Australia's march to free speech has begun

The High Court's decision in Unions NSW vs New South Wales is one of the most significant decisions for democracy and human rights in Australian history.

It's on par with the 1951 decision which quashed the Communist Party Dissolution Bill.

It reveals a High Court inching — slowly, reluctantly, unhappily — towards a full-blown recognition of the human right to freedom of speech and freedom of association:  the sort of uncompromising liberties expressly found in United States' First Amendment.

The decision was released just before the Christmas break.  The High Court found that the New South Wales ban on organisations donating to political parties and third party political campaigning were invalid, as they violated the constitution's implied freedom of political communication.

I wrote about the NSW laws in The Drum in February 2012.  They were a disgraceful and transparent manipulation of the electoral system designed to cripple the Labor Party and its union-centred funding model.

Of course, like all disgraceful and transparent manipulations of the electoral system, they were dressed up in woolly sentiments about enhancing democracy and reducing corruption.

It is a rare law that can unite in opposition the union movement, and environmental groups (the law was particularly damaging for federated bodies like the Wilderness Society).

But it's an even rarer law that can inspire the High Court to trigger its free speech veto.

In a series of cases in the 1990s the High Court discovered a ''freedom of political communication'' buried (''implied'') deep within the Australian constitution.

Of course, there are no words in the constitution that say any such thing, but in 1992 the High Court decided the freedom was in there.

The court's reasoning went like this.  The Australian Constitution is a democratic constitution.  A democracy is predicated on the free flow of communication about political issues.  Therefore the document is predicated on the existence of some form of freedom to talk about politics — a freedom of political communication.

But, as the High Court has always at pains to say since, that freedom is not a general right to freedom of speech for individuals.  It's not like the First Amendment.  No, it's about protecting political communication — and political communication alone — from legislative interference.  There's nothing in the Australian constitution to allow citizens to sound off on everything willy-nilly.

Over the past two decades, the court has kept its free speech lid screwed on pretty tight.  In recent years it has declined to protect the speech of a group of sidewalk preachers in Adelaide, the Islamist Sheikh Haron, and Lex Wotton, one of the Palm Island rioters.

They're probably worried where this whole implied freedoms thing will lead.

And rightly so.  The court's foray into the political philosophy of democracy is embarrassingly underdeveloped.  Our constitution isn't just a constitution for a democracy.  It is a constitution for a liberal democracy — a country where free and morally autonomous individuals mutually consent to democratic government.

And that implies that those free individuals have rights as free individuals.  Australian citizens are not just conduits for electoral debate.  Adrienne Stone of Melbourne Law School makes this argument here.  As she writes, there is a plausible — I would say fundamental and intrinsic — relationship between personal individual autonomy and liberal democracy.  The former is the foundation of the latter.

If the High Court were to recognise this relationship, then the limited freedom of political communication could be transformed into a broader right to freedom of speech.

The constitution doesn't only imply electoral democracy.  It implies individual liberty.

Twenty years ago the judiciary committed itself to divining political philosophy between the lines of the constitution.  Perhaps it should not have started down this path.  But now that it has, it should go where the path leads.

The Unions NSW case suggests they might be doing so.  It is remarkable for a number of reasons.

First, the court has decided that the freedom of political communication applies to the states as well.  That's a big deal.  The previously strict bounds of the freedom are being pushed out.

The US Supreme Court only started imposing the First Amendment on state laws in the 1920s.  Indeed, the First Amendment only really became ''activated'' in the twentieth century.  It had to grow into what it is today.  Australian free speech rights are embryonic — but they're heading in the same direction.

Second, the court recognised that money can be speech.  The way we spend our money is sometimes a form of political expression.  This apparently horrifies many people on the left.  But it is obviously true.  It takes money to buy a T-shirt with a political slogan on it.  It takes money to publish a book.  It takes money to host a website.  To ban the money is to restrain the speech that money was to bring about.

The intuition that money and speech are related is why things as disparate as the proposed secondary boycott laws and the ban on David Hicks profiting from his memoirs are equally objectionable.  They limit speech by regulating its financial side.

Finally, and most interestingly, the High Court's decision quietly suggested something very important, even revolutionary:  corporations have as much right to speech as anybody else.

Of course corporations are not people.  Corporate personhood is just a legal construct to facilitate contracts and lawsuits.  Stop hyperventilating.

But corporations are made of people.

And just because people get together to form organisations doesn't mean they lose their rights once they have.  As the Unions NSW case suggests, businesses, unions and non-profit groups have much in common.  They are all voluntarily formed by individuals to achieve a collective goal.  All legitimately participate in political life.

This is one of the reasons that the US Supreme Court is coming around to an understanding that there is no clear, coherent distinction between ''commercial speech'' and regular speech.

Of course, Americans have a rich body of case law explaining the extent and limits of the First Amendment.  Australia's free speech corpus is fragmented and arbitrary, and cripplingly limited by the High Court's reluctance to follow its own logic where that logic leads.

So it's still not totally clear what our freedom of political communication actually means.  But after the Unions NSW case, we know that, whatever it means, it means a great deal.

Giving to the next generation

Australians may be generous than others in leaving behind a legacy for their family members, but should those inheritances be taxed?

A recent survey by international financial services company HSBC found that 69 per cent of Australian retirees planned to leave an inheritance for their families.

The average value of inheritance expected to be left behind by retirees in this country, of about $US 502,000, is estimated at more than four times the average of other countries surveyed.

A spokesperson for HSBC credited the great Australian appetite for making bequests to strong annual average growth in household wealth, driven partly by high and rising house prices.

Another cited factor informing Australia's position on top of the international inheritance league table is the lack of inheritance taxes, compared with other developed countries, such as the United Kingdom and United States, with large inheritance taxes and smaller average bequests.

Australia owes much to this legacy, in that we have enjoyed lower tax burdens as a result, but arguments favouring inheritance taxes, both here and abroad, linger.

The Australian Greens have favoured inheritance taxation in the past, while now Labor MP Andrew Leigh wrote in 2006 that reinstating an inheritance tax on the super-rich would be consistent with the Australian values of egalitarianism and the fair go.

A bequest tax was also recommended in the 2008 Henry Tax Review final report, on the basis that more revenue could be extracted from wealthy households.

One of the more unlikely sources favouring inheritance taxation was former Nobel Prize economist, and highly-regarded defender of markets, James Buchanan, who went so far as to advocate a 100 per cent tax on bequeathed estates.

As far as the economic arguments go, the case against re-introducing inheritance taxation in Australia seems reasonably straightforward.

Taxes on inheritances would tend to discourage donors from bequeathing their estates to beneficiaries, which in turn increases consumption, and reduces private savings, by those who wish to pass on their assets upon death.

With savings representing the effective feedstock of investment activity by the private sector, the imposition of an inheritance tax would, in turn, deter capital accumulation.

An important, though often overlooked, aspect of this argument is that some start-up entrepreneurs find it difficult to formally access funds from financial institutions, and so inheritances, particularly cash endowments, represent the key initial financing source for many prospective ventures.

However, it appears, at least for some people, that non-economic, or more specifically, ethical, arguments for inheritance taxation override the adverse economic consequences of such impositions.

There appears a widespread distaste of unearned income or wealth windfalls, with bequests seemingly resting alongside lottery winnings and natural resource discoveries as some of the more unpopular forms of unearned wealth acquisition.

A source for the distaste towards inheritances, and hence support for inheritance taxation, is that not everyone can voluntarily endow others with bequests in equal measure, and so without taxes equality of economic opportunities would be foregone.

Putting aside that the productive usage of bequests by donors, for example to establish or expand a business, can deliver widespread benefits to non-beneficiaries, distinctions between unearned and earned income, or wealth, seems too indiscriminate for clear guidance.

For example, other forms of unearned gain, such as Christmas presents, birthday gifts, or charitable donations, do not earn public rebuke, and attract calls for their taxation, in anywhere near the same intensity as inheritances do, if at all.

Classical liberals more appropriately distinguish between incomes and wealth attained either through voluntary means, say, by earning a wage or receiving a gift or donation, or through coercive means, say via government subsidies, tax breaks or regulatory holidays.

According to this perspective, voluntary transfers should ideally be left untouched by inheritance taxes or other coercive instruments that serve to expunge justly acquired property, whilst the coerced transfer of incomes and wealth should cease.

This approach would ameliorate the prospect that inheritance taxes would unintentionally level down the attainment of opportunities in society, whilst simultaneously ensuring that artificial privileges, such as those acquired through longstanding crony relationships between governments and businesses, are eliminated.

A final twist is served by James Buchanan's argument that beneficiaries will wastefully expend resources to secure favouritism, and thus greater shares of the inheritance, from the donor, and thus taxes are required to prevent such perceived wasteful conduct.

It is difficult to surmise why such conduct by potential recipients would necessary represent a social cost borne by the entire community, and not a cost borne primarily, and willingly, by the individuals involved.

