Forcing GST on imports doesn't stack up

In opposition the Coalition promised no new taxes or tax increases.  On Friday Joe Hockey announced the Coalition's latest tax increase:  eliminating the GST low value threshold on imported goods.

Currently GST is not imposed on imports worth less than the low value threshold of $1000.  When you buy books from Amazon or clothes from ASOS, you don't pay GST.  As of July 2017, you will.

Well, you probably will.  This is going to be very hard for the Government to implement.

The GST collection won't be levied when goods are imported.  Inspecting packages at the border costs more money than it raises, as the Productivity Commission conclusively found in 2011.  (The Assistant Treasurer, Josh Frydenberg, has been saying that "real improvements in technology" make that finding no longer true, but the inspection problem isn't really a technological one, it is a time and warehousing costs one.)

Instead, Australian Taxation Office officials are going to fly around the world to ask "hundreds" of foreign companies exporting more than $75,000 worth of goods to Australia to levy the GST at their end.  Nice work if you can get it.

The politics here is obvious and unflattering.

Friday's announcement satisfies the retailers who have been lobbying for years to reduce the threshold, claiming it makes domestic goods uncompetitive.

Of course, the GST threshold is a convenient scapegoat for much deeper issues in the Australian retail sector.  Even if GST were imposed on all goods, many representative products would still be more expensive sold from Australian shops than foreign ones, as I have shown.  And international shipping isn't free.

Friday's announcement also satisfies Treasury and the state governments who are clamouring for more revenue.  Like everything else Hockey has dressed up as a "tax integrity measure", the elimination of the GST threshold is nothing more than a tax grab.

But, politics aside, let's look at the low value threshold on its own merits.

Almost nobody in the debate has acknowledged that the threshold has been slowly lowering ever since the introduction of the GST.  This is because the $1000 threshold is fixed — it is not indexed to inflation.  And a grand isn't worth as much as it used to.

This is the point the Treasury's own Tax Board made in 2010, writing that inflation will "reduce over time any potential bias in favour of imported goods over local goods of the same quality and value".

So Australian retailers have been complaining about a tax distinction that has been constantly and automatically eroding in their favour for the last decade and a half.

And that's before we consider the fact that the dramatic reversal of the dollar has made domestic retailers much more competitive than foreign ones in the last few years.

The GST is usually described as a consumption tax.  It is not a consumption tax because the GST is not levied on consumption.  It is levied on sales by firms operating in Australia.  In the real world, the GST is a sales tax with an input credit.

That observation might sound pedantic but it has big implications for the import threshold debate.  If the GST is in fact an Australian sales tax, then trying to impose it on sales by foreign companies in foreign countries is not a tax integrity measure at all.  It is a tax on imports.  It is, in other words, a tariff.

Foreign companies do not, and should not, pay Australian taxes — just as companies in foreign countries do not operate under Australia's regulatory framework or our political institutions.

As the Howard government said when it introduced the GST in 2000, "the government wants to ensure it does not unnecessarily draw non-residents into the GST system".

And the idea that we need to raise taxes at our border in order to ensure "competitive neutrality" or to "level the playing field" is mercantilist nonsense.  In fact, it's not clear why GST should be levied on any foreign imports at all, apart from a pure protectionism.

In practice, the GST is only going to be levied on foreign companies that a) provide more than $75,000 goods into Australia and b) don't slam their door in the face of Australian tax officials when they come knocking.

So there's a non-trivial chance Hockey's GST move will just encourage Australian consumers to move from bigger websites to smaller websites, trying to avoid the 10 per cent tariff.

On Friday Hockey said he has many "levers" at his disposal to "pressure" companies overseas to collect Australian taxes.

Maybe he does.  But if so, that should be recognised for what it is:  trying to squeeze money from foreign companies for no other reason than to satisfy retail lobbyists and feed the Government's apparently unrestrainable spending habit.

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Qantas turnaround delivers some useful market lessons

Qantas has come a long, long way since the federal government rebuffed its request for corporate welfare last year, and it moved to cut 5000 jobs.  At the time many observers, myself included, were calling for Joyce's resignation — if not sacking.  Based on last week's results, a A$1.6 billion turnaround, it looks like Joyce's critics were completely wrong.

Last year I set out a three point test for corporate turnarounds:

• Re-establishing product market presence
• Gaining control over the financial statements (income statement and balance sheet)
• Ridding itself of senior management.

It looks like Qantas has turned itself around on the first two points.  Qantas has retired some older planes and will be purchasing some newer planes with smaller capacity per plane but longer operating ranges and lower operating costs.  At the same time the local capacity war with Virgin has ended and surprisingly Virgin is now moving "up market" by providing "complimentary" in-flight entertainment and meals.  In other words, competing on Qantas' terms.

The cost per available seat kilometre fell.  So it appears that income statement control has been established.  A lot of that cost reduction, however, comes from factors outside Qantas management control.  The decline in fuel costs, for example, and the repeal of the carbon tax.  Overall, to be fair, Qantas has made great strides in the area of cost management.

What didn't happen was getting rid of senior management.

As Alan Joyce told the Australian Financial Review:  "Our shareholders have been very patient."

Yes, very patient indeed.  In February 2014 the average Qantas share price was $1.16.  Last week the share price closed at $3.45.  By contrast the share price averaged $2.47 the month Alan Joyce became CEO in November 2008.  That suggests that the oft-made criticism of "short termism" is over-sold.  Qantas' institutional shareholders, at least, took a long-term view on the strategies that Joyce put in place and were prepared to back their judgement.

For now it looks like their patience has paid off.  But Qantas isn't quite out of the woods just yet.  Last year Sam Wylie estimated that Qantas' breakup value was about $6 per share.  So Qantas management needs to repeat its performance again next year ... and the year after.  In fact, shareholder patience will have to be paid back with spectacular performance.

So the first lesson from the Qantas experience is that institutional shareholders do not necessarily have short-term horizons if they are convinced management has a plausible strategy in place.

There is another very important lesson to be learned.  Last year the Abbott government was quite right to refuse Qantas any special favours or corporate welfare.

Of course that was before their disastrous first budget, back when the Abbott government had enough political capital to make tough decisions.  At that time it looked like Treasurer Joe Hockey had developed a four point test to inform corporate welfare decisions:

• Is the firm subject to unique regulation that impedes its business model?
• Does the firm provide an essential service?
• Does the firm compete against foreign State Owned Enterprises?
• Is the firm working to restructure its operations?

As I argued at the time, Qantas only met one of those four criteria.  More importantly we now know that Qantas management was working to restructure its operations and did not need government assistance to return to profitability.  That, of course, doesn't mean the government shouldn't relax the conditions of the Qantas Sale Act anyway, but it does undermine the tales of doom and gloom we were treated to last year.

