First of all, we’ve re-read it, and do you know what, it seems a little disjointed. After two weeks of a property famine, on reflection we think we tried to cram in too much – must do better next time.

But aside from that, we did receive a couple of lovely emails into the Money Morning inbox. First, this one from Steve:

“I just ran those house locations past my brother who lives in… Michigan and you managed to pick 3 houses in what’s known as ‘No cop, no stop’ zones. Still, I suppose for $499 USD, it makes a good investment.”

He could be right. What’s USD$499 after all. At that price you’ve got the potential to get small-cap gains from housing. But like the small-cap market there’s also a chance you could lose your entire investment, especially when you read headlines such as this from The Age: “Sales of existing US homes decrease, supply climbs.”

USD$499 may seem like a bargain price today, but how will you feel about it in 3 or 4 years time if it’s still the same price and you’ve forked out several thousand dollars of rates and maintenance costs?

Although we have read a couple of articles that US based companies are targeting Australians to invest in US real estate. Buyer beware of course, but I know something for a fact, I’d rather take a punt with a no mortgage USD$499 house in Detroit than punting on a $700,000 95% mortgage in Melbourne – but maybe that’s just me.

But then Money Morning reader Andy sent us this:

“I liked your link to house prices in Michigan. Here’s another one – and a nice comparison to Victoria.”

One is a four bedroom, two bathroom, 3,800 square foot home in what looks like a nice enough area – perhaps Steve can let us know if it’s also in a ‘no cop, no stop’ zone, we’ll let you know if Steve replies – the other is a mudbrick shack forty minutes from Ballarat, only a stone’s throw from Snake Valley.

By the way, 3,800 square feet is the equivalent of 353 square metres, or around 39 squares. You’d have to pay Metricon over $325,000 just to buy the house, not even taking into account the cost of the land.

Yet head off to Detroit and you can get yourself the whole deal for just under $100,000 – although judging from Steve’s comment you may want to take a handgun with you!

Still, can anyone still believe that Australian property isn’t overpriced!

Anyway, enough of that nonsense, on to today’s Money Morning. You knew it was coming didn’t you? Yep, after all the palaver over the Obama healthcare plan and the Fairy Ruddfather’s plan to ‘rescue’ healthcare from the States it was obvious we’d have to throw our hat in the ring to give the mainstream view a bit of a shake.

The disastrous Obama plan is a significant newsworthy event, but we’ll focus more on the Australian health story, that is of the federal government taking over healthcare.

Plus, we’ll also look at the other main problem with socialised healthcare. Although in fact you can apply the same argument to any form of government spending.

Let me start off with this as an example. Whenever one company takes over another company, you’ve probably heard statements such as this:

“We expect to achieve a lot of synergies from this deal… blah, blah… we can cut costs in our supply chain… blah, blah… customers will see benefits with lower prices, etc…”

Then you’ll hear this sort of thing from market analysts:

“The new merged entity will have greater purchasing power due to its size, this will be good news for shareholders as the greater purchasing power should see the cost of supplies fall, etc…”

But then shortly after you’ll often hear this from the Australian Competition & Consumer Commission (ACCC) or from so-called consumer groups:

“We’re worried about the merger because it will mean less competition in the industry which could drive up prices and lead to higher prices for consumers, etc…”

But for some reason, when the public sector is involved, we hear lots of the first about “synergies” and “reducing duplication of responsibilities”, perhaps a little of the third point – benefits to consumers – but we hear very little about the impact on suppliers.

Yet it’s the ’suppliers’ to the public health system that are the most important. “What?” I hear you cry, “Surely the patients are the most important.”

From a medical perspective that’s true, but when I refer to suppliers I’ve got two different types of supplier in mind. The kind of supplier that voluntarily supplies goods, and the kind of supplier that is forced to supply ‘goods.’

It won’t surprise you to learn that the voluntary supplier will continue to earn a mint from the deal, while the forced, or coerced supplier will get even more ripped off than before.

As we understand it, the Fairy Ruddfather’s ingenious plan is to take over the running of Australia’s healthcare system from the individual states.