Furthermore, using the blunt instrument of taxing intra-family income or wealth transfers is likely to come at the inappropriate cost of penalising transfers made in the cause of genuine affection between family members.

Inheritance taxes were relegated to the dustbin of Australian fiscal history during the late 1970s to early 1980s, through tax abolition initiatives at both federal and state levels of government.

These actions have proven to be far-sighted ones and so, in the interests of avoiding higher taxes on Australians, it is best not to resurrect this odious tax idea which fails on economic and ethical grounds.

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A time to be thankful for the market economy (really)

The State Library of Victoria holds an engraving from 1865 titled ''Christmas in Australia''.  About two dozen people, presumably an extended family, are having a Christmas picnic in what appears to be Ferntree Gully in Victoria.

At first glance, their Christmas is not too different from ours.  Food, family, the outdoors;  it looks lovely.

But the celebration depicted in the engraving would have been an enormous, expensive, time-consuming, and overwhelming logistical task.

Ferntree Gully is more than 30 kilometres from the Melbourne CBD, and in 1865 almost everybody lived in what we now think of as Melbourne's innermost suburbs — Richmond, lower Carlton, North and West Melbourne.

We can see three horses and in the distance a carriage.  That wouldn't have been enough for 20 people.  And carriages cost a lot of money.

The journey to Ferntree Gully would have taken hours along very poor dirt tracks.  They would have had to bundle up everything:  children, rugs, sporting equipment and pets.  To say nothing of the food, which would have to be kept safe.  (Well, maybe.  This was before widespread understanding of the germ theory of disease.)

The journey probably started the day before.  Hence the tent in the background.

When we think about how our lives differ from our ancestors, it's easy to focus on the big things:  television, telephones, cars, and electricity.

That is, consumer comforts.  The stuff that makes individual life less arduous.

But we forget how economic growth and technological change has made our relationships closer, easier, and cheaper to maintain.

A century and a half later, the classic Australian Christmas is no longer a trip to the bush but a suburban backyard barbecue.  That change has only been possible thanks to the market economy and consumer society.

How?  Let's take it one word at a time.  Suburban, backyard, barbecue.

Obviously, Australia's sprawling suburbs rely on cheap ubiquitous motor transport.  (Trains and trams can only service a few kilometres either side of their tracks).  A short trip to the developing world should be enough to demonstrate that car ownership indicates wealth.

Backyards, too, are a sign of prosperity.

As the food historian Barbara Santich points out, it was relatively recently — that is, after the Second World War — that backyards were turned over from home food production and gardening to leisure.  The reason was affluence, as well as the convenience and availability of supermarkets.

Hence, the 1865 journey to Ferntree Gully.  The Australian backyard of our ancestors was an economic asset, not a social setting.

This remained the case well into the twentieth century.  A short book from 1928 explains to Britons the difference between Christmas in Australia and in the mother country.  The book tells the story of the "long trek" taken by Australians on Christmas Eve to the mountains and the sea.  Cars would be heavy loaded with tent-poles and gramophones and food.  And, of course, spare tyres.  Celebration would start at dawn the next day.

Finally, the barbecue.  The barbecue is a remarkably recent invention.  Its pre-war equivalent was the "chop picnic", where meat was cooked on a small fire in the ground.  The figures in the background of ''Christmas in Australia'' are probably having a chop picnic.

When backyards were freed up, Australians started building permanent barbecues out of brick fuelled by firewood.  (Nobody wants an open fire in their backyard.)

The free standing portable metal barbecue fuelled by a gas bottle became prominent in the 1970s.  Gas barbecues are better in almost every way:  they're cleaner, heat faster, and, as they cool down rapidly, they're safer too.  It was only thanks to better materials, cheaper energy and technological innovation that the free standing gas barbecue became the Australian norm.

And of course, they're still getting cheaper.  The 1978 barbecue shown here cost $670 in 2012 dollars.  These days you can pick up the same thing for $90 and a gas bottle for $30.

So our traditions change according to our prosperity.  Our relationships do too.

That family in Ferntree Gully 150 years ago were — as European settlers — at least a four-month journey on an iron clipper ship away from the family they may have left behind.  Communicating with their relatives by letter would have taken twice that.

In the 1930s the situation was much better.  An Australian wanting to travel to Europe could have flown.  But aviation was in its infancy.  The flight would have been extremely high cost — far too high for a mere holiday — and taken more than a week.

Today we can cross the planet in 24 hours.  And, with the internet, communication is instantaneous.  That technological change has made seeing and appreciating our family much cheaper.

The cost of sending a gift to a family-member across the other side of the world by sea freight has declined by two thirds between the 1930s and 2013.

Flights to see family members are a tenth of what they were.

An international phone call is one 100th of what it was 85 years ago.  If we use Skype, it is effectively zero-price.  Letters, too, cost nothing online.

Australia is a very rich country — one of the richest in human history.

And there's no better time to reflect on how that wealth has made it easier to have stronger relationships than Christmas.

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Foundation must be principles, not worthy aspirations

It's time to reassert the importance of human rights as universal, consistently-applied principles, not increasingly diluted worthy aspirations.

Australia's Human Rights Commission should specifically focus on advancing Article 19 of the International Convention on Civil and Political Rights.

That Article primarily focuses on the right of free expression and free speech.

Of course, there are many human rights other than free speech.  The human rights commission should also stand up firmly for the human rights of movement, association, worship, private property and the right of people to decide how to live their lives.

But it is the views on free speech that seem to have drawn the most attention, particularly relating to the call for the full repeal of Section 18C of the Racial Discrimination Act.

Section 18C has drawn significant public ire because of how it was used to shut down the free speech of Herald Sun columnist, Andrew Bolt, through the courts.

At times it will appear inappropriate to defend free speech.  After all, no one is required to defend the principle from the excessive use of the words "please" and "thank you".  Free speech needs to be defended only when someone says something that does offend.

Section 18C limits free speech when it may offend, insult, humiliate or intimidate an individual or group of individuals.  Bolt was found to fall afoul of this provision in articles published in this newspaper about the racial identity of some indigenous Australians.

That case made Section 18C famous, but this debate is not just about Bolt.  His views receive plenty of oxygen in public debate through his columns, radio appearances and his television program, The Bolt Report.  Those platforms give him the opportunity to broadly respond and defend himself.

But it should be noted that because laws have been used to shut him down, it is a reminder of how important free speech is to defend all human rights.

This debate is about the human rights of every Australian — those who don't have the same platform as Bolt either to make free comment or defend themselves against attacks on their speech, including by government laws.

Many people have pointed out that there are get-of-jail-free cards in the law.  They are right;  the subsequent section of the law provides a series of exemptions based on whether the speech is exercised in "good faith" and in certain circumstances.

But they are not sufficient.  One of the most insidious developments of those who want to keep the law is that Bolt would have got away with his argument if he was accurate in his article.

The gateways of free speech don't open and close based on accuracy.

Should people seek to be accurate?  Absolutely.

But free speech is only an extension of thoughts and thoughts can be built on an incorrect understanding or assumption.  The best way to deal with inaccuracies is have them expressed, heard, challenged and exposed for their faults.

The solution is not to shut down speech.  The solution is more speech, much more, particularly for different voices.

That's why Section 18C should be repealed totally.  The extent that speech harms people's reputation is better dealt with defamation laws rather than subjective tests that benefit one section of the community over another.

Preserving these human rights should not be an endorsement for how people exercise them.  Exercising traditional human rights also provides a mechanism to address behaviour many of us do not like through voluntary codes and social convention.

Even if people have the right to say almost anything they want, that does not mean a free-for-all.

For example, workplaces are well within their rights to adopt codes for how employers and employees should conduct themselves to make sure everyone is respectful.

The same can also be applied to associations based on membership.  And we should all exercise our freedom of association to engage with or distance ourselves from people we think express vile and repugnant views.

I want to inform and promote a traditional human rights-based approach to the laws that govern our lives.  In many cases it will not be simply adding or removing a law, but how we can positively reform them, and our institutions, to achieve change.

There are many important human rights issues being debated around Australia.  Some people argue that religious schools should not be able to discriminate against employees or students, especially when they are funded with public money.

But then how do we reconcile the human right to worship, or free association, with the aspiration that religious institutions that provide public services should not discriminate?

What I know is that with innovative thinking, we can advance society and promote aspirations we all share to unleash the maximum potential of every Australian and preserve and protect the integrity of traditional human rights.

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As officialdom tries to dilute them, human rights must be defended

The Human Rights Commission should defend our traditional human rights from a principled position because they are vital to the preservation of a free society.

The focus in defending human rights in recent years has been on free speech.  This is appropriate as free speech is arguably our most fundamental right.  Without free speech the capacity to defend all other human rights is diluted.

