A GOOD REPORT
[PITY ABOUT THE GOVERNMENT BACKSLIDING ON IT]
Happily, I was wrong. The recommendation for a more comprehensive land tax to replace the ragged array of state land taxes does remain intact. It’s well and truly visible in the picture “Australia’s Future Tax System” painted by Ken Henry today. But the Rudd government rejected it.
The AFTS report is very good. The panel deserves congratulations for a more rigorous effort than usually passes for tax reform in Australia.
[However, someone connected with producing the land tax aspect of AFTS didn’t see that high land prices simply reflect the private capitalization of land rent which remains uncollected by government. He or she has taken on board the real estate industry’s furphy that it has something to do with the supply and demand of land. Issues of supply and demand count for nothing in a tax-induced real estate bubble.]
And, hey, the government has accepted the recommendation for a resource rent tax of 40%! Excellent stuff! But there the good news ends. The rest was all an election year cop-out by an increasingly timorous Rudd government. Realpolitik rules! Efficacy? Leadership? What’s that?
I couldn’t express it any better than Alan Kohler does in his excellent Business Spectator article here.
In summary, the numbers are as follows:-
Henry Review recommendations: 138
Recommendations accepted: 1.75
Recommendations rejected or deferred: 136.25
Let’s hope whoever wins government later this year has the intestinal fortitude to do what’s right, to complement the resource rental tax with the proposed comprehensive tax on land values. As Ken Henry’s report shows, it provides scope to abolish a number of atrocious state taxes.
And, as my submission to AFTS showed, such a comprehensive tax on land values is an essential ingredient in staving off some of the devastation that’s going to occur when our real estate bubble bursts shortly.
TOMORROW (SUNDAY): THE BIG DAY!
The government releases the Henry review panel’s recommendations for “Australia’s Future Tax System” tomorrow.
This is THE great opportunity to minimize the damage that’s going to occur when the Australia’s real estate bubble bursts and our banks are left exposed like shags on a rock shortly.
To what extent will the government slash taxation and capture our publicly-generated land and resource rents? Will the Rudd federal government seize the opportunity, or will Kevin Rudd backslide again?
Leaks suggest the Henry review panel has recommended that ‘negative gearing’ be abolished. That’s good, because that’s where some taxpayers have historically been roped into helping finance other taxpayers real estate ‘investments’. [!] As negative gearing has also acted to escalate the prices of homes, but not necessarily their real values, it will be a boon to first homebuyers should the hearsay prove accurate.
RESOURCE RENT TAX
It’s also said that a federal resource rent tax has been recommended for mineral extraction. Such a ‘super profits’ tax, i.e. resource rent, might be resisted by the mining industry but if it is, our miners can expect a hard time from Australians increasingly cognisant of the fact that we’ve been short-changed, done in the eye, for far too long: we need a fairer share of resource rents to find its way back at long last into Australia’s coffers.
When a business run as a ‘going concern’ is leased to a tenant (i.e. both the freehold and the business), it is not uncommon for net profit before income tax and depreciation to be split approximately 50/50 as between the landlord and the tenant as rent and profit, respectively. It is beyond time that a similar arrangement came into existence for mining, because existing state mineral royalties are risible: ten cents a tonne to the government insults Australians to whom the natural resources belong. Miners need to recognise this partnership with the Australian people.
Company tax on mining companies would need to be abolished, of course, and the sum of state royalties and the federal resource rent should not exceed 50% of the adjusted net profit, or the mining companies WOULD then have something about which to complain.
A FEDERAL LAND TAX?
Ken Henry’s recommendations went forward to the Rudd government in December 2009, reportedly with a recommendation for a federal land tax.
Even the Property Council of Australia (PCA) has come out in support of a federal land tax which would reform state land taxes, with their dog’s breakfast of exemptions, thresholds, multiple rates and aggregation provisions, etc. Maybe the Land Values Research Group’s website introductory page influenced the PCA? It shows that EVERYBODY benefits from public capture of land rent and concomitantly reduced taxes.
But has the recommendation for a federal land tax gone missing, because it has been reported that Prime Minister Rudd and Treasurer Swan actually required Ken Henry to review some of his own panel’s recommendations.[!]
Er, with a view of removing what, exactly, Kevin and Wayne …?
We’ll all know tomorrow!
ANZAC is the acronym for the Australian and New Zealand Army Corps. Today is the day Australians and New Zealanders pause to honour their countrymen who went to war: those who died tragically, and those who did not, but returned carrying the physical and psychological scars.
Anzac day now remembers men and women who served Australia and New Zealand in all theatres of war since World War I, but the original Anzacs were those who fought and were defeated by the Turks at Gallipoli in 1915.
Winston Churchill was the UK’s Liberal Party’s minister for the navy during WWI. He had fallen out with Admiral Sir “Jackie” Fisher, believing he could force a passage through the Dardanelles without the assistance of the army. He was proven disastrously wrong.
Although they had worked well together in preparing a powerful naval force, Churchill and Fisher had something of ‘a history’ going back to 1910. Here’s the background:-
As a member of the aristocracy himself, Churchill had seen that the powers that be in England and Germany were both spoiling for war on various imperial fronts.
