Why do Christians get a special seat at the tax table?

The Federal government is holding a tax  forum on Tuesday 4 October and Wednesday 5 October to discuss priorities and directions for further tax reform.  After all the reviews we've had, let's hope any reforms are good for Australia.

What concerns me is who is getting a seat at the table - particularly the special treatment for Christian groups.


There have been 20 invited participants representing the community. 6 of these are representing Christian charities. There are peak groups such as ACOSS and others representing housing needs, but there aren't any non Christian charities who have been invited.


Tax exempt status for religious organizations

This skew in attendees matters a lot.

First, in any fearless review of Australia's tax system we must look at the tax exempt status of religious groups. Why they receive this special privilege is beyond me. And with 6 invited Christians on the forum the government is sending a clear message - "you are important and we won't be touching your tax exemption"

Next, these groups all have the same worldview due to their Christian beliefs. Sure, there are lots of business leaders at the forum to present a business viewpoint, but among community leaders there are vast differences. So, why invite 6 groups representing the same ideals and broadly the same people?

Apply to be an attendee

There is one thing you can do. There are still 12 places available for community participants. Expressions of interest close this Friday 12 August. So apply.

The 6 Christian charities invited to the tax forum all do good work for the community. But Australia is all for a fair go - not for making one religious group more important than the rest of us. 

Let me know what you think

Mark S

Why financial systems need regulation - and the economic Libertarians are wrong

In yesterday's column I explained the importance of incentives to our economic system. But humans are not like rats in a laboratory responding to simple incentives like food pellets. Rather, we are complex and we relate to incentives in a subjective way.


As a result, humans are capable of misunderstanding what will happen as a result of their behavior.  A person may think:

• "if I do A then I will get B" 

but the reality might be that 

• "As long as C or D don't happen and if I do A then I will get B"

These sorts of complexities are very common, and very difficult to understand for even the most knowledgeable person. 


In the perfect world of the theoretical economist, everyone would have perfect knowledge of the system and all of the current information. If that is not hard enough, it's also assumed that everyone will make completely rational decisions.  The economist even named this perfectly rational person "homo economicus" (the economic man). Nobody has ever met him!


So, back in the real world. There is far too much data for any person to understand. There are far too many interactions for any person to grasp. And to make matters worse, some humans cheat, corrupt, steal or are simply unskilled at their jobs.


And this is why financial systems need effective regulation - our markets just are not transparent enough. It's simply impossible. 


The free market libertarians reading this are jumping up and down right now in outrage. They want an unfettered system where the market will regulate itself. I'm sorry, but it is just a bad idea. 


To support my case, take a look at the Australian and US financial regulation systems.  In Australia, the system is regulated by the "three peaks" - ASIC, APRA and the Reserve Bank, in concert with the Treasury.  In the US, the system is regulated by a disconnected collection of state and federal bodies.  As a result, all of the Australian financial system is effectively regulated.  That includes banks, other mortgage providers, public companies, property markets, insurance companies... Whereas in the US, the regulations are looser, with many gaps.

If regulation is unimportant, and the market can self regulate, then it shouldn't matter.  But it does. Take a look at how the sub-prime housing market was able to get out of control in the US, compared with Australia. Over 14% of mortgages in the US were sub-prime at the peak in 2006, whereas Australia had around 1%.

And then, what happened next? The loans went very bad in the US, and kick started the global financial crisis. As there weren't so many of them, they didn't go nearly so bad in Australia.

Unfortunately, around the world there are many more examples of financial systems suffering due to poor regulation.  Another great example has been the failures in the Irish system, resulting in frauds, overcharging of consumers and bank bailouts by the public.


So, what's this got to do with ordinary people, incentives and the free market?

Well, "If I am confident that C or D won't happen, I will try to do A so I can get B".

But if I can't trust the system, because nobody understands the rules or plays by the rules, it will provide me with an incentive to abandon the system, and do something else, outside the legal, free market.

Effective regulations in our financial system are good for everyone. Letting the free market run wild is not.

Let me know what you think

Mark S

If you want to read some more, try these links:
ASIC: The integration of financial regulatory authorities – the Australian experience
Reserve Bank: A Comparison of the US and Australian Housing Markets, May 2008
APRA - www.apra.gov.au
US Govt Accountability Office: Financial Regulation...
Financial and Energy Exchange Group