Giving away our sovereignty

There are many reasoned arguments as to why immigration is good for the economy and good for the country. Without wishing to dismiss those arguments there is however a sense in which letting foreigners into the country is akin to giving away our sovereignty. Let me explain.

Australia is a vast nation with lots of land. For the purposes of this discussion I’m going to assume that large tracts of it are currently worth next to nothing. For example if a million illegal immigrants secretly arrived tomorrow, secretly set up camp in the Simpson desert and then secretly did their own thing there for the next 50 years or so, it is not as if we would feel deprived of the land they occupied. The reality is that we are not using lots of our land.

Some of our land however is extremely valuable and this tends to be land in cities where there is a high amount of established public infrastructure. Libertarians will at times argue that some of this public infrastructure should be privatised or even given away to Australian citizens. However they would not generally argue that ownership of this infrastructure should be given as a gift to foreigners. Given that public infrastructure is essentially owned by the Australia people, via our sovereign government,  any admission of additional new Australians represents a dilution of our equity in this stock of public infrastructure. Of course in such a vast land we have the capacity to build new cities with additional public infrastructure but none the less any admission of new Australians represents a dilution of our equity in the current stock.

According to chart 4b on page 7 from the following Treasury article the stock of public infrastructure in Australia is worth in the order of 50% of our annual GDP. According to Wikipedia our GDP per capita is currently $41,300 which suggests that on a per capita basis our public infrastructure is worth around $20,650. At the margin this is the amount of equity in public infrastructure that is given away each time an immigrant is admitted into the country.

This dilution of equity does not occur with private infrastructural, such as housing, because private infrastructure is not owned collectively by all Australians. It is owned individually and privately. An immigrant that moves to Australia may get to use the same footpath you use but they don’t get to use part of your house.

This dilution of equity situation is akin to a company that gives away shares for free. The new shareholders get a stake in the collective assets of the company and the existing shareholders find their stake diluted. For this reason companies don’t generally issue new shares for free. They expect new shareholders to contribute new equity so that existing shareholders do not see the value of their holding diluted.

Following on from the above analogy an argument can be made that immigrants should be blocked from coming to Australia unless they either move to the Simpson desert and live quietly with no expectation of infrastructure, or else they live amoung us but pay a contribution towards expanding the stock of public infrastructure. In essence this arguments says immigrants to Australia shouldn’t be let in for free but should instead pay an immigration tariff of $20,650 each toward collective public infrastructure.

Assuming immigrants pay this fee there really is no problem with any realistically conceivably rate of immigration. If the rate is very high we will have the funds to build the infrastructure for the new cities required. An immigration tariff would be more fair to existing Australians.

The conclusion to this argument isn’t new. On this site I have previously argued for an immigration tariff however on the basis of rather different reasoning.  Whilst the conclusion in both cases is the same the argument is none the less different. Of course I should also mention that an immigration tariff is long standing policy for the Liberal Democrats (LDP).

Should we stop giving our sovereignty away for free?

39 thoughts on “Giving away our sovereignty

  1. there wouldn’t even be a need for your tariff if the ‘public’ infrastructure was already private. it’d be the toll on a road or the fares on a private transport operator.

    absolutely agreed though, the immigrants are getting freebies in the form of access to the ‘public property’ of our nation. the solution would be to privatise it. every last millimetre. i’d trade that for 72+% effective taxes and the interference of federal laws tomorrow. no, wait. yesterday.

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  3. This dilution of equity situation is akin to a company that gives away shares for free.

    Except immigrants don’t get to live here for free. They have to agree to give over a proportion of their future earnings (as tax), part of which will go to fund the infrastructure.

  4. Desipis – that doesn’t stack up. The existing residents also have to pay that same proportion of their future earnings as tax.

    The fee of $20,650 may at first glance seem oppressive. However given that many immigrants will be coming here with an expectation of buying a house that is worth an order of magnitude more than that fee it isn’t really that extreme. If you’re selling a house in Ireland and buying a house in Sydney the immigration fee is a mere irritant.

