Cuts in stamp duty would be welcome, but they’d need to be complemented by a federal land tax, as advocated by Ken Henry’s “Australia’s Future Tax System” for property prices not to rise. Henry’s panel recommended a federal land tax ought also replace State payroll taxes and the stupid array of State land taxes, with their thresholds, exemptions, multiple rates and aggregation provisions.
Since the 1970s, as rates and land taxes have been allowed to be wound back in response to ‘economic rationalists’ who can’t understand the difference between economic development and real estate speculation, we’ve experienced higher and higher land price escalation – significantly above and beyond our population growth .
To attribute these increases to a shortage of supply of land is exactly how US real estate agents were trying to explain high property prices just before their residential bubble burst. And it is a bubble, for God’s sake! Only neoclassical economists crassly seek to explain Australia’s real estate bubble in terms of ‘supply and demand’.
Seems to me the Master Builders Association (MBA), the Housing Industry of Australia (HIA), and the Urban Development Institute of Australia (UDIA) are far too close to their State real estate institutions. The Real Estate Institute of Victoria (REIV) wants to be rid of land tax because the fees of the agents it represents increase when selling prices increase. Higher prices equal higher commissions, so the tears they shed for the plight of home purchasers are just crocodile tears.
Surely, many real estate agents should be able to see that they would be better off in the longer term, too, if the real estate inactivity that characterises extended periods of property price deflation is removed? No more bubbles, no more busts?
If the MBA, HIA and UDIA are really serious about keeping development happening in an environment of steady house prices, Australia ought to be making the switch from damaging taxation, growth area levies and up-front development charges, to levies on land, as recommended by Ken Henry’s panel, if we are to keep the lid on land price increases and chase rampant speculation out of real estate markets.
But this won’t happen if you builders and developers keep hanging out with the REIV.
So what will be the outcome of the G-20 meeting in Seoul over the last two days? What will the communique say? I’m prepared to bet it will be a damp squib. *
No doubt, diplomatic niceties will preclude Germany and China from telling the US where to go. They’ll fail to point out printing money to avoid the US banks finding their own level against a deflated real estate market is precisely the ‘remedy’ employed by Japan ever since their property bubble burst in 1989. And look where it’s got them: 20 years stagnating!
But Germany and those European countries who’ve donned their austere hair shirts have no right to feel ‘holier than thou’. That approach can’t work either. You’ve got to find a way to keep people spending with what economists call ‘effective demand’.
But US ‘Quantative Easing 2’ won’t help people spend when they’re busy working on getting their incredible debt levels down. The money will find its way into re-inflating the stock market for a while and going into smart financial arbitraging Michael Hudson has described so well.
How can the two day G-20 meeting manage to skirt around these two equally absurd approaches nations are employing to extricate themselves from global financial collapse?
China won’t want to revalue the yuan to complement the US’s printing of dollars, so, no doubt the communique will be a mish-mash of fair-sounding financial nonsense. Both sides of the question will leave South Korea more certain than ever their actions are appropriate.
So it promises to be some communique!
Watch out for the ensuing currency and trade wars, folks!
Neither side has yet discovered there’s an alternative remedy which works.
I watched live Barack Obama’s speech at the University of Indonesia today. It was brilliant. He recounted stories of his four years in Indonesia in the 1960s, making a deep connection with his audience when he touched on the extent of development and relative stability that’s occurred since the politically charged days he remembers as a child (in villages he’s still able to name).
His talk was liberally salted with Indonesian phrases. These were greeted with enthusiasm and applause, and he was able to draw comparisons between the USA’s unity as a nation, e pluribus unum, and Indonesia’s success in striving to unite a former colony of so many islands and disparate languages.
The things that draw humanity together we shouldn’t allow religious differences to divide, and Indonesia’s increasing tolerance and democracy sets an example to the world, he said. More controversially, he proposed that US involvement in Iraq and Afghanistan is all about helping to deliver democracy to those benighted countries.
The speech was one of his best.
As I watched him talk, I could already see how Obama’s enemies in the US will react. They’ll say he’s more interested in sucking up to Muslims than dealing with the sick economy back home. That wouldn’t be fair.
Nevertheless, having enjoyed his near perfect Indonesian address, I remain thunderstruck at how such articulate and bright people, leaders such as Barack Obama, David Cameron and Julia Gillard, are always economically ignorant. Always! None of them has the slightest clue about what makes economies tick.