The lesson to learned from all this is that we shouldn't always believe otherwise "compelling arguments" for corporate welfare.  Business should raise its revenue from paying customers and not the taxpayer.  Running to Canberra for a bailout shouldn't be an option for management over making tough choices on meeting consumer demands and cost management.  In the absence of corporate welfare Qantas has shown it can be done.

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More work needed after China free trade deal

The China-Australia Free Trade Agreement is not the perfect trade liberalisation deal, but it is still a modest step forward for an economically mature relationship.

A couple of months ago the Trade Minister Andrew Robb announced the signing of the China-Australia Free Trade Agreement allowing producers and investors to trade in goods and services across the Chinese and Australian borders with fewer impediments.

When the ChAFTA comes into force, subject to parliamentary approvals, it is estimated more than 85 per cent of Australian goods exports to China, by value, would become tariff-free, increasing to 95 per cent when the agreement is fully implemented.

The listing of Australian exports designated to be relieved from Chinese tariffs, within a decade after the agreement comes into force, includes horticulture, milk, cheese, pork, seafood, coal, wine, pharmaceuticals, orthopaedic appliances, and plastics.

A "most favoured nation" clause is also included in the ChAFTA, whereby more generous trading terms extended by China to other countries are automatically afforded to Australian exporters in certain sectors.

For its part, Australia, through the new agreement, would extend a range of benefits to Chinese producers and investors.  This includes the gradual elimination of remaining Australian tariffs on Chinese imports, which in turn benefit our consumers and businesses through lower prices and better product availability, and relaxing foreign investment scrutiny thresholds for private Chinese investors in some areas.

These provisions are certainly helpful but it should also be made clear the ChAFTA does not reflect the comprehensive, unremitting liberalisation in goods and services trade, investment, and labour movement that Australia needs.

Indeed, politicians on both sides of the negotiating table have managed numerous carveouts or exemptions from the ChAFTA designed to either placate vested interests, or to uphold a desire not to unduly abridge conventional political sensitivities.

Beef producers will benefit from tariff cuts over a nine-year period, but a clause exists allowing China to reimpose tariffs if imports from Australia exceed a so-called "safeguard trigger volume" of at least 170,000 tonnes in a given calendar year.

A fairly similar arrangement will apply with regard to whole milk powders.

Australian service providers will gain additional access to the Chinese market, though the terms of access for the likes of finance and legal, and education and healthcare, will be regulated in various ways, for example on a geographic or activity basis.

The OECD has indicated that the Australian foreign investment scrutiny regime, managed by the Foreign Investment Review Board, is potentially one of the more restrictive in the developed world.

Aside from raising the screening threshold for private investors, in line with other countries with whom we share free trade agreements, the ChAFTA does not mitigate other flaws inherent in our foreign investment regulations in any material way.

The Abbott government will maintain its ability to screen Chinese investments at lower thresholds for agricultural land and agribusiness, in line with National Party demands, as well as politically sensitive areas such as media and telecommunications.

The ChAFTA does not alter Australia's discriminatory arrangement of vetting investments by all foreign state-owned enterprises, either, despite the obvious lack of regulatory neutrality in treatment arising from such a policy.

One of the great criticisms of politically stage-managed trade agreements by free trading economists, such as the internationally respected Razeen Sally, is that they hardly address the significant "behind the border" impediments to cross-border flows of goods and other valuable resources.

The ChAFTA allows Australian and Chinese investors to identify breaches in agreement obligations, and provides dispute-settlement mechanisms, but these exclude many policy areas, such as health, safety, environment, and so on, that can potentially lead to discriminatory economic treatment.

There are also significant behind the border impediments to freely flowing trade, investment, and labour resulting from the maintenance of government procurement policies, intellectual property, and technical regulatory standards.

Australian unions are fomenting a xenophobic scare campaign about the potential loss of jobs domestically, but the reality is that various migration and occupational licensing barriers against the inflow of foreign workers remain.

All in all the ChAFTA is not actually free trade by nature but, rather, a managed agenda to further cross-border good economic relations between Australia and China in ways that do not offend political imperatives on both sides.

Australia should ideally free up all trade, investment, and labour on a unilateral basis for everyone, expanding our economy and providing domestic consumers and firms with more and cheaper products, but this liberating reform route does not presently appear to be on the cards.

Despite immense benefits we have received through past unilateral trade reforms, Australian governments now appear more content to hit the "snooze button" on go-it-alone reform.

This is worrisome because multilateral trade reforms through the World Trade Organisation have also largely run aground.

Concerns about the growth of bilateral agreements inducing a "spaghetti bowl" of global trading complexity are well sustained, but in the broader climate we now face it is probably better not to let the perfect to become the enemy of the good.

With the ChAFTA looking net liberalising, at least on paper, it should be allowed to proceed, with the proviso that we still keep pushing for more reforms delivering additional benefits down the track.

If the federal Labor Party and the labour unions can pull back from their fearmongering over the ChAFTA, the agreement would mark a new, much brighter, chapter in what has been a historically fraught economic relationship between Australia and China.

We shouldn't forget that colonial governments enacted legislation from the 1860s restricting immigration, following racist agitations against Chinese miners in the goldfields, forming the basis for the disreputable federal White Australia Policy.

Governments, mostly at the behest of unionists, also introduced regulations targeting furniture-making and other manufacturing pursuits by Chinese workers in this country.

Labour market discrimination was coupled with tariffs introduced, in part, on the irrational fear that low-priced imports from China and elsewhere could undercut the pay cheques of Australian manufacturers and their unionised workforces.

Australia took a long time to move well away from these unwarranted discriminatory policies, but sadly elements of Sinophobia still lurk as shown by the inexplicable complaints against investments, students, workers, and goods flowing from China.

As imperfect as the ChAFTA may be, it if does manage to get scuttled by anti-Chinese policy sentiments ordinary Australians would miss out immensely on a chance for constructive economic engagement with our region.

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Why multinationals are not avoiding Australian tax

The title of the interim report of the Senate economics committee inquiry into corporate tax avoidance, released this week, is "You cannot tax what you cannot see".

This is a rather embarrassing admission that the evidence for widespread corporate tax avoidance — the avoidance which has filled so many newspaper columns, so many hyperbolic speeches in parliament — just doesn't exist.

Imagine being pulled over by the police and told that even though you've been observed driving below the speed limit, stopping at stop signs, giving way at give way signs, indicating correctly, wearing your seatbelt, and maintaining a respectable distance from the car in front, the police have a hunch you're somehow violating community expectations.

While the Senate committee feels sure there are questionable corporate tax practices going on, it doesn't actually find any.

Rather, it relies very heavily on the political rhetoric of a now-discredited 2014 report by the Tax Justice Network, which claimed that firms were denying the government vast sums of revenue through opaque and confusing tax arrangements.

In fact, what the committee's interim report shows is that the tax practices of the big tech firms are quite explicable.