But it is clear that there are many other threats to the pantheon of traditional liberties, and many freedoms that have suffered neglect in recent decades.

The Australian Human Rights Commission is statutorily charged with promoting the principles within the International Covenant on Civil and Political Rights.  That obligation is entirely consistent with my view that the government's role is to create the legal framework to preserve and protect traditional human rights, such as free speech, association, movement, worship, property rights and self-determination.

But there have to be carefully delineated limits to human rights when they come into conflict.

For example, language that explicitly incites violence and directly threatens another individual's safety can be legitimately restricted.

Similarly, in broad principle, defamation law comes from a direct conflict between free speech and people's ownership over their earned reputation — essentially a property right.  Defamation law makes it justifiable to limit speech when it unjustly harms that reputation and the right for an individual to earn from it.

The question for government is:  where do you set the bar?  If the defamation bar is set too low free speech is curtailed.  Too high, then people can destroy other's reputation without recourse.  I think it's clear that, right now, the bar is too low.

But the broader concern is the dilution of human rights by governments in favour of other aspirational, often seemingly worthy, goals.

A practical example is Wednesday's decision by the High Court on the rights of unions to donate to political parties.  From a human rights perspective, the NSW laws preventing any collective of individuals seeking to speak through a common voice — unions, environmental groups, businesses and non-profits — from donating to a political party violated freedom of speech and association.

To its credit the court unanimously struck down the NSW government's restrictions on the basis that they "impermissibly burden the implied freedom of communication on governmental and political matters, contrary to the Commonwealth constitution".

The court's decision is important because it affirms the right to free political communication that the court found was implied in Australia's constitution two decades ago.

Another is the Queensland government's recent anti-bikie gang laws, being adopted in other states.

If bikies commit crimes the police should investigate and prosecute criminals.  But from a human rights perspective it is entirely unjust that freedom of association should be squashed to make the job of the police easier to investigate.  Rather than empowering police to prevent an already comprehensive list of crimes, these laws have created a host of new crimes that could easily be used to punish law-abiding citizens in the wrong place at the wrong time.

Some might say my approach to preserve and protect these traditional human rights is absolutist.  This is not the case.  But too often we have been willing to undermine fundamental rights in the name of "balancing" them.  Rights should be as absolute as possible.  Universal human rights need to be upheld and protected.

The Human Rights Commission should continue defending them from being further diluted.

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Fracking scares impede wealth creation

The probable reserves of unconventional coal-seam and shale gas in Victoria, NSW and Queensland dwarf the conventional gas reserves in offshore Victoria and the Cooper Basin and may approach the magnitudes found off the North West Shelf.

The unconventional gas is extracted by fracturing rock — fracking — to allow gas and oil to escape.  This is a process with a 60-year history throughout which it has never resulted in public harm.

Reserves of gas are, of course, valuable only if governments allow them to be extracted.

Although it is politically irresponsible for governments to prevent wealth creation on the basis of counterfeit scares, the Napthine and O'Farrell governments in Victoria and NSW have bowed to such scares.  These scares are based on specious allegations that extracting coal-seam and shale gas through fracking will create environmental problems, especially groundwater pollution.  The Coalition governments in both states face opposition to gas development from some of their own supporters as well as from the Labor Party seeking to tap a vein of voters with strongly held views and casting an anxious look at Greens rivals.  That does not condone the vetoes.

The Victorian government has completely forbidden development of any unconventional gas reserves in the state.

In NSW, where radio shock jock Alan Jones spearheads the campaign against fracking, the government has banned mining close to towns and in prime agricultural land.

It claims the exclusion zones comprise about 20 per cent of the state but they contain the lowest cost prospects.

Regulatory impediments in NSW have meant the state, though having similar potential to Queensland, collected a mere $120,000 in gas royalties last year, compared with $850 million north of the Tweed.

Victoria commissioned Peter Reith to head an inquiry into the activity.  Like every other responsible study, this found fears of inadvertent harm were groundless and any risks were easily prevented — indeed, there is already a commonwealth-state 18-point leading practice framework.

The Reith report also advised that Victoria has an urgent need for future supplies and fracking should be allowed to proceed immediately.  It pointed out that the minerals belong to the crown and value in them is shared under a known royalty regime between the government and the discoverer, with landowners being fully compensated for any damage, inconvenience and disturbance from the activity.

In addition it warned that a gas reservation policy for local consumption would simply divert the product to firms seeking below-cost inputs and deter exploration.

Unfortunately, reports of this nature invariably raise other agenda items.  Reith's report is no exception.  He felt the need to call for a new regulatory authority, the gas commissioner.  Designed to promote better acceptance of drilling and fracking, this also incorporates an "independent water science program" to scrutinise and report on whatever it fancies, new guidelines, bans on certain chemicals, full disclosure of the chemicals being used and independent monitoring.

The report also advocates further and unnecessary government resources to forecast consumer demand for gas and transportation capacity.

To placate different interests, Reith also recommended siphoning off some of the royalties to a regional fund and doubling the de facto royalty paid to the landowner to $20,000 a well.

Offsetting this, the report advocates a lower royalty rate and a royalty holiday — measures that are surely unnecessary for an industry anxious to start exploration on established terms.

The Reith report also advocates requiring the Exxon-BHP joint venture to cease selling as a single unit.  The objective is to force the two firms to compete with each other in the hope that this will drive down prices.  Whether or not this would eventuate, and be desirable in the light of the report claiming that prices need to rise, a forced divestiture sets ugly precedents for future joint ventures.

The tragedy, though, is that just as the Reith report sensibly concluded fracking should go ahead, a timid Victorian government put in place a further review process, leaving bans in place until after the next election.

The government optimistically thinks a further pause will buy it time to make the right decision.  However, ahead of the next election it will face pressure to maintain the moratorium — which, on its present record, it is unlikely to resist.

The corporatist state is so pervasively within the business decision making framework that it is paralysing innovation.  We need to find ways that allow decisions to move forward under the rule of law without parties having only an incidental interest in developments being able to recruit regulatory barriers to block them.

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Did the New Zealand film industry just eat our lunch?

James Cameron is going to film the next three instalments of the Avatar franchise in New Zealand.  He promises to spend at least NZ$500 million, employ thousands of Kiwis, host at least one red-carpet event, include a NZ promotional featurette in the Avatar DVDs, and will personally serve on a bunch of Film NZ committees, and probably even bring scones, all in return for a 25% rebate on any spending he and his team do in the country (up from a 20% baseline to international film-makers) that is being offered by the New Zealand Government.

The implication that many media reports are running with is that this is a loss to the Australian film industry, that we should be fighting angry, and that we should hit back at this brilliantly cunning move by the Kiwi's by increasing our film industry rebates, which currently are about 16.5% (these include the producer and location offsets, and the post, digital and visual effects offset) to at very least 30%.  These rebates cost tax-payers A$204 million in 2012, which hardly even buys you a car industry these days.

So what are the economics of this sort of industry assistance?  Is this something we should be doing a whole lot more of?  Was the NZ move to up the rebate especially brilliant?  First, note that James Cameron has substantial property interests in New Zealand already, so this probably wasn't as up for grabs as we might think.  But if that's how the New Zealand taxpayers want to spend their money, that's up to them.  The issue is should we follow suit?

The basic economics of this sort of give-away is the concept of a ''multiplier''), which is the theory that an initial amount of exogenous spending becomes someone else's income, which then gets spent again, creating more income, and so on, creating jobs and exports and all sorts of "economic benefits" along the way.

People who believe in the efficacy of Keynesian fiscal stimulus also believe in the existence of (>1) multipliers.  Consultancy-based "economic impact" reports do their magic by assuming greater-than-one multipliers (or equivalently, a high marginal propensity to consume coupled with lots of dense sectoral linkages).  With a multiplier greater than one, all government spending is magically transformed into "investment in Australian jobs".

So the real question is:  are multipliers actually greater-than-one?  That's an empirical question, and the answer is mostly no.  (And if you don't believe my neoliberal bluster, the progressive stylings of Ben Eltham over at Crikey more or less make the same point.)

But to get this you have to do the economics properly, and not just count the positive multipliers, but also account for the loss of investment in other sectors that didn't take place because it was artificially re-directed into the film sector, which no commissioned impact study ever does.

This is why economists have a very low opinion of economic impact studies, which are to economics what astrology is to physics.

What does make for a good domestic film industry then?  Look again at New Zealand, and look beyond the great Weta Studios in Wellington, for Australia and Canada both have world-class production studios and post-production facilities.  Look beyond New Zealand's natural scenery, for Vancouver is an easy match for New Zealand and Australia pretty much defines spectacular.

No, the simple comparison is that New Zealand is about 20% cheaper than Australia and 30% cheaper than Canada.  New Zealand has lower taxes, easy employment conditions and relatively light regulations (particularly around insurance and health and safety).  It's just easier to get things done there.

