Centenary of “The People’s Budget” (Originally Mon 5 Jan 2009)


David_Lloyd_George_1915There’s synchronicity in the centenary year of the “People’s Budget”, delivered in the UK under the Liberal prime ministership of Herbert Asquith by Chancellor of the Exchequer David Lloyd George, that we again need a People’s Budget if we wish to extricate ourselves from this particular global financial crisis.

Although the principles behind land tax, the keystone of the 1909  People’s Budget, were overwhelmingly supported by the British people and better understood than they are these days, they were opposed by the House of Lords, despite the fact that it had become accepted practice since the 17th century that the Lords would not reject House of Commons budgetary measures.  They nevertheless vetoed the chancellor’s ‘land tax’ budget …. the government be damned!

The land tax proposal finally being withdrawn to ease the political impass that developed, Winston Churchill and Lloyd George quickly used the people’s wrath to curb the power of the Lords from being thus misused again.  Preparations to devise a land tax valuation base meanwhile proceeded.

Militarism was in the air a century ago. Germany had begun to overtake Britain industrially and pose a threat to her markets. The aristocracy of both countries considered a war was needed: maybe a good war would resolve failing economies and finally fix vacillating imperial boundaries.

Lloyd George wouldn’t accept such twisted, fatalistic logic. He tried to countervail the militaristic bravado by proposing a cut in expenditure on Britain’s new Dreadnought battleships, reducing their planned number from six to four. However, the Tory opposition, with closet support from the First Sea Lord, mounted a formidable campaign (“We want eight and we won’t wait!”) which saw Lloyd George defeated on the matter within his own cabinet. War was ensured.

In the tinderbox setting, the killing of Austro-Hungarian Archduke Franz Ferdinand by Bosnian-Serb student Gavrillo Princip on 28 June 1914 provided the convenient excuse for the outbreak of war. It served other purposes for The Powers That Be, both in England and Germany.  The British aristocracy believed it all to the good that it would also put paid to any suggestion of a national land tax. So they were not unhappy when Germany declared war on Britain’s ally Russia on 1 August 1914. Britain and France invaded the German protectorate of Togoland in Africa within the week.

The tactics employed against the People’s Budget serve a useful warning of the lengths to which The Powers That Be are prepared go to resist the capture of publicly-generated rent. They preferred to wage WW1 rather than allow labour and capital to be freed from their throttling rentier grip.  Incredibly, things haven’t changed one hundred years on; politicians and policymakers still remain in the thrall of the lords of the land and the people again take it in the neck.

The question now arises whether a collapsing Pax Americana will also gear up for hostilities in order to try to resolve its economic collapse. In a scenario of deepening depression, does America’s biggest creditor, China, have reason to be alarmed for its future?

obamaPortents for the new President

There’s much goodwill at the moment for Barack Obama. The world is ready for a cooler, more thoughtful approach to international relations than was conducted by President George W Bush and his colleagues. A lot of the goodwill for the new President will dissipate rapidly when his newly-announced $1 trillion infrastructure program fails to turn the economic tide. Although Keynesian pump-priming would assist the US economy greatly as it emerges from economic depression, it will be found wanting during the initial deflationary phase as the economy tries to deleverage from the financial fiasco. The economy has seized control of events, and President Obama and his economists must accept the fact.

And instead of handouts to the FIRE sector (finance, insurance and real estate), posterity would owe a vote of gratitude to Barack Obama were he to direct the attention of Congress to repairing the structural fault that brought about the collapse, namely, dismantling the pernicious tax regime that rewards real estate monopolists, financiers and speculators whilst fining labour and capital.  When the integral role of taxation systems in the collapse are recognised, so will the unreality of the US financial system be exposed to public scrutiny. Taxation does indeed destroy!

The sorry fact, however, is that the new president is at the mercy of economists, 99.0% of whom are clueless about remedying the financial meltdown. They’ve been trained in the same way as those who presided over the collapse in the first place and don’t understand that there is an alternative to taxation.

