All posts by Bryan Kavanagh

I'm a real estate valuer who worked in the Australian Taxation Office (ATO) and Commonwealth Bank of Australia (CBA) before co-founding a private valuation practice, Westlink Consulting. I discovered that we leave too much publicly-generated land rent to be privately capitalised by banks and individuals into land price bubbles. This generates repetitive recessions and depressions. These need to be avoided by capturing more revenue from land values to free up wages and household debt.

SOME TREASURERS CAN EXTEND BUBBLES ….

“THE GOOD FIGHT: Six years, two prime ministers and staring down the Great Recession”

…. and some Treasurers can’t!

The Rudd-Swan government, presumably at Hank Paulson’s urging, spent more than $50 billion keeping the great Australian housing bubble inflated.

Remember? $900 to everybody; the pink batts; new school buildings ….., &c.

It worked! But it sent our land bubble skyward for an even greater bursting – and it looks like it’s about to happen ….

The 2018 K-P Index out–out shortly–should be able to confirm!

IMPOSSIBLE DEBT ……

William Butler Yeats (1865-1939)

       THE SECOND COMING

    Turning and turning in the widening gyre
    The falcon cannot hear the falconer;
    Things fall apart; the centre cannot hold;
    Mere anarchy is loosed upon the world,
    The blood-dimmed tide is loosed, and everywhere
    The ceremony of innocence is drowned;
    The best lack all conviction, while the worst
    Are full of passionate intensity.

    Surely some revelation is at hand;
    Surely the Second Coming is at hand.
    The Second Coming! Hardly are those words out
    When a vast image out of Spiritus Mundi
    Troubles my sight: a waste of desert sand;
    A shape with lion body and the head of a man,
    A gaze blank and pitiless as the sun,
    Is moving its slow thighs, while all about it
    Wind shadows of the indignant desert birds.

