… DEAR HENRY, DEAR HENRY!
Of the 1500 or so submissions to the Henry Review of the taxation system (‘Australia’s Future Tax System’), there were only Prosper Australia’s, the Associations for Good Government (NSW & ACT), the Land Values Research Group’s, my own and a handful of others that dared to show how existing taxes and the failure to collect Australia’s land rent have put a gaping hole in the revenue bucket.
Why didn’t other submissions declare what is really patently clear: that the Global Financial Crisis arose from tax systems which foster land monopoly, land speculation and the withholding of land from the market?
Why has it become a political ‘no-no’ to acknowledge this fact: that by permitting the privatisation of the common wealth – the public’s rent – we allowed production and employment to diminish because we inflated real estate bubbles, the likes of which the world hasn’t seen before?
Why did so many other submissions to Australia’s Future Tax System self-seek, rather than advocate the common good? Why did they not declare that the tax system is sending economically and socially damaging signals? Ignorance? Corruption?
How is it that the various churches and religions have settled for replacing freedom and economic justice with taxation, wage-slavery and charity? (I guess the same question might be asked of scientists and atheists?)
CHURCH COMPLICITY IN BOOM-BUST
I’ve briefly mentioned that societies ignore relevant parts of Mosaic Law to their disadvantage, so let’s see what Pope Benedict XVI believes.
Benedict’s 2009 encyclical Charity in Truth tells us that two criteria should govern moral action: justice and the common good. Social coexistence, he says, calls us to a charity informed by truth.
Truth, Pope Benedict?
- Was not Pope Gregory the Great being truthful when he wrote in Curia Pastoralis that those who made ‘private property’ of land were murderers of the poor who die every day for want of access to it?
- Was not Pope Gregory in accord with biblical injunction? “The land shall not be sold in perpetuity, for the land is mine.” [Leviticus 25:23] “Render unto Caesar the things that are Caesar’s” [Mark 12:17, Matthew 22:21] Well, that’s the rent, folks!
- Did not Leo XIII’s Rerum Novarum therefore err in sanctifying private property in land, land speculation and monopoly (as further referenced here)?
- Have not subsequent encyclicals acceded to this error, in order to attempt to justify the unjustifiable?
- Therefore, does it not follow that Church sanction of taxation, wage-slavery, ‘boom-bust’ and poverty is quite antithetical to social coexistence, and is therefore immoral?
- Did not Rerum Novarum sell the Church out to landed interests and lobbyists, burying biblical injunction just as surely as the hierarchy of the church was sorely mistaken in burying child sex abuse scandals?
- Did not Rerum Novarum overturn in one fell swoop the Church’s ‘preferential option for the poor’ in favour of a preferential option for the wealthy?
The truth, dear Pope Benedict, is that the Church has become a willing partner to those landed interests who exploit the poor and the middle class – and it must address this shameful error.
Religious commentators and other churches who might differ from sentiments in Charity in Truth have nevertheless become similarly corrupted by the same forces of power and privilege, preferring to involve themselves in charity and social welfare, rather than working to abolish poverty by taking the path of economic truth and distributional justice.
A church and public mindset that overlooks the economic and biblical fundamentals also exerts enormous pressure on Ken Henry’s tax review panel to do the same. The Rudd government seems to expect nothing less, because it has thrown much of its resources into maintaining Australia’s real estate bubble.
Is this not the ultimate corruption?
Then fix it dear Henry, dear Henry … fix it!
‘SUPPLY AND DEMAND’ DOESN’T QUITE CUT IT DURING THE TAX-INDUCED DISTORTIONS OF A REAL ESTATE BUBBLE
For evidence of this, the slab quoted below is well worth the read:-
“ The Acorn Online had this to say in February 2006, just before the US housing market started to implode:
“The Californian Building Industry Association (CBIA) continues to express alarm over what it calls an ongoing housing crisis in Southern California. Alan Nevin, the association’s chief economist, projected in a 2006 CBIA Housing Forecast that only 185,000 to 205,000 building permits will be granted this year, far short of the 240,000 new homes needed each year.”
