Well, we’ve given the Super Profits Tax a fair shake of the sauce bottle the last few days, so we’ll mix it up again today before changing tack tomorrow.

But before we get on to today’s Money Morning, a brief announcement…

The guys and gals at the Melbourne Adam Smith Club have been crazy enough to invite your editor to be the guest speaker at their May dinner function.

You can download an invitation to the event by clicking here. So, if you’re in Melbourne and you’ve got $45 to spend on a curry dinner and listening to your editor waffling on for half an hour or so then feel free to sign up for it.

We’ll look forward to seeing you there.

But for today, this…

“Greece on the edge of abyss as riots turn deadly”

So says today’s The Age newspaper. Perhaps now the mainstream commentators and finance professionals might start taking things seriously.

For weeks we’ve seen “experts” telling us that Greece will be an isolated event. That it could have an impact elsewhere in Europe, but it shouldn’t have any bearing on the US or Australia (Australia’s different you see).

Then at the start of this week talk of contagion started to do the rounds. But again, maybe Europe and the UK will go pear-shaped, but that’s all. We’ll be fine. Our lovely banks don’t have any Greek exposure.

But now today we’ve got “abyss” being used.

That’s hardly surprising considering the deep mess Greece and the European Union is in. And quite frankly it’s something that should be taken seriously.

We’re not talking about common-all-garden riots here. We’re not talking about World Economic Forum style riots with a few bags of flour being thrown and the odd urine water bomb splashing across the old bill.

It’s not the type of riot where the participants turn up for a bit of copper baiting and argy-bargy, fully expecting to return to their day job in the call centre on Monday morning. From what we can see it’s yer proper lootin’ and a killin’ civil unrest.

But we’ll see. You never know, it could all blow over before you know it. However, we’d want pretty decent odds if we were going to place a bet on it.

So who’s to blame for the Greek mess? Are the Greeks behaving like spoilt brats? Do they deserve the punishment that’s being dealt to them? Haven’t they received all the benefits of government largesse?

It won’t surprise you to learn that we firmly place the blame on the government. Sure, the Greek public aren’t completely innocent, thinking they could have something for nothing. But when it comes down to it, the prime reason for the current mess is the politicians and their insatiable appetite for power.

I’m afraid it’s the nature of the political beast. And it’s why we believe in a minimalist government.

The more powers that politicians are granted, the more they’ll want. The more they get to control things, the more they’ll want to control other things.

Eventually it reaches a tipping point. The government ends up having its fingers in so many pies its actions have the biggest impact on the fortunes of the economy. You can see that in Greece, and you can see that in, er, Australia…

Just look at what the Fairy Ruddfather has done to the markets this week. The impact has only been this big due to the excessive influence of government.

And it adds further evidence to support our claim that Australia does not operate a truly free market. In a free market with limited government, the government would not have this kind of power and could therefore not make these decisions.

As we’ve pointed out all along, it is the excesses of government that is the overwhelming negative influence on the economy, not free enterprise.

The front page of today’s Australian Financial Review (AFR) has political hack Laura Tingle leading with:

“The war of words over the resource super profits tax has overshadowed how the Henry review has presented the government with a new fiscal policy lever to control the economy. The lever is a new tax which, as a macro-economic policy, could reweight the way the economy works.”

To free-marketeers that kind of statement is enough to make you drop your copy of The Wealth of Nations into your bowl of cornflakes of a morning.

We love the last part especially; it “could reweight the way the economy works.”

See what I mean about the obsession for hapless bureaucrats and politicians to control things? They just can’t help themselves.

The idea that the Resource Super Profits Tax is a new lever to control the economy is just plain madness. But again, it’s the overconfidence of bureaucrats who believe they saved the Australian economy from disaster.

We’d love to hear from Ms. Tingle her explanation of how economies work. Our guess is that she believes it involves politicians and bureaucrats pulling and pushing levers like an old signalman.

Clearly Ms. Tingle and other government and tax lovers have some bizarre idea that economies can be directed at the whim of bureaucrats just as a child can control a toy train set.

In fact, in a Money Morning exclusive, below is a photo we secretly took this morning of a government bureaucrat in action – not surprisingly he’s sitting down on the job (probably an occupational health and safety thing):

Directing the economy

Directing the economy

Source: www.whitchurchandllandaff.co.uk

Obviously the lever that’s been pulled right forward is the Australian housing market! “Full steam ahead Gordon…”

Anyway, the Keynesian hordes are still blindly pushing on with their crazy ideas. Not content with getting the global economy into the current mess they are determined to press ahead with even crazier ideas.

Page 71 of today’s AFR has John Freebairn writing:

“The RSPT could be much higher, close to 100 per cent without deterring the investment.”

What is he going on about? Can he seriously suggest that if you impose a 99% tax on something that investors will still pile in?

Apparently Mr. Freebairn holds the Ritchie Chair in Economics at the University of Melbourne. Based on his attitude to taxes we can only assume it must be the Ritchie Benaud chair, because whatever this Ritchie is, he or she can’t have anything to do with economics.

But at least he’s man enough to admit to the charge we levelled earlier this week. That the Super Profits Tax was nothing more than a backdoor to nationalisation:

“The RSPT plus corporate income tax collected will rise with booms, when capacity to pay is greater, and fall in slumps, when capacity to pay is reduced. In effect, government, on behalf of the citizens who own the basic resources, becomes a shareholder in the mining industry.”

The mistake the prof (if he is a prof) makes is that there will be boom times to begin with.

Who in their right mind will invest capital when they know the government is snatching a load of the profits, and where there’s no guarantee the government won’t take a bigger cut when it feels like it.

Companies and entrepreneurs will only invest capital if they believe the return will justify the reward.

All businessmen and women embark on a business in the full belief they have the nous to make money from it (unless it’s property investing of course, where the idea is to lose as much money as possible). Now, that isn’t to say that all will make money. Some will fail spectacularly. But the point is, they have the belief from day one that in the long run they can earn a buck from the venture.

And obviously some business ventures have more risk than others.

It’s pretty unarguable that opening a little coffee shop on Fitzroy Street here in St Kilda requires less capital investment, less risk and lower returns than someone exploring for gold or iron ore in the Australian outback.

But according to Mr. Freebairn, the return on a coffee shop in Fitzroy Street and a gold mine in Western Australia would be virtually the same, if as he suggests, miners’ Super Profits were taxed at “close to 100 per cent”.

Anyone with an ounce of grey matter can tell you that if the returns are the same or similar, it’s only natural that an investor will opt for the investment with the lowest risk of failure.

But aside from all this, there’s potentially an even bigger concern on the horizon. And that’s the impact government meddling will have on your retirement savings. But that reader, we’ll have to leave for tomorrow…

Cheers,
Kris.