In the private sector world we’d look upon such a plan as a mega corporate takeover. It would be the equivalent of BHP Billiton acquiring every other mining outfit – including Rio Tinto – in Australia.

If such a thing occurred, let’s imagine what the reaction would be…

BHP would say the takeover “creates lots of synergies and will reduce costs, leading to lower prices for consumers.”

Analysts would say it “will add more dollars to the bottom line as it will increase revenues and profits, while creating synergies to cut costs.”

Consumer groups would say they “are concerned about the impact on competition of having a single monopoly controlling the market.”

While suppliers would say they “are concerned about the impact of only having one customer and how this could cause many suppliers to go out of business as their prices are forced down.”

We may have missed something there, but I think you’ll agree that would be the gist of the arguments. In fact, we’re pretty sure most of those comments were made concerning the failed takeover of Rio Tinto by BHP Billiton, and the subsequent joint venture deal between the two.

So, what’s all this got to do with the federal government’s takeover of state funded healthcare?

It’s simply this. Government’s are not the same as businesses. Businesses in general have to fight for customers. They have to respond to the demands of the market because if they don’t there’s the potential for the business to go broke.

In contrast, if a government needs to increase its revenues then it does so by forcing people to give it money. That’s called taxation. And if it’s worried about the political impact of taxation then it will just borrow money in the taxpayer’s name and force you or someone else to pay for it later.

Either way, the government gets the money it wants. If you’re a business owner I’m pretty sure you’d love to be in the position to force customers to buy your goods whether they wanted to or not.

In other words, the taxpayer is the forced supplier of ‘goods.’ It’s just that the ‘goods’ supplied by the taxpayer is cash rather than tangible materials or equipment.

And that’s the problem. You see, because government can get its hands on as much money as it wants, it throws out all the other supposed benefits that can be achieved by consolidating different businesses, except one. And that is, just as a private monopoly is bad for consumers, a public monopoly is also bad.

In fact a public monopoly is worse because it has a guaranteed funding stream through the tax system, whereas a private monopoly doesn’t. If a private monopoly tries to raise its prices, customers may have the opportunity to switch their purchases elsewhere, thus denying the private monopoly of revenues.

Or, the high prices from the monopoly could encourage new entrants that are attracted by the opportunity to make profits. Suddenly, you have a competitive market again.

Governments have no such fears about competing governments setting up shop in their back yard.

But what about the other type of supplier. The suppliers that provide tangible materials and equipment. You only have to look at the mega bucks to be made in healthcare to see how the likes of General Electric and Siemens will be in an even better position now. They know exactly how public sector healthcare works.

In the private market, suppliers would be fearful of having a single customer. You hear all the time the complaints from farmers about how the duopoly of Coles and Woolworth’s force down the prices of produce.

But in a single customer market, where the single customer is the government, it’s a whole different story. It creates a licence for suppliers to print profits.

They know that hospitals want the biggest and best machines available. They know what the political fallout will be if government’s scrimp and save by only buying the second rate machines, or no machines at all.

And the public hospitals know they just have to squeal that “people will die” if they aren’t allowed to buy the latest contraption, and sure enough the dollars soon flow into their wallets.

Centralising healthcare to federal government responsibility is taking a bad system and making it worse. It’s no different from Stalinist central planning – without the murdering bit of course. But the idea that a small bunch of bureaucrats at the top of the pile can somehow minutely plan and control an entire nation’s health system is false.

The problem is that from the consumers view, it has the appearance of being an improvement. The consumer sees half a dozen sets of hapless bureaucrats and politicians and automatically assumes that putting the power in just one bunch of hapless bureaucrats and politicians will lead to an improved system.

It won’t, all it does is consolidate the stupidity.

You see, when you have a guaranteed source of income (taxation) there is absolutely no incentive to reduce costs. Sure, there may be a short-term cost reduction, but the costs will soon rise again as the central planners create agencies and new departments to handle the increased workload.