If Australia really wants to boost its film industry, it might look more closely at labour market restrictions (including minimum wages) and regulatory burden and worry less about picking taxpayer pockets and bribing foreigners.

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The building blocks for a free society

Australia's most fundamental human rights have been diluted over decades.  It is time to recognise them as central and essential building blocks for a free society.

Australia's human rights commission should be asked to focus on traditional liberal democratic and common law rights, particularly article 19 of the International Covenant on Civil and Political Rights.

From a classical liberal perspective, traditional human rights are a set of universal principles about the rights of individuals that protect their freedom including freedom of movement, association, worship, property and self-determination.

More important, human rights are not a gift bestowed on us by government;  they are our basic birthright as free people.

All rights should be defended, but the human right most being neglected is free speech.  Arguably freedom of speech is the most important human right.  It is the human right necessary to protect and defend all other human rights.

Article 19 of the covenant states:  "Everyone shall have the right to freedom of expression;  this right shall include freedom to seek, receive and impart information and ideas of all kinds, regardless of frontiers, either orally, in writing or in print, in the form of art, or through any other media of his choice."

Article 19 ought to be the human rights community's starting point.  But at the moment it seems more like a footnote.

Increasingly free speech has been pushed aside in favour of laws and regulations designed to stop people being offensive to each other, a steadily expanding corpus of anti-discrimination and defamation law, and the growing momentum towards restrictions on speech online.

Some of these new threats have come from politicians, responding to the latest moral panic.  Others are the result of a judiciary incrementally lowering the bar on what constitutes legitimate speech.

But too often these threats have come from the very human rights activists and organisations that ought to be defending free expression.

This time last year the government presented for Australia's consideration a radical new change to Australia's anti-discrimination laws, the Human Rights and Anti-Discrimination Bill.

The bill was sold to the public as a minor consolidation of our labyrinthine discrimination laws.  But it would have made it unlawful to offend someone, in any work-related environment, on the basis of a long list of attributes including their political opinion.

As such, it represented a fundamental threat to free expression.  It would have buried Australian workplaces in litigation and had a substantial chilling effect on speech.  Sadly, when such a fundamental human right was under attack, many human rights advocates didn't raise an eyebrow.  In its own submission the Australian Human Rights Commission did not defend free speech.

Of even greater concern, the commission recommended "further consideration of possibilities for the bill to cover discrimination on the basis of all protected attributes in all areas of public life", not just the workplace.

If such a recommendation were implemented it would have been a wholesale assault on democracy.  Political debate ought to be robust.  That is a sign of health.  We want politics to be a topic of passion.

Human rights activists have been missing in action on the way our mandatory film and literature classification system suppresses speech.  They ran dead on the previous government's internet filter.

Even more extraordinary was the absence of human rights voices in the debate earlier this year about media regulation.

A direct extension of free speech is press freedom.  Protecting free speech is fundamental to the operation of liberal democracy.  It is an essential principle for freedom of the press.  Free speech and press freedom are one and the same;  they are essentially interchangeable and mutually reinforcing concepts.

As 19th-century French liberal Benjamin Constant argued in his 1815 work, Principles of Politics:  "Restrain(ing) the freedom of the press is to restrain the human race's intellectual freedom.  The press is an instrument such freedom can no longer do without, the question of press freedom is therefore the general one about the development of the human mind."

Rather than identifying the proposed new media regulation as a dangerous reversion to state supervision of the free press, many human rights activists underplayed the threat or outright ignored it.

The human rights commission should reorient the human rights debate towards liberal democratic values and the philosophy of individual freedom.  The most obvious freedom of speech issue this parliament will face is the Coalition's promise to repeal section 18C of the Racial Discrimination Act.  Section 18C has recently been controversial because of the Andrew Bolt case but, as its supporters are first to say, it has been used against many other Australians.

It should be urging the full repeal of section 18C.  It is an unjustifiable limitation on free expression.  The best way to undermine offensive or hateful language is not to shut it down, it is to challenge it, expose it for its flaws.  The solution is more speech.

It is a central tenet of liberal democracy that the government's primary task is to protect our human rights, not restrict them.

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The Coalition's budget decisions are all its own

There was a disturbing detail in a Dennis Shanahan piece earlier this month.  Describing concerns within the ministry about the performance of the government, Shanahan wrote, "It's fair enough to argue that 'getting to Christmas' is all that matters now."

"Getting to Christmas".  Almost an exact mirror of the motif of the Gillard Government, that "clear air" was just around the corner.

Labor was a tired government trying to be optimistic.  By contrast the Abbott Government should be — and is — a fresh new government facing many years at the helm.

Not every government is treated to as much wall-to-wall coverage of its hundred day anniversary as the Abbott Government has been.  But then, not every Government has had to learn so many lessons in as short a space of time.

One of those lessons is "try to avoid having former National Security Agency contractors leak Powerpoint presentations of Kevin Rudd-era surveillance missions on Indonesian politicians".  But too much of the Government's pain has been self-inflicted.

The expenses scandal didn't have to hurt.  Yet the government let it stretch for more than a month by refusing to engage.

The Gonski episode — let's be tactful and call it an ''episode'' — undermined the Government's most core promise:  that it would not break promises.

But probably the most damaging was Joe Hockey's decision to deny foreign investment to GrainCorp.

This decision stunk in many ways.  First, it suggested that the Nationals tail was wagging the Liberal dog.  Second, it implied that the Government's interest in economic reform was casual at best.

And finally, it showed that the Coalition was no better than Labor for business.  It was just as willing to play politics with the economy, and completely unwilling to stand against Australia's universally reviled foreign investment central planning.

The GrainCorp decision would not have cost the Government any votes.  But it cost a lot of goodwill.  The Wall Street Journal excoriated the government in an article titled "Tony Abbott's protectionist retreat".  Even worse was the subtitle:  "Australia appears to be closed to some kinds of business."

GrainCorp has a silver lining.  The fallout made it much less likely that the Government would increase car subsidies or buy out Qantas.  The Coalition's free market wing would not be able to stomach that.

After all this drama, it's no mystery why Tony Abbott's Government looks older and more tired than it is.

When the Government first came to power, Coalition spinners proclaimed Abbott wanted to slow down the news cycle, keep politics off the front pages, and restore calm to national political life.  Unlike his Labor predecessors, the Prime Minister would only talk when he had something to say.

This plan was fundamentally misconceived.  The news cycle isn't something that can be sped up or slowed down from Canberra.

It wasn't the Prime Minister's Office that built the content-hungry 24-hour news networks.  The Prime Minister's Office hasn't been hollowing out the newspapers' ad revenue base.  Nor is it to blame for the technological change that moved our news consumption online and created the demand for a constant flow of information.

No, the 24-hour news cycle was not Kevin Rudd's fault.

Don't get high on your own supply.  It's a saying that applies as much to political spin as it does to selling drugs.  And it's a saying worth remembering as the government tries to manage its way through today's release of the Mid-Year Economic and Fiscal Outlook.

Getting the budget under control is the central task this government was elected to perform.  More than stopping the boats, and more than the carbon tax, it was Wayne Swan's budget mismanagement which created the aura of policy dysfunction emanating from Labor.

But now the Coalition is talking, as it did at the tail end of the election campaign, about being unable to get the budget into surplus for another decade.

If that turns out to be the case — if the Coalition run deficits for 10 years, longer than the Labor government did — the failure won't be Wayne Swan's, it will be Joe Hockey's.

MYEFO is not "Labor's last budget statement", as the Prime Minister claimed yesterday.  It is the Coalition's first.

The Government has been on the back foot virtually since it was sworn in.  Its agenda was set by Julia Gillard and Kevin Rudd:  boats, debt, carbon tax.

And fair enough, of course, at such an early stage in the electoral cycle.  But its fixed agenda has left them struggling with the issues like foreign investment, car subsidies, and education.

What sort of government will the Abbott Government will be?  Unfortunately, after 100 days, that has become more uncertain.

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Business is not a matter of patriotism

Holden stopped being a car company many years ago.  In recent times it's been a government-sponsored employment agency.  In the United States, Holden parent company General Motors wasn't just government-sponsored — it was government-owned.  In 2009, after General Motors went bankrupt, the US government ended up owning 61 per cent of the company.  The joke was GM stood for Government Motors.

In federal Parliament this week, Treasurer Joe Hockey talked about how all those companies that were not car companies would no doubt also like to remit Australian taxpayers' funds to their head offices "in Detroit, London, Tokyo or anywhere else".  But that's only half the story.  It's not just the issue of where Australia taxpayers' money was being sent.  There's also the issue of who it was sent to.  The Australian government has been paying the American government so that Holden could stay open.  Anyone who believes that untrammelled free market capitalism exists in Australia or the US should study General Motors.

