EU plans for VAT taxation are doomed to fail. Again.

Taxation is the potential downfall of the EU as an institution. The reason is that within the EU, several member states are making money from the tax evasion in other member states, a situation akin to having a wife slowly murdering her husband with poison. Unless this stops, a divorce becomes inevitable.

Luxemburg, the Netherlands, Ireland, Lichtenstein, Austria, London, and several others are at it: they help large corporations avoid their taxation responsibilities. They either make deals that allow companies to hide their tax obligation, have idiosyncratic definitions under which there are less tax obligations, provide re-labelling services such that head-offices can be a mere post-box, etc.

These tax-avoidance enablers have also systematically frustrated all attempts over the last 30 years to harmonise taxation and reverse the damage they have done to the integrity of the other nation states in the EU. Whenever the issue of tax evasion was in the public eye, for instance during the GFC, they stalled by insisting tax evasion should be solved internationally and should include all other tax havens. Predictably, these were impossible demands. They have also made life difficult inside committees and government forums.

The EU bureaucracy has just put out a new set of proposals regarding VAT on large international corporations (like Google and Amazon), impact evaluated and all. I have read them and predict they will not be implemented, nor would they work anyway.

For one, the EU commission has no power to enforce new tax rules, and these proposals are in a long line of ignored prior proposals. To become law they would need the unanimous backing of all EU members. They hence need the cooperation of about 5 countries that would lose billions if they complied. Fat chance, even with Brexit reducing the political clout of London.

Secondly, the proposals repeat the main mistake of the past: they advocate a rules-based administrative system of taxation which is cumbersome, highly-complex, and easy to game. I explain how over the fold. Continue reading “EU plans for VAT taxation are doomed to fail. Again.”

Adverse Action Lawyer wanted in Frijters versus UQ case

I am seeking a lawyer to run an Adverse Action case connected to the recent Fair Work Commission verdict that found systematic breaches of procedures and procedural fairness in the University of Queensland’s actions against me following my research on racial attitudes in Brisbane. I first raised these breaches late 2013, but they were never addressed, with lots of new ones added to them as the case dragged on. The VC of the university was also personally informed of these breaches in April 2014, publicly denying there was anything wrong about UQ’s action in February 2015. He was again informed in March 2015, consistently failing to rectify breaches of procedure brought to his attention. I wish to bring an Adverse Action case to claim back my considerable costs.

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I expect the case to be worth at least a few hundred thousand dollars in terms of damages (legal cost, value of my time, etc.), and for it to be potentially one of many others because the FW case uncovered widespread breaches of procedures in UQ’s handling of misconduct cases. So there might well be many others who are now looking to bring Adverse Action cases against UQ.

I offer a pay-for-success contract wherein the first part of any awarded damages would go to the lawyer, but after a threshold payment I want 50% to go to the successful lawyer and 50% towards Vanavil, which is a school for orphaned victims of the 2004 Tsunami flood in India. I feel that helping the poorest Indians will go some way to nullify the damage that the managers of UQ did when they suppressed evidence of adverse treatments of Indians (and Indigenous peoples) in Brisbane and made it harder to research these things in general. And I want to feel that I haven’t wasted my time these last three years on fighting mindless bureaucracies, but that my efforts ended up helping people in need.

Negotiations on the offered contract are possible. Please contact me on email if you are interested or have a good suggestion for a good adverse action lawyer ( p dot frijters AT uq dot edu dot au).

[Ps. The VC of UQ was still making inappropriate claims last week on the UQ media about his lack of involvement and has refused to retract his claims this last week when I pointed his errors out to him.]

Top Trump: The Game theory of the Trump endgame

pres15-001For those of us outside the US, the Trump entry into the US Presidential race so many months out from the actual election has been entertainment heaven. Sure, he is destroying the fabric of a great nation by bring horrific stereotypes and misinformation to the fore, but sometimes that is the price to pay for depravity.

But there is a strong sense that this will come to an end. There is no one who believes he will be the Republican nominee, let alone President. Our favourite prediction markets have the odds of the former at 7% and the latter at 3%; both actually higher than the priors of most. The real question is how long will he last. To be sure, as viewers our interests are in him lasting some time, but when we put our rational heads on, what prediction do we get?

To apply game theory to all this, we need to make some assumptions:

1. The GOP will not nominate Trump

2. For Trump, running and losing has more disutility than not running. I don’t know this for sure but I am willing to go with it. Trump doesn’t strike me as someone who wants to be tested.