Private businesses have a desire to cut costs because of competition, and because they know if they can cut costs quicker than they cut their prices there’s the opportunity to make short-term profit boosts.

Government departments have no need, ability or even a desire to make profits, therefore there’s no drive to cut costs.

But in reality, the real problem is much bigger than just government spending on health. The real problem is what you might call an inversion of the “achievement/reward” dynamic.

Look, we’ve just made that up, so let me try and explain what I mean…

In most cases you only receive your reward after you’ve accomplished something. If you’re good at school your parents will buy you a bag of sweets. If you’re doing well at work then your boss might give you a bonus at the end of the year.

If you work hard and make decent money then maybe you’ll reward yourself by taking a holiday or buying a new set of golf clubs.

What I’m saying is that typically you do the hard work first and then you get your reward.

The trouble is – and this isn’t unique to Australia – the hard work in most Western economies was done 20, 30 or 40 years ago. From then on, the expansion of credit markets and easy money has got people thinking they don’t have to wait for the reward, they can have it now and work hard later.

I mean, let’s get this straight, infrastructure spending, education spending and healthcare spending is the reward for doing the hard yards. It’s no coincidence that many major infrastructure projects, expansion of the education system, and improvements in healthcare came at a time during or after massive advancements in private sector innovation.

All those things – even if some were taxpayer funded – only happened thanks to the hard work and efforts of individuals and private businesses first.

But now, the whole idea of award and achievement has been switched around. Now you hear the argument that infrastructure spending, education spending and health spending will drive the economy to prosperity.

Sorry to be the bearer of bad news, but they won’t.

As we’ve mentioned before, it’s not spending that drives an economy, it’s production that drives it.

Economies grow and are driven by innovation and production. If Western nations truly want to see an improvement in infrastructure, education and healthcare the only genuine solution is to abolish taxation and abolish inflation causing central banks.

It’s a fallacy to assume that only a government can provide healthcare. Under a market based system without interference from government manipulation, health costs would be lower, there would be more competition and the quality of service would be superior.

Just take a look at the negative direct and indirect effects the government has on the current health system. Already billions of dollars is spent each year, and yet the argument is that more needs to be spent.

The fact is that less needs to be spent by the government and more money needs to be retained by individuals rather than taken as tax. Then individuals can decide how much they choose to spend on healthcare based on their own circumstances.

At that point, healthcare providers would need to offer incentives for individuals to take out insurance or use a particular doctor or hospital. The best incentive is for them to provide the best service at the lowest cost – funnily enough, exactly how every other market action works.

The only plus side to this is that soon enough the government will have so much control there will be nothing left to blame on the private sector. Perhaps then the central planners will realise that spending ever increasing amounts of someone else’s money is not the best way to achieve a decent healthcare system.

Cheers.
Kris.

But, we’ll stick to our guns and leave any p——y or h—–g comments until next week.

Anyway, our comments on pay equalisation seem to have set off something of a discussion both on the Money Morning website and in emails we’ve received to the Money Morning mailbag.

It’s an interesting topic so I thought it worth our while having another look at it based on some of the comments we’ve received.

A few interesting comments include this from ‘Zengirl’ that was left on the Money Morning website:

“It’s overwhelmingly disappointing that the attitudes of men toward equality are no different in the 21st century than they were in the last few. Using the concept of ‘competitive advantage’ to justify inequality is outrageous and simply cannot be supported in any way. Indeed, if your argument had any weight, then indigenous people (who are paid far less than any of us) would be the most competitive in the labour market!”

And also this from RB:

“IF women have a ‘competitive advantage in the workforce’ by being paid less, why do we not see women as heads of most of the board rooms, businesses and corporations throughout the country?”

Plus this one from CB:

“You have to be employed at a decent wage, so that your employment actually bestows you a decent spending power for it to be much good to yourself, your dependents, and even the overall health of the economy.”

And this comment from Nick:

“None of my staff’s pay is rated on anything else but job description and ability. Only a fool would jeopardise his company or business just to save a couple of dollars. Good people are the foundations of any business. I have found that people who are loyal to their employer are also loyal to their families, and visa versa. And if an employer is incapable of recognising that, they will suffer in the long run.”

