Privacy and Cross Border Transfer of Information

The following is a proposed submission to the Australian Federal Government Financial System Inquiry.

The Inquiry would value views on the costs, benefits and trade-offs of the following policy options or other alternatives:

  • Review and assess the new privacy requirements two years after implementation to consider whether the impacts appropriately balance financial system efficiency and privacy protections.
  • Review record-keeping and privacy requirements that impact on cross-border information flows and explore options for improving cross-border mutual regulatory recognition in these areas.

This submission should be read after the submission by Kevin Cox titled “Government Support for an User Centric Electronic Identity System”

Particular Australian Privacy Principles applicable to this submission are:

Australian Privacy Principle 6 — use or disclosure of personal information

Use or disclosure

6.1 If an APP entity holds personal information about an individual that was collected for a particular purpose (the primary purpose), the entity must not use or disclose the information for another purpose (the secondary purpose) unless:

  1. the individual has consented to the use or disclosure of the information; or
  2. subclause 6.2 or 6.3 applies in relation to the use or disclosure of the information.


Australian Privacy Principle 8 — cross-border disclosure of personal information

8.1 Before an APP entity discloses personal information about an individual to a person (the overseas recipient):

  1. who is not in Australia or an external Territory; and
  2. who is not the entity or the individual;

the entity must take such steps as are reasonable in the circumstances to ensure that the overseas recipient does not breach the Australian Privacy Principles (other than Australian Privacy Principle 1) in relation to the information.

Most people would consider the visits they make to websites to be private and do not want others recording their visits. Widespread tracking of website visits and the selling of that information is a multi-billion dollar business.  This tracking breaks both APP6 and APP8. There are a variety of methods used, the simplest of which is third party cookies.  A third party cookie is an identifier put on a person’s browser by a website.  Other websites can read the third party cookie and then ask the website who put the cookie on the website information obtained about the person.

Any Australian Website who puts third party cookies onto a person’s browser and releases information to other parties without the informed consent of the person, is likely to be violating both principles even if there appears to be no direct information about a person supplied by the Australian Website.

If a person has visited a website then that fact, if passed on, is now available to participating websites who subscribe to the service. This information can be collated so that pieces of information such as the person’s name, email address, date of birth, sex, buying habits, travel plans etc. are available to all participating websites.  This is clearly a violation of both principles because these services are international.

The Australian Government could stop tracking from Australian websites by fining Australian organisations who put any form of tracking mechanism on their websites and allowing that information to be obtained by any other organisation.

Tracking can serve a useful purpose for users.  However its indiscriminate use is privacy unfriendly and it is economically inefficient. It has the same characteristics as spam email and the more it used the less value for each impression because the advertised switch off. This is evidenced by the drop in cost per impression. It is also evidenced by the increasing support for “Do Not Track” legislation from many in the advertising industry.

If however, the advertising industry only sent ads to people who were receptive to the message then the Cost per Impression would increase.  Rather than using the techniques of “Big Data” to try to guess what people want, the advertising industry could ask people what messages they wanted to receive. This could be achieved if the person themselves was the only one who had access to information about their online behaviour and was able to tailor the delivery of advertising messages.  This would immediately increase the Cost per Impression and would be economically efficient.

This approach would also benefit law enforcement.  When law enforcement needed to find out about a person’s online activities they could obtain a warrant to examine the person’s own individual record of online behaviour.  They would not need to conduct bulk surveillance of the regular channels of communications.


The government make it known that it will enforce Australian Privacy Principle 6 and 8 and fine websites that send information about website visits to a third party.  This should coincide with government support for giving individuals access to their own personal information held by government.


Government Support for a User Centric Identity System

The following was submitted to the Australian Federal Government Financial System Inquiry.

The inquiry asks:

Develop a national strategy for promoting trusted digital identities, in consultation with financial institutions and other stakeholders.