On Monday this week the US Treasury sold the last of its shares in General Motors.  US taxpayers spent $US49.5 billion on a majority shareholding in GM and have got back $US39 billion — a loss of $US10.5 billion.  GM chairman and chief executive Dan Akerson says the company "will always be grateful for the second chance extended to us [by the US government]".  And so he should be.

Akerson was appointed to the GM board by the Obama administration.  He had previously been a managing director of the Carlyle Group, a private equity firm.  It was Akerson who presided over Tuesday's decision of the board of GM to shut down Holden's manufacturing operations in Australia, in which 2900 jobs will go in Melbourne and Adelaide.  Since the global financial crisis, GM has cut 27,000 jobs in the United States.

NATIONAL PRIDE

The story of General Motors coming to Australia is told in Alfred Sloan's My Years with General Motors.  Published in 1964, it's one of the most important books on business and business strategy ever written.  Sloan became president of GM in 1923 and was chairman from 1937 to 1956.  Under him, GM became the largest private industrial enterprise in the world.  At its peak in 1979 it had 853,000 employees worldwide (today it has 212,000).

In 1926 General Motors established operations in Australia and in 1931 it bought Holden to form General Motors-Holden's.  Sloan explains a key point that's all too often forgotten in the discussion about Holden.  It was only because of the Australian government that General Motors started manufacturing in this country in the first place.  The high tariffs of the 1920s on imported US car bodies meant it was cheaper for GM to make cars in Australia and sell into a domestic market than to import them.  Back then GM made cars profitably, but it was a profit generated behind a tariff wall that stopped competition from imports.

In the 1920s, when General Motors expanded into Europe, Sloan encountered exactly the same attitude as Australian governments have had since the 1980s.  Nationalism has led many foreign nations to press for production at home, even when the home market appeared too small to sustain an efficient, integrated automobile industry.  It's just as dangerous for governments to pursue economic policies out of nationalism as it is for car makers to hope customers will buy their product out of national pride.

After Ford announced in April it was closing its local manufacturing, BHP's Jac Nasser lamented Australians weren't sufficiently patriotic about cars.  Ford, and now Holden, have discovered when it comes to buying cars, price and quality are more important than patriotism.

In the end, Holden forgot a basic insight of Sloan's — "the big work behind business judgement is in finding and acknowledging the facts and circumstances concerning technology, the market, and the like in their continuously changing forms".

Sadly, Holden stopped finding and acknowledging the facts and circumstances concerning technology and the market a long time ago.  Any business that spends as much time lobbying politicians as it does satisfying customers will eventually and inevitably fail.

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Final episode in the drawn-out Holden drama

The soap opera of General Motor's departure from Australia is ending.  The company has been operating with sporadic profitability for a decade and more.

Last year it lost $153 million.  This was in spite of it benefiting from the 5 per cent tariff protection on domestic sales and $73 million in government grants, although half of that was for the commercially fruitless pursuit of the green car political ideology.

In recent years, Holden's products and quality have shown vast improvements from the models sold 15 years ago.

Locally assembled cars have been losing Australian market share.  But this is to be expected in a global business that operates an internal market where each area sources models from the most appropriate location.  That spells specialisation of products, more imports and more exports.

Holden's export strength is in the "muscle cars" which have received considerable critical acclaim in the United States.  But even then, they were forced to sell at very low profit margins to keep competitive.  And US sales, having risen to 30,000 a year prior to the 2008 global financial crisis, have fallen 90 per cent.

Holden Australia has found itself in the wrong market segment with a product whose labour costs and government impositions make it more expensive to build than GM cars in other locations.

It's the same story with engines.  Holden's V6 line is losing favour and its output is falling below the long-planned 100,000 level.  Even within the GM family, the Australian V6 is losing out to similar engines made elsewhere.

Holden's cost problems are well-known.  They do not stem from the company being undercut by cheap third world labour.  Even those plants in Europe, Japan and North America, where living standards are similar to ours, operate more productively.  Very little of this is due to greater economies of scale overseas.

Holden has become little more than an enterprise run by unions for the benefit of workers and union officials, with lavish employment conditions bringing a crippling cost disadvantage.

One indicator of this is the starting wage for a production line worker:  $23.50 an hour in Australia, compared to $14 an hour agreed by unionised plants in the US (even less for non-unionised plants).  On top of this, Australian workers get shift penalties and overtime rates, and more than twice the normal weekday rate for Sunday shifts.  These and other conditions are unknown in the US and make Australian labour market costs double those elsewhere.

PROFOUND MISUNDERSTANDING ON THE LEFT

Although labour costs in assembly only comprise 20 per cent of total costs, these are crucial and not irrelevant, as the secretary of the Australian Council of Trade Unions Dave Oliver has argued.

Oliver's view, shared by so many on the political left, represents a profound misunderstanding of the drivers of business decisions in an interlinked world.

If wages are 20 per cent of costs and double what they might be, this wipes out profitability.  Such cost-padding requires a price rise of 12 per cent.  Yet the industry faces tight competitive conditions and Australia is integrated into a world market which provides no scope for such a price increase.  Hence, the cost must come from profit, which it virtually eliminates.

Similarly, the carbon tax and the renewables requirement add severely to Holden's woes.

Holden estimated the carbon tax was costing it $45 a vehicle but the total cost of carbon emission measures — including renewable requirements — on assembly and components is much greater.

Compared to its overseas competitors, these imposts might add as much as $600 to the cost of a car.  This alone is 5 per cent of the ex-factory costs and halves the firm's net profit, providing international management a clear pointer about future global capital allocations.

Holden's Australian management acquiesced to union demands, buying short-term peace at the expense of the strategic loss of value for the company.  In part, this was due to the centralised wage-fixing conditions loaded in favour of unions.  Management at Holden saw the immediate loss of output from industrial unrest as too great a price to pay.  Noting that costs were excessive, they hoped something would turn up, including further subsidies from governments besotted with the idea that a motor vehicle assembly industry was the key to economic well-being.

They had ample justification for thinking this.  In addition to subsidies, Labor in Canberra and Adelaide financed numerous consultants' reports that told a tale of massive employment multipliers and technology gains from motor vehicle assembly.  Of course, these were all mythical.  Such gains can be counted for every new job, but when the job is financed by taxation, its multiplier additions are offset.  If the new job comes out of profits, the future is jeopardised.

Now we have the endgame.  Unions face lower revenues from scamming the motor vehicle companies.  Workers face much lower wages in alternative jobs — even if these become available.

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Paternalism an unhealthy threat to freedom

A wrong-headed approach to developing public policy is justifying the slow and incremental corrosion of our basic freedoms in the name of health-at-all-costs.

It's hard to ignore the increase in paternalistic regulations imposed by Australian governments, justified by research showing the cost of government inaction to regulate our choices.

This trend is symptomatic of the "evidence-based policy" approach adopted by government.  Former PM Kevin Rudd outlined the broad spirit of this approach on a 2010 episode of ABC1's Q&A.

In response to a question about whether the government would increase the drinking age to 21 he said "if the evidence is there and it's capable of being proven that it works, then we look at these things and make a decision".

But public policy is not driven by evidence, it is informed by evidence.  Public policy is driven by the political values of those elected to govern.  Those values determine what issues the government believes needs to be tackled, how they then approach it, how they weigh evidence, and the policy solutions ultimately proposed.

An "evidence-based approach" amounts to discarding the choice of democracy for government by technocratic bureaucracy, particularly when much of the evidence is financed by government to justify their decisions.

Since 2008, at least $100 million has been provided by the commonwealth to finance research that could subsequently be used to justify paternalist policies.

Not all of the research is without merit.  But any behaviour that ultimately leads to perceived higher health costs jeopardises public finances, therefore justifying restrictions on individual choice.  A left-wing activist might call the buck-passing of health costs from individuals to the government "privatising the gains and socialising the costs".

So instead of finding a way to privatise the costs, the solution by government has been to remove choice and incrementally reduce people's freedoms.

This approach to policy turns liberal democracy on its head.  Free societies have always had to trade some individual freedom to maintain the collective institutions to preserve and protect the freedoms and choices of themselves and others.

That is not what is occurring.  Instead the right to self-determination is now considered too expensive and is being discarded in name of the collective's interests through the introduction of paternalist policies.

Unsurprisingly tobacco is the market leader for paternalism because of its direct link to cancer.

The product faces specific taxes, advertising restrictions and sponsorship bans, purchasing limits, restrictions on where it can be consumed, warning labels, product placement restrictions, licensing of retailers, ingredient restrictions and, most recently, plain packaging.

Proposals have also been considered for minimum prices, increasing the age of consumption, specific licences to consume the product and an outright ban.

Parallel regulations on gaming are nearly equivalent, for example on-machine warning labels for pokies.  Alcohol faces similar restrictions and has been the focus of calls for additional taxes and minimum pricing regimes.