Sound familiar? The article continues:
“Southern California has been experiencing a massive population boom in recent years and it’s believed that 6 million new residents will be living in the region by 2020. The population increase, coupled with the housing shortage, has the CBIA worried that it will be increasingly difficult for first-time homebuyers to find a moderately priced unit.”
Need we say any more? Of course. We’re not going to pass up an opportunity like this. Now read this press release from the Housing Industry Association (HIA):
“The report finds that if current building trends persist, then Australia’s cumulated housing shortage would reach 466,000 dwellings by 2020… Housing to 2020, which focuses on future housing demand and the number of dwellings required in meeting this demand, highlights a current housing shortage that already numbers over 109,000 dwellings.”
The impact of the so-called shortage? The press release states:
“If we don’t get a comprehensive supply response to the accumulating housing shortage then the lack of affordable and appropriately located rental properties will only worsen…”
It’s funny isn’t it. All those economists that failed to predict the financial meltdown are the same economists who now say, “Ah, but of course the US had a massive overbuild of housing leading up the financial crisis, that’s why their property market slumped.”
Maybe they did, but no one seemed keen to point it out at the time. They were too busy claiming there was a housing shortage. In fact, the CBIA claims there was a housing shortage as recent as 2006. ”
The REIA, the HIA, RP Data Rismark and the Institute of Public Affairs (IPA) have been at the forefront of spreading the same ‘shortage of supply’ disinformation around Australia, because they won’t accept a real estate bubble when they see one. They’ve become so entrapped in the theoretical principles of a ‘free market’ that they don’t understand that there cannot be a free market in real estate until we slash taxation and capture back a much greater percentage of the annual land value the community creates. That would indeed allow ‘the invisible hand’ to work in real estate!
But this is “Shock, horror!” to their twisted reality, because to them ‘free enterprise’ includes the power to monopolise, speculate or withold land at the expense of the wider community. Taxation doesn’t really bother them, because they believe wealthy property owners should be able claw back everything they pay by way of taxation through increments in the values of all their properties. Apparently, the poor and the middle class should be denied this privilege though.
So, do the IPA, the REIA, RP Data Rismark and the HIA have anything at all to say about the less than 1% of free-loaders who capture the greater part of Australia’s publicly-generated land rent each year, do I hear you ask? No. Nothing, nada, zilch. Strangely, they’re well and truly on side with a few incredibly rich property owners, and quite at odds with all the Aussie battlers trying to buy themselves a home.
So THAT’S free enterprise?
I don’t think so …. and unlike them, (disclosure) as a real estate valuer, I did forecast the GFC.
It’s quite revealing to note that the 12 economists who did predict the GFC aren’t all supporters of the ideas of Henry George (who explained the cause and cure of industrial depression in ‘Progress and Poverty‘), but all were heterodox enough to take the wordwide residential real estate bubble into account. This distinguishes them from their orthodox neo-classical brothers and sisters who’ve never been able to predict anything accurately because they refuse to consider the catastrophic effects of real estate bubbles.
So, what exactly is the purpose of modern neo-classical economists? Urgers, touts and apologists for real estate bubbles and crashes? To make the GFC appear explicable in terms of being “a natural part of the business cycle”, perhaps?
Obscene! Where’s the ethics and morality of this standpoint? Why are churches silent on this?
[That’s got to be the subject of my next blog!]
A GREAT ACT OF FAITH?
Just look at those weekend real estate auction results! What an incredible death rattle the Australian market is displaying! Seems we’ve been convinced that the GFC has passed us by altogether and that these ludicrous price levels are intrinsically correct market values because of:
- the purported lack of housing supply reported by our real estate institutions (Read this article, if you want to correct some of disinformation in this regard.)
- our rapidly growing population – we’ve recently hit 22 million. So?
- the relaxation of the Foreign Investment Review Board’s (FIRB) requirements for overseas investors which has seen Chinese buyers flooding into our real estate market.
No, these certainly are NOT not true real estate market levels, and people should steer well clear of them if they know what’s good for themselves. This is the classical ‘irrationally exuberant’ real estate bubble in action in Australia, distending into its twelfth year. It has now become the world’s greatest real estate bubble and must burst shortly.