The Inquiry seeks further information on the following areas:

  • In developing a national strategy, what should be the respective roles, responsibilities and expectations of Australian public and private sector organisations in creating, accepting and maintaining the digital identities used by Australians?
  • Is there a need for Government to enhance identity authentication by facilitating interoperability standards in areas such as biometrics, enabling better access to Government information or improvements to the Documentation Verification Service?

This submission recommends the government provide the leadership to allow individuals to have their own set of digital identities that they control and that they can use.  One way of achieving this is to base digital identities around online behaviour collected by the individual themselves.  This approach is behind the MIT Open Mustard Seed, part of the project.

This approach turns identification around. The traditional approach to identification is based around organisation supplied credentials.  An individual provides an organisation with identity evidence, which the organisation checks and then provides the individual with a credential.  An alternative approach is based around an individual checking their own credentials.  The individual proves, in an independently verifiable way, that their credentials are valid. The individual uses the same techniques and tools used by organisations. The individual then provides their credentials to the organisation.

People engage trusted third parties to supply the tools to record their verifiable behaviour.  This is achieved by giving the individual electronic access to their information stored in their interactions with organisations through the trusted third party, where the person and an organisation trust the third party. Australian Privacy Principle 12 provides the legal framework for this to occur. APP 12 states

APP 12 – Dealing with requests for access

12.4 The APP entity must:

2. give access to the information in the manner requested by the individual, if it is reasonable and practicable to do so.


12.6 Without limiting subclause 12.5, access may be given through the use of a mutually agreed intermediary.

Through the use of Open Standards there can be many trusted third parties used by persons and organisations.

This change in approach leads to systems that are private by design. The following privacy principles are built into the identity operation.

Australian Privacy Principle 5 (APP 5) – Notification of the collection of personal information

The individual input their own personal information and hence are automatically notified.

APP 6 — Use or disclosure of personal information

The individual approves and controls all disclosure of personal information

APP 7 — Direct marketing

The individual must approve all direct marketing coming from the use of their information.

APP 9 — Adoption, use or disclosure of government related identifiers

Government identifiers are only used by the individual for their own identification and that use of government identifiers is permitted.

APP 10 — Quality of personal information

Because the individual is responsible for their own information and because they have tools to assist in the gathering and checking of information the quality is high.

APP 12 — Access to personal information

The individual has access to their personal information by design.

APP12 also says that a person can ask for their information in any way they wish and can engage a third party agreed to by an organisation, to act as their agents.

APP 13 — Correction of personal information

The individual is able to correct their personal information.

Creation of a User Centric Identity Systems

The first step in creating a User Centric Identity System has been in operation in Australia since 2008 and is operated by the Company Edentiti under the brand greenID.  Edentiti uses the Document Verification Service (DVS) to give people access to their identity credentials held by government agencies through organisations.  That is, the DVS only allows organisations who are required under Federal Legislation to identify people to use the system.  Such legislation is the AML/CTF legislation and the Telecommunications ACT.  Requests to the DVS to allow an individual to access their own records through the DVS using an agreed trusted third party have been denied. A simple enforcement of the Federal Australian Privacy Principle 12 would immediately increase the demand for the DVS service and make the DVS available to any organisation who has a need for identification.

The experience with the DVS illustrates the issues associated with a person getting access to their own government data (and personal data held by organisations).  The problem is that the government deals with individuals through other organisations and not directly with individuals.  Changing the paradigm where the government deals directly with individuals via a third party agent selected by the individual designs privacy into the system.  When the government uses organisations it appoints to deal individuals privacy has to be tacked on to the system.

By allowing the individual to have a choice in how their identity information is accessed will immediately simplify almost all government to citizen engagement. This happens because if the individual can access their own information held by government then they can supply it to other parts of government and to other organisations.

The approach does not invalidate existing systems. They can continue to operate almost exactly as they currently operate. The big change is that individuals can immediately start to reuse their previous electronic activity not only for identification but for other transactions.  It means that a person need only ever record data or biometrics once and then continue to reuse it. The practical effects are to eliminate the need for

  • every organisation to have its own username/password system
  • complex negotiations and agreements between organisation on the passing of information between organisations,
  • a person to continually re-enter information about themselves

If the government provides a lead by allowing individuals, through trusted third parties, to access their own information other organisations within society will follow their lead and will give individuals access and some control over information about themselves.  This will be privacy friendly.