3. For Trump, losing as a third party candidate involves less disutility than losing as the GOP nominee.

4. Trump could not stand to be at an event without being the centre of attention.

5. Trump is not really able to “work for it.” In other words, coming from behind isn’t in him.

That should do us to get some predictions.

First of all, let’s consider the actual primary race that starts early next year. The Iowa caucuses aren’t really that critical for leading candidates but New Hampshire is. The chances are, the field will have shrunk enough by then that, whomever is the alternative to Trump, will actually poll higher than Trump in New Hampshire. Thus, being at that race for Trump means losing.

Second, given this, he won’t run in that race. He has two options. First, to pull out for the GOP race prior to that and run as an independent. Second, to pull out of the race entirely for that citing medical reasons. This last one is appealing as a prediction as it satisfies Trump’s preference assumptions. If this is the case, however, he will want to do this when it was still the case that he had a chance in New Hampshire. That way he can claim “I was going to win, but what can you do?” Effectively, the Republican equivalent of Bobby Kennedy although with a healthier degree of endogeneity to the decision.

Third, what this means is that running as an independent isn’t likely to happen. When we get to just the point where the medical exit or mexit is feasible, the mexit option will be taken. So there will be no opportunity for the independent run at that stage.

Fourth, which brings us to now. The first Republican debate is next week. Trump and nine others will be on the stage for a couple of hours. Think about that for a moment. Trump will be on stage with nine other people presumably with rules that will require him to spend 80 to 90% of the time listening to others speak. We are all tuning in to watch it. But to be sure, we are doing so because we don’t think that can happen.

Fifth, in addition, there is a strategy available to the other candidates. We can term it “Top Trump” or alternatively the “Quayle Fail.” Remember when Quayle stood there like a stunned mullet against Lloyd Bentsen. If one of the other candidates can get that reaction or sometime equally embarrassing from Trump, not only will Trump be out of the race but that candidate will become the leader. Basically, the “vanquished Trump” title is a game winner. But it will take something big and if someone can do it, they deserve kudos up the wazoo.

Sixth, just before you get too excited, the game theorist in me has to tell you that Trump will surely know about the “Top Trump” possibility. He’ll be watching for it. Obviously, if someone can do it, it is too late for him.

Seven, points 4 – 6, suggest that there is a reasonable probability that Trump will pull out of the debate or, at the very least, be off the stage early to destroy it. He’ll claim “why am I on a stage with all you losers” and that will be it. It is a clear win-win for Trump. A debate does him no good and carries risks — especially at this stage.

Will that mean that he forms a third party then and there or that he pulls out altogether shortly after with a mexit? Sadly, this is as far as my game theorist’s predictive lens will take me. My point is: I hope I’m wrong but our entertaining run seems like it will come shortly to an end.

An MYEFO mystery: what’s with the resource tax?

It’s the time of the mid-year Economic Fiscal Outlook (MYEFO) and we’re told that we’re about 11 billion deeper in the red this financial year than we thought, with the treasurer blaming the dropping iron price and the reduced wage growth. I have gone over the MYEFO documents (which are an exercise in obfuscation if ever I saw one), found that wage growth and the dropped iron ore price would ‘only’ cost us 2.3 billion each in this financial year (2014-2015), noted that this was far short of the 11 billion headline, and thus went looking for the ‘real story’.

This threw up the mystery of the resource tax. Here is what it says on table 3.2:

Table 3.2: Impact of Senate on the Budget (underlying cash balance)
Estimates Projections
2014‑15 2015‑16 2016‑17 2017‑18 Total
$m $m $m $m $m
Impact of decision taken as part of Senate negotiations(a)
Repeal of the Minerals Resource Rent Tax and related measures -1,684 -2,334 -1,670 -947 -6,634

which seems to means that the repeal of the minerals resource rent tax (and related measures) is costing us around 2 billion per year. Yet, in the ‘Overview Part’, the MYEFO says “The repeal of the Minerals Resource Rent Tax and other related measures will save the budget over $10 billion over the forward estimates and around $50 billion over the next decade.”.

What is going on?

Update (thanks Chris Lloyd): it seems to be a language issue. Part of the story seems to be that the MYEFO is counting the repeal of the mining tax, which was an election promise, as something the Senate inflicted on the budget, so the 2 billion a year is ‘revenue foregone’. So the MYEFO is blaming the Senate for the outcome of an election promise, using an odd formulation to say that the repeal will save us 50 billion when it seems to imply it would cost us 50 billion. Weird.

Remembering Whitlam

Gough Whitlam was the first prime minister I was aware of. Actually, I recalled yesterday that I had seen every Australian Prime Minister since (up until the current one) in the flesh. What other country is that possible?