The subversive little paper demonstrates that far lesser individuals than presidents and prime ministers are quite capable of understanding how to keep economies working for the favoured few. It’s barbaric, Machiavellian, but true. It could almost have been written by Ralph Norris.
Whereas Obama and Cameron are surrounded by crooks and economic idiots, Gillard’s Ken Henry stacks up head and shoulders above the throng because he understands the enormous potential of publicly generated rents to replace damaging taxes.
Unfortunately, Henry’s flagged that he may have had enough and wants to retire next year. [sigh!] 🙁
rentier: (ron’tee’yay; Fr.) n. One who arrogates unto himself the rents of land and natural resources generated by the public at large.
Take a long walk off a short pier, rentiers!
The French fought a revolution against privilege but, not having the wit to understand the manner in which they were being ripped off by the rentier class, they resorted to murdering them, leaving taxation largely undisturbed. Some revolution!
As most of the others thought the “pursuit of Motherhood and Apple Pie” would be vastly preferable to taxing away the rent of land as suggested in Locke’s writings, everyone decided to settle for “Happiness”. So, “Happiness” it became.
Unless I’m mistaken, I believe America and Ben Bernanke are currently engaged in the pursuit of Happiness right at the moment. I rather suspect they might be pursuing it for quite some time if they don’t soon realise happiness can only be released upon the population of the United States by capturing rent for revenue, as the alternative to taxation.
The Tea Party offers little assistance. It certainly does comprehend how taxation has destroyed America, but doesn’t accept taking public rent for public revenue is the proper recourse. Like all self-interested politicians, Sarah Palin can’t quite bring herself to accept the citizens’ dividend paid to Alaskans for their oil might have the wider application of solving America’s increasingly dire financial plight. By squibbing it, she has proven to be no more than a populist – not a real leader.
William Pitt was Britain’s Prime Minister when France and America revolted. He was helped in avoiding a revolution at home by shipping his trouble makers and poor off to found a colony at New South Wales.
So, several depressions later, here we are again with vast differences between the wealthy and the poor, the latter having been done in the eye once more by rent-seekers.
Hey! Governments of the world: when are you going to learn that ‘owning’ land is the power to collect rent and taxes? How far are you prepared to go ingratiating yourself to landed privilege and finance? Are you purposefully trying to avoid addressing the cause of economic depressions? A depression is preferable to this reform?
Some of us know it would be a lot easier for everybody if you simply told rentiers to piss off and to go and do some useful work. Why not summon up the courage to do it?
Now that hard liners amongst the financial commentariat (bank economists, property spruikers and the odd journo), are about the only people left denying the Australian property bubble, the IMF has seen the light. But only 20% overpriced, IMF? Try 40% – minimally.
“We were simply being responsible”, the deniers will tell us when the bubble does finally burst. (Hi, Rory Robertson! Hi, Chris Joye!) “The public can’t handle the truth and, anyway, we’ve got to use the time we’ve got left to arrange our affairs to make sure we aint left holding the bag!” They’re having a bit each way.
Bankers believe they’ve perfected rent-gouging. They feed out excessive credit to borrowers so they compete wild-eyed against each other, inflating land price bubbles. Then, the financiers divert the public’s land rent to themselves, receiving rent both in principal and interest repayments, on hyper-inflated property prices. Rent-gouging is a great trick, but has a habit of crashing the financial system every 18 years. So, shouldn’t we be putting an end to it, instead of mindlessly repeating it?
However, the answer to bank chicanery is NOT regulation, nor applying arbitrary bank lending limits, as is being advocated in some quarters. We’ve got to solve it permanently, by taking the rent of land back into the public domain because it’s society, not the banks, that creates it. Banks won’t then be able to lend against escalating land prices.
Not only would this action keep a ceiling on land prices (the dynamic factor in property bubbles), but it would permit taxes to be abolished and for the economy to be got into gear.
Unfortunately, this is not the direction in which nations already into Phase One of the depression are headed; they believe they’ll be able to control excessive lending through regulation. Fat chance!
AUSTRALIA BETTER PLACED TO FAST-TRACK ITS EXIT
Having seen the errors of bank bailouts and Quantitative Easings 1 and 2, Australia will be in an excellent position not to repeat them.