Finally there was this gem:

“Charming re the low pay for women… women do 90% of the work on the planet and own 2% of the assets Big Daddy… disgusting especially when 99% of men are less intelligent than I am. get knotted Kris”

The first point to make, before we go any further, is that there will always be a degree of generalisation with this issue. The numbers from the pressure groups who favour pay equalisation trumpet the ‘fact’ that women are paid on average 17% less than men.

Is equal pay fair?

The call by them and others is that pay should be equal regardless of whether you’re male or female.

‘Equality’ is interesting because it suggests that all people should be paid at an equal rate. Therefore it suggests if Person A produces 200 widgets a day they should be paid the same as Person B who produces 201 widgets per day.

Is that fair? Probably. It’s close enough not to worry about anyway. But what if one is producing 300 and the other only 150? Is it fair they are paid the same? Now, this example isn’t specific to gender pay rates, but what it does is provide a case for employees to be paid different wages.

Once you agree that one method of determining different rates of pay is valid then you have to accept that there may be other ways of determining different rates of pay – not just based on the amount of widgets produced.

Then there are other comments that suggest there already is pay equality. That bosses would be mad if they paid female employees less than male employees.

We’ve no doubt that’s true. If there is no need or incentive for an employer to pay one group of employees differently from any other then the employer will pay the same or similar rate to all.

It will be a decision the employer has made based on experience and the market.

Furthermore, there’s the argument that female employees don’t “accept” lower pay, that rather it’s forced upon them.

We’d argue that everyone who takes a job “accepts” the level of pay. If they did not “accept” it they would not take the job. People only work if it’s in their interests to do so. They may not like the pay, but if it’s more beneficial for them to work than not to work, then they will work.

Finally, a quick note on the excellent comment from Zengirl, “if your argument had any weight, then indigenous people (who are paid far less than any of us) would be the most competitive in the labour market!”

‘Do-gooders’ cause more harm than good

Isn’t this an argument against arbitrary wage policies? If it’s true than indigenous Australians are discriminated against, then doesn’t it make their position much harder if they are unable to compete in the labour market?

If a minimum wage is set at $10 an hour a discriminating, racist or unenlightened employer may choose to employ a white person as that is their preference. But if there is no minimum wage, perhaps a discriminating, racist or unenlightened employer would be prepared to pay only $8 an hour to an indigenous Australian.

Perhaps the discriminating, racist or unenlightened employer would soon figure out that the indigenous Australian is just as – perhaps more so – capable than the white Australian and therefore increase the wage to $10 an hour.

However, at a mandated $10 per hour the indigenous Australian doesn’t have a chance, because the discriminating, racist or unenlightened employer has a prejudiced view that the indigenous Australian is less productive and is therefore only worth $8 per hour.

We’ve used the terms discriminating, racist or unenlightened employer, but we’re just using an extreme example. The fact is there’s obviously a barrier to employing indigenous Australians because even non-discriminating, non-racist, enlightened employers may be reluctant to do so.

Because if there wasn’t a barrier then indigenous unemployment rates would be the same as for all other groups. Our bet is that government interference is at the core of it – in fact, we’ll guarantee it.

There are plenty of other arguments and opinions as well. Feel free to leave your feedback when this article is posted to the Money Morning website later today.

But for now we’ll make this comment. Wage rates are determined by the market. In some cases it’s a free market, and in other cases it’s a manipulated market – eg. Award rates, trade union interference, government interference, etc…

No bumper pay day

But in all cases wages are determined based on what an employer can afford to pay. Artificially raising a wage rate doesn’t provide an across the board bumper pay day to everyone.

Instead it will provide a bumper pay day to some but create a pay cut or loss of pay to others.

Let’s take a look at a timely story that appeared in the Herald Sun: “Julia Gillard supports pay equity bid.”