The view that this is simply the real estate market in action, and that we have reached a permanent plateau from which the market will continue to launch itself ever upward has become the Australian real estate lobby’s Great Act of Faith. Media spivs and radio shock jocks have taken up the lobbyists’ “shortage of supply” explanation for the ridiculous price levels and sold it to many Australians who’ve not investigated the issue for themselves.
Meanwhile, the federal Labor government is rapidly running out of measures to keep feeding real estate prices, in order to ensure that the bubble doesn’t puncture on its watch. The Liberal government got away with inflating the bubble for the best part of ten years, so Kevin Rudd’s damned if he wants to be remembered as presiding over its bursting, and the financial collapse that must ensue. He’s got to go along with all the real estate apologists. [Better, he thinks, to forestall the day and leave the big clean up to somebody else. In fact, Ken Henry’s tax review had better be carefully watched in this connection. What if Henry’s panel actually proposes to address the tax system’s favourable treatment of real estate bubbles at the expense of productivity? As that won’t keep the bubble inflated, any such recommendation from Ken Henry must be resisted!]
If we really want the so-called real estate ‘market’ to become a truly free market, in which vacant or under-used properties may not simply be held out of the market for speculative gain, we’ll have to do much better than threats of increased interest rates from the Reserve Bank of Australia’s governor. We need an ‘all-in’ single rate federal land tax with no exemptions or thresholds. It should be used to replace the damaging goods and services tax, payroll tax, and stamp duty on real estate transactions, and then rebated back to the states for revenue.
This remedy may seem like a great act of faith, too; but at least it’s rational and not based upon the set of lies trotted out by real estate industry boffins. Like the banks, the real estate lobby is no real friend of Australia. It has much to answer for in connection with its Geobbels-like propaganda that there has been no real estate bubble.
THE AGE editorial today in support of Economics Editor Tim Colebatch’s article (opposite) is well worth the read.
The question, as ever, is why 90% of Australian taxpayers should support the other 10% for investing in residential real estate and making housing unaffordable for our kids?
Oh, I forgot! They deserve these privileges for building houses for renters? No, David Collyer’s letter to the editor (below) deals with that old canard!
You’ve got to pray that Ken Henry’s review of the tax system gets to grips with this aberration, and that treasurer Wayne Swan has the guts to act upon it in the face of the selfish fury of lobbyists for higher and higher real estate prices.
Such action would, of course, offend the REIV/REIA who’ll always favour higher prices as long as their agent’s fees are tied to sales prices. (Fee for service? What’s that?)
The sooner people wake up to the fact that the REIA’s and HIA’s attachment to skyrocketing land prices is misguided and wrong and can only end up in a depression-inducing property crash, the better.
Meanwhile, the data-sellers to the real estate industry are quite comfortable with escalating real estate prices, too, even managing to deny that we are in a property bubble!
Their justificatory spiel is that prices are the market in action, simply reflecting our increased population and “a lack of supply”.
The idea of ‘supply and demand’ has never been so misused and abused as during the now 11 years of the current Australian real estate bubble.
We are bound to pay heavily for that misrepresentation.
“Taxes and Tea Parties”, an article I wrote for Online Opinion was published today.
TAXES AND TEA PARTIES
The revolutions fought over taxation often escape our attention.
Britain’s street riots against Margaret Thatcher’s poll tax in 1990 mirrored to a lesser extent Wat Tyler’s bloodier peasant’s revolt against the poll tax in 1381. Equity dictates that some taxes shouldn’t even be contemplated.
The Boston Tea Party, after which the new “Tea Party” movement in the US has been named, was the initial impetus for the US War of Independence (1775-83) when, as a reaction to tea having been taxed by Britain under the Tea Act, colonists threw three shiploads into Boston Harbour on December 16, 1773.
The French Revolution (1789 to 1799) might have been averted had King Louis XVI heeded the advice of his physiocratic economic advisers who had recommended the institution of “l’impot unique”, the single tax on land. Having witnessed the failure of mercantilism and smelled revolution in the air, the Physiocrats’ leaders, Turgot and Quesnay, earnestly advised the king that the land tax would encourage greater production and a better distribution of wealth, instead of what mercantilism saw to be of paramount importance: balanced trade and greater accumulation of silver and gold. The King may even have retained his head had he not rejected the suggestion in favour of his natural inclinations.