While there are relatively limited paternalistic regulations imposed on salty, sugary and fatty foods, almost all regulations and taxes on other products have been proposed for food.  These regulations aren't just targeted at consumer products, but they are the primary focus.

The recent, bizarre round of state-based bans of sun tanning beds, while the sun remains unregulated, is another example of discarded freedom to save the public purse.

But even much of the evidence used to justify these policies is dubious.  Cost studies are regularly used to highlight the taxpayer-funded bill if individual choice is not regulated.  So long as it only includes public costs, such as hospital bills, they can at least be broadly accurate.

But increasingly "social cost" studies are used that seek to deliberately pool public and private costs to inflate the final figure and make it more alarming for government.  A study by New Zealand's Canterbury University, The Cost of Cost Studies, found that "by presenting costs drinkers impose upon themselves as social costs to the country, (the cost of illness) measures help build popular support for paternalistic policies".  The same principles are applied for other product categories.

The best way to demonstrate the inflated nature of social costs is to highlight the claims.  The often-cited annual estimated social costs for alcohol, gambling, obesity and tobacco is just shy of $110 billion.

Meanwhile the federal government's Australian Institute of Health and Welfare reports that in 2009-10 the total cost of Australia's health bill was just over $120 billion.  Evidence is vital to ensure public policy is designed well, but it should not be the sole determinant of policy outcomes, especially when the cost of lost freedom is not priced.

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Public interest or public choice?Your $1.2bn ABC

Australia is about to have a debate on the role of government in business.  That debate is going to be spread over several issues — Qantas' junk bond status, Holden's Australian manufacturing decision, the ABC's crowding out of private news.  These are all issues that are going to challenge the Abbott government over the summer.

From a free market perspective the case for government intervention is quite limited.  Economists talk about "market failure" as being a justification for intervention.  This has a very precise definition — not that particular business models are failing, but that the market system itself cannot operate to provide the benefits of voluntary exchange.

Adam Smith famously argued that government should only provide those economic functions which were "advantageous to a great society" but not profitable to undertake.  While recognising that these functions would change over time he nominated national security, the rule of law, and education as examples.

The free market position, however, is a minority view — perhaps even amongst economists.  After all, there are plausible arguments why government should play a larger role in the economy.  Indeed in the 1930s there was a great controversy — the socialist calculation debate — where it was argued government-owned enterprise could not only perform as well as private enterprise but even out-perform private enterprise.  Others argued this was impossible.

The socialists won that debate.

Government Inc

There is no single conclusive theoretical argument against government ownership.  To be sure there are arguments that free market economists find convincing that revolve around incentives and profit motives, yet the general population remains unconvinced.

The proof of the pudding is in the eating.  We all understand that Soviet style economic planning doesn't work.  But what of planning at a more micro level?  Would it matter much if the Australian government made (or continued to make) "co-investments" in Qantas, or Holden, or any other firm or industry?

It turns out that government is not particularly good at running businesses.  Nor should we be surprised.  Business is about customer satisfaction as measured by profit and entrepreneurial decision making.

Government doesn't work on a profit basis and nor should it.  Government works well when there are things that need be done that cannot be measured by profit.  Good government is characterised by rules-based bureaucracy.

Profits matter

The easiest way to see the difference between government-owned firms and private firms is to look at the privatisation literature.  The world's leading expert in this area is William Megginson of the University of Oklahoma.  After an extensive analysis of the data he concluded:

Almost all studies that examine post-privatization changes in output, efficiency, profitability, capital investment spending, and leverage document significant increases in the first four and significant declines in leverage.

The same firms are better managed and run post-privatisation than they were pre-privatisation.

The difference is the profit motive.  Government has no profit motive and so it doesn't matter much if firms make stuff nobody wants to buy.  Similarly, when government only provides finance — this has the effect of blunting the profit motive.  Again, it doesn't matter much if firms can't sell their output — as long as the government will keep pumping money into the firm it can survive.

The problem is that co-investment is a fraud on taxpayers and workers.  Taxpayers end up losing their money while workers end up investing their human capital in dead-end industries.  All up it is a lose-lose proposition.

Public interest or public choice?

What of organisations such as the ABC?  Surely government ownership of the media provides a healthy balance to private interests?  Well, that is one view.

The public interest theory of media ownership suggests state-owned media enterprise results in a better informed population as it promotes less biased and more complete information provision than the private sector would provide.

By contrast the public choice theory of media ownership suggests government ownership exists to allow political elites to divert resources to narrow interest groups or distort and manipulate information to benefit and entrench those elites.

Simeon Djankov, Caralee McLiesh, Tatiana Nenova, and Andrei Shleifer untangle those two theories using data from 97 countries (including Australia).  They conclude the evidence tends to support the public choice interpretation over public interest explanations for government ownership.

This, of course, will come as a shock to an Australian audience.  After all we keep hearing that a large percentage of the population believe the ABC provides a valuable service.  It isn't clear, however, what that actually means — a large percentage of the population doesn't actually consume the ABC's output.  I think the steady stream of UK television re-runs has been very valuable.  In a world of box DVD sets, and pay-on-demand video, that value will diminish somewhat over time.

The ABC fails Adam Smith's test.  To be sure, it isn't profitable — but that is by choice, not an inherent feature of the business itself.  Many of the ABC's competitors are profitable.  So here is the thing;  the ABC does not provide many services the private sector couldn't provide.  But it does provide those services at a cost of some A$1.2 billion to the taxpayer.

The public interest argument for the ABC is those news and current affairs shows that it runs that the private sector wouldn't run.  The overwhelming majority of ABC activities are simply more-of-the-same activities that the private sector does just as well, and probably better.  The government simply has no business in providing entertainment to the masses (or tiny elites in the case of the ABC).  A review of the ABC would have to ask the question as to what exactly the public interest argument for the ABC is, and whether that is worth A$1.2 billion.

Government provision of goods and services is always likely to be captured by narrow interest groups.  Service standards, however, have not increased in line with the volume of public funds that get poured into these areas.  Government businesses simply do not make stuff people want to buy.  These are not bugs, but rather a feature of government intervention.

In the end, it is easy to point to examples of apparent market failure and call for government intervention.  The thing is that intervention fails too — it is only by comparing actual real world alternatives that we see that markets tend to work well and that the scope for successful government intervention is quite limited.

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Scrapping the debt ceiling is no victory

Sometimes great things happen by accident.  The debt ceiling was one of those things.

Back in June 2008, then-assistant treasurer Chris Bowen pushed through Parliament the obscurely named Commonwealth Securities and Investment Legislation Amendment Bill.

The worry at the time was that the demand for Australian government debt was out-stripping the supply.  (The past is another country, as they say.)

There were only $50 billion worth of Treasury bonds on issue, and the financial sector wanted more.  So the government complied.  But, as this was the era in which Kevin Rudd was an economic conservative, the government put an economically conservative cap on the increase:  $75 billion.

Thus was born the debt ceiling.  It had a short and unhappy life.

The ceiling was bumped up to $200 billion to accommodate the big stimulus package in February 2009, and bumped up again in 2012 to $300 billion.

Yesterday, the Coalition government and the Greens abolished it entirely.

This makes sense from the Greens, for whom fiscal prudence is not one of the higher political virtues.  But the Coalition has spent the past half decade banging on about debt and deficit.  And now they have eliminated one of the few tools to get the budget under control in the long term.

The debt ceiling was a rare example of a fiscal rule in Australia, an explicit constraint imposed on the government's financial power.

The purpose of a debt ceiling is to fight the natural proclivities of government to run persistent deficits.  There's every incentive in politics to spend money but very little to save it.  I explained this dynamic in the Drum during the election campaign.  Because spending is popular and taxing is not, deficits are the inevitable result.

Yes, the debt ceiling wasn't much of a ceiling.  It didn't stop government spending more than it earned.  Labor raised it twice, and — if the Greens had not pushed for its abolition — the Coalition would have raised it again.

But that's not the point.  A debt ceiling is an assurance that going further into debt has at least some political cost.  It helps at the margin.

And in that sense, Australia's debt ceiling was very effective.  From the opposition benches, Joe Hockey and Tony Abbott tore strips off the hapless Wayne Swan when he raised the limit in 2012.  It confirmed everything the Coalition had been saying about the irresponsible Labor government.  Swan would not have enjoyed asking Parliament for his increase.  The debt ceiling helped keep his budget troubles in the news.

Australian politicians like to say Parliament should be supreme and sovereign.  It has been claimed in recent weeks that a debt ceiling is somehow anti-democratic — Parliament has an absolute right to spend as it sees fit without any roadblocks being placed in its way.

Well, they would say that.

But that this argument has been seriously entertained across the political spectrum goes to show how poorly the commentariat understand — or are even aware of — elemental political theory.

For one, such an argument gives the legislature a moral authority it does not deserve.  Governments need rules which govern their operation.  A government without rules is an autocracy.