Every Australian property already has a recent land value assessment attached to it, so it would be possible to abolish state taxes such as payroll tax, stamp duty and their poorly-designed land taxes overnight, and to replace them with a federal land tax rebated back to the states, as advocated by Ken Henry’s “Australia’s Future Tax System” panel.
Let’s hope Joe Public can be introduced to its logic by means of the public review of Henry’s tax system recommendations next year. Such a positive tax shift can only be made if the public has been educated to its merits.
Australia has experienced the world’s biggest and most extended real estate bubble, so, to be first to employ the GFC’s only real solution will help soften the damaging fallout.
Howard and Costello manufactured the world’s biggest property bubble!
By the way, while we’re on the uselessness of politicians, although former Prime Minister John Howard and his Treasurer Peter Costello obviously hate each other’s guts, they still do come together to sing each other’s praises on economic management during the Liberal Party’s term of office from 1996 to 2007.
Let’s get a couple of things straight. They presided over the greatest property bubble in Australia’s history, bigger than anywhere in the world – and did absolutely nothing about it. It was bigger than the bubble so well described in Michael Cannon’s “The Land Boomers” of the 1880s, and bigger than the enormous mid-1920s property boom that directed us into the Great Depression. Good economic management?!
Why does George Orwell’s “Big Brother” spring to mind? White is black, and black is white: Howard and Costello got the economy right!
Mind you, since 2007 the Labour Party also seems to have believed it’s their duty to keep the bubble inflated. In October 2008 they introduced the $7000 ‘first home owner boost’ on top of the already-existing $7000 first home buyers’ grant. Of course, the grant was immediately sucked up into increased land prices, lining the pockets of sellers, not buyers, and creating a new record real estate sales turnover of $327.4 billion in financial year 2010.
Of course, when the bubble bursts Howard and Costello will be well out of the picture. How could they have possibly been responsible for it?
Short-sighted history texts will proceed to misinform future generations of Australians they were a successful political duo. That’s the thing: the media consider a lengthy term of office denotes political success. Not so. As I suggested in my 1994 report “The Recovery Myth”, giving a real estate valuer’s perspective on the economy, we can’t possibly have a genuine economic recovery until we address the repetitively negative impact of real estate bubbles on the economy. It simply cannot be done.
Just take a peep at the bubble developed under the ‘excellent’ economic management of John Howard and Peter Costello:-
During yesterday’s parliamentary question time on TV, I took the opportunity to study the faces of the members of the House of Representatives.
Poor, ineffective, unwitting people, continuing the crime. Why are they prepared to sit there, allowing themselves to be circumscribed by a polity that steals from labour and capital and rewards already super-wealthy land owners?
I suppose it’s possible that a handful of them are actually working to assist wealthy property owners to become even richer at the expense of the poor and middle class, but I think the vast majority of them are basically well intentioned, if more than a little spineless, and too committed to the security of their party. What positive role are parties currently serving anyway?
Our politicians are devastatingly misguided. Look at them trying their hardest, at least in some cases, to do good for Australia as they’re hog-tied to a horribly pathological distributional system. Why not repair that first, guys? It’ll resolve most of your quandaries.
It’s undeniable, but they fail to redress the fact that the wealthy are able to claw back all the taxation they pay through the uplift in value of their lands. Our so-called ‘representatives’ need to ask themselves only one question: Can the landless and poor set off their taxes against the rises in the value of their properties? Even the middle class is unable to do so, because they don’t own, as individuals, as many properties as the super wealthy; nor are their properties as valuable. Point made?
Oh, when asked, they’ll certainly come out with the litany of arguments that are always put up against capturing the economic surplus – the peoples’ land rent – for revenue and getting rid of all taxation on labour and capital:-
Such as: If we collect the rent, property values will fall.
Response: Not property values; property prices.But they’ll fall equally across the board, granting equality of access to land to everyone. The prices of consumer goods and services would fall, and wages would rise without inflation, because taxes and land prices create inflation. So, we’d finally conquer the source of inflation, which is NOT caused by just printing money.
Such as: People will need to be compensated for the decline in their property values.
Response: Only if those people who seek compensation are prepared to compensate all those other people whom they have precluded from owning a house by their approval of the high land price regime that had dispossessed them.
Such as: It’s socialist! It nationalizes the land.