For instance, Microsoft and Google have their regional headquarters in Singapore.  As the committee admits, these headquarters are not shells, existing solely to avoid giving Joe Hockey money.  They're real.  They have real offices, real assets, and real staff doing real work.  In Singapore.  Not Australia.  Just because those Singapore headquarters digitally export some products and services to Australia does not mean they should pay Australian corporate tax on the profits.

Even more explicable is large firms with large research and development costs deducting those costs from their taxable profits.  The R&D corporate tax deduction is bipartisan government policy.  It seems a bit much for governments to introduce a tax incentive then get angry with firms for using it.

The lack of evidence of tax avoidance makes the committee's belief that the Australian government should name and shame corporate tax avoiders vaguely comic.

Certainly, the Australian Tax Office should be vigilant ensuring firms are paying what they owe.  Firms that fail to do so should face the full consequences of the law.  But that already happens.  Australia has some of the strongest anti-avoidance laws on the planet.  The government has the tools, right now, to deal with illegal tax evasion.

Underpinning this whole debate is the fact that Australia's corporate tax rate is very high.  At 30 per cent, it is substantially above the OECD average of 25.3 per cent.  And Australia is one of the most heavily reliant countries on corporate tax revenue in the OECD.  The Senate committee admits that this heavy burden puts Australia at a "comparative disadvantage".

With such a disadvantage, it is no surprise that multinational companies are not lining up to establish their regional headquarters here.

But a failure to establish regional headquarters in Australia — "avoiding permanent establishment" in the lingo of the committee — does not constitute tax avoidance.  Australia's tax and regulatory environment is not competitive.  Singapore's is competitive.  This ought to cause some soul-searching by the Parliament.  Handwringing about phantom corporate tax avoidance just postpones consideration of the real problem.

Perhaps we might expect the sort of anti-corporate nonsense espoused at the inquiry from Labor and the Greens.  What's really disappointing is the full-throated support of the corporate tax panic from the Coalition.

Government senators on the committee wrote a dissenting minority report.  Yet their complaint was that the committee did not fully acknowledge all the exciting work the Abbott government was doing to clamp down on multinationals.

Earlier this year the government released its own proposed legislation to deal with corporate tax avoidance.  In effect that legislation would empower the ATO to second-guess where it feels profits should be booked for tax purposes.

The consequences of such an approach would be dire.  It would expose multinational firms to double taxation.  It would be a huge incentive for those firms to leave Australia all together, taking jobs and economic activity with them.

All this fretting about tax avoidance makes good demagoguery.  But it might seriously harm Australia's economy.

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Jeremy Corbyn shows how ideas alone can move political debate

In Australia we've had our fair share of "unelectable" politicians get elected.  As has Britain.

At the moment the British Labour Party is in the process of electing a new opposition leader following their thrashing at the general election in May.  Under the party's new rules, Labour's 232 MPs each get one vote to cast for the leader as do the party's 299,755 members, together with 189,703 trade unionists who are members of a union affiliated with the Labour Party, and as do 121,295 members of the general public who are not party members but who've paid £3 and registered themselves as Labour "supporters".

The process was intended to bring democracy to the Labour Party — but the problem with democracy is that sometimes it gets out of hand.  There's accusations that "entryists" have infiltrated the party.  A Tory MP had registered as a Labour supporter so that he could vote for the Labour leader.

OVERWHELMING FAVOURITE CORBYN

According to the polls the overwhelming favourite to win the election for leader is Jeremy Corbyn.  Until a few weeks ago no-one had heard of the thrice-married, 66 year-old who has spent the last 32 years in obscurity on the backbench.  To describe him merely as "left-wing" doesn't do justice to his policies on everything from economics to terrorism.  He supports printing money to defeat "austerity", wants to nationalise energy companies, and he advocates unilateral nuclear disarmament.  He once described representatives of the terrorist groups Hamas and Hezbollah as "our friends".

Corbyn would be a disaster for the Labour Party — and if heaven-forbid he ever became prime minister, he'd be a disaster for the country.  Which is why Tony Blair and practically every senior and serious Labour leader have urged the party to pick anyone but Corbyn.  On all the evidence Corbyn is unelectable.  Yet the slight nagging worry of the British ruling class is that he might not be.  And there's a precedent.

There once was a candidate for their party's leadership who was similarly described as unelectable — who was "extremist" and "class-conscious" — and who would shift their party from the "middle ground" and consign it to electoral oblivion.  The Economist magazine said of the leadership aspirant that they were "precisely the sort of candidate ... who ought to be able to stand, and lose, harmlessly".

That candidate, of course, was Margaret Thatcher, and the year was 1975.

Gordon Brown, the former Labour Chancellor of the Exchequer and Prime Minister delivered a speech this week urging Labour party members to be sensible.  He pleaded with them to remember their party had to be "credible" and "electable".  Brown was mystified that someone could vote for a leadership candidate in the full knowledge that the person they're voting for would probably never win a general election.  A similar critique of Corbyn's supporters has been extended to Corbyn himself.  He's suspected of being more interested in propagating his political philosophy than in becoming prime minister.

According to Brown it's "not an abandonment of principles to seek power" and power "is necessary to change lives".  Brown is right, but he's wrong to have convinced himself that only party politics changes lives.  As wrong and as misguided as Corbyn and his supporters are, they may just have a more sophisticated appreciation of power than Brown.

MORE POWER THAN POLITICS

The Chief Justice of the High Court, the Governor of the Reserve Bank — even the Managing Director of the ABC and the President of the Australian Human Rights Commission have far more power over people's lives than your average minister or even average prime minister.  Admittedly judges, regulators, bosses of state-owned media companies, and human rights bureaucrats are all appointed by politicians but none of them are actually politicians.  The insight that politics is practised in many ways, and not just through the formal political process was appreciated by the Italian Marxist, Antonio Gramsci, when in the 1920s he talked of the left gaining power via "the long march through the institutions".

If power and the ability influence the public debate is measured in decades rather than in the weeks of parliamentary sitting terms, by the publicity he's received for his views Corbyn has already fundamentally changed British politics.

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There's nothing conservative about using the constitution as a political trick

The Australian constitution has one great feature.  It is incredibly hard to change.

This, obviously, is what Scott Morrison was thinking about when he proposed last week that Australia hold a constitutional referendum to deal with same-sex marriage.

A plebiscite would simply determine the public's view on changing the Marriage Act via Parliament, but a constitutional referendum would propose adding the words "opposite and same-sex" before the word "marriage" in section 51(xxi) of the Constitution.

A plebiscite would have to simply receive a national majority to be considered decisive.  But a constitutional referendum would have a much higher bar:  both a national majority and majorities in at least four states.

Australia's constitutional amendment system is often described as "notoriously difficult".  We are a "frozen continent", constitutionally speaking.