Economists of the Austrian School might be nonplussed at this point, because although they do understand that taxation is indeed theft from labour and capital, most of them have not yet discerned that land revenues drawn from the holding of real estate are not taxes in nature but rents. Nor do they recognise that publicly-endowed real estate values do not in any sense connote ‘private property’. Without this understanding, they are merely a measure of degree superior to Marxists at the other end of the political spectrum.

The USA has reached this low point in economic history because taxation and land price increases were permitted to whittle away the purchasing power of its citizenry and, as a consequence, astronomically inflate debt levels. Fuel to the fire over the last 30 years has been the remorseless winding back of land-based revenues at the insistence of a rampant real estate lobby.

Mason Gaffney, professor of economics at the University of California (Riverside) long ago documented the decline in the fortunes of California following Proposition 13 putting a lid on its property tax in 1978. He noted, contrariwise, the superior economic performance of New Hampshire the highest property-taxing state in the US. It seems that many people other than most modern economists (‘mules packing a library’?) are starting to comprehend the extent of the Californication of America. It is becoming more apparent that in order to wake from the financial nightmare, the US sorely needs to capture more of its publicly-generated rent for necessary revenue, instead of fining the producers of wealth. But neo-classical economics still remains the stumbling block.

cover-front(small)Meanwhile Back in Oz

Despite the need for taxation to be reduced and public capture of rent to be increased worldwide, “Australia’s Future Tax System” (AFTS) seems destined to tinker around the edges. The panel of economists, comprising Ken Henry, Jeff Harmer, John Piggott, Heather Ridout and Greg Smith have retrieved the situation from Treasury’s early ‘slip’ in its basic outline of Architecture of Australia’s Tax and Transfer System wherein it said that revenue may be derived from three sources – from land, labour and capital – to produce its preliminary Consultation paper Summary in December 2008 which now appears to see only two potential revenue sources, labour and capital. Land seems to have disappeared, rendered invisible once again by the spin and prestidigitation of economists.

We can assume the scrapping of a number of taxes and be expected to fall for the latest fashionable (hopefully diverting?) tax.  But we’ll be asked to overlook the damaging role played by the taxation of labour and capital in fostering the development of Australia’s soon to burst bubble in land-prices.

The AFTS panel has been handed an extremely critical brief, made all the more important by world economic events. We must hope over the course of 2009 that it can raise itself above the mediocre to offer the solution to our times.

Ineffective demand = economic depression (Originally Fri 12 Dec 2008)


What’s wrong with the above picture?

There’s nothing wrong with it – except for what it portrays. It depicts Australia’s descent into an economic depression because a badly-designed tax system has virtually choked off effective demand. The unique chart disaggregates incomes within our GDP, and possibly approximates the picture within other economies.

Why ‘unique’? Because it assesses once and for all the extent of land rent within the economy, both that which has been privatised and that which has been captured for the running of government. In economic terms, rent is the annual value of a nation’s land. It’s literally the natural source for revenue, because no individuals have created it. It’s the value that the public and community infrastructure give to land as we work away at our jobs each year. Although it is a surplus value – because it’s community-generated, not a production cost – in Australia we capture only 12% of it to the public purse (less than $40 billion of $325 billion). The graph shows that rent is sufficient to replace taxation at all levels of government. i.e. If we were to collect it all, there would be no need to tax (or fine) labour and capital for working. And this would obviously act to regenerate employment.

We currently allow owners, speculators and monopolists to retain 88% of our land rent even though they’ve done nothing to earn it. And, of course, those who get the greater part of it are those who own not only the most land, but also the most valuable land.

People who rent their homes receive no rent from society at all,  even though their presence as a group did assist to create it. So, it is unfair in the extreme that rent, being generated by the community as a whole, is collected largely by wealthier segments of society.

Therefore, as Australia allowed its public rent to become privatised, it has become necessary to tax labour and capital more heavily for working, in order to make up the increasing amounts necessary to finance government. As can be seen, the effect has been to reduce the returns of Australian labour and capital severely. Were we to capture more of our land rent, wages and capital would obviously retain a greater share of their earnings – nearer to the full $675 billion to which in 2007 they were entitled.

