Tax games in Europe

As I said a few months ago, tax evasion is the big cliff in terms of the future of the EU project. It was thus fascinating to see the tax evasion games played out at the latest ‘summit’ In Brussels yesterday.

To understand what really goes on at these summits, imagine yourself to be the PM of a small country that makes a lot of money by the tax avoidance activities of big companies operating in much bigger countries. You could be the PM of Ireland, Austria, Switerland, Luxemburg, London, Monaco, or even the Netherlands. Depending on which small country you are, the particular way you make money from tax evasion differs. The Dutch for instance make money by allowing ‘post-office’ firms which essentially make it particularly easy for foreign firms (Italian, Spanish, and Greek in particular) to be ‘international’ and to nominally park all the activities in the Netherlands that are taxed lower there (profits). London makes money by intermediating the setting up of all those ‘head offices’ in the Virgin Islands and a hundred and one other schemes. Ireland makes money by complicated off-sets to capital taxation, which is why large US companies (Google and others) have their head offices there. Switzerland and Luxemburg make money by having rich tax evaders simply hide their money in their banks. Etc.: the particular way in which your country makes money by under-cutting the big boys depends on the small country involved.

Now, of course the big boys (US, Germany, Japan, France, Italy, the European Commission, etc.) want to tax the activities of the rich individuals and companies operating on their shores. Without that taxation their governments would collapse so they are really serious about trying to reduce the degree to which their companies and rich individuals avoid national taxation. The big boys are hampered by the fact that they do want their companies to be international and sophisticated because that is needed for them to be so successful, and so the big boys can’t really do without complicated international tax arrangements, which invariably will lead to loop-holes and fudges in definitions. One should not think of this as a once-and-for-all kind of ‘finding the solutions’ problem. Rather, it is a perennial race between closing down the loop-holes and new ones opening up. To minimize the tax evasion one needs to have fast and central tax decision making to close the new loopholes. So it was, unsurprisingly, the European Council President, Van Rompuy, who dedicated the summit to tax evasion on behest of the bigger powers.

As one of the bottom-feeders of the tax avoidance inside big countries, what do you do? Well, you lie, you stall, you create confusion, and you generally try to be as uncooperative as possible without openly picking a fight with the bigger countries. Every week you delay is worth several billions. Normally speaking, stalling works beautifully. Just 5 years ago, for instance, the G20 promised the end of banking secrecy and transparency in financial arrangements, which lead to absolutely nothing in the ensuing 5 years as discussions in ‘working parties’ came to nothing. So, the tactic of bending a little on the rhetoric whilst being quietly obstructionist when it really matters has worked for you in the past. Continue reading

Thoughts on Gonski and education reform.

With the Gonski reforms expected to be rolled out across Australia in the coming 5 years, it is handy to reflect on what actually are the basic challenges for school reform in Australia. A view of the underlying issues helps one to judge the likely outcomes of the current reforms and others one might think of.

One can see the main learning challenges in Australian schools as related to the quality of what is taught, the quality of who is teaching, and the quality of the school as a whole. Three main issues then come to mind:

  1. The curriculum is often too influenced by political concerns and of low quality.
  2. Teachers are relatively low paid, and have seen their relative wages drop over many decades, leading to the newer cohorts of teachers to be less good as the old ones.
  3. Failing schools are kept going rather than replaced, effectively leading to whole neighbourhoods being bereft of good educational opportunities.

On top of this, the sector has governance issues, like a large education bureaucracy both inside schools and outside of them, but since we are here ultimately interested in the transmission of knowledge, let us focus on the problems at the coal-face and talk about the governance issues when they arise.

Now, on point 1, I am optimistic about the role of the National Curriculum that was recently introduced. It will make it visible what the educational problems are in parts of the country, most likely will lead to a set curriculum and thus a set textbook and teaching aids for all subjects, and should hence significantly raise the bottom of the education distribution (though I don’t think it will matter for the top). Whilst one cannot really see this dynamic yet on the ground, in which schools and states are just getting used to the idea of a national curriculum, one can argue that other countries that have a national curriculum have indeed gone the way of raising the floor (NZ in particular). Given the competitive mindset of the Australians and the fact that you now get frequent international comparisons, I do expect the political pressures to accumulate to use the national curriculum to improve what is taught and how it is taught. In short, I think the signs are good in terms of addressing problem number 1. Continue reading

Timothy Devinney on Overpaid Vice-Chancellors

In an excellent recent piece on his own website, Timothy Devinney looks at how the compensation of Australian Vice Chancellors compares to those of the UK and the US. He gave me permission to re-use his calculations. Below I give you the guts of his story which, if one uses updated figures from the ones he uses, gets you to the realisation that Vice-Chancellors at the GO8 and ‘Technology’ universities get 300% in total compensation of what Vice-Chancellors at comparable US and UK institutions get.

Timothy’s first and main empirical finding is that “Overall, the average compensation of a top 100 US public university president is A$480,409; that of a UK vice chancellor A$456,867; and that of an Australian vice chancellor A$721,607. ”

Now, that sounds like Australian Vice-Chancellors are ‘only’ paid some 155% of the compensation of equivalent US and UK Vice-Chancellors, doesn’t it? Not 300% by a long way. But this is where one should dig deeper into the data (explained in his Footnote 3).

Timothy’s data on the US is on total compensation, so includes bonuses and pensions and side-benefits. His data on the UK includes salaries and pensions. Yet his data on Australia is just salary.

In Australia, the salaries that you find in the annual reports do not capture all the elements in the total compensation package of the Vice Chancellors. It misses bonuses, superannuation and side-benefits. And these are large chunks of the total compensation package.

To start with bonuses, my recent post on the goings-on at QUT already mentioned that the average bonus for the Vice Chancellor plus Deputy Vice-Chancellors there was A$270,000 in 2011. That reflects an average bonus of around 40-50% for that layer of administrators. Continue reading

Andrew Leigh and Adrian Pagan on our Book

The book launch tour of Australia ended last week with a visit to the Melbourne Institute, where Deborah Cobb-Clark kindly hosted the last in our marathon-series of 5 launches. They all were a great success, with the publisher actually running out of books for the last one and thus having to scramble for extra copies.

What was memorable about the Canberra and Melbourne launches were that the hosts had read the book and prepared lengthy speeches on it, which of course was very flattering. Andrew Leigh, who hosted the Canberra launch, already put his verdict on his own website and Adrian Pagan, co-hosting in Melbourne, kindly gave me permission to let you see what he made of it in the pdf attached (Adrian Pagan on frijters book).

Of course, neither of these two eminent economists are uncritical praisers of the book I wrote with Gigi Foster, and both speeches draw attention to elements that raised their interest and doubts. Andrew Leigh, a politician now, notes how often we make the kind of strong statements that he can no longer make! Adrian Pagan likes the importance in our work of economic linkages in the explanation of recessions, but he is not quite yet ready to accept our theory of love without a bit more humming-and-ahing. Yet, both are very supportive and complementing, whilst giving their own unique view on the endeavour. Thank you both. We hope to get similar responses in our tour of the US and Europe later this year!

Book launches in Sydney and Canberra on May 1 and 2

Tomorrow, there is a book launch of ‘An Economic Theory of Greed, Love, Groups, and Networks‘ at UNSW, hosted by Professor Chris Styles, Director of the Australian Graduate School of Business. It starts at 6pm and is in the JBR Theatre (AGSM building) of the Kensington Campus. Day after tomorrow, Andrew Leigh will host another book launch in Canberra at University House (the Common Room) starting at 6. Everyone is welcome to walk into the Sydney launch, rsvp’s are appreciated for the Canberra one.