Only eight out of 44 referendums have succeeded.  This often cited figure understates the failure rate.  Other possible referendums have been abandoned before coming to a vote.  Kevin Rudd dropped Julia Gillard's local government referendum when it became clear the Coalition's enthusiasm for change was waning.

The Australian founders may not have intended it to be this hard to change the constitution.  But there are good reasons for constitutional change to be difficult.

Constitutions exist in order to provide fixed rules about what governments can and cannot do.  The strength of a constitution derives from the certainty it provides.  A constitution that can be easily changed is not a constitution at all, in that it does not offer the stability necessary for long term economic and political management.  In the pre-constitutional era, governments did not feel bound by rules.  Now they do.  That's a very good thing.

This does not mean constitutions should be impossible to alter.  But the danger to the constitution comes from reckless change, not stubborn adherence to the status quo.  As Geoffrey Brennan and Hartmut Kliemt have written:

The slowness of the procedure will give us pause and help us steer a steadier constitutional and political course than we would do otherwise.

It's important to note that the desirability of constitutional rigidity holds true even if we think the constitution is weak, or flawed, or could be amended in an obvious way.

Yes, we all have our own ideas of how statutes and constitution might be rewritten that would make this country more perfect.  But just have a brief scan of the previous 44 referendums (Wikipedia has a nice list, with links to the questions themselves).  It is pretty clear that Australia is better off, on balance, for having rejected most of them.  Almost all were outright and explicit power grabs by the Commonwealth.

With all this in mind, the requirement that a constitutional referendum achieve a double majority — majority of the population and majority in the majority of states — is in fact a relatively low bar for a change to the rules that govern the structure of the government.

After all, what is the alternative?  Simple majority voting?  Majority voting is not inherently more democratic.

We are more likely to make democratic decisions — that is, decisions that more represent the will of the people — with a higher threshold.  When 51 per cent of the population impose their views on 49 per cent of the population, it's hard to say that imposition has much moral authority.

This is the basic case for constitutional conservatism (couched admittedly in economic terms rather than the usual legal ones).  Continuity should be preferred.  Change should be resisted.

The Liberal Party used to be the party of constitutional conservatism.  Labor has always wanted constitutional reform.  The Coalition's historical role is to hold the line, to espouse modesty and stability;  the sort of virtues represented by the Samuel Griffith Society and a long line of conservative judges and political leaders.

Yet under Tony Abbott, the Coalition appears to have abandoned that storied and entirely necessary tradition.

In opposition, Abbott had signed up to Gillard's local government referendum.  He had to be pulled back into line by state Liberal party divisions.

Abbott wants to amend the constitution to recognise Indigenous Australians.  You only need observe how the recognition debate has spiralled out of the Government's control to see how antithetical it is to the conservative mindset.

Now senior ministers of the government are seriously proposing a constitutional amendment for no other reason than to stack the deck against a policy they oppose.  And that policy is, we are repeatedly told, a second-order issue.

There's no reason for a constitutional referendum on same-sex marriage.  The High Court has said the Commonwealth Parliament has the power to legislate in this area.  The constitutional approach is only being floated because Morrison and others want the measure to fail.

Constitutional conservatism was once a matter of deep Liberal identity.  Now it's just another political trick for short-term gain.

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How UEFA's financial fair play rules are destroying football

With the English Premier League kicking off last weekend, we'll no doubt hear the well-worn refrain that foreign billionaires are destroying English football.  But it is UEFA's financial fair play rules, not billionaires, that are sucking the soul out of the English game.

Over the last decade or so, several English and European football clubs have been purchased by foreign owners.  Many fans, commentators and officials argue that the enormous wealth of these individuals means clubs are able to buy their way to success and that this is ruining football.

To combat this trend, European football's governing body, the Union of European Football Associations (UEFA), with the support of the EU, introduced the UEFA financial fair play rules (FFP) in 2011.

In 2013, it introduced the so-called "break even" requirement, preventing clubs from accumulating debt.

While UEFA argues these rules prevent clubs from becoming the playthings of billionaires — who they think will leave them with crippling debt once they grow tired of them — they actually ensure small clubs remain small.  By shackling spending to revenue they effectively outlaw risk-taking behaviour.

For example, a small club on the brink of glory is unable to go into debt to purchase the superstar or two it may need to take the next step, with the intention of covering the debt with the increased revenue success brings.

As Manchester City captain Vincent Kompany points out, these rules simply serve to protect the established order in English football.  They are a form of crony capitalism.

This is obvious to anyone who glances at the list of English champions over the last couple of decades.  Between 1993 and 2004 Arsenal and Manchester United won all but one title.  This was broken in 2005 when, having been bought by Russian oligarch Roman Abramovich, Chelsea won only their second title ever, and their first in 50 years.

In 2012, Manchester City won their first title in 44 years after being purchased by Abu Dhabi United Group (ADUG), having lived in the shadow of their illustrious neighbours Manchester United for decades.

But a better example exists before the fleet of foreign owners made their appearance.  In 1995, tiny Blackburn Rovers — hailing from a town with a population of 100,000 — were champions of England as a result of funding from local Steel baron Jack Walker.

Walker was a local boy made good who wanted to give something back to the town where he had grown up and made his fortune.  He appointed the legendary Kenny Dalglish as manager and provided the finance to purchase stars such as Alan Shearer, Chris Sutton, Tim Sherwood and others.

Blackburn's star burned bright but it burnt out quickly.  Having won the title, many players moved on and the club was relegated four years later.  It was noted recently by Andy Dunn in The Daily Mirror that what Blackburn did wouldn't be possible today because of FFP.

Football is about hope, dreams and glory — not the quiet satisfaction of prudent financial management.

Does anyone seriously think that football would be better had Blackburn lived within its means and finished a solid eighth in the first division every year?  Would Blackburn fans prefer that to that glorious afternoon at Anfield when Jack Walker wept in the directors' box?

How can foreign billionaires be ruining the game when they are giving fans their first taste of glory in decades and when they are breaking up a duopoly that meant only two teams could be champions?

If ever there was a symbol of the dimension of hope and drama that a dynamic financial environment brings, it would be the stunning finale to the 2011-2012 season, when Manchester City secured their first league title in 44 years with the help of ADUG.

In what was probably the most dramatic end to an English league season in history, City scored two goals in injury time to steal the title from Manchester United.

As commentator Martin Tyler famously screamed "Agueroooo!", as thousands of City fans streamed on to the pitch in tears, as people around the world danced in pubs and living rooms, can anyone seriously say that the huge investment brought into the English game by foreign investors hasn't been a good thing?  Would football really be better if Manchester United and Arsenal were 20 points ahead of everyone else every single year?

Creative destruction is an economic term referring to the process whereby new, more efficient and more innovative products and firms destroy existing players.  This is exactly what football should be.