Net wages and interest have grown only 677 times since 1911 as their proportion of GDP declined from 85% of GDP to 39%. Taxation meanwhile grew by a factor of 7000.  Herein lies another hidden economic truth: every part of the increase in taxation was added into the costs of Australian producers. There is one thing on which economists do agree – that, unlike taxes, rents cannot be passed on in prices in a competitive economy. Therefore, to claim that Australia can’t compete with China, or other ‘low wage’ countries, is nonsense. We could become cost competitive overnight simply by cutting counter-productive taxation and increasing land-based revenue.

Unlike labour and capital’s share of GDP, Australia’s land rent grew by a factor of 5400 between 1911 and 2007, from $60 million to $325 billion; because most of this was privatised, we get an insight into the process that enriches the wealthy at the expense of the Australian community as a whole.  They leech parasitically off its rent.

That’s not the entire story from our chart. While rent has always grown strongly with the community and its infrastructure, it climbed particularly rapidly since 1980, during the period of so-called ‘economic rationalism’, as it became popular to ‘pooh pooh’ community values and to sell off public assets to rent-seeking companies. Rent represents community, insofar as it is generated by the existence of the community, but we permitted the greater part of the increases in land rent to flow into a few private pockets, including those of major companies who have majored in the art of claiming the community’s rent to themselves. In the process, massive increases in rent were capitalised into sharply escalating land prices, bigger mortgages, and impossible levels of household debt.

It consequently became necessary for many Australians to replace purchasing power lost with greater debt, merely to exist. Whereas Charles Dickens’ character, Wilkins Micawber, came to learn that this was an unsustainable position, the point seems to remain lost upon the framers of taxation policy.

Caught in the jaws of the rent-seekers’ vice, that is, between a declining share of GDP and higher and higher taxes and land prices, Australia will now grind to a halt as labour and capital are denied effective demand.

Since the beginning of the 1980s, the Australian taxation system has emitted a glowing green signal to property monopoly and speculation and a red light to labour and capital. The current depression therefore becomes an entirely logical outcome of a pathological revenue system, and the economy has finally succumbed.

It is said that we live in ‘the computer age’ and ‘land doesn’t matter anymore’, but this ignores that every product emanates from land, even the computer chip. It’s pretty basic stuff, but if we want to re-establish cheaper access to land, so that labour may more readily combine with land to generate capital and wealth again, we need to capture a far greater proportion of rent for public revenue.

Despite the graph’s portrayal of an inverse relationship between the private capture of rent and the returns to labour and capital, there has been no analytical recognition that the greater part of our deepening economic woe flows from the excessive privatisation of Australia’s land rent. Consideration of Ricardo’s Law (‘location, location, location’) is dismissed as taxes penalise regional and rural areas on an equal basis with our capital cities.

Instead of the government sacrificing huge sums of money into a deflationary vortex in the forlorn hope of resuscitating the economy, Ken Henry’s review of Australia’s Future Tax System needs to provide leadership by suggesting the slashing of taxes on labour and capturing a greater share of our land rent for revenue.

Real estate speculation and monopoly can no longer be permitted to remain the sacred cow.  Coupled with taxation, these are responsible for the system grinding to a halt, for excessive debt and ineffective demand.

RESERVE BANKS EASILY ASTONISHED! (Originally Thurs 4 Dec 2008)



At last night’s Lowy Institute lecture in Sydney, the former governor of the Reserve Bank of Australia, Ian Macfarlane, said that he found the events of the last year to “have been quite astonishing”.  Maybe for some, but three and a half years ago in THE AGE of 15 June 2005 I warned the RBA not to increase interest rates because Australia was “primed to tank into a deflation” and “in the current deflationary environment … the next adjustment of Australian interest rates would more properly be down.”

The RBA chose to ignore the looming asset price drop, ratcheting interest rates up seven times by