That's what constitutions are for.  The Commonwealth Constitution is really just a long list of things the government can and cannot do.

Some fully democratic constitutions place even stricter limits on what democratically elected politicians may do.  The Bill of Rights in the United States constitution violates the sovereignty of the legislature by preventing politicians from interfering with the liberties of its citizens.  That's no bad thing.

A bill of rights and a debt ceiling are both imposed to keep a government from doing things that governments tend to do:  restricting liberties and spending more than they tax.

No wonder governments are reluctant to adopt such rules.

The US debt ceiling has been raised more than a dozen times since 2001.  It has been a constant focus of intense partisan wrangling and brinkmanship.  Every time the ceiling is approached, the Congress and White House go into crisis mode.

This is how it should be.  The periodic battles over whether to raise the debt ceiling are the only time in which the Congress and White House seriously come to terms with how badly they have ravaged US government finances over the past decade.

The debt ceiling isn't to blame for this chaos.  No, the real crisis is that caused by the Bush and Obama administrations' financial gluttony.

Abolishing the American debt ceiling would only allow US politicians to pretend the debt problem doesn't exist.  Just as abolishing the Australian debt ceiling has released some of the pressure on the Coalition to get the budget back into line.

And if there isn't enough pressure, it simply won't happen.

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Social impact bonds: a good new idea

What's new in public finance you ask?  Social impact bonds, that's what.  This is the leading edge of the social finance revolution.  It just might make a big difference to Indigenous and remote Australia, and, curiously, arts and cultural funding is mixed up in this.

I recently had the honour of speaking at a meeting in Broome that was hosted by two local non-profits — the Kimberley Institute and Goolarri Media Enterprises — on the subject of Social Impact Bonds (SIBs), which are a new and still experimental public-private model to finance the delivery of social services.

The motivation for this interest in SIBs is crisis and opportunity.  Paul Lane, Director of the Kimberley Institute, said during the meeting that the Western Australian government is facing spending something like 20 percent of its health budget in the Kimberley, where just two percent of its people (including the Yawuru) live.  Similar statistics run across public housing and prisons.  In the face of sustained effort and vast spending on inputs, the far North-West is home to chronically failed social service outcomes.

It is not the people that have failed, for hard-working and dedicated service providers are doing their best within the constraints of the current funding and delivery model.  The problem is not the people;  it's the model.  Social impact bonds (known as social benefit bonds in Australia) may represent a community and private investor driven chance to break into a new model.

Because SIBs focus on outcomes, rather than inputs, they enable more innovative or experimental approaches to service delivery.  Howard Pedersen of the Kimberley Institute said the language and culture programs, including the Jandamarra productions, were a significant component of building community capacity to take on social change around alcohol problems in remote Fitzroy Crossing.

The standard model of government grants to service providers inevitably pits providers against each other over scarce funds.  Government connections become highly valued, turf warfare breaks out and providers have little incentive to work together.  Spending flows to crisis situations, leaving little available for early (and much lower cost) intervention.  Worse, when a program does succeed — as happened to the Women's Collective in Fitzroy Crossing — it is rewarded by having its funding cut.  The incentives embedded in this system are perverse from top to bottom.  Kevin Fong of Goolarri thinks that SIBs will enable the community and providers ''to gang up on the problem, not on each other''.

Social impact bonds have the potential to revolutionize public finance and public service delivery.  The basic idea of a social impact bond is to use private sector investment to finance a social project, delivered through a service provider, whereby if the project achieves certain pre-agreed results, which are measured by an independent evaluator, the government then pays the private investors (the service providers are paid by the investors through an intermediary, and receive the funding regardless of outcome).  If the project fails to achieve its contracted outcomes, investors lose and the government (and the taxpayer) pays nothing.

The first and most well documented SIB was at Peterborough Prison in the UK to reduce rates of recidivism in short-stay prisoners, where the social benefit comes from the prospect of reduced spending on prisons and the costs of crime to the community.  The project started in 2009, and is about half way through now.  About 20 further SIBs appear to be underway in the UK, many focusing on disadvantaged youth.  Over 40 SIBs are currently in development worldwide.  The Obama administration's 2012 budget committed $300 million to develop SIBs.  SIBs are underway already in Australia.  In part the burgeoning of SIBs is because of mounting government indebtedness, but there is also a sense that this is a good new idea whose time has come.

SIBs are not for everything, and they are unlikely to replace core funding of mainstream social services.  But they do have a place at the frontiers in dealing with underfunded ''wicked'' problems that often require local knowledge and initiative, and problems that may benefit from new approaches but that are too difficult because of entrenched interests, bureaucratic hurdles (usually, ironically, about transparency and accountability), and the constipating effects of public funding silos.

SIBs are a better way because they get the incentives right.  They focus entirely on the outcomes, and leave the way in which that is achieved up to the service providers, who are therefore free to engage in experimentation to discover what works (in public funding models this is usually far too politically risky in case of failure).  SIBs thus promote fast and effective learning about what works.  Service providers can intervene early rather than waiting for crisis to develop.

SIBs get the incentives right because they shift risk from public sector to private investors, which is to say that they shift risk of experimentation in service delivery to where it is best carried.  Government, under media scrutiny and with taxpayer money, only becomes involved at the end, when, if the performance outcomes specified in the social impact bond are achieved, then investors get paid.  The taxpayer only gets value for money here.

These investors are initially likely to be philanthropic foundations or socially motivated wealthy individuals, with investment coming from corporate social responsibility funds next, but it is entirely conceivable that such bonds can be sold to for-profit investors, such as pension funds.

Now I want to ask what else SIBs might be used for, beyond that which they have been proposed in these early days in addressing socially costly problems such as disadvantaged youth, recidivism, and homelessness.  These SIBs have proceeded because they are easy to count, and the interventions are neatly set up as a controlled trial.  But might SIBs be a source of arts and cultural funding?

Here is how that might look.  A group of ''stakeholders'' would identify a costly social problem that could be addressed through an arts and cultural intervention.  They would undertake initial cost-benefit analysis to estimate the savings to government spending down the line, which let's say is $100.  They might estimate that these savings come about by delivering a service now costing $50.  There is a risk this will fail, as the service is unconventional and untried.  So it is politically risky, and thus unlikely to get public funding.

The stakeholders would operate through an intermediary (such as Social Ventures Australia) to approach private investors, who are in effect ''social venture capitalists''.  If they agree with the assessment of value creation, and like the management team, then this is pitched back to government.  The intermediary puts all this together, writes up a SIB contract that is agreeable to both investors and government, which will be somewhere between $51-$99, so say $70.  Crucially, they also identify and agree to some measurable outcome that will trigger the bond payment.  A further independent party is contracted to run the evaluation.

When the bond is issued, investors transfer $50 to the intermediary, which contracts the service providers.  They now have their funding.  Five years later an evaluation is conducted of the outcomes (not of the inputs or methods, just of the outcomes).  If they meet the agreed threshold, the bond triggers and government pays the investors $70.  Investors are now up $20, and government has saved $30.  If the results are not achieved, investors lose $50, and government pays nothing (government also avoided the risk of that failure).

It is silly to think of funding say Opera Australia this way.  They do produce something of intrinsic value, and there is probably a positive externality, but it is a much bigger stretch to argue that Opera Australia does something that in the long run saves public money.  Yet the examples from the Kimberley do illustrate cases where this may well happen, but these arts and cultural interventions are chronically underfunded and the first to be cut.  They do not stand up well under media and political scrutiny, even when local providers have good reason to believe they work.

I was involved in evaluating one of Goolarri's projects a few years ago called Kimberley Girl, which fits this bill.  It's nominally a beauty pageant for Indigenous young women in the Kimberley region.  But really it's an intensive workshop program in developing confidence, self-respect and presentation skills among disadvantaged youth:  workplace-readiness in other words.  It can be life-changing for some of the participants, and that can make a huge difference to the public budget down the line.  We estimated that one dollar invested in Kimberley Girl returns seven dollars in future public savings.

These types of unconventional intervention, delivered by an Indigenous media company, of all things, are not priorities for government funding.  But they work.  A social impact bond can enable private investment to carry the risk of testing such programs, with the taxpayer only involved to compensate those programs that succeed and might then be scaled up and delivered more conventionally.

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We're missing the boat on the quest for entrepreneurial graduates

For years, the term entrepreneur had negative connotations.  Associations of getting rich at the expense of others were particularly pervasive after the 1987 crash.

But it seems the prevalence of such ideas has waned.  Amway's latest Global Entrepreneurship Report found more than 80 per cent of Australians had a positive attitude towards entrepreneurs, the fourth highest of the 24 countries assessed.  But Australia continues to be held back by the lack of quality entrepreneurial education available in tertiary institutions.

Australians have begun to identify the value of new ideas, respect the hard work and ingenuity associated with starting up a business and appreciate the risk of leaving behind the stability of a fortnightly pay cheque.