There is unlikely to be a more salient example of creative destruction than Manchester City, Chelsea and others upsetting the English and European football applecart.  FFP threatens to put a stop to the next wave of creative destruction that may well knock City and Chelsea off their perch.

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Let's be honest, Question Time makes everyone look stupid

The importance of the speaker in Australian Parliament is wildly overstated, because the stakes of parliamentary Question Time are wildly overstated.

It is a sign of how far the Abbott Government has lost control of the agenda that the appointment of what is normally a minor administrative position became the centre of Canberra politics.

By now the entitlement saga has spiralled out of control, enveloping every side of politics.

But recall that Labor was delighted when the Bishop helicopter photos emerged.  It seemed like a perfect encapsulation of the charge they'd levied at Bishop ever since her appointment.  Bishop was hopelessly partisan.  Indulgent.  Shameless.  Here was Bishop's performance as speaker converted into metaphor and given corporeal form.

That delight was really because Labor's constant complaints about her speakership weren't exactly resonating with the public.  There's nothing more inside beltway than complaining about how many people Bishop threw out of the chamber during Question Time.

Of course, you can understand why parliamentarians think the conduct of Question Time is important.

It's a big part of their parliamentary week.  For many of them, Question Time is a theatre where they can try to rise above the undifferentiated mass of other representatives.  The person who held the record for being thrown out under Bronwyn Bishop was Nick Champion.  Champion is the member for Wakefield and shadow parliamentary secretary for health, hardly a high-profile day job.

Labor types have been tweeting all weekend about the need for a new speaker to uphold standards and restore respect to Parliament.  But never mind whether the speaker is biased.  What are all these parliamentarians doing yelling and heckling from the back seats, and then blaming the speaker for Parliament's low reputation?  It's like criminals blaming the police for failing to prevent their crimes.

Back in 2011, Katharine Murphy described the Gillard-era Question Time as the worst "grinding and time-wasting ritual" in federal politics.  Murphy wrote that we should "make it matter once again".

If anything this is too optimistic.  Commentators often lament the lack of presence in the current Parliament.  They are nostalgic for the great performers of previous generations.  We used to have politicians who looked like they owned the room, and by extension, commanded the country.  Question Time favours the fast-witted, the biting, and the aggressive.  Peter Costello is acknowledged as a great Question Time performer.  Paul Keating is known as the master.

But to what end?  YouTube helpfully has Keating's most famous performance:  the "I want to do you slowly" response to John Hewson's question about an early election.  It's great fun, sure.  On the other hand, strip it back and Keating was just hurling a barrage of insults.  Nothing wrong with that, but we shouldn't pretend that it was a great democratic contribution.

Even at its most legendary — even in its most memorable, brightest moment — Question Time was just entertainment.  Entertainment for an infinitesimally small portion of the population.

More commonly, Question Time is just the forgettable recitations of the lines of the day — short term Capital Circle obsessions intoned as if they were matters of great Shakespearian substance.

It's true that there was a previous era in which Question Time was not the farce it is today.  As this guide to parliamentary practice notes, Question Time evolved out of the ad hoc custom of asking ministers questions without notice.  The earliest Commonwealth parliaments would only feature a few such impromptu questions.  Questions would be asked when there were questions to be asked.

Have a look at this "question time" from July 1915.  The questions were simple and unadorned.  The answers were direct ("I shall make inquiries into the matter" was the sum total of one response by the Assistant Minister of Defence.)  There's little of the modern preening and bluster.

The standing orders that govern questions without notice have changed many times in the last century.  Many proposals to reform Question Time focus on these standing orders.  But the problem isn't with the rules.  Nor is it with the speaker.  No doubt Tony Smith will be a great improvement on his predecessor.  But Bronwyn Bishop didn't wreck Question Time.

Question Time is farcical because it is an empty ritual.  It adds nothing.  It distracts the press gallery.  It distracts our politicians.  It undermines the more serious work that goes on in Parliament.  It is divorced from the actual business of government, the actual business of legislation, and the practical needs of democratic accountability.

Let's be honest, Question Time makes everyone involved look stupid.

Bronwyn Bishop's accidental contribution has been to illustrate just how ridiculous this feature of Australian politics truly is.

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Relax our borders, reap the benefits — and help millions who want a better life

Millions of people around the world are seeking a better life elsewhere.  Australia should help by relaxing our migration restrictions.

Debating the intricacies of contemporary policy issues makes us lose sight of the fact that what often shapes disagreement and discord is a fundamental tension between the interests of the individual and of the state.

This is true for conceivably every area of policy today, certainly on questions of economic, fiscal, political or social reforms, and a good example is in immigration.

At any given moment, millions of people are seeking to move to another place in the world for numerous reasons, such as securing better economic prospects, improved living standards or a safe haven that removes the threats of discrimination and persecution.

But many people's ability to move freely across political borders is constrained, and often negated, by governments' immigration policy restrictions, for the sake of such things as national security or ensuring that residents maintain stable employment and other economic conditions.

Governments have also justified restricting the entry of migrants on unconscionable race-based grounds, as was so long the case for Australia with its discriminatory white Australia policy.

Australia might now have officially a race-blind immigration policy but this is, in truth, a large step removed from a genuinely non-discriminatory immigration policy, in which restrictions on migration are deservingly relegated to the policy dustbin.

The Commonwealth government enforces a mind-boggling number of visas to control who arrives in Australia, and the obligations and restrictions they are placed under when they arrive.  Many of the visas limit the amount of time people can stay in this country, while the working-visa categories tend to privilege "skilled workers" on conditions nominated by politicians and bureaucrats, with little regard for changing market circumstances.

Of course, Australia maintains heavy restrictions against the entry of refugees, including quotas on the number of people classed as refugees who can arrive here and, controversially, detaining people without the desired official paperwork for long periods.

It certainly appears that our prescriptive immigration regulations garner the support of certain interest groups, such as unions, which demonise foreign workers for having the temerity of working here and contributing to our productive capacity.

Sadly, some voters are at times receptive to xenophobic fear-mongering that Australia risks being "swamped" by future waves of migrants — those allegedly wicked masses who, in truth, are simply our co-workers, friends, even loved ones we just haven't met yet.

That these claims and others, such as migrants adding to infrastructure congestion or milking the welfare state, still hold political sway is unfortunate, because tearing down the walls that are national borders would yield immense benefits for individuals, families and for all humankind.

A 2011 study by American economist Michael Clemens showed the gains from eliminating migration barriers dwarf the gains from eliminating barriers against the cross-border flows of goods or capital.

Removing all barriers to capital flows would raise global GDP by between 0.1 per cent and 1.7 per cent, and removing all barriers to merchandise trade would increase GDP around the world by between 0.3 per cent and 4.1 per cent.

Removing such restrictions would be most welcome for a world struggling under the weight of flagging economic growth, but eliminating all barriers to labour mobility would be estimated to increase global GDP by between 67 per cent and 147.3 per cent.