Response: It’s nothing of the sort; it creates a truly free enterprise at last, because it only captures the annual rent of sites which arises from public infrastructure and surrounding population. Individual owners don’t create this value, so it’s owed back to the community for revenue instead of taxes upon labour and capital.
Such as: But taking the annual value of the land for revenue would unfairly penalise the wealthy, because they own more land and the most valuable.
Response: Nonsense! The rent of their lands is the direct measurement of the advantages they hold over others in society. For the nation to take the rental value of land as revenue is patently fair for everybody. It still leaves the wealthy with the best sites, but paying the annual rent for them, like everyone else. And like everyone else, the taxes they now pay at all levels of government would be abolished.
Such as: We need a balance of revenues between incomes, sales and property.
Response: Why so? Isn’t this just an excuse to keep favouring wealthy landowners? People are surely not doing a disservice to society by earning incomes, and don’t famous philosophers, jurists and the Bible tell us that people are entitled to retain the fruits of their labours? Similarly, don’t taxes on sales raise the price of goods and services, and, along with land prices, generate inflation?
Such as: If collecting site rents instead of taxation worked, it would already have been tried.
Response: It has been tried, and people were all much wealthier. But over the years the lords of the land gradually passed off their responsibilities onto wages and goods and services. Now, we witness the truism that “taxes destroy” and see parliaments around the world trying to legislate to correct the poverty and dispossession created by taxation, rather than abolishing it. Where rent is now captured to a greater extent will also be found more successful economies. eg. Hong Kong, Taiwan, Singapore.
Such as: Getting rid of all taxes sounds like “Tea Party” nonsense!
Response: It does, doesn’t it? But “Tea Party” adherents don’t understand that rent for revenue has a long history and is quite different from taxation. What do they propose as the source for necessary minimal government revenue? They usually still resort to a revenue base or other that adversely affect labour and capital, such as transaction taxes, or a Tobin tax. Unlike labour and capital, land cannot flee the country, and capturing land rent grants free access to ALL people who are prepared to pay the rent.
Such as: It’s too idealistic and can’t be done.
Response: It certainly is an ideal to which neither Jews nor Christians have been able to measure up, despite the Biblical injunction to do so: “The land shall not be sold in perpetuity, for the land is Mine and you are but strangers and sojourners with me” – Levitucus XXV:XXIII
Such as: But a lot of people don’t believe in the Bible.
Response: That’s what all useless politicians say, but it’s a simple fiscal adjustment you could handle if you had the gumption and wanted to make yourself relevant. You haven’t the gumption and you remain irrelevant. Deep down, you realise you’re only serving the interests of the greedy and powerful, but you’re too scared of losing your seat to do otherwise. Why not listen to your conscience and let your party know what has to be done if Australia is to move forward?
[“Unlocking the Riches of Oz” explains why Australia’s GDP would now be $2 trillion, instead of $1 trillion, had we captured even half our land rent since the 1970s. Instead, we’ve ratcheted land rents back since that time, and, as a direct result, the rich have become richer and the poor poorer at great cost to most Australians. ]
There is nothing like a developing economic depression for people to start to understand the need for social change.
Until now, the average person hasn’t felt the need to become philosophical about his or her lot in life. They’ve generally managed a living, even though it may have meant taking on more debt recently.
They certainly hadn’t regarded themselves as wage slaves, although the question did occasionally arise in their minds as to how the super wealthy, at least those outside showbiz and top sport, had really made their millions.
As unemployment worsens, people who hadn’t formerly seen the need for fundamental change will start to ask themselves questions, particularly if they’ve lost their jobs.
Many will cast about looking for deeper social solutions, while the more conservative will see unemployment benefits, capitalism’s safety net, as offering the necessary ray of hope. The latter will be proven misguided as unemployment benefits fall short of their needs in a depression. Importantly, they’re not essential anyway in a properly repaired economy.*
The myriad working on their own particular aspect of social change will see this as an opportunity at least to make to make some headway, if not actually to change society for the better.
These reformers would be an estimable political voice were they to unite under one banner but, failing to do so because of their differences, they will be painted by media people beholden to the status quo for their jobs simply as a cacophony of dangerous socialists or fascists.
Whether reformers understand it or not, there is one fundamental thing that weaves the disparate threads together: an understanding of where the economic system goes wrong. The Establishment manages to close its eyes to it.
