For a society to base its financial system on alchemy is a poor advertisement for its rationality  … Of all the many ways of organising banking, the worst is the one we have today.

Sir Mervyn King, Governor of the Bank of England, 2003 – 2013.



THE AGE letters 10/11

Three certainties in life: banks make record profits; banks sack staff; CEOs get big salary increase.

Paul Kennelly, Caulfield North

THE AGE letters 11/11

Fourth bank certainty  

Paul Kennelly (Letters, 10/11) omitted the fourth certainty of banking, which is that, every 10 years, banks are found to have engaged in sloppy lending practices, leading to overstretched borrowers and rising default rates. A review is conducted by a bloke who used to work for a bank, after which the banks announce they have learnt a lot and they will review their lending practices going forward.

John Ogge, Highett


Yes, indeed, Paul and John. I remember when Don Mercer took over from Will Bailey as CEO of the ANZ Bank in 1992.  As he surveyed the rubble around him from Australia’s last property collapse, Mercer said words to the effect that the Bank must ensure such a financial collapse can never occur again. The fact that property busts happen with such monotonous regularity underlines Sir Mervyn King’s statement. There is no risk management against land price bubbles. Yet the world still continues to spend trillions bailing out banks to “maintain confidence in the system” [!] – instead of letting them be taken over for a song and reformed.  As we can see, these bailouts have sent the USA and Europe down the same zombie track as the Japanese economy. Unfortunately, that appears to be the direction Australia is heading, too.

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A land value tax could fix Australasia’s housing crisis

Suburban houses from directly above

The major cities of Australia and New Zealand are experiencing an extraordinary wave of speculation in their respective real estate markets. Over the past three years, the median house price to median income ratio has increased by 21.2% in Australia and 18.1% in New Zealand, a rate reminiscent of Ireland’s 20.5% before its housing crash at the time of the global financial crisis.

The rapid increase in property unaffordability on both sides of the Tasman has enriched a number of homeowners and speculators and made countless more eager to join the game. But it has had dramatic effects for businesses and landless families who find it exceedingly difficult to afford a place to live, work or operate.

Unsurprisingly, a lot of column space and political deliberation have been dedicated to finding a solution to the problem. Much of the analysis points to a lack of housing supply at a time of increasing demand as being the main driver of rising prices, resulting in a simple policy prescription: increase the supply of housing.

The main problem with this argument is it ignores the fact that it is land, not physical structures, that appreciates in value, making it an obvious area for speculation. Unlike houses or genuine capital, land does not depreciate or require maintenance. Instead, the value of land reflects its economic potential due to public expenditures on infrastructure (such as roads, schools or railway stations) in its vicinity and the effort and entrepreneurship of local workers and entrepreneurs.

When land prices soar, residential real estate becomes a more attractive investment opportunity than productive businesses. Land bubbles tend to produce two seemingly contradictory effects. Firstly, it produces urban sprawl as businesses and families are forced to seek cheaper land outside of the urban centres. Secondly, as owners are more interested in expected capital gains than any productive activities, much valuable land become idle.

Eventually, the burden of debt, lack of affordable land and investments based on wrong signals (e.g. luxurious condominiums promising high-profit margins) start affecting the real economy. As workers lose their jobs, they become unable to repay their debts and are forced to sell. Land prices finally stagnate and then fall, taking leveraged banks, speculators and people’s life savings with them. It is, therefore, clear that to escape this never-ending cycle, we need to focus on land.

Over a century ago, American economist Henry George suggested instead of taxing workers and entrepreneurs, governments should raise their revenue from land via a land value tax (LVT).

Indeed, both Australia (land taxes at the state level) and New Zealand (property rates at the council level) already have some taxation of land in place. But over the last century these taxes have become significantly debased due to the influence of various interest groups that secured exemptions or low rates. It is time to reconsider shifting the fiscal balance back onto land.

Unlike the land taxes already in place or the often suggested capital gains tax, LVT does not punish anyone for constructing houses or factories in the way that our current taxes do. As the supply of land is fixed, LVT becomes a cost of owning it. Consequently, it can bring in a decrease in prices as the owners of inefficiently used sites might feel compelled to sell or lease them to those willing to use them productively. Increasing the cost of owning land would drastically reduce the incentives for speculation.

Imagine central Auckland or Melbourne without vacant sites or dilapidated buildings. What is more, encouraging more efficient use of land is not only beneficial to economic growth and housing affordability, but also has a potential to substantially lower the costs of public infrastructure and encourage more efficient use of space and natural resources.

LVT would be a transparent and efficient alternative to our current taxes which are not only burdensome on businesses and families but also difficult and expensive to administer and enforce. It is impossible to hide land in a tax haven or a trust (trusts are not exempt from the current land taxes). Taxing it can be done cheaply and on the basis of publicly available information.

While LVT might persuade some modest-income earners to sell their valuable properties, most workers and homeowners would get net benefits from a reduction in taxes falling on their income (income taxes) and consumption (GST). Furthermore, a citizen’s dividend could be introduced in which part of the revenue raised from LVT is directly paid out to all citizens on a per-capita basis.

Given the multiple problems stemming from the rapidly expanding housing bubbles in Australia and New Zealand, introducing a tax on unimproved land values makes sense. Not only would it undoubtedly address house price inflation, it could also result in a more efficient use of land, mitigate urban sprawl, lower the burden on the natural environment and reduce the risk of real estate bubbles; all this without undermining the foundations of economic growth.

The Conversation

Nicholas Ross Smith, Professional Teaching Fellow, University of Auckland and Zbigniew Dumieński, Lecturer, University of Auckland

This article was originally published on The Conversation. Read the original article.