Allowing people to move freely for work that yields the highest value is therefore enormously beneficial, potentially doubling the world's output and eviscerating global poverty in the process, which should elevate reducing immigration obstacles to becoming the iconic global reform movement of our age.

The benefits accruing to individuals from less restrictive immigration controls should also prove to be substantial, with migrants able to work their way out of poverty in their freely chosen destination country and send remittances to family back home.

The World Bank estimated that the total value of remittances worldwide was a little over $US583 billion last year, with remittances to developing countries accounting for almost three-quarters of the total.  Opening up borders, enabling more migration to economically attractive destinations, should greatly enhance these flows.

There is also plenty of upside for existing residents in countries that would open their borders, not least because migrants contributing to production processes would increase national production, thus raising material living standards for the benefit of all.

And the lobbyists agitating for governments to grab more revenue should salivate over opening the borders, given more people means a larger taxable base for funding the likes of economic and social infrastructure projects.  Incidentally, with businesses forever crying out for more labour, having more people here, courtesy of immigration, should help with the development of extra infrastructure.

Also, consider that the economic benefits from open borders understate the total gains that existing residents may accrue, given the obvious benefits to quality of life associated with a co-mingling of people from all corners of the world, each engaging in their own experiments in living.

Cynically playing the nation-state card to foment damaging "us versus them" agitations against migrants should become a relic of the past, too, thus promoting a greater sense of social harmony.

As well as the economic disadvantages of restricting immigration, the case against opening our borders is also perplexing in that it is inconsistent with observed practices elsewhere.  After all, we rightly extol the clear economic and social benefits of moving freely within a nation-state, either from city to city or from state to state, and our policies also reflect a desire to free up the movement of capital and goods.

Australia proudly proclaims itself to the world to be an immigration nation, with the last two centuries most assuredly grounded in the influx of people from all corners of the earth.  To truly honour those sentiments, we should relax our remaining restrictions against the inbound movement of people, even if no other countries follow our lead, and reap the significant benefits from doing so.

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A Goodes reason to drop agendas

All of the attention devoted to the consequences of some people in the crowd at an AFL game booing footballer Adam Goodes is entirely justified.  Goodes is an Aboriginal Australian and a high-profile advocate of particular political causes.  What happened and the reaction to it reveals a great deal about the politics of race and racism in this country.

One of the things we've learned is that in Australia, the reaction of authorities to racism is selective.

At the MCG in Melbourne in 2013, when a 13 year-old girl yelled "ape" at Goodes she was taken away and questioned for two hours by police.  At a protest march in Hyde Park in Sydney in 2012, children held up placards advocating the beheading of "infidels".  Interestingly, there's no record of police detaining and interrogating any of those young people.  Meanwhile, at anti-Israel rallies around the country, Jews are routinely subjected to epithets no less offensive than what was shouted at Goodes.

We've also learned something about the politicisation of sport in Australia.  For the time being (until the Football Federation Australia — the body administering soccer — inevitably overtakes it) the Australian Football League is the premier sports organisation in the country.  The AFL has made a huge and beneficial contribution to Australia.  It has supported many worthwhile causes.  One of the most important things the AFL has done in recent decades is its work to eliminate on-field and off-field racial abuse.  The AFL even has specially designated Multicultural Round.  Yet for all of this, some in the crowd still jeer Adam Goodes.  The jeering of Goodes is all the more significant because such behaviour from spectators is unusual and has largely disappeared at AFL games.

In 2014, Goodes was appointed by a federal government committee as Australian of the Year.  In that role he made a number of highly political comments about Indigenous affairs.  This he was entitled to do.  And others are also entitled to disagree with him.  What Goodes says should be subject to as much scrutiny, if not more scrutiny than anything uttered by a politician.  His status as Australian of the Year is greater than that of a mere elected politician.  Yet some have argued that Goodes is above reproach.

CAMPAIGNS HAVE CONSEQUENCES

The AFL could be discovering that its political campaigns have consequences.  It's one thing for the AFL to support breast cancer awareness on Mother's Day.  But that's something entirely different from the AFL endorsing a political campaign to change the Australian constitution and divide people according to their race.  The AFL promoting the Recognise campaign is entirely different from the AFL stopping racial abuse on the football field.  Andrew Demetriou, the former AFL boss, instituted a "Green" round and he said clubs should be aware of the dangers of global warming.

When the AFL adopts political causes, particularly causes more likely to be supported by the left of politics, it risks more than just the alienation of that half of the population who might have an opinion different from the officially endorsed position of the code.  When the AFL plays politics it threatens the loss of one of Australian Rules' great strengths — when it comes to the football all players and supporters are equal.  Australian Rules football is the great social, political, and religious leveller in this country.  No other sports code, and probably no other cultural institution performs such a function.  When you play or support Australian Rules it doesn't matter whether you're black or white, Liberal or Labor, Catholic or Protestant.

Australian Rules became the national game because unlike rugby it's not the product of a class structure.  Robert Menzies was just as passionate about Carlton as Julia Gillard is about the Western Bulldogs.  With a product as proud and as strong as Australian Rules the temptation for AFL administrators to co-opt it to pursue their personal political preferences is enormous.  Unfortunately, it's a temptation that in recent years those administrators have been unable to resist.

The chairman of the Sydney Swans, the club Goodes plays for, said last week the booing of Goodes was "100 per cent racist".  In fact, the reality is more complicated.

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Robert Conquest: Cold Warrior who revealed Stalin's brutality

Robert Conquest dared to tell the truth about Stalin's crimes when few intellectuals would listen.

There are those whose memory fades with time.  There are ­others whose importance only grows.  Such a man was Robert Conquest, the West's pre-eminent chronicler of Soviet terror.

Conquest, who spent his last 30-odd years at Stanford's Hoover Institution in California, had written poetry and fiction.  But it was his 20-plus books on Soviet history — most notably The Great Terror:  Stalin's Purge of the ­Thirties in 1968 and The Harvest of Sorrow:  Soviet Collectivisation and the Terror-Famine in 1986 — that define his legacy.

Both tomes exposed the true nature of Joseph Stalin's crimes and the gulag system and the suffering caused by the collectivisation of agriculture.  Both were also smuggled into the Soviet Union and eastern bloc states, influencing major dissidents.  Alexander Solzhenitsyn was so impressed that shortly after he was expelled from the Soviet Union in 1974 he asked Conquest to translate his 2000-line poem on freedom.

Born in Britain and educated at Oxford University (where for a short time he was an open member of the Communist Party), Conquest served in World War II before he got mugged by reality, discovered the error of his ways and did everything he could to make amends.  Much to the chagrin of Soviet apologists in Australia, Western Europe and North America, Conquest showed Stalin was no aberration, but a logical consequence of Marxism-Leninism and the Bolshevik Revolution.

