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From the Editor MICHAEL WARBY OME wit once remarked developed by the IPA and the Tasman that the Soviet Union was Institute, arguably represented the S the only country with an greatest policy success of think-tanks in unpredictable past. Since the Australian history. Soviet Union was the culmination of In the years 1992 to 1993, the IPA history (doesn’t this all seem remarkably reached its maximum influence as bizarre now?), the whole path of history measured by income, staff, publications, had to, of course, support whatever the media interviews or any other measure of Soviet leadership was doing at the time, output or influence. The IPA was known, and whoever was Soviet leader. Since by Dr Carroll and his confrères, to be both these things changed from time to leading the economic reform movement time, history—as officially presented (and which was transforming the Australian unofficial presentations were forbidden, political scene. A transformation Dr forcibly)—had to change as well. Carroll certainly did not approve of. Australia is certainly no stranger to Given that Dr Carroll was an avid critic struggles over history. Much of what reversal imply about the twentieth? (In of the IPA at this time, and the finances of passes for intellectual debate in this the ‘heads I win, tales you lose’ rhetoric of the IPA are available through Australian country is most emphatically concerned such feminism, the marginalization of Securities and Investments Commission with how to view the past, what stories it philanthropy, no doubt.) records, Dr Carroll has no excuse for not tells, what values it supports. The entry on poverty by Tom Stannage knowing this. As a free society, in place of Soviet- sanctifies the standard ‘progressive’ Financial support for think-tanks is style centrally directed history, we have leaching of the concept of genuine best described as counter-cyclical. The various scholarly publications which are deprivation out of the concept of poverty. worse the situation, the greater the widely regarded as authoritative. The The concluding statement ‘Poverty, in concern, the easier it is to raise money. recently published (1998) Oxford relative if not absolute terms, was The late 1980s were a good time to be Companion to Australian History, edited by probably worse than at any time since the raising funds, particularly in the Victoria of Graeme Davison, John Hirst and Stuart Depression; politically, its alleviation has Cain and Kirner. As Victoria and Australia’s McIntyre—two Professors and a Reader never been such a low priority’ is just position has improved—significantly due in History—is such a volume. bizarre given the massive increase in to the adoption of market-oriented Now, such Companions are average incomes since the Depression— economic reforms—the fundraising somewhat at the mercy of their the standard pension, for example, has climate has become harder. Nevertheless, contributors, their knowledge and quadrupled in real value. That government the IPA continues to operate at a level of judgement. The quality of contributions— expenditure per Australian on health, activity and influence considerably greater particularly about contentious issues— education and welfare has increased than it did prior to the early 1980s. can tell one much about the general fivefold in real terms in the last 40 John Carroll is a strong opponent of quality of intellectual life. years—leading to taxes being at record market reforms. His entry in the Oxford Three entries at least suggest that peacetime levels as a share of GDP— Companion to Australian History on the IPA there are real problems with that quality surely suggests a certain ‘social priority’. ends as (inaccurate) polemic in Australia. The entry on philanthropy by But the triumph of ideology over masquerading as history. It is the belief Shurlee Swain reeks of ‘progressive’ accuracy and judgement is nicely displayed that history is the plaything of one’s suspicion of action not blessed by being in John Carroll’s entry on the Institute of ideological preferences which marks the undertaken by the state or ‘approved’ Public Affairs. His concluding sentence is: mentality of the apparatchik. institutions such as the labour movement, ‘In the years 1991–96, under the Unfortunately, judging from some of the and contains a strong dose of rant about directorship of John Hyde, the IPA entries in the Oxford Companion, gender roles. Having recently had the became so single-minded and extreme in ideological self-indulgence is the order of pleasure of speaking to several senior its economic libertarianism that it steadily the day in much of Australian academia. figures in non-government organizations, lost both influence and financial support’. No wonder that knowledge of history is the large role that women play in this Where does one begin to unravel this in decline among Australian students—if sector was very obvious. Since Swain wish-fulfilment masquerading as history? they are to be fed fairy stories, then implies that male domination of 1992 saw the election of the Kennett modern fantasy writers and game- philanthropy in the nineteenth century Government, whose adoption of the designers do it so much better. was a negative thing, what does the broad outlines of Project Victoria, as I P A MARCH 1999 1 From the Executive Director MIKE NAHAN putation has reduced this bias, but not Business Tax Review: eliminated it. The other flaw of the in- Tinkering with a come tax system is that it requires the impossible. It requires changes in Broken System wealth, whether realized or not, to be estimated on an annual basis. The result is a tax base which is HE business tax system has highly complex, loaded with distorting serious weaknesses. The simplifications and open to political hard question is: how can we engineering. It is the reason why the T fix them? Income Tax Act has expanded to about Unfortunately, the Business Tax 4,000 pages and why a review—such Review—the Ralph Committee— as the latest Report of the Ralph Com- which issued its second and most im- mittee—requires 1,200 pages of impen- portant report on 22 February 1999 has etrable detail in order to recommend failed to address many of the big ques- minor changes. tions. If the recommendations of the Re- What is needed is a completely sidered in the Review is the elimina- view are implemented, it will improve fresh approach to the taxation of busi- tion of accelerated depreciation, the the tax system—but only for a while ness. What we appear to be getting is a outcome will be that the effective tax and then not far enough. ‘nip-and-tuck job’ on the old system— rate will rise for firms with long-life as- There is an alternative tax base— albeit a very detailed and extensive sets—such as many mining and manu- an expenditure tax—which overcomes ‘nip-and-tuck job’. facturing firms—and the effective tax the flaws of the ‘comprehensive income The Committee, however, was rate will be reduced for firms with tax’. Under this tax base, only income hamstrung from the start by its terms shorter-life assets—such as business that is consumed is taxed. Income that of reference. It was required to investi- services and restaurants. The overall is saved is not taxed until it is con- gate the ways and means of lowering effective tax rate will remain the same. sumed, so the tax avoids the need for the corporate tax rate from 36 per cent Clearly the current accelerated de- complex depreciation arrangements. to 30 per cent while raising the same preciation system contributes to the An expenditure tax system would amount of tax revenue. In other words, irregular and perverse tax playing include a company tax. Such a tax, it was prevented from addressing the field—where firms of similar nature however, would not only be much sim- most significant weakness of the tax face different tax rates. The problem pler than the current company tax but system, which is that too much of the is, however, that capital taxation is provide immediate write-off of all capi- tax effort falls in the first instance on uniformly too high—even for those tal. In other words, it would provide business. businesses that now receive special accelerated depreciation for all capi- Business, of course, does not in the treatment. In other words, the aim tal—irrespective of longevity or indus- end bear the burden of tax, but shifts it should be to lower the effective tax try. to individuals—shareholders, employ- rates, not to equalize at an excessive The expenditure tax is the tax of ees and consumers. On equity and effi- rate. the future—globalization will see to it. ciency grounds, it is far better to im- The second major limitation of the Any review that aims to prepare the pose tax directly on individuals rather Review is that it remains committed Australian tax system for the 21st cen- than indirectly on them through busi- to pursuing a flawed ideal—that of the tury must, at the very least, explore at ness. ‘comprehensive income tax’. length the eventual shift from the old The Ralph Committee should The primary flaw of such a tax is income tax system to an expenditure have, at least, been allowed to explore that it results in double taxation of sav- tax. The Ralph Committee—having the merits of reducing the overall ef- ings and therefore creates a bias against neither canvassed an expenditure tax fective tax rate on business and invest- investment and in favour of current in its first two reports on the problems ment rather than simply being limited consumption.

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