    The darkness drops again but now I know
    That twenty centuries of stony sleep
    Were vexed to nightmare by a rocking cradle,
    And what rough beast, its hour come round at last,
    Slouches towards Bethlehem to be born?

~~~~~~~~~~~~~~~~~~~~~

Nuttin’s changed, Henry!

Henry George’s quote, at the peak of the 1880s Australian land bubble

“In the colonies [of Australia] I have been through, the curse of land monopoly and land speculation is over everything. I don’t know of any new country where more striking instances of the absurdity and injustice of our present treatment of land is to be seen.”

  • Adelaide Observer, 26 April 1890

HOW THE PARTIES OF LABOUR BECAME ‘MAINSTREAM’

Andrew Fisher and Keir Hardy (State Library of Queensland)

How indeed?

Supporters of the ideas of Henry George were behind the founding of labour parties in Australia and the UK, and Andrew Fisher and Keir Hardie became early leaders of those parties.

Despite the Asquith Liberal Party government having introduced the land tax in the UK “People’s Budget” of 1909—only to have it defeated in the House of Lords—the fact that the Labour Party also favoured the introduction of a land tax began to diminish the popularity of the longer-established Liberal Party. Whilst a land tax remains a plank in the UK Liberal Party platform, in the Labour Party’s wish for respectability–Hello Tony Blair!–a land tax has disappeared from its aspirations altogether. That suits banking and speculative interests down to the ground (so to speak).

It’s now the same in Australia.

Andrew Fisher’s first Australian Labor Party government introduced a federal land tax in 1910. This had the effect of breaking up enormous estates and, along with municipal rates, played a strong part in the development of Australia’s regional areas.

Although land taxes had worked well at all three levels of government in Australia, Liberal Prime Minister Robert Gordon Menzies abolished the federal land tax in 1952, leaving it the province of the states and municipalities only.

But in a 33 minute parliamentary speech on 24 February 1953 Labor leader Arthur Calwell, vehemently attacked the decision: “We of the Australian Labour Party have always believed that the land is the patrimony of the people, and that nobody has a complete and absolute title to it …. The land belongs to the people, and its use must be safeguarded and protected at all times …. We have always believed in the land tax, and when happy days come again we shall restore the measure, imposing the tax to the statute book of this country.

But, no. Apparently Calwell and others in favour of a federal land tax were misguided and delusional; they’d become an embarrassment. So, in 1963 Cyril Wyndham, the new Labor Party national secretary decided to simply write the land tax out of the ALP’s 1964 policy platform altogether – without the mandatory party vote. [!]

Even in successfully capitalist America, property taxes had played a more significant role than the taxing of earnings until 1933. It’s been largely downhill ever since, especially after the undue influence of “voices for freedom” (sic) Ayn Rand, Margaret Thatcher, Ronald Reagan, America’s Heritage Foundation, and Australia’s Institute of Public Affairs had taken control of public policy. These bodies, supported by all political parties because they have serious money backing them, have wrongly decided that extractive rent-seeking by banking and speculative interests should be treated no differently from those earned incomes which actually create wealth.

Private rent-seeking in natural resources has superseded productivity, generating impossible levels of public and private debt, and bringing down world economies. But the situation remains a mystery to the many supporters of progressive democratic parties who’ve forgotten their roots.

That, unfortunately, is why the world is where it is now, folks!

Decentralisation made easy

Bryan Kavanagh

The Case

As Australian capital cities spill out into the hinterlands, our regional cities and towns serviced by good infrastructure fail, worse than ever, to attract their share of population growth. Politicians regularly breast-beat about the developmental imbalance, occasionally sending this or that centrally-located administrative department off to the regions in order to redress this lopsidedness artificially. They always manage, however, to overlook the sort of natural incentives that could be employed to encourage people out of our clogging cities.

Why not remove IMPEDIMENTS to living in the regions?

Such as:-

  1. Increasing council site value rates and State land taxes in order to facilitate removal or reduction of payroll taxes, stamp duty, motor registration fees, rail freight charges and differential petroleum costs, the latter of which will require cooperation of the oil companies. Site values will increase more in capital cities than in the regions.
  2. Getting rid of council rates on buildings, as in Victoria where all municipalities fine people for constructing buildings or for redeveloping properties. Site value rating, with a single rate in the dollar and no minimum rate, is an essential foundation for economic activity and for decentralisation to occur naturally. It encourages construction and economic activity, instead of penalising it by rating on capital improved values, or by net annual value rating.
  3. In site value rating States, such as Queensland and New South Wales, we should be looking at abolishing ‘minimum rates’, because these have the deleterious effect that owners of the least valuable sites effectively subsidise owners of more valuable land. Abolishing the minimum rate would put everyone on a fair and equitable footing and better encourage construction activity.
  4. Reforming State land taxes, so that all properties are levied with a single rate charge on land values, with no exemptions, thresholds or aggregation provisions.

Anticipated results

As site values in capital cities are substantially higher than those in the regions, the increased rates in cities and the removal of obstacles in the regions clearly offer incentives to relocate from the cities to where both real estate and council rates are cheaper.

It was, after all, differential council rating and the federal land tax (1910-1952) that had initially assisted to establish and develop Australia’s regional towns and cities. There was virtually no federal income tax during the greater part of that period. When people ask “Where is the money to come from?” we might well re-visit how our forebears handled the situation to respond: “From part of the uplift in land values that infrastructure and population delivers to local landholders.”

Studies confirm this outcome

Economists accept that taxes on land, unlike other taxes and charges, carry no excess burden because they are in the nature of rents which can’t be passed on in prices. However, as the foregoing amounts to a big claim for the efficacy of land-based revenues in relation to decentralisation, where’s the practical evidence behind the efficacy of rating and taxing land values?

There’s plenty of evidence. The State of Victoria used to rate entirely on the net annual value of properties (NAV), i.e. on the improved rental value, until legislation was passed in 1920 which allowed municipalities to change to unimproved capital value rating (since redefined as site value rating).

Between 1943 and 1986 the Land Values Research Group conducted many municipal rating studies, amongst other things, quantifying the benefits enjoyed by those 67 municipalities which chose to switch from NAV to SV rating to leave improvements untaxed. In all cases, even during periods of recession, where the change to SV occurred, building activity not only rose, but increased at rates greater than those in adjacent NAV-rating municipalities which had not made the switch.

These comparative results also held for State-based agricultural activity, as represented by areas under crops:-

Depression (1929/30 to 38/39)       Post-War (1946/47 to 1958/59)
Site value rating States                     Site value rating States
Western Australia   + 3%               Western Australia              + 71%
New South Wales    + 22%             New South Wales             + 5%
Queensland             + 68%              Queensland                      + 76%
Net Annual value States                     Net Annual value States
South Australia       – 5%                   South Australia                 + 7%
Tasmania                – 8%                   Tasmania                          – 6%
Victoria                   – 10%                 Victoria                             – 6%

Go for it Australia: you’ve done it before!

It’s not all that difficult to comprehend: if you un-tax people for being productive and remove obstacles placed in the way of their living outside the capital cities, some people will take the hint. We need to offer ongoing structuralincentive if decentralisation is to occur!

And whilst the vast majority of developers are currently to be found within our State capitals, the impetus provided by such a positive regionalisation program would encourage a change of habit for some developers – to venture out into the regions, to where the action is.

Hello, Regional Development Victoria? Australia? Do you hear me?

ps. America used to do it, too.

Looky here!