Before 1968, the prevailing wisdom among Western intellectuals was to deny or minimise the ­extent of Stalin's devastation.  In the 1930s, when Stalin was launching murderous ­Moscow trials, socialists such as ­George Bernard Shaw, HG Wells, and Sidney and Beatrice Webb portrayed the Soviet dictator as a popular and humane leader.

Even after Stalin's death in 1953, left-wing historians such as Manning Clark and Eric Hobsbawm claimed ignorance of his reign of terror.

Such people, ­Conquest remarked, “had an ability to dupe themselves”, ­especially if “you start using the word 'socialist' ”.

Although The Great Terror was coldly received on the Left, the evidence was irrefutable:  a terror involving millions of deaths.  The book was an overnight ­sensation.

Above all else, Conquest highlighted the unprecedented reign of horror that had gripped the Soviet Union in the mid to late 1930s.  From Moscow to Vladivostok, Stalin's security thugs took victims by the millions, killing more than a 10th, and sweeping the rest into forced labour camps.  Their loss deprived the Soviet Union of its best writers, artists, academics, engineers and technicians.  On one day alone in 1937, Stalin ­approved 3167 death sentences — and then went to the movies.

Since the publication of The Great Terror in 1968, the book's significance has endured.  Shortly after the ­collapse of the Soviet empire and the opening of the ­Russian archives in the early 1990s, Conquest's publishers asked him for a new subtitle to a revised edition.  In his typically witty and quirky manner, he replied:  “How about 'I Told You So, You F..king Fools'?”  He was surely entitled to say that.

In Harvest of Sorrow, he used witness accounts and official Soviet publications to record the Kremlin's campaign to collectivise Soviet agriculture.  This was designed to gain greater control of the kulaks, or peasantry, and to transfer resources from the land to industry in urban areas.

Nowhere was this deliberate famine more evident than in the Ukraine, which, by Conquest's estimate, led to the plummeting of grain production and the deaths of more than 14 million people from 1929 to 1933.  More people were killed by Stalin's brutal collectivisation of agriculture than were killed in either World War I or Hitler's genocide years later.

“The waste was extraordinary,” he argued.  “Enough grain rotted in the fields to have saved the lives of all the millions who died in the famine.”  His evidence included the Soviet census of 1937, which disclosed the drastic decline in the population over the preceding decade, and was suppressed by Moscow.  The Kremlin, Conquest revealed, “arrested the census board and shot them”.

When he received the Alexis de Tocqueville Memorial Award from the San Francisco-based ­Independent Institute in 1992, Conquest declared:  “One of the most difficult things to convey to a Western audience is how disgusting the rank-and-file of the old ­Soviet ruling class really were:  how mean, treacherous, shamelessly lying, cowardly, sycophantic and ignorant.  Unfortunately, those concepts are unknown to 'political science'.”

Along with other Cold Warriors such as Sidney Hook, Irving Kristol, and Australia's Peter Coleman, Conquest supported the anti-communist, pro-American Congress for Cultural Freedom.  The organisation, funded in part by the CIA, exposed Stalinist lies, promoted the principles of democracy and capitalism and destroyed communism as a force in Western cultural life, especially through its magazines, such as Quadrant in Australia and the now-defunct Encounter in Britain.  Of the former, Conquest said it “has flourished in a jungle full of pygmies with personal arrows” and Australia was fortunate to have it and “so are we in the world at large”.

Conquest was a traditional conservative.  He advised Margaret Thatcher on the Soviet Union and, according to her biographer Charles Moore, helped draft her speeches, including the one that got her dubbed “The Iron Lady” by the Red Army newspaper.  But he was also difficult to pigeonhole.  He voted for Labour leaders Harold Wilson in 1974 and Tony Blair in 1997 and he was a friend of Kingsley Amis and his son Martin.  Like other Cold Warriors, such as George Kennan, Paul Nitze and Owen Harries, he opposed NATO expansion in the 1990s lest it needlessly provoke a humiliated and wounded Russia.

In more recent times, he supported the notion of an “Anglo-sphere” in world affairs.  In 2007, he told Christopher Hitchens (who dedicated his 2002 book on Orwell to Conquest) about his great admiration for “that historic arc of law, tradition and individual liberty that extends from Scotland to Australia and takes in the two largest multicultural democracies on the planet — the US and India.”

Conquest was honoured in his adopted country of the US in 2005 when he received the Presidential Medal of Freedom.  It was a satisfying moment for a scholar who had published the most fearless and devastating accounts of the brutality of Stalinism.

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Entitlements review: this is a problem of definitions

To be a parliamentarian is to have a strange job.  To be speaker of the house in federal Parliament is to have an even stranger one.

Recall that Bronwyn Bishop's first line of defence was to say that she flew to the Liberal fundraiser in Geelong to talk about the role of Parliament.  Is that really what she is employed to do?  Does that count as party business or political business or parliamentary business?  Should we be paying for it?

It's easy to say we want to reform the entitlements system.  But it's much harder to decide what constitutes "official" business that taxpayers should support, and "political" business that taxpayers should not.  There's not always a bright line separating the two.

Yes, a helicopter to Geelong, or charging taxpayers for attending a wedding, clearly crosses the unacceptable line.  But what about arranging meetings in Melbourne to justify attending a party function the night before, as Tony Abbott did in August last year?  I challenge you to write a rule that prevents tricksy scheduling.

Unsurprisingly, a 2010 review into parliamentary entitlements concluded that there were "unclear and sometimes inconsistent definitions" of what constitutes parliamentary, party, electorate business.

So let's start with first principles.  In the business world, employees' expenses are covered on work trips.  The job of employers, or their human resources staff, is to monitor employees to ensure that the firm and its shareholders aren't being ripped off through extravagance.  Our parliamentary entitlement regime tries to ape this private sector practice.

But parliamentarians aren't employees.  They have no boss.  Yes, when they're ministers or parliamentary secretaries they report to the prime minister.  But as representatives, they answer only to voters, and they only answer every few years.

In fact, parliamentarians are much more like sole traders, who, through an election, win contracts to represent us — to act as our agent in the legislature.

This is a distinctly unromantic vision of the work of a politician.  But if we're trying to figure out what politicians are "entitled" to we should first figure out what their job is.

This subtly amusing parliamentary fact sheet tries to derive the "job description" of a parliamentarian by observing how parliamentarians exercise their time.  They do parliamentary work (voting, committee hearings), constituent work (pressing flesh, going to fetes) and political work (party conferences, branch meetings, scheming).

But just because politicians do a lot of things doesn't mean we should pay for those things.  We elect them to represent us in federal parliament, not to visit fetes.  They might enjoy being local celebrities but why should we pay for them to campaign?