Adam Smith and Benjamin Franklin paid separate visits to France to meet with the Physiocrats in 1764 and 1767 respectively, and, as their writings show, were deeply impressed with the new economics.
The modern Tea Party movement in the US initially came out of the right, but it would be a mistake to see it exclusively as such now, or to underestimate the growing concern over the extent of misgovernment in the US. Workers, too, have rapidly become unimpressed with bank bailouts and the rising levels of unemployment.
Additionally, Democrats have started to question Barack Obama’s pushing through health insurance reform just now, regardless of its merits, especially in the light of the recent loss of Teddy Kennedy’s once safe Massachusetts Senate seat, so they are also beginning to acknowledge that the revolutionary foment born of the GFC may no longer be entirely along party lines.
Ironically, the conservative Heritage Foundation has acclaimed the Tea Party to be akin to California’s “Proposition 13” movement which put a ceiling on the property tax in 1978. The Foundation would do well to look at the economic basket case into which California has refashioned itself, as an effect of the damaging taxes and charges that have replaced the diminished property base.
New Hampshire, the highest property-taxing state of all in the US, also has the best economy. If the Heritage Foundation were to list all the other states in order of the level of their property taxes, it will see further evidence of the correlation between higher property taxes and superior economic performance. No doubt, carrying a brief for privileged conservative interests, the Foundation will claim these results to be coincidental.
It’s worth remembering that the GFC first exploded onto the US scene as a result of its exposure to subprime loans; the first evidence of the residential property bubble having burst. Although Australia’s property bubble remains intact, the real estate bubbles in a number of other countries have also burst, and their tax systems appear similarly to have been heavily involved in rewarding property speculation at a great cost to productive activity.
Ken Henry’s review of the Australian taxation system remains under wraps while the Labor government wrestles with some of its recommendations. It’s an election year, and, as some of the Henry review panel’s more thoroughgoing suggestions will undoubtedly provide additional traction for the opposition unless watered down into mediocrity, the Rudd Government is reported to have sent some of the recommendations for review to, guess who? Ken Henry.
Should Henry’s “Australia’s Future Tax System” be compromised to the extent that earlier leaked reports of recommendations for reformed land taxes and a resource rent tax go missing altogether, Australia will be greatly discouraged from working its way out of the GFC, literally, because the privileges granted to rent-seekers will remain largely intact. In this scenario, the tax system will continue to look like a derivative of that other well known tea party – the Mad Hatter’s.
If, for party-political reasons, we don’t introduce genuine reform into our taxation morass, the question arises whether Australians will also take to the streets in the event of our property bubble bursting. Of course, we can always shut our eyes and pray that the GFC doesn’t take hold in Australia.
IRELAND: OUR FUTURE?
Ireland’s in a mess. I’ve previously mentioned my enjoyment of Irish journalist and economist David McWilliams’ accounts of Ireland’s rapid transformation from a roaring tiger economy into a sickly mouse.
If McWilliams hasn’t read Henry George’s “The Irish Land Question”, I can recommend it to him as an excellent investment of about an hour of his time. Published in New York 129 years ago, it provides insights as encouraging and applicable today as they were in 1881:-
- Ireland’s economic situation, though stark, is similar to what the vast majority of people are experiencing elsewhere (to greater or lesser degree)
- the Irish ‘famine’ is economic rather than agricultural
- ‘the land question’ is at the bottom of the economic fracture
- there is a simple repair for the fracture, if we wish to use it
Henry George received a hero’s welcome when he went to Ireland, but the Irish eventually chose not to utilise his remedy. It was too hard.
Although the global financial collapse was entirely predictable, world economies have so far failed to react by removing the fundamental flaw that created it. In the absence of the essential switch from taxes to a land rent revenue system, we may therefore expect the GFC to deepen over the next few years.
SURRENDERING AT THE OUTSET?
“Recurring financial crises are part of the cyclical nature of a free market economy.”
[Sigh!] With an opening sentence like that one, how likely is it that the Faculty of Law’s symposium ‘Global Financial Crisis: The Way Forward’ at Bond University on 9 April is going to be anything but complete farce?