I saw Whitlam for the first time, in the flesh as it were, when I was 5 year’s old. It is one of my earliest memories. We were at Coogie Beach. I thought we were there for the clown show but, in fact, we were there to hear Whitlam speak. I remember him shouting at the crowd — that is what one of his speeches sounded like. It is clear in my mind today as I thought about it ever since.

A year or so later, he was part of another very early memory. I remember a newspaper on November 12th 1975 with the headline “Dismissed.” I asked my father what that was about and he told me that the PM had been sacked. I asked why and he said that he had lied. My parents, you might guess, were not Whitlam supporters.

Fast forward another 7 years or so later and I watched the wonderful ABC Mini-series, The Dismissal. It was before the Hawke election. There is a moment in many people’s lives when their political leanings are set. I personally think there is a large element of choice to that — especially for people who have not known personal suffering in their childhoods. That series was my moment. It made me left leaning and pro-economy at the same time. The Whitlam government was both (think pipelines not saving rainforests). I softened each of these since then (in fact, on the environment, I flipped from my 14 year old days). But that series was the moment and I was outraged that it had happened. Suffice it to say, I was no fan of Fraser; at least, not until recently when he joined Twitter and became the voice of reason in Australian politics.

Everyone has a politician that is formative to them. For me, Whitlam was that person at a ridiculously young age. He may have been PM for only 4 years of his 96 but what a 4 years it was.

[Update: my parents tell me that they voted for Whitlam on at least three occasions. So I guess I was wrong about my inference there.]

Scottish independence: a good idea or a bad idea?

Today the people residing in Scotland can decide whether they want to see an independent Scotland or to have Scotland remain in the UK. The betting markets concur with the opinion polls and favour the status quo: the markets give roughly 20% chance that the ‘yes’ vote will win and that Scotland will become independent.

The majority of economists talking about the referendum have focused on whether or not the Scots would be financially better off with their own country, debating things like North Sea oil revenues and currency unions. I think that is a distraction: looking at small and large countries in Europe, you would have to say there is no noticeable advantage or disadvantage to being a small country and that the Scots are hence unlikely to be materially affected in the long run by independence.
Independence is more about self-image and identity than it is about money. Even though the push for independence might well come from politicians and bureaucracies that gain prestige and income if they ruled an independent country, the population deciding on the vote will probably vote on emotional grounds, not economic. Young male Scots appear overwhelmingly in favour of independence; females and old people prefer to keep things the way they are. The latter groups are bigger and are expected to sway the day.

Personally, I have two related reasons to oppose the breaking up of larger countries in Europe into smaller ethnically defined states, not just Scotland, but also Catalonia, the Basque region, the Frisian province, Bavaria, and all the other regions of Europe:

  1. These independence movements are ethnic and hence by definition exclusionary. This is a big concern: large nation states have slowly moved away from the story that they exist for people of the ‘right’ bloodlines and with ancestors who lived in the ‘right’ place. The UK, the US, France, Australia, and even Germany and Spain have moved towards an identity based on stories about what it means to be British, American, French, Australian, etc., rather than a ‘blood and earth’ ethnic nation state story. Speaking tongue-in-cheek, the Brits have an upper lip story, the Americans have an exceptionalism story, the French have been convinced they like reading Proust, the new Australians are told in their citizenship exams that they believe in a fair go, etc. These stories contain treasured national stereotypes, complete with imagined histories. The key thing is that are inclusive, ie any newcomer from another place can participate in such stories. The Australian national anthem is a beautiful example of this super-inclusive attitude as it, almost uniquely, mentions neither ethnicity nor religion as a basis for being Australian. The ethnic stories of the independence movements are, in contrast, exclusionary and hence harmful to the self-image of any migrant. It is a move to a past that we have little reason to be proud of, as it marginalises current and future migrants. The story surrounding Scottish independence is thus not that the Scots are people who like to wear kilts and enjoy haggis, but that they make up the people who have suffered 700 years of oppression by the English. What is a recent newcomer from, say, Poland to do with such a self-image but conclude that they do not really belong there?
  2. The mixing of populations inside the UK due to factors like work, marriage, and retirement, now means that large parts of the ‘Scots’ live elsewhere and large parts of the population living in Scotland come from elsewhere. So there are reportedly close to a million Scottish-born people living elsewhere in the UK, and half a million people living in Scotland who were in fact born in England. Becoming independent from those ‘evil English that oppressed us for 700 years’ means marginalising both the 10% of the resident Scottish population actually born in England and putting a traitorous label on the million that decided the supposed oppressors were people you could marry and work with. If we consider the fractional heritage that nearly every UK citizen has, with some ancestors from Scotland and some from elsewhere, nearly every UK citizen will then almost arbitrarily be ‘forced to choose’ whether their fractional Scottishness counts as 1 or as 0. This is a problem: the roughly 5% of my ancestry that is probably Scottish does not want to be alienated from the 45% that comes from other parts of the British Isles!