Very large savings will be made in ehealth, tax collection, distribution of entitlements to citizens and organisations.


The government develop a national identity strategy around the idea of supporting and encouraging individuals to access their own personal data held by government.  As the first step the government should require all government agencies to follow APP12 and allow individuals access to information about themselves held by government agencies through mutually agreed third parties.


Tradeable Claims for Infrastructure Development

The Inquiry asks

What are the impediments to the development of liquid, tradeable claims on infrastructure projects?

The following outlines a liquid, tradeable claim for general use by the Government, and by others in Society, as a way to create credit for any Capital Investment. The vehicle is PrePayments with Discounts adjusted for Inflation. (PPDI for short). They are simple to create and with modern technology easy and inexpensive to administer.  They require no special legislation or changes to accounting or tax regimes.  They can be introduced quickly and incrementally.  They enable the government to have fine control over infrastructure investments and, in consultation with the Reserve Bank, the supply of money.  They enable the Government to monitor in real-time how the infrastructure investments are performing. The Government can maintain full employment and retire all Government Debt. The example set by Government will mean all Australian enterprises, including State Governments, will have the means to retire all foreign debt while still leaving Australia open to foreign investment.

PPDI Creation by Government

A PPDI is a PrePurchase of a future commitment with a Discount attached.  Organisations and individuals buy PPDIs from the Government.  Liquidity is supplied by allowing PPDIs to be transferrable and by the Government facilitating transfers.  Future Commitments to Government are Taxes, Duties, Licence Fees, etc.  That is any future payment due to the Government.

It is suggested that Government issue PPDIs with an 8% Discount.  An 8% Discount is about equivalent to a 100 year bond rate of 5% in cost to the government.  PPDIs can be adjusted for inflation because governments can ensure payments to government will increase with inflation.  An 8% PPDI will be a very attractive investment, particularly for superannuation funds and gives a way for Government to provide economically attractive investments for savers.

Assume a person buys a PPDI for $100 with an 8% Discount.  In five years time it can be used to pay $100 + 5 times $8 or $140 of taxes. If inflation was 3% the $100 would be able to pay $158.

Governments should issue PPDIs for specific projects. The reason for this is to keep track of the cost of projects and how long it takes to get back the investment by measuring increased taxes and charges created by the investment.  For example if a tollway is built to the New Sydney Airport the increases in taxes from services along the route attributable to the route plus the fees from the toll ways can be compared to the PPDI cost.

To compete with Government PPDIs, businesses and organisations will offer PPDIs at differing rates.  It is likely that home finance will stabilise around the same Discount or a little lower than Government PPDIs.  It should be noted that an 8% Discount is equivalent to a mortgage rate of 6.1% over 30 years. It is expected that business finance through PPDIs will have to be higher because a business PPDI does not have government backing and hence is a greater risk.

The Government can control the money supply through issuing PPDIs.  When there is a downturn in private investment the government can increase the number of PPDIs it creates.  When private investment increases the Government reduces the number of PPDIs.

Governments can retire all public debt through issuing PPDIs to pay off the debt.

Using this mechanism the Government can remove all debt and never issue any more.  It will be able to fund more infrastructure including the National Broadband Network, Public Transport in our Cities, Roads throughout the country, Hospitals, Schools, Universities all without going into debt.  How much the government funds will depend on the demand from private investments but the system can be tuned to give everyone in Australia who wants to work a job.