According to the story:

“The Australian Services Union will launch a test case with Fair Work Australia today regarding the lower pay of community sector workers. They are the people who work in women’s refuges, family support centres, drug and alcohol rehabilitation and migrant resources. The union will argue that lower wages in the feminised community sector should be brought into line with pay rates in a similar, male-dominated industry.”

The article doesn’t specify which “similar, male-dominated industry” they want to align the wage rate with, so we’ll just have to make a whole bunch of generalisations. As I’ve mentioned it’s one of the things you have to do with this subject, so we’ll do that right now…

Our guess is that women’s refuges, family support centres, drug and alcohol rehabilitation and migrant resources jobs are either funded by government, quasi-government or charity-based organisations.

We’ll also make another sweeping statement to say that most of these services are either provided for free to the end user, or they may ask for a ‘donation’ from the end user to use the services. We’re prepared to be corrected if we’re wrong.

So, the question we have is how will the new higher wage rates be paid for?

According to the Herald Sun, “Australian Council of Trade Unions (ACTU) president Sharan Burrow admitted the push for a $100 a week pay rise for 200,000 community sector workers was not small.”

For the record, our Canon LS-100TS calculator tells us that’s an extra $20 million that these women’s refuges, family support centres, drug and alcohol rehabilitation and migrant resources organisations will need to come up with.

If we’re right and these organisations mainly rely on charitable donations and taxpayer funds then it means an extra $20 million will need to be raised just in order for them to provide the same level of service as they currently do.

Failure to do so will mean these groups will either need to reduce the number of staff or reduce the services they provide.

Naturally the argument will be, “Aha! If these are government funded then it’s easy, the government can just increase taxes to pay for it, it’s the socially right thing to do.”

Well, you know our opinion on taxation so we won’t delve into that again today. But let’s say the government does increase taxes to pay for it – after all, it’s just $1 per person per year, that’s not too much for anyone to cope with is it?

[Ed note: Our trusty calculator deceived us. Of course the full calculation is $100 x 200,000 = $20 million, times 52 weeks, equals $1.04 billion. That’s a cost of about $50 per Australian per year].

The problem is this. It’s our old favourite scenario of considering what is not seen.

What do I mean by that? If these government funded organisations do receive the extra money to pay for increased wages and they have done so due to higher government taxation, then it means less dollars in the pockets of individuals.

And perhaps it means that with fewer dollars in the pockets of individuals, there is less money for those individuals to donate to charities. With government subsidisation of one set of welfare organisations it potentially means other welfare organisations – those that rely on volunteers – could see a drop in donations.

Especially if taxpayers start to consider that a portion of their taxes is going to charities. Evidence in the early years of the National Lottery in the UK was that people donated less to charity as they were aware that a portion of the cost of their lottery ticket went to charities – that may have changed.

In other words, women’s refuges, family support centres, drug and alcohol rehabilitation and migrant resources gain, whereas donation-only or volunteer-only organisations potentially lose due to lower donations.

But that’s not the only potential problem. There’s the issue of the type of person drawn to these jobs.

Unskilled workers lose again

Let’s say for arguments sake that current employees in these organisations earn $30,000 per year (just to repeat, we’re just using this as an example). And let’s also say that this particular wage attracts a certain type of person, a person that has the desire to earn $30,000 per year and is skilled or qualified to do so.

So, what happens when the wage is increased by $100 per week to $35,200 per year? And let’s assume that the government stumps up all the extra cash so there are absolutely zero job losses.

Any guesses about what is likely to happen?

Well, one obvious impact is that the job will now attract all people who would like to earn up to $35,200 per year. We can take it one step further by saying – again using a generalisation – that those who expect to earn or who can command a wage of $35,200 may have more skills than those who were doing the same job but who were prepared to accept $30,000.

The consequence is that if the new legal minimum wage in this sector is $35,200 rather than $30,000 for what is in effect the same job, employers will be more inclined to employ someone with a higher skill set so that they are getting more ‘value for money.’

In other words, why would an employer pay someone $35,200 when they are only worth $30,000? They wouldn’t, not if they can attract someone with more skills who is potentially more productive for the same wage of $35,200.