  5. Wouldn’t the same logic apply to babies born, ie. a baby tax? Don’t babies take lots of ‘equity’ from existing Australians?

    Government is more like a service than a company. If you own equity in a company, you aren’t forced to keep paying the company. Immigrants use up government resources, but pay taxes at the same time – at about the same proportion as existing Australians. Since immigrants are producing for the rest of us, it is incorrect to think of them as a burden.

    The biggest problem I see with immigration is that property owners in an area are not allowed to restrict entry through discrimination. So a particular town that doesn’t like muslims, is unable to exclude them. But it works both ways, property owners are not allowed to accept all the foreign muslims they want.

    Having open borders would persuade areas seeking cultural separation to declare their own rules on immigration, perhaps alleviating this double-problem.

  6. Loki, I’m interested in this 72% figure. Do you have a source, or did you formulate it – if so how? Thanks.

  7. Well said buddy. The problem is that the tax and welfare system biases families – childless couples and children end up paying their fair share, but some fecund parents give up work and THEN dilute shareholder equity.

  8. Buddy – if nothing else your point suggests that we should do away with things like the baby bonus.

  9. I was not trying to extend an immigration tax onto babies!

    After reading my first line again I can see how it could have been misunderstood. I was noting that it would be contradictory for immigrants to be taxed, but not babies – exposing a flaw in principle. I doubt Terje is going to advocate taxing babies 20 grand a pop. I don’t want to tax immigrants OR babies. Free babies and free immigration.

    Of course family welfare is a problem, but that was not what I was addressing. My first line has been misread, taking away from the rest.

  10. I don’t think we should tax babies. I do think we should scrap the baby bonus. Babies are generally exempt from entry fees in all manner of venues.

    I’m quite sympathetic to open immigration. However we don’t have open immigration today (hence the detention centres) and I think we would get more tolerance towards a free flow of immigrants if the infrastructure costs were paid for up front. As such I’m promoting open immigration as more important than free immigration.

  11. Terje, where do you get this assumption that adult citizens have an equal share in the public assets of Australian states?

    The public infrastructure of the Australian states has been built through wealth taxed from productive individuals. Many Australians citizens are net tax consumers not payers; many people have contributed nothing to the accumulation of public infrastructure in Australia yet you assign them an equal share in the spoils. If there were any fee for becoming an Australian citizen and gaining free benefit from existing infrastructure then the fee should be paid to past net tax payers based on a proportion of their tax paid.

    Also, I think you might have also missed the fact that net infrastructure stock is net of depreciation not net of debt. Your figures are like owning a home and forgetting the mortgage.

    Terje, you stated that you think we shouldn’t apply an infrastructure levy to new Australian born citizens but don’t give a reason why they are different from new immigrants. You seem to be applying this principle inconsistently.

    The fairer alternative would be to just privatise all public infrastructures, then there would be no effective transfer of wealth from past tax payers to new immigrants (or to newly born Australians).

  12. HS – I assumed that citizens have a stake in public infrastructure however nowhere did I indicate that the stake was equal. That is something you have read into this yourself.

    I’m not opposed to privatization. As and when the government owns nothing then I think it is reasonable to have immigration that is both open and free. Until then I think that it is reasonable to advocate a program that is open with a fee as opposed to the current system which is selective but close to free.

    I acknowledge that babies born here are treated differently to immigrants that seek to come here by choice. That may be inconsistent but it is an inconsistency that applies to all immigration systems other than one that is purely open and free.

    I’m exploring a reform proposition, not an ideological ideal. Few reforms are entirely consistent. I don’t think consistency is the key criteria, although it is relevant. More significant than consistency is whether the reform leads to improved outcomes relative to no reform. I beloved that an immigration tariff would be superior to our selective, essentially free, quota based immigration system. I don’t think an immigration tariff would be perfect.