Whether in the Middle East, South America, North America, Africa, Australia or elsewhere, the common thread to impoverishment, recession and depression has always been the dispossession of people from the land, or else their excessive indebtedness for access to it.
Far fetched? Not at all: we have to acknowledge this most basic point if we are to understand the economic process that visits unemployment, recession and depression on peoples of either the first, second or third worlds.
The aboriginal people of any nation understand only too well the effects of dispossession from their lands; they have long railed against its deepest cruelties and absolutely demoralising wrongs. But to this very day, neither church nor state have been prepared to address this fact squarely. You see, it’s more than a little embarrassing, so they’ll apply themselves to specious laws, or to charity and saving souls, instead of to real economic and social justice.
With their slogan “Pay the Rent” (for the land you have taken from us), Australian Aborigines get straight to the point. It is unfortunately implicit in this cry that the rent should be paid only to them, when, for justice to be done to all Australians, an equal part of the surplus in the production process represented by rent should be paid to every citizen.
Given that Land Value Research Group studies show that one third of GDP is now site (or land) rent as in the chart in my preceding blog – before we even consider mineral rents, spectrum rents, forestry rents, fishing rents, aircraft slot rents, which would take Australia’s total rent to some 50% of its GDP – there is more than enough natural resource rent to allow us to abolish all taxes on labour and capital, and for a social dividend to be paid to each and every citizen. In these circumstances, there’s no need for unemployment benefits, nor charity. *
If we have the humility to do so, we can learn a great deal from our indigenous peoples about finally reconciling the people and the planet.
As with the abolition of slavery, politicians, the law and the church will follow only when they see the people are serious. Until that time comes, they’ll continue to genuflect to the greedy, powerful few and pay only lip service or prayers to social and economic justice.
If the thesis was capitalism and the antithesis Marxism, then the synthesis that grants equal access to everyone beckons all social reformers.
With all the evidence now pointing to the fact that less than one per cent of the population has been getting rich at our expense, it seems this powerful minority has become very restive.
Though now exposed, the privileged little group isn’t likely to stop privatising public rents without a fight: So, what if private rent-seeking is a perversion of justice? Haven’t tax systems increasingly freed up the private capture of rent since the 1970s, and didn’t ‘economic rationalism‘ and the Washington Consensus give it its blessing? Wasn’t business told to “Go for it!”?
THE AGE today mentioned that freedom of information intelligence shows that Treasury correctly foresaw and warned that vested interests would be self-justificatory and insistent in seeking to avoid the mining resource rent. Subsequently, in counter attack mode, mining magnates are said to looking for an avenue of Constitutional appeal, have accused Treasury of being on a witch hunt and won opposition leader Tony Abbott’s ear in trying to defeat the rightful claim of Australians to their mineral rents.
Ken Henry’s tax review panel had obviously no longer been able to ignore the sheer extent of land and resource rents the one per cent had been able to claim unto itself. They rightly concluded that resource rents belong equally to all Australians.
Ken Henry’s taxation review panel made an excellent job of the task the Rudd government had set for it. Too excellent, maybe? Rudd was embarrassed, immediately disavowing the federal land tax component and putting many other recommendations on the back-burner. To his credit, then Prime Minister Rudd did take the mining tax on board, but he took it on without clearly demonstrating to the public that he was collecting what was, in fact, their rightful inheritance. Many have since come to understand the fact, but unfortunately after new Prime Minister Gillard substantially decreased the mining tax from its originally proposed 40% of net profit.
We do, indeed, need to redirect the emphasis of the tax system from labour and capital back onto publicly-created incomes from land and other natural resources. Even some of the big boys now accept the damage the tax system has been wreaking, and that Australia does need such a revenue switch if we are to free up labour and capital and avoid the repercussions of the Global Financial Collapse.
To ignore the privatisation of rent, as the privileged one per cent requires, will cast Australia into the same mould as the US, Greece, Spain, Portugal, Ireland and Italy. That is, when our property market collapses we will also be expected to start bailing out our banks with a view to ensuing that the less than one per cent retains its special privileges and that the tax system is permitted to continue to disembowel the economy, putting many Australians into unemployment.
Just look at the zombie economy of Japan I tried to warn in 1987 if you want to know to what point bailing out banks and supremacist property investors will take us.