The Lower Cost of PPDIs versus Debt

PPDIs remove interest on interest on investment credit. The way we create credit with debt means that debt has interest on interest costs. For long term investments interest on interest becomes a major part of the cost. For example an investment over 50 years with an interest rate of 5% will cost 40% more in funding costs than a 5% PPDI over 50 years. This reduces the total cost of the project by 22%.  Importantly reducing the cost of infrastructure with PPDIs means funding income will mostly stay in Australia and so increase our total wealth. This in turn increases the Government Tax collection without increasing the Tax Rate or alternatively allows lower Tax Rates while still collecting the same amount of Tax.


Removing Public Debt and Providing Canberrans with a way to Invest in their own Community

Interest on Public Debt is a direct cost to the ACT Community. The budget papers indicate that the ACT is paying the long term bond rate on loans of about 3.8% for a total cost of $165M.  Government Investment loans are not available to Canberra Residents but are only available through large institutions and in particular to overseas institutions.  However Self Managed Super Funds of Canberra Residents are always looking for safe and secure investment opportunities – particularly if they are government backed.  The ACT Government has the opportunity to provide such a vehicle at no net increase in finance costs to the government, at reduced risk, as a way to remove all Public Debt, and as a way to increase the wealth of the Canberra Community.

The Government can do this by Selling PrePurchase Electronic Vouchers (PPEV) that are Discounted depending on the length of time the Vouchers are held before being used.  That is, the ACT government issues its own Credit to Fund asset construction rather than obtaining Capital through Debt.  It is recommended that the PPEVs be sold with a Discount of 6% and with the value being adjusted for inflation.  A 6% Discount Rate costs the ACT government the same in foregone income as a 3.1% compound interest rate when total Debt is increasing. PPEVs are redeemed for any government service or goods and includes Rates, Hospital Charges, Water Charges, Vehicle Registration, Licences and Payroll Tax.

Credit is the ability of a customer to obtain goods or services before payment, based on the trust that payment will be made in the future. Debt is a sum of money that is owed or due. Governments can always supply enough goods or services to repay its Credit by increasing the time over which to provide its goods and services with no penalty. The failure to repay Debt on time results in a lower credit rating which results in higher interest charges and increased Debt.  Credit is hence much much lower risk to the Government than Debt.  

Using PPEVs the Government removes the risk of interest changes that could cause extraordinary problems for the ACT economy; if there is any substantial Debt and if interest rates rise. Both increasing Debt and increasing interest rates are highly likely over the next 10 years.

PPEVs makes it much easier for the Government to monitor and control the economy as Credit should only be created for value adding investments.  It should rarely if ever be used for operating expenses.

Credit can be created whenever it is needed to stimulate the economy. Canberra residents will have access to a secure liquid investment they can purchase for their retirement. The government superannuation will have an investment vehicle that allows it to easily invest in the Canberra Community and obtain a good return on investments. 

Discounts are not taxed if claimed.  If the Discounts are sold they are subject to Capital Gains tax rather than as tax on income. Interest is taxed as income.

PPEVs can be any amount and are available to any Canberra Resident.  It is believed that they will be so popular that it will be necessary to restrict their sale to Canberra Residents or alternatively Canberra Residents can get a higher Discount Rate than non residents.

The operating cost of the system will be covered by low transaction fees of 0.5% on movements of PPEVs and will be paid by the buyers of PPEVs.  There will be no fixed charges on the amount invested. These are much lower charges than incurred by typical superannuation or other Capital investments.

The system can be operational within six months and can be introduced at a rate determined by the Government to replace government Debt.  It has the potential to become a significant generator of funds into the Canberra Community and to the Government.

The proposal as formulated is unique and there is no other government in the world currently proposing such a system. However, it is expected other jurisdictions, including the Federal Government, will adopt the approach as a way of removing Government Debt once they see it in operation.  It is fundamentally the same approach as used by “the miracle economies” of SouthEast Asia, East Asia and China and was the way Japan and Germany were rebuilt after WWII.  In Australia it was used by the Commonwealth Bank to fund the First World War and more productively for Australian infrastructure development during and after WW1. It is also an industrial strength form of Crowd Funding as Funding is provided in return for the output of investment.  This contrasts with Equity Funding which gets its return from the ownership of the means of production.