  13. You stated an equity share of $20,650 which is per capita. Either you mean that immigrants should pay for what every Australian already equally shares, or an average of all Australians’ unequal ownership. Why would you require immigrants to pay an average of the value of ownership per capita? Their beneficial use of the infrastructure isn’t in proportion to individual ownership, nor is it average of the population as a whole.

    In reality, effective ownership isn’t equal or average. When the immigrant pays the infrastructure levy the revenue will be spent in portion to existing expenditure, which means tax consumers benefit disproportionately for their ‘equity compensation’ than do net tax consumers. So if you consider ownership to be a function of what one is required to pay, then tax consumers own more of Australian infrastructure than net tax payers.

  14. The simplest argument against your theory Terje is that migration causes GDP growth, migrants have generally higher productivity, allow economies of scale and specialisation to occur more than they crowd out fixed resources like land, and thus increase the tax base to a greater degree than what they take away from the sinking fund you are describing, which is funded by taxes. They do so directly and indirectly.

  15. Terje, with regards to this problem of transferred public wealth, both are completely unnecessary if public assets are privatized.

  16. Terje,

    Apart from HS being right, even if there is dilution, you are still better off.

    You’re argument would now be analogous (not quite) to complaining about paying more tax if you had a higher after tax income.

  17. “Is an income tax better than an arrival tax?”

    A poll tax is in theory efficient, as is an LVT, but stamp duties are not. It’s not clear from the outset.

    Is immigration a transaction? These are the inefficient taxes – they tax transactions rather than market values. This clarifies to see the LVT and poll tax much differently to the inefficient immigration charge. The tax makes it a transaction, at least fiscally. In terms of resource endowments, it is anyway.

    Arrival taxes would encourage less immigration than an income tax.

    The fact that income taxes have better alternatives is semi irrelevant.

    GDP is greater with more immigration. It also helps to diversify the tax base. We’re better off with more GDP and getting better and lower taxes than if perhaps in a piecemeal fashion a particular tax is efficient on it’s own.

  18. GDP may improve with immigration but how about GDP per capita?

    Compared to an income tax an arrival tax may encourage less immigration, however an income tax will encourage less income.

    Of course there are other arguments for an immigration tariff. As in it being superior to a quota system.

  19. I would not normally quote Ross Gittens but he does appear to be quoting a report from the productivity commission so I’ll take a punt:-

    Since self-interest is no crime in conventional economics, the advocates of immigration need to answer the question: what’s in it for us? A bigger population undoubtedly leads to a bigger economy (as measured by the nation’s production of goods and services, which is also the nation’s income), but it leaves people better off in narrow material terms only if it leads to higher national income per person.
    So does it? The most recent study by the Productivity Commission found an increase in skilled migration led to only a minor increase in income per person, far less than could be gained from measures to increase the productivity of the workforce.
    What’s more, it found the gains actually went to the immigrants, leaving the original inhabitants a fraction worse off. So among business people, economists and politicians there is much blind faith in population growth, a belief in growth for its own sake, not because it makes you and me better off.
    Why doesn’t immigration lead to higher living standards? To shortcut the explanation, because each extra immigrant family requires more capital investment to put them at the same standard as the rest of us: homes to live in, machines to work with, hospitals and schools, public transport and so forth.
    Little of that extra physical capital and infrastructure is paid for by the immigrants themselves. The rest is paid for by businesses and, particularly, governments. When the infrastructure is provided, taxes and public debt levels rise. When it isn’t provided, the result is declining standards, rising house prices, overcrowding and congestion.
    I suspect the punters’ heightened resentment of immigration arises from governments’ failure to keep up with the housing, transport and other infrastructure needs of the much higher numbers of immigrants in recent years.

    http://m.theage.com.au/opinion/stop-beating-about-the-bush-and-talk-about-big-australia-20100803-115bg.html

  20. Well if you can’t privatize then your only option is far less equitable. Apply an arbitrary infrastructure levy that is the average per capita equity, limit access to welfare for an arbitrary time period or until a particular multiple of welfare has been paid in tax, bar entry to aged immigrants without sufficient savings for self funded retirement including aged care and medical treatment, bar entry to immigrants with preexisting health conditions that require medical care unless they have prepurchased private health insurance for an arbitrary number of years.