Together with Liberal Prime Minister, Herbert Asquith, and Chancellor of the Exchequer, David Lloyd George, Churchill believed that war would be averted if Britain could put people into employment and re-establish its former industrial supremacy over Germany. Accordingly, the 1910 People’s Budget would assist this aim whilst making the rich contribute their fair share to the public coffers. The government was to introduce a land tax.
It never happened.
Whilst announcement of a tax on land values was greeted with joy by Britain’s workers, it was greeted with alarm by the upper class. It had to be defeated at any cost, but how to do so when this government was so popular?
Why, call the Liberals’ patriotism into question, of course!
Under Jackie Fisher, the Admiralty had sought six new Dreadnought battleships. When Treasury under Lloyd George elected to provide only four, an insistent and increasingly more popular chant went up: “We want eight and we won’t wait!”, to which the government was eventually forced to accede. War was thus ensured.
Churchill knew well of Jackie Fisher’s surreptitious involvement in the plot devised by the conservatives and the aristocracy. Fisher no doubt justified himself by believing he was looking to the best interests of the navy.
Of such matters are wars born. Of such matters were innocent young men consigned to be slaughtered at Anzac Cove in 1915.
Out beyond the deathly machinations of power and privilege, there is beauty and valour to be found amongst lives lived at the margins. Today, Anzac Day celebrates some of these people.
Barrack Obama’s next major economic initiative is to regulate the errant financial system. Senator Chris Dodd yesterday foreshadowed a Bill that’s going to ensure the US won’t have another GFC.
Fat chance. It will amount to smoke and mirrors, because the internationally accepted rule of the political game is if you want to get re-elected, you must shut up about one big thing: you never challenge those powerful banking parasites and others about their leeching off the public’s land rent.
Back in 1984, Englishman Fred Harrison’s “The Power in the Land” inspired me to collate the total numbers and prices of all of Australia’s real estate sales each year. I figured I’d be able to use Harrison’s economic insights to graph and explain Australia’s real estate bubbles and the resultant economic recessions.
Harrison’s latest book, “2010 The Inquest”, documents how Tony Blair, Gordon Brown, Alistair Darling, Peter Mandelson, and Alistair Campbell chose to ignore his personal warnings in 1997 and subsequently that a UK residential real estate bubble was about to develop. It would burst in 2007, and the economy would bottom out badly in 2010. He’d earlier correctly forecast the 1992 recession.
Peter Mandelson is the grandson of Herbert Morrison who had broken ranks to move an unsuccessful Bill to shift taxes off peoples’ wages and onto the rental value of land in 1939.
Alistair Campbell, Prime Minister Blair’s spin doctor, had earlier worked with Fred Harrison within the Mirror Group of newspapers and on Today. He replied on 5 February 2003 to another of Fred’s approaches: “I’m a little bemused as to why you believe this country’s economic policy is ‘a shambles’.”
Thanks to Harrison, the truth is now out: Britain’s politicians and their advisors considered it better the UK suffer the depredations of an economic depression rather than repair the tax system upon which capitalism is based. Here, surely lies the corruption of all corruptions?
Harrison observes that “politicians will provide leadership only if the terms of public debate shift away from the language of séance to the methods of science.”
Gordon Brown didn’t choose the science. He went for the occult. The part he played both as Chancellor of the Exchequer and Prime Minister, illuminates his duplicitous behaviour.
In his first budget speech on 2 July 1997, Brown unfurled his glorious standard: “I am determined that as a country we never return to the instability, speculation and negative equity that characterised the housing market in the 1980s and 1990s.”
Curiously, Gordon Brown’s 1997 budget speech has gone missing from Treasury’s website. His published budgets now commence with his second (1998) speech! Luckily for posterity, Brown’s words from his first budget remain in Hansard to haunt him.
Nevertheless, when challenged by Andrew Marr [of ‘Britain From Above’ fame] in a BBC TV interview on 21 September 2008 for not delivering on his ‘no more boom and bust’, Gordon Brown resorted to bare-faced denial: “The idea that you’re going to rewrite the last 10 years in that way is completely wrong!”
Instead of heeding Harrison’s intensive studies, Brown deferred to his bureaucratic drones and closest economic advisor, Shriti Vadera, whom he’s since elevated to the House of Lords for her fine work. Brown has somehow managed to resurrect himself as the man who would rescue world economies: they must print money and bail out banks by buying an interest in them.
Harrison’s book will receive publicity in the UK because he’s an incisive and entertaining writer, journalist and economist who has become better known throughout Britain with each release of the many books that followed “The Power in the Land”. In the failing economic climate, he deserves to be introduced to a worldwide audience.
That true economics is indeed a science, not the arcane manifestation which visits recession upon us every 18 years, will surprise the high priests of our failed economics. They, too, ought to beg, borrow or steal a copy of Harrison’s book if they want to understand why “An economy driven by land speculation rests on unreality.”
There will be many, many books written about the GFC. None will be more important, nor clinically surgical about the failure of British politics than “2010 The Inquest”.
LAND, LABOUR & CAPITAL: THERE’S ONLY ONE WE HAVEN’T TRIED
… 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.