So, an equivalent of the GFC, at regular intervals, is all that the “free market” has to offer us? Wait! Don’t tell me: all we need then is a little more ‘regulation’? Yes? OMG!
Will any of the listed speakers have the intestinal fortitude to challenge the symposium’s hapless starting premiss? Surely, there’s got to be a serious amount of grey matter among that lot, or, are they all fresh out of intellectual rigour?
Why should not the starting point for the Bond symposium be that these mindless 18-year cycles are most unnatural, and can be remediated by abolishing taxes and applying a land and resource rent system? Many people have written to this effect, even forecasting the GFC, but they are shunned because they are outsiders, beyond the pale:-
“Don’t you realise that although a land rent as an alternative to taxes may seem to be a simple fiscal adjustment, it actually amounts to a revolution?”
“Yes – a revolution which removes these repetitive 18 year cycles of boom and busts forever and creates a sustainable and genuinely free market.”
It has all happened before, of course. The French Physiocrats tried to warn Louis XVI to apply l’impot unique, the single tax on land, but he gallantly chose to foster the French Revolution and lose his head rather than offend his brothers in land.
Seems retaining land monopoly and speculation is a principle worth dying for, even if it does create regular GFCs?
[Once upon a time …]
“They’re undermining the country, I tell you! We’ve got to set up a conservative foundation. We’ll call it ‘Status Quo Now!’ and and give presentations showing the public that those bleeding-heart liberals amount to nothing more than stooges for the commie nihilists.”
“We’ll use words like ‘patriot’, ‘the flag’, ‘God’ and ‘defending our values’ a lot. We’ll show them we’re the good guys, working for the principle of freedom on which this country was founded.”
[Once upon a time …]
“If we’re ever to reform society, we’ve got to start a body to counter all the right-wing claptrap spread by parts of the media, that healthy levels of government spending will pull the country down because we’re trying to create a ‘one world government’. Let’s call the organisation ‘The Democracy Vibe’.”
“We’ve got to show the people that it’s big business and the political right that are pauperising them.”
“Phew! We thought that might be a close call; but it turns out that neither Status Quo Now! nor The Democracy Vibe really pose any real threat to us at all. Neither have worked out how we’ve designed the tax system to grab for ourselves the 30% of the economy unearned incomes represents. They’re still puzzled about the means by which we, at less than 1% of the population, grow richer and richer.”
“While they and the political parties continue their misdiagnoses, we rentiers will keep running the show. So, let’s continue to encourage their delusions, boyos!”
JAPAN PLAYS RIP VAN WINKLE
Japan’s not one of the ‘PIIGS’, but it has its own problems. In 1995 the Japanese economy, the second largest in the world to the US, had a GDP in excess of US$5 trillion. It didn’t achieve this figure again (in nominal terms) until last year, 2009. In other words, the economy has deflated for 13 years.
We could learn a lot from Japan, because deflation is also our future.
For example, what might the USA learn from the Japanese experience?
- That ‘quantitative easing’ (including zero, or near zero, interest rates) will fail to fend off the economic depression.
- Feeding banks with cash, and the economy with stimuli, can’t replace productivity, sales and confidence.
Once the world’s powerhouse economy, Japan will this year be overtaken in the GDP stakes by an emergent China. It has proven to be incredibly slow to pick up on the the fact that that Keynesian pump-priming ‘works’ only once the deflation has purged excessive debt out of the economy. Rather than quickly writing off the unsustainable debt created by the banking system, Japan chose instead to cosset its banks: this should also offer us food for thought.
What brought about Japan’s lengthy slumber? It was set in place by the gargantuan late-1980s commercial real estate bubble which burst in the early-1990s. Although the resemblance to the giant residential bubble that recently burst across the USA is remarkable, Barack Obama’s neo-classical economic boffins haven’t shown the wit to take these lessons on board: they are slowly but surely directing the USA into a form of hibernation within the same deep ruts that scoured the Japanese economy for so long. Why repeat the somnambulance? Maybe to avoid, at any cost, that most fundamental of actions that needs to be taken, namely, shifting the revenue base off production and onto land values? It’s a big step, but it works.
Back in 1987 I warned Japan about the gloomy prospect for its economy:-