Isabel Welpe, who oversaw the Amway report, argues a factor that diminishes the levels of entrepreneurship in many countries is the lack of entrepreneurial education.

This is pertinent in Australia, where the teaching of entrepreneurship is being held back by a system dominated by traditional business models of business education.  The juxtaposition between Australia's tertiary entrepreneurship courses and those in the US and Europe is stark.

US universities have been at the forefront, providing innovative courses that incorporate the practical elements necessary to provide students with the tools to start businesses.

Babson College in Massachusetts maintains the importance of experiential education and real-world business experience.  Babson's undergraduate program is consistently voted best in the US while its postgraduate program has never fallen below second.

Like the University of Houston, whose undergraduate program is ranked second, Babson's entire faculty comprises entrepreneurs.

This is in stark contrast to Australia, where finding teachers with private-sector experience is hard;  identifying any who have successfully founded and run startups is even harder.

More generally, business education is too focused on servicing the needs of major corporations and accounting firms, and feeding graduates into these existing frameworks.

But big business makes up only 5 per cent of all businesses in Australia and managing smaller enterprises requires a different set of skills and a different mindset.

Most international studies conclude that between 30 per cent and 50 per cent of differences in economic growth rates across countries can be explained by differing rates of entrepreneurial activity.  Entrepreneurs are the heroes of capitalism.

Internationally, great progress has been made in universities to encourage and facilitate more people to become entrepreneurs.

In the Amway polling, 50 per cent of respondents in Australia rated entrepreneurship education and the teaching of business skills the most important factor in encouraging the foundation of businesses.  While the debate over the merits of entrepreneurship teaching continues to rage in Australia, overseas universities have moved on.

They are playing a vital role in driving the progress of entrepreneurs and in turn the economic growth of their nations.  It is about time we did the same.

Free speech does not discriminate

LGBTI Australians should reject special group rights that undermine their human right to free speech to defend themselves.

In the new year the Federal Government is intending to deliver on its pre-election promise to repeal section 18C of the Racial Discrimination Act.

The relatively obscure provision of this federal law makes it "unlawful" for Australians to make comments that would "offend, insult, humiliate of intimidate" others on the grounds of "race, colour or national or ethnic origin".  The provision became famous when it was successfully used to silence News Limited columnist Andrew Bolt from discussing the Aboriginal identity of fair-skinned Australians.  Irrespective of what any individual thinks about how 18C has been used in the past, it should be repealed.

First, it imposes an entirely subjective test on the merit of an individual's speech.  No one knows what may "offend, insult, humiliate or intimidate" another person.  It becomes doubly problematic when we are discussing offence across cultures.

Second, the subjective interpretation of this provision ensure individuals only have the choice to walk on egg shells when discussing issues that may fall afoul.

Third, it gifts special group rights for people based on a collective identity.  For years LGBTI Australians have fought for the same legal standing for themselves, and their relationships.  More often than not, the very intention of campaigns to change laws has been to achieve the classical liberal spirit of universality before the law, not a special status.  Section 18C represents ''special'' rights for a certain group of people, not ''equal'' rights.  The simple reality is that some individuals from different cultural, ethnic or national backgrounds don't accept people being same-sex attracted, and make it known.  If section 18C is allowed to stand they can throw hostile verbal bombs at LGBTI Australians, but retreat to the protections of 18C should LGBTI Australians respond.

Fourth, it fundamentally undermines the human right to free speech.  Sadly, human rights no longer appear to have the standing they once did.  A classical liberal approach to human rights saw them as a very narrow number of protections for individuals from the abuse of power of government.  This includes speech, association, movement, religion and property — which include both physical property and the right to own your own life and self-determination.  They were limited, sacrosanct and could be reasonably exercised without harming another's human rights.

Arguably the most important is free speech, because it is necessary to protect all other human rights.

Understandably, we all go squeamish when we are called to defend the principle of free speech.  We are never called to defend it when people say "please" and "thank you", only when individuals say something that at least someone doesn't like.  It's the spirit of the often-apportioned quote to Voltaire that "I do not agree with what you have to say, but I'll defend to the death your right to say it".

But the solution is more speech, not less.  We should preserve the right to speak out, mock them and ridicule them for the stupidity of their comments or the hate in their heart.  And that also applies for incorrect statements.  Free speech isn't limited to factual accuracy.  If it were, we'd never have a contest of ideas where ideas are proposed, exposed and corrected.  The argument behind 18C is to afford some people higher legal standing than others for factors outside their control.  It's the antithesis of equality before the law.

As LGBTI Australians know:  haters gonna hate.  So we should defend our human right to speak out, defend ourselves and ridicule narrow-mindedness without fear.

Would an ''unconditional basic wage'' work?

One of the more unconventional public policy proposals discussed in academic and political circles is all people should be provided with a form of guaranteed income, regardless of their circumstances.

In Switzerland, citizens will eventually vote on a referendum proposal to provide each citizen a monthly ''unconditional basic income'', to ensure ''a dignified existence and participation in the public life of the whole population''.

Advocates for the Swiss basic income have called for a universal, flat payment of 2,500 francs ($A 3,017) provided by the state, and recently secured the requisite minimum number of petition signatures for a referendum on the matter to take place in that country.

Support for a basic income is not limited to social democrats or progressives seeking to reduce inequality, but variations of this have also been suggested by prominent classical liberals such as Milton Friedman, Friedrich Hayek, and James Buchanan.

Friedman famously advocated a ''negative income tax'' arrangement, whereby individuals earning above a threshold income level would be liable to pay income tax, but those below the threshold not only pays no tax but receives a government subsidy.

The lower an individual's income falls below the income tax threshold, the greater the subsidy (or ''negative tax'') he or she would receive to ensure their upkeep.

Writing in the 1960s and 1970s, Friedrich Hayek gave qualified support to ''a certain minimum income for everyone, or a sort of floor which nobody need fall when he is unable to provide for himself''.

During the 1990s the public choice theorist James Buchanan suggested that the government should provide an equal-per-head ''demogrant'' transfer payment, in combination with a flat rate or proportional rate income tax.

Other figures within the modern liberal and conservative traditions have expressed support for a basic or guaranteed income, including Charles Murray's $US 10,000 ($A 10,958) per annum basic income for Americans with pulses, as well as the respected British economic journalist Sir Samuel Brittan.

Leftist aspirations to alleviate poverty may seem, to many, as an intuitively obvious reason to support a basic income model, but why did some of the most famous liberals of the last century support what appears to be a socialist redistribution scheme?

A key argument put forward by some liberals is that a basic income would be a more efficient way to redistribute resources, at least compared with the plethora of current welfare state subsidies.

Substantial amounts of taxpayers' funds are presently siphoned off enabling bureaucratic middlemen to administer numerous welfare programs, each with their own eligibility and other criteria, which leads to unnecessary administrative complexities.

There is an expectation among some that simplification of the welfare state, through a process of rolling all subsidies into one basic income program, could deliver significant cost savings and bring rationality to subsidy design.

For liberals such as Buchanan, a basic income system was justified to prevent politicians and bureaucrats from implementing discriminatory spending arrangements, which benefit some people at the expense of others thus violating political generality norms.

There is little doubt that the existing welfare state is administratively unwieldy, fiscally unsustainable and ensnares people in poverty traps due to high effective marginal tax rates, but there is no guarantee that the basic income would necessarily resolve these problems.

Over a century of experience across the Western world consistently illustrates that the fiscal size and scope of the welfare state has grown enormously, as rival politicians seek to outbid each other for votes by partitioning the general electorate into new constituencies.

This process, coupled by the incessant demands of interest groups for policy favouritism, has inevitably led to a proliferation of different welfare programs for different groups, such as the unemployed, families, people with disabilities, war widows, and so on.

Introducing a basic income would not quell or override these practical, yet endemic, features of modern political life.

It is unlikely that the concentrated beneficiaries of existing welfare subsidies would support the abolition of their favoured programs, and even if a basic income scheme was successfully implemented the interest groups would quickly seek to undermine the generic application of the basic income.

For example, there would be immense pressure placed upon politicians to apply differential subsidy loadings on top of the basic income level, assisting those groups deemed to be needier than others.

Compounding these distributional conflicts is the prospect that even a modest basic income could significantly reduce labour supply, as some people elect to abstain from work, either in part or as a whole, in response to a "no questions asked" government payment for all adults.

Dampening labour supply following the introduction of the basic income would only further aggravate tax pressures borne by those who remain in the workforce, or choose to exercise their entrepreneurial flair to produce goods and services for others.

The application of a basic income may also hamper the financing and provision of charitable services, as people become disinclined to donate to charities in the face of an all-round government subsidy.

The basic income proposal is a seductive idea for people of varied philosophical persuasions, but if introduced it could risk ending up as another initiative in which good intentions do not align with desirable results.

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