Therefore, even though there may be a zero net impact on jobs, the effect is that the lower skilled workers are being priced out of the market by those with more skills. Simply because a mandate from the government decrees that $30,000 is too low a wage.

The employee that is only worth $30,000 to the employer is now unable to get a job in that industry and instead will have to seek work elsewhere. And that’s even though the potential employee may be perfectly qualified to do the job.

Of course, it implies the cost for the pay rise is fully underwritten by the government. In reality it won’t be. So not only will those with lower skills be pushed out of this type of employment, but there will also be fewer job opportunities for those with the skills as organisations will be forced to reduce staff levels.

Remember, pay equalisation doesn’t mean equality of pay for all. It means equality of pay for some at the expense of others.

Cheers.
Kris.

Other mornings our story cup is overflowing with, erm, story coffee…

Anyway, today is one of those “Other” mornings.

We’ve got so much to write we’re not sure whether to just fight one of them individually, or attack them all kung-fu style.

So, we might do a bit of both. First up we noticed a couple of funny things in the Commonwealth Bank’s results yesterday.

The most obvious was that Ralph Norris is clearly a graduate of the same university as ANZ Bank’s Mike Smith. They both hail from the Pinocchio University.

Because, like Smith, Norris was able to tell a whacking great tissue of lies yesterday by claiming:

“[Australian] Banks were well managed, with more conservative business models which discouraged high risk lending and widespread exposure to toxic subprime assets. The Australian government introduced guarantees to support the financial system, but it should be noted that not one dollar of taxpayer money has gone to our banks. In fact, the Australian taxpayer will benefit to the tune of $5.5 billion from the wholesale guarantee over its life.”

That’s funny, because we thought the government had handed out $21,000 to first homebuyers over the last year or so.

Could it really be true that not one single dollar of taxpayers’ money ended up with the banks? It doesn’t seem likely, not when you consider how reliant people are on using bank accounts these days.

You see, in order for the banks not to have received “one dollar” from taxpayers, that would involve the vendors to all property sales specifically choosing to not deposit $21,000 of the sales proceeds into their bank account.

All vendors since October 2008 who have sold homes to first homebuyers must be still holding the $21,000 in cash. Maybe they’re keeping it under the mattress, or they’ve dug a hole in the backyard to put it in.

I’m serious. For Norris’s statement to be true, then over $4 billion in bank notes must been hoarded by vendors, refusing to save, invest or spend it.

Because that’s the only way that Australia’s banks would have avoided receiving “one dollar” of taxpayer money.

And we know that just isn’t possible.

Of course most of the mainstream press just laps whatever a bank CEO says without question. Except for Eric Johnston at The Age who reported:

“Mr Norris is correct to point out that unlike the US or across Europe, no taxpayer dollars were spent bailing out an Australian bank… However, Australia’s majors had a substantial boost from the combined efforts of the government providing a blanket guarantee of the nation’s deposits, as well as a backstop funding program to ensure continued access to crucial wholesale funding markets – albeit for a fee.”

But we’ll stop short of tipping our cap to Johnston, because like most in the mainstream he can’t help himself with the claim that “Australian banks were run with substantially lower risk settings than some of their global counterparts.”

Yeah right!

If that’s the case, why the need for the guarantees and the first home buyers bribe? It just doesn’t add up.

Australia’s banks are so low risk, that apparently, according to The Age, “The State government-owned developer that has responsibility for providing affordable housing is selling house and land packages in East Keilor for close to $1 million.”

It’s true, you can see the properties for yourself here.

But what about this idea that the taxpayer will ‘profit’ from the bail outs due to the fee charged by the government to guarantee the bank’s debt?

Of course, that’s not true either.

The obvious point is that the banks just pass the higher funding costs through to the customer by either charging higher interest rates to borrowers or offering lower interest rates to savers.

The bank itself doesn’t pay for it. Ultimately it’s a fee borne by the public. And because credit and bank accounts are so ingrained into the daily lives of individuals, those individuals are unable to avoid those higher costs.