These two reasons amplify each other: the damage that an ethnic-story based independence movement does gets amplified if the mixing is very large and is somewhat less of a factor when there is very little mixing.

What goes for Scotland goes doubly for many other regions in Europe: for instance, I believe some 40% of the people living in Catalonia are born outside of Catalonia and in other Spanish regions. The population mixing between regions of France and Germany is similarly large. The reality of a joint national economy is that the populations have internally mixed and artificially going ‘back’ to supposedly ethnically pure groups that define themselves in terms of adversity to the others is a regression.

It is of course these mixed populations that provide a counter-weight to any break-away movement, and they provide clear policy prescriptions for those who want to keep their countries intact: mix the population around to emasculate those who want to pull any geographic ethnicity card.

So I will be hoping that the betting markets are right, that mixing populations over the last few decades has done its integrative job, and that the ‘No’ vote wins.

 

How did the Snowden revelations impact behaviour?

This week the Australian government announced what seems to be an extraordinary piece of legislation.

Spies who leak sensitive information will face tough new penalties of up to 10 years’ jail and internet firms could be forced to store customers’ data for up to two years under sweeping national security reforms.

Prompted in part by the leaks from renegade US intelligence contractor Edward Snowden, the Abbott government will on Wednesday introduce legislation clamping down on intelligence officers who leak to journalists, lawyers and other members of the public.

Separately, Attorney-General George Brandis has given his strongest hint yet that the government will move ahead with controversial ”data retention” laws.

This would mean basic records of internet communications such as emails and Skype calls would have to be stored by providers for up to two years to help intelligence and law enforcement agencies carry out investigations and prosecutions.

Indeed, it appears to go further.

Australian journalists could face prosecution and jail for reporting Snowden-style revelations about certain spy operations, in an “outrageous” expansion of the government’s national security powers, leading criminal lawyers have warned.

A bill presented to parliament on Wednesday by the attorney general, George Brandis, would expand the powers of the Australian Security Intelligence Organisation (ASIO), including creation of a new offence punishable by five years in jail for “any person” who disclosed information relating to “special intelligence operations”.

The person would be liable for a 10-year term if the disclosure would “endanger the health or safety of any person or prejudice the effective conduct of a special intelligence operation”.

Suffice it to say this seems to fly way over the bar that we would normally want to protect free speech and freedom of the press; not that these are enshrined in the Australian constitution in the way they are in the US.

To appreciate the impact of policies designed to curtail the dissemination of disclosures, it is useful to actually go to the evidence. A few months ago, Alex Marthews and Catherine Tucker provided that evidence in this paper. Here is the abstract:

This paper uses data from Google Trends on search terms from before and after the surveillance revelations of June 2013 to analyze whether Google users’ search behavior shifted as a result of an exogenous shock in information about how closely their internet searches were being monitored by the U. S. government. We use data from Google Trends on search volume for 282 search terms across eleven different countries. These search terms were independently rated for their degree of privacy-sensitivity along multiple dimensions. Using panel data, our result suggest that cross-nationally, users were less likely to search using search terms that they believed might get them in trouble with the U. S. government. In the U. S., this was the main subset of search terms that were affected. However, internationally there was also a drop in traffic for search terms that were rated as personally sensitive. These results have implications for policy makers in terms of understanding the actual effects on search behavior of disclosures relating to the scale of government surveillance on the Internet and their potential effects on international competitiveness.

What this suggests is that moving to a culture and policy regime where it is widely known that citizens are under surveillance has a multiplier effect on their behaviour — making them fearful of investigated terms that they might guess would be part of that surveillance. If you look on page 33-34 of the paper you might well be surprised at how broad that brush is. While one could read this as supporting bans on such disclosures so that the bad guys keep searching and can be surveilled, it is not at all clear who was changing their behaviour. It may just be people who wanted to monitor their own government and perhaps bring to light governmental bad behaviour.

One thing is more certain, this adjustment is suggesting that moves like this one for the Australian government may be actually upsetting more citizens than they think and that might well add up in terms of votes. I’m sure that will be of interest to politicians who think supporting this legislation is innocuous.