasury Papers.

The top 0.2% of companies pay 58.2% of company tax.

The top 0.2% of companies pay 58.2% of company tax.

This adds in to various media sources playing into this game of taxing revenue with the ABC attacking companies claiming they paid effectively zero tax on their income. The Guardian creating a calculator to determine which companies you paid more tax than despite having taxable income viewable hoping the reader will conflate revenue and profit. To add to this Buzzfeed jumped on the bandwagon of business ignorance with an outline of companies’ revenue and tax paid, with no reference to actual profit. This intellectual dishonesty either screams of an intentional smear campaign on the productive sector; that is businesses that provide jobs and investment in Australia, or just an abysmal understanding of how businesses operate.  To add into this the Twittersphere has been attacking these companies all over, and openly advocating that revenue is the important figure, and arguing that the only reason they minimise their taxes is because of offshore funnelling of profits.

Michael West

And then Ben Eltham; a reporter for the leftist rag, New Matilda; openly admits that he doesn’t understand how a business operates by not realising that income coming in doesn’t take into account the actual costs of running a business. This includes investment, staff costs, financial costs, and the day to day costs of running a business. Revenue is only useful for looking at turnover compares to previous years, and not in looking at how much money a company actually made, as different sectors have different methods of markups.

Ben Eltham

These people and organisations keep conflating revenue and profit, not seeming to understand that they are two separate things. With revenue being total amount of incomings prior to any expenses being paid. Profits however are what taxes are placed on, because had Boral in the example above paid the 20% that the CFMEU are calling for them to pay on revenue that $855million in tax would turn a $173.3million profit into a $681.7 million loss. These people have no idea how to run a business, and would send every single business bankrupt if they got their way. The best part of the irony in all this is tax exempt organisations calling for organisations that pay far more than they do in tax to be taxed more.

All these organisations and people are the same people that are opposed to a broad based consumption tax in the form of the GST. They don’t get the mental gymnastics to oppose a revenue tax(the GST) while calling for revenue to be taxed. It seems that they don’t understand that costs get passed onto the consumer, and taxing revenue after the fact is just going to destroy business. Any attempt to attack the big end of town will inevitably hit smaller businesses harder, as they don’t have the structural base to bring about easy compliance with new tax and regulation.

Those on the left calling for taxing of revenue obviously haven’t read what was contained in the ATO report. The ATO even admits that low tax in relation to taxable income and revenue doesn’t necessarily mean that the company is dodging tax in that year, and there may be deductions from previous year’s losses that haven’t been accounted for and a range of other factors not outlined in the report. Had they actually read it, they’d understand why they’re just making themselves look incredibly uneducated. The transparency list is quite possibly going to be a mistake that the left use to prey on the ignorance of the masses.

These people wanting to tax revenue instead of profit clearly have no experience running a business, and even if they do understand want to see nothing but destruction of our industries, and jobs in Australia. The only saving grace of this is all the top comments on the memes being put out are correcting the difference between profit and revenue.

 

Kerrod Gream is Chairperson of Australia and New Zealand Students for Liberty, Deputy Director for NSW of The Australian Taxpayers’ Alliance, President of the University of Sydney Economics Society, and a branch Vice President in the Liberal Party.

Liberal Love Affair with Draconian Government

Kerrod Gream Kerrod Gream takes aim at the government’s desire to monitor everything we do on the Internet.

This week has been terrible for civil liberties, with the government backing down to changes to 18C. But the other big danger to our civil liberties is the proposed data retention laws. While details are scarce, as they were when Labor proposed similar laws while in government, it’s pretty safe to say that’s it an attack on our individual freedoms, and right to privacy from the government.

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Liberals Back Away from Liberal Values

Kerrod GreamKerrod Gream takes aim at the backing down of the government from changes to the racial discrimination act.

The Liberal Government this week has shown that its talk of being small government, and the early stages of a solid government are over. After a budget that is still projected to have a deficit of $30billion(only $4billion worth of savings made over Swan’s projections) the government hasn’t had much going its way, other than the repeal of the carbon tax. They have shelved the Paid Parental Scheme, which seems good on the surface, but Hockey and the frontbench have still come out suggesting that it’ll be ready to go for July next year continuing on Hockey’s big spending plans for Australia.

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Why We Need More Services Like Uber

Kerrod Gream

 Uber has recently entered the Australian market, offering taxi like services to customers through ride sharing. It’s faced a number of regulatory issues in both the United States, as well as in Australia. This is primarily due to the overregulated taxi industry, where you have to purchase a taxi licence from the government before being able to offer these sorts of services. In Australia the price varies by state, but in NSW the price ranges from $180,000-$400,000 so there’s a concentrated effort from the taxi industry to lock out competitors to avoid losing the initial investment they were forced to pay because of governmental restrictions on the market.

Fighting an Unwinnable ‘War’

Kerrod Gream On Tuesday, Tony Abbott made a public statement in relation to the war on drugs saying “We are ensuring that the war on drugs is fought as fiercely as we humanly can. It’s not a war we will ever finally win. The war on drugs is a war you can lose – you may not ever win it, but you’ve always got to fight it.” But didn’t think to question as to why we have to fight this war on drugs.

The war on drugs claims many victims, through abuse and overuse, as well as locking people up for non-violent crimes. Prohibition causes more problems than the reason behind the prohibition. We should be asking why we’re stopping people making decisions for themselves, is it to protect them from themselves? If it’s the latter then we have to ask how locking them up and ruining any future career prospects for non-violent crimes helps the individuals.

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