  21. An arrival tax is probably better than “arrival quotas”.

    Perhaps it’d be possible for an arrival tax to count as a deduction against future income tax. This ensures that productive immigrants aren’t faced with an immigration disincentive, while ensuring that those that come and fail to be productive have still contributed towards infrastructure that is held in common.

  22. “GDP may improve with immigration but how about GDP per capita?”

    Yes. It has been shown econometrically in the economic history literature. It also reduces commodities costs by more than land gets expensive. it also cause a net decrease in unemployment.

    See Tian and Shan, 1999, Australian Economic History Review.

  23. There’s an article in The Australian about Egypt, which relates in an off-handed way to this subject. The writer points out that 1/3 of the workforce is in public employment, and that the productive countries have much small percentages of their workforce in government jobs. So if we can bring in immigrants, and keep them off welfare or public employment, that will be an improvement.

  24. If immigration causes an increase in GDP per capita, is this whilst tax GDP percentage remains the same (including debt GDP due to deficit spending on infrastructure)?

    To paraphrase the above, does immigration cause state revenue to increase more than the increased cost of services and additional infrastructure?

  25. TerjeP,
    Really, what kind of capitalist are you? You don’t sell a product or a service (I’m not sure which category residence would fall into) at what it cost you. You sell it at the highest price the market will bear.
    On the premise that immigration is good for the country and good for the economy, we declare no higher figure than how many we need every year and then auction each slot off to the highest bidder. My non expert opinion is that the winning bids would easily exceed $20,650. If not then selling slots at $14,000 is still more lucrative than not selling them at $20,650.

    As has probably been said before, the real virtue of the tariff system is that it removes the corruption from the immigration process. Pollies can’t be bribed to make ‘special concessions’ for individuals who fail the normal test; pollies can’t choose demographics that will probably vote for their party when settled and naturalised; forging educational qualifications will be meaningless; as will forging birth certificates to support family reunions.

    As per usual, the market is the solution to the problem.

  26. Philip – I think your suggestion would be better than the current system. However I would prefer a fixed fee with no cap on numbers. If the fee is correct it does not matter how many come. In practice a fixed fee in the order of $20,000 is going to significantly moderate the inflow rate. However whilst I would prefer a fixed fee I’m not committed to a specific number. It may be that it does need to be higher.

  27. What about a fee that scales upwards with the number of immigrants that have already arrived in a given year?

    Kind of like how plane fares are cheap for the first 50 seats but then start to go up in price until the last 5 seats on the plane are $400 each…

    So the tariff could start at $5000, but scale all the way to $100 000 or something.

  28. Shem – from the vantage point of an immigrant such a system is going to appear very capricious. Not a very good first impression. If you are going to make a major commitment regarding moving to a new land then some certainty about what you are up for is welcome.

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  30. If I emigrate from Australia would I be able to receive a pro-rata refund? If, for example, I am about forty years old (say 50% of my life expectancy), have been consistent tax cash cow (payer) for 22 or so of those years, and have never claimed unemployment, disability, a baby bonus, or had insulation installed in my house, can I expect a cheque for 10 grand or so upon leaving?

  31. I agree strongly with freeing up immigration: if I’m sitting in Darwin why can someone 2,000 km South-East freely come and visit me, but someone 500 km North not do so?

    I don’t know, however, if the concept of a tariff would work: first of all, is the amount net assets (net of debt)?

    Further questions are raised: what if I leave Australia to move to Ireland — will I get my $20k back (presumably to pay a similar tariff to enter Ireland).

    What about babies — do parents pay a tariff, and what if I die — do all dead estates get given $20k (presumably used to pay for their next generation of descendants).

    Finally, we don’t currently have a tariff to move between states in Australia — does NSW have more infrastructure per person than Tasmania? And what is so special about those particular boundaries anyway?

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