The out-going Trump administration finally woke up to a nasty little rort that the Australian government was planning on running against United States tech giants operating in Australia.
On Monday, The Australian reported that US trade officials had written to the Senate and ‘respectfully requested’ that Australia abandon plans to introduce a de facto (albeit unconstitutional) tax on Facebook and Google.
This tax – cynically described as a payment for news – is to be a payment from Facebook and Google to Australian media when those social media direct viewers to Australian media content. If that sounds crazy to you, that is because it is crazy. If anything, Australian media should be paying the tech giants a finders fee.
Why am I describing it as a tax? Well, the government will deploy the threat of violence to extract funds from the private sector. This is not fee for service. Why is it an unconstitutional tax? Taxation revenue is required to be paid into consolidated revenue. This fee is paid directly to Australian media companies (but hold that thought). Not that I expect the High Court to actually enforce the Constitution. As I said, a nasty little rort. A shakedown.
Now protecting your citizens from violence is a legitimate function of government. Belatedly, the US government has realised what the Australian government is up to, and complained. No doubt the Australian government was hoping that the bitter partisanship in the US would allow them to get away with it. But, it appears, that the incoming Biden administration has similar views to the out-going Trump Administration on this matter.
I hope so.
The American government has long been somewhat sanguine about foreign governments lining up American companies for discriminatory taxation and regulation. The EU and OECD should be put on notice.
What makes this piece of policy adventurism so annoying is the underlying arrogance displayed by the Australian government, in general, and its most anti-business agency, the ACCC, in particular.
Unsurprisingly, neither Facebook nor Google were too keen to be victims of a shakedown and suggested that they might exit the Australian market if forced to pay for what is a service to their own customers and actually of benefit to Australian media companies. Last week Google started experimenting on how to block Australian media.
Josh Frydenberg shamelessly suggested that rather focusing on avoiding any liability under the government’s scheme that they focus on paying up. As Kerry Packer famously suggested, if you’re not trying to minimise your tax you need your head read. In this case, avoiding an unnecessary expense would be a perfectly legitimate response from both Facebook and Google.
Irrespective of arguments over tax policy and discrimination against foreign business, this proposal is poor public policy. It is being justified on the basis that new entrants to the market (the tech giants) have disrupted the advertising revenue that used to flow to media companies. That revenue, apparently, paid for quality journalism. The media’s business model got disrupted by technological innovation.
What neither the government nor the ACCC have explained is why this is a problem. New and better business models are supposed to displace older and inefficient business models. The notion that quality journalism can only be funded via a subsidy from advertising or enforced extraction is an assumption that needs to be tested. In future, consumers will have to directly pay for quality journalism. No doubt, they will be a tad more demanding and critical of what passes for quality journalism – but that is a whole different argument.
Right now what we have is dinosaurs – companies with outdated business models – running to Canberra for special protection from the market forces that threaten to sweep them away. Rent-seeking, it used to be called. There was a time when Australian governments were onto this sort of behaviour and tried to minimise picking winners. Perhaps I’m being over nostalgic, but those days are long gone.
The final piece of silliness in this whole sorry saga to reflect upon is to ask why the Australian government is involved at all. While Australian media in general will profit from this shakedown, the loudest voice has been News Corp. Despite its Australian origins, the fact is that it is now a US multinational corporation. So we have the spectacle of an American company lobbying the Australian government to shake down two other American companies on its behalf.
Now Josh Frydenberg is a nice guy. He is also not an idiot. Yet here we are. Rather than spluttering that other governments in the world think this is a good idea, he should rather tell the Americans (including News Corp) to lobby their own government for special privileges.
Sinclair Davidson is a professor of economics at RMIT University.
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