I mean, just say the government provided a guarantee to bakers of white bread which cost the bakers 10 cents per loaf. The bakery would try to pass this cost onto the consumer.

However, the consumer could easily avoid this impost by refusing to buy white bread and instead buy multigrain bread. This effect would mean that white bread bakers would be less inclined to pass on the increased cost for fear of losing customers to bakers who make multigrain.

Of course, even then it wouldn’t necessarily be good news for the consumer, as due to a higher demand for multigrain, those bakers could raise their prices in response to the higher demand until white and multigrain bread are a similar price.

The upshot is, that in whatever form it’s made, government interference in the market is always to the detriment of the individual.

The banking system is completely different. All the banks have used the government wholesale guarantee to some degree, therefore not one bank can advertise that it hasn’t and therefore claim it has lower fees.

Therefore the banks can uniformly raise their prices so that the consumer never gains the benefit of even a temporary drop in price.

In addition, it’s much harder to change banks than it is to change the type of bread you eat. So the banks know there is no chance of losing customers if they pass the costs through to customers.

Besides, what’s with the idea that the government is able to run a profitable enterprise? Taxpayers aren’t going to make money on the deal. Every dollar that goes to the government is a dollar that’s denied to the individual.

The fact is, Governments don’t make profits. They aggressively expropriate money – called taxation – from private citizens. And then they waste it by either spending it on themselves and the wasteful coercive sector, or they hand the cash out to their chums, such as Senator Conroy and his mate.

But take the farce of the Green Loans programme and the $850 million overspend on the solar scheme.

That’s proof that governments are incapable of managing money or running a profitable business. After all, if these dudes were any good at running a business they’d be out doing that rather than leading the life of a parasitic politician or public servant.

But the biggest point to come out of these ‘green’ schemes is that it gives you a preview to how an emissions trading scheme, or any other government sponsored carbon reduction scheme would work.

If the government claims the cost of its programme will be $40 billion, you can guarantee the real cost will be about ten times that amount. And we’re not exaggerating either.

The reasons are simple – the government has no profit motive, therefore it has no level at which it knows when to stop spending money. If it runs out of cash then it just takes more from the taxpayer.

Government obtains all of its money by force – through taxation. Therefore it does not have to justify its spending, and nor does it face competition from others who could provide the service for less – typically because the government prevents competition by law.

And don’t think the so-called cheaper option put forward by the Coalition will be any better. Both will involve an excessive cost burden on the taxpayer and the consumer, and neither plan will have any impact on global warming or cooling whatsoever.

As we’ve written before, the only solution to discovering whether there is Climate Change, and therefore whether to do anything about it, is to leave it to a free market.

You need look no further than the current disaster with green initiatives to see how your future tax dollars will be flushed down the toilet by the loony green lobby.

Cheers,
Kris.

“I have great confidence in the common sense of individuals and families around NSW and indeed Australia to work out what an appropriate level of debt for them is, given their circumstance.” - Nathan Rees, Premier, New South Wales

That’s nice of him. It’s a shame that he doesn’t have any confidence in the common sense of individuals to spend or save the money they earn. If he did there wouldn’t be any need for Federal and State governments to swipe half your gross income through various forms of taxation.

The government takes your money on demand, and then makes you fill out a multi-page form every year just for the privilege of getting some of it back. Of course there’s always the chance that after filling out the form you’ll end up having to give the government more money.

There’s nothing like being forced to dob yourself in eh?!

A report in yesterday’s The Age perfectly illustrated the modern view on taxation with the opening sentence of Ian Verrender’s column:

“FORGET women and scorn, hell hath no fury like a taxman bilked.”

In other words it’s suggesting the money that YOU go out and work a 40-hour week for is the Taxman’s money and woe-betide you if you don’t give him everything he deserves.

That’s the consequences of a so-called ‘progressive’ tax system. What they should mean by ‘progressive’ is that the pendulum is progressively shifting towards government and away from the individual.