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world pollutionBOTTLING THE AIR

by Mason Gaffney

Don’t you know that if people could bottle the air, they
would? … there would be an American Air-Bottling Association.
… they would let millions die for want of breath, if they could
not pay for the air.Robert G. Ingersoll

Times have caught up with Ingersoll. Ronald Coase,
prominent Chicago economist, says polluters (whom he calls
emitters, to avoid bias) have as much right to emit as victims
(he says receptors) have to breathe clean air. It doesn’t
matter, says Coase, how we assign property rights originally: as
long as property is firm, the market will sort it all out.
However, since emitters have invested in costly facilities, and
property is sacred … you see whither this unbiased science is

Was he laughed to scorn? Au contraire, he was raised on the
shoulders of his adulatory peers and anointed a demi-god (which
tells you something about his peers). Having risen on wings of
theory the idea found its way into practice, and today The South
Coast Air Quality Management District awards “offset rights” to
those with worthy track records of emitting. New emitters must
buy “property rights” from old ones.

In effect, we don’t fine people for emitting, we reward them
with a right to continue. Then we can pay them to stop, by
buying back the right we just gave away. This is putting the
free market to work, they say. If you have not been emitting
before, too bad. I have offered not to emit millions of tons of
nitrates, and sulfates too. My price is modest, and highly
competitive. I underbid the big refineries by 50%, but Air
District officials just hang up on me, if you can believe it.
They say I must have earned my offset right by suffocating the
neighbors in the unregulated past.

Pursuant to Coase we should no doubt award the Ukraine a
perpetual right to have melt-downs at Chernobyl, rights they
could then sell to Uganda or Paraguay or other LDC wanting to
modernize with a melt-down or two. Nicotine fiends with proven
records of smoking in crowded rooms regularly over at least the
last four years will receive official charm bracelets they can
flash whenever asked to butt out. These, of course, will be
modern “bearer bracelets,” transferable to the highest bidder.
Anyone caught leaving a room filled with such legally sanctioned
smoke might well be fined, and charged with violating the
bracelet-bearer’s 5th Amendment rights.

And those who want to breathe? Coase says they should pay
for the privilege, as they pay for indulging any personal taste.
After all, they already pay those who supply them with land to
live on. Only welfare bums would expect property owners to dip
into their hard-earned savings and supply them with free air,
when the market has a solution at hand. All they need do is buy
offset rights from Ancient and Honorable Emitters. When they
want to breathe, they just retire the rights upwind of them.
This is a marvel of efficiency, too. They retire only what it
takes to clean the air they need: no waste.

If they can’t afford to buy outright, they could rent –
markets have ingenious solutions for all problems, like any good
panacea. Gas masks are another free-market solution: much better
than socialistic policies that would impose uniform clean air on
everyone, whether they want it or not.

What about the new-born, with no prior history of either
emitting or breathing? They come innocently into the world with
no basis for being grandfathered in, and little money. Sometimes
real men must put aside maudlin whining, grit their teeth, and
just pull up the ladder, lest the lifeboat be swamped. It’s the
free market way of population control, a modified kind of natural
selection. As for the alleged innocence of the little brats,
remember Original Sin, and The Lord of the Flies. There is, to
be sure, a noisy crowd who want clean air to be generally
available, and prate emotionally of natural beauty and rights.
They are only “environmental activists,” an odd elitist lot whom
objective scientists may disregard.

For that they gave Coase a Nobel Prize. You see, old
Ingersoll was on the mark. Nothing is too absurd once we accept
invading, usurping, and leeching as the bases of property.

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Tolstoy Churchill

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What about my whistleblowing on the RBA and APRA?   I’m putting my hand up, ASIC!


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Henry review best place to start

Jo Vandermark and John Pinniger’s insightful letters (6/11) clearly reflect the views of the majority of Australians, but the GST putsch has achieved a life of its own, driven by businesses that can claw back much of their GST. The only fair “compensation” is to allow the same GST refunds to Joe Blow, but that wouldn’t work, would it? Surely, abolishing the 120 taxes the Henry Tax Review identified as totally counterproductive would be a good start to reforming our tax morass. This needs to be combined with local and state governments being responsible to use their revenue powers, instead of crying “too hard” and perpetually putting their hands out to the federal government. Unfortunately, banks, big business and property investors who want to extend the GST while wallowing in the benefits the current regime delivers them seem to have the clout to ensure that genuine reform won’t happen.

Bryan Kavanagh, Mount Waverley

Read more:

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Insurance Council of Australia wants land tax to replace stamp duty on car and home insurance – to save $575 million.




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It’s shameful that NSW State premier Mike Baird should be leading the call to extend the GST to 15%.

State leaders should be using their land taxing powers properly, having regard to all the studies showing land tax to carry virtually no economic deadweight – certainly less than the GST.

No State has been using its land taxing powers effectively.  They need to drop all the exemptions, thresholds, multiple rates and aggregation provisions which give State land taxes such a bad name when the principle itself, as you may have read here, can’t be bettered.  Reforming State land tax and using it efficiently would also act to curb the continuing skyrocketing land prices of Sydney and Melbourne.

And, when we do get our extended GST, I’m sure Joe Sixpack will be able to claim back some of his GST, as businesses are able to do – NOT!   :(

But I mentioned a year ago, you were going to get a higher GST, whether you like it or not .  Bankers and the 1% are clamouring for it.  I hear no advocacy for land tax from them!  I wonder why?  They’re not making many hundreds of billions out of this land price bubble, surely?  If so, whatever happened to their risk management?  Oh, that’s right, you and I will bail them out when they fail!

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How land value tax would conserve nature.  – 25 min video with Fred Harrison



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