A few years ago I spelled out in The Australian an alternative model for dealing with expenses.  Politicians should be well paid — probably a lot better than they are now.  But once they've received that lump sum, they should pay their expenses themselves, just like any independent contractor would.

Those expenses — not "entitlements", expenses — would then be treated as work-related deductions.  Under that model, if Bronwyn Bishop wanted a helicopter ride she would have declared it not to parliament but to the Australian Taxation Office in her 2014-15 return.

(Ministers' expenses — who actually are employees of the government — would be strictly controlled but covered in the same way employees have their expenses covered.)

This model has many advantages over the present system.

First, it would keep expenses in check.  It's easy to be loose with taxpayers' money.  It's harder to be loose with your own.

Second, it avoids the interminable debate about what counts as parliamentary or political expenses.  Either way, it all constitutes work-related expenses for tax purposes.

Third, it leaves subjective questions of whether spending is extravagant to the politicians themselves.  Bishop wants a helicopter?  Up to her.

Fourth, it leaves the question of what constitutes work-related to the tax office.  I said politics is a weird job but it is not so weird that the ATO wouldn't be able to handle these questions.  They have a lot of experience here.  Anyway, we're at the mercy of the tax office.  Our representatives should be too.

And fifth, it would be a hell of a lot less complicated than what we have now.  The Finance Department says there are 300 separate entitlement codes in the existing entitlement management system, belying the complexity and confusion that surrounds political compensation.

There's a deeper problem revealed by the Bishop affair.

Tony Abbott has been eager to blame the vagueness of the rules about entitlement use for the scandal.  But all that means is the current system rests largely on individual judgment.

And if our parliamentarians are unable to exercise their individual judgment in a way that accords with the expectations of voters, then we have a serious problem.

Politicians are expected to make some of the biggest decisions affecting our lives.  We place them in positions of great trust to act on our behalf.

What does it say about representative democracy if our politicians don't even have enough judgment to prudently and responsibly arrange their own travel?  Nothing good.

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The economics of the politics of the arts

The standard approach to economic analysis of arts and culture is built on the theory of market failure and the idea that arts and culture are a public good.  In essence, if left to the market, too little art and culture will be produced from the perspective of aggregate social welfare.  Accordingly, optimal arts and cultural policy will seek public support to correct this market failure.

But the market failure/public good approach is, in economic theory, met with critique from what is called public choice theory.  They point out that the above argument contains a realistic model of markets, but an idealised model of politics.  In essence, they argue that while markets may fail, governments usually fail even worse, and for reasons largely associated with the information and incentive mechanisms of democratic institutions.

Public choice economists study three interrelated problems with modern democracy.  First, majorities can exploit minorities (the "tyranny of the majority").  Second, organised minorities can exploit disorganised majorities ("rational ignorance" and "collective action" problems).  And three, voting is irrational (costless "expressive voting", weak incentives to information gathering).

You can see this in arts policy when organised minorities (such as any arts lobby) exploit disorganised majorities (e.g. taxpayers).  Or when weak majority preferences defeat strong minority preferences (e.g. suppression of queer art).  Or when voting becomes virtue signalling rather than honest preference revelation (e.g. inner city support for the ABC).

But a particularly brilliant young economist called Glen Weyl has come up with a way to fix all of this.  It's called quadratic voting, and you can read about it here, here, here in the context of corporate democracy, and in a particularly good essay discussing it in the context of ancient and modern democracy here.  Some scepticism here.

Quadratic voting gets at the idea that intensity of preferences are not counted in normal voting.  An indifferent majority can outvote a passionate minority (same-sex marriage is a good example) causing relatively small gains to the winners but imposing very large costs on the losers.

In normal voting, one person gets one vote (1p1v), and the price of the vote is zero.  The problem is that someone who cares a little has the same voting power as someone who cares a lot.

Quadratic voting is the idea to modify a simple majoritarian framework to allow vote buying according to a quadratic rule.  The total pool is then redistributed pro rata.  There are two radical ideas in there:  vote buying (and redistribution) and the quadratic rule.

A quadratic rule is that the price of a vote (under quadratic voting, you pay to vote) increases as the square of the number of votes.  So if one vote costs A$1, 10 votes costs A$100, and 100 votes costs A$10,000.  If I care a lot about an issue, I can influence a vote by paying a lot.  The quadratic rule ensures that I can't go too far with that, and that the size of the pool for redistribution also grows proportionately.

Vote buying is perhaps the one that people (who are not economists) get stuck on the most.  Giving everyone only one vote, and making it free sounds fair, but it is economically inefficient.  Any good that is free suffers tragedy of the commons, and voting is no exception.  Because you have almost no power over what you end up with, you have little incentive to gather useful information or to vote your true preferences.

The great virtue of quadratic voting is that it incentivises honesty about intensity of preference.  It was actually discovered not in retail politics, but in honey bees (bees "vote" to make collective decisions following a quadratic rule on the waggle dance).  The mathematics of the idea are well worked out and show that it is an efficient and equitable collective decision mechanism.

What would quadratic voting look like if applied in the arts?  Consider two hypothetical referenda:  one to privatise the ABC, another to expand the funding and scope of the Australia Council for the Arts.

At the core of the politics of arts funding is the critical claim that it is just middle-class welfare (a majority exploiting a minority), or an elite imposing their tastes on the masses (an organised minority exploiting a disorganised majority).  Think the ABC in the first instance, and the Australia Council in the second.

The Australia Council's clients are a relatively small number of people and supporters, with elite tastes, who care a lot about an outcome.  Against them are a majority of voters for whom this is a minor issue, yet they can be whipped into outrage.  However, on the back of this play out Australia's culture wars.

What we want to know is whether a mostly indifferent majority is actually harming a passionate minority by withholding further support in a way that in aggregate harms society, or whether it is the organised minority that is doing the exploiting, making this a pure and therefore socially costly transfer from the poor to the rich.  It's hard to tell who is actually harming who here.

Quadratic voting might fix this by subjecting an intensity-scaled measure of these minority preferences, which would ideally draw upon wealthy patrons, to a straight majority vote.  A quadratic vote mechanism then redistributes the total vote sum pro rata, potentially compensating those harmed by a win in such outcomes (e.g. taxpayers who are non-supporters of the arts).

That would probably be a better mechanism than the enormously politically charged and divisive process we currently have, as built on a one-person-one-vote mechanism.

A referendum on privatising the ABC could also benefit from a quadratic vote.  What we seem to have is a smallish number who passionately support the ABC, a small number who passionately oppose it, and a large number for whom it is really hard to tell whether they actually support it in a willingness-to-pay sense, or because it is a nice thing to say to someone doing a survey, or whether they mildly oppose it but don't really care enough to get upset about it.

No 1p1v majority vote will never answer that question, but a quadratic vote would.  And whatever way the result broke, it would reflect a genuine social welfare maximising outcome.  And that would be a lot better than where we are now.

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