How long will it be before the taxman just takes everything and gives you a monthly allowance? Treasury Secretary Ken Henry is working on a project to revamp the tax system. All the special interests groups are having their say.

One thing can be guaranteed, the tax burden for all Australians will increase.

Ken Henry was at the Melbourne Institute yesterday, and in today’s Australian Financial Review (AFR) it reports a speech given at the institute by Professor Peter Whiteford from the University of New South Wales.

The article claims that:

“Australia had the most progressive tax system in the Organisation of Economic Co-operation and Development, redistributing more tax from rich to poor than any other country.”

The problem with this claim is that it actually isn’t true.

When you think about it, the redistribution of wealth doesn’t go from rich to poor at all. It doesn’t even go from rich to middle class. And, amazingly enough, it doesn’t go from middle class to poor either.

In reality wealth is redistributed from rich, middle class and poor in one direction only. And that direction is always to the government.

The poor are merely used as a convenient foil by governments to argue for increased taxes and an increase in government. The middle classes are typically made to feel guilty for being more fortunate than others and are therefore told that their tax dollars are being put to good use in schools, hospitals, public transport, etc.

And the rich? Well, no-one need worry about them, they’ve got lots of money they should give almost half of it away to the taxman – it’s only fair!

The real fact is that no-one benefits from “progressive” taxation.

The rich are forced to forfeit almost half of their income, even if they set up fancy structures to lower the tax burden. In most cases people are rich because they have worked hard for it, or because they have invented, developed or marketed a product or service that people want or need.

They should be rewarded for that. And they are with high incomes. Yet they don’t get to receive the full benefit of that reward because the government grabs half of it before it even gets to their wallet.

The middle class are punished by “progressive” taxation because they too are faced with having to forfeit nearly half of their income. Once you add up income taxes, levies, surcharges, state taxes, local government taxes, and sales taxes, there is very little real disposable income left.

And then other government policies compound this by distorting the market to make the cost of living higher than it should be. No wonder so many middle class have to rely on “welfare” payments from the government.

And of course the biggest losers out of this whole fiasco are the poor. Government taxes and regulation provide the biggest hindrance to the poor.

Far from being beneficiaries of government welfare, they are the victims of it. Higher taxes and higher regulation make people poor by denying them the opportunity to be productive. Minimum wage legislation ensures those with low or no skills find it hard or impossible to get a job.

As for the quality of public services, you only have to look at the billions of dollars spent every year on welfare, health and education to wonder where all the money goes.

Is this really the best that can be done?

You see, a high tax burden just encourages waste. And there is nothing better at wasting money than a government. Public servants live in a closeted world. They don’t know the market rate when they spend money on products or services.

They have arbitrary budgets assigned to them and then spend as much as they want. Even when projects are sent out for tender, those responding know they can over quote as they are not trading with a for-profit organization.

The fallacious argument is that taxes are needed in order to pay for the public services we can all ‘enjoy.’

Naturally we don’t agree with that. Left to a free market, the quality of healthcare, education and public transport would be far superior and far cheaper.

There is absolutely no difference between how the market should work for providing healthcare than how the market works for buying cars, or buying clothes. It is the presence of government that causes prices within the healthcare industry to continually rise.

In a free market health and education providers would need to compete for your ‘custom.’ This, as in every other instance of market forces would drive the overall price of the service down.

The idea that the poor would be priced out of the market is incorrect. They would be priced into the market. If healthcare providers raised their prices too high a free market would make it easier for other businesses to price their service lower and therefore attract more ‘customers.’

Again, it is no different to how any other business works. You only have to look at products such as plasma televisions. Only a few years ago the cheapest one would set you back $10,000, yet today you can buy the equivalent standard for less than $1,000.

That is all down to competition. Newer entrants into the market can rely on existing technology and develop a cheaper product.

As far as we can see there is no reason why it shouldn’t work for public services. As always we’re prepared to be proven wrong.

But cutting taxes, having a completely free market and stopping the redistribution of wealth to the government is the best way to improve the standard of living and standard of services for everyone.

Kris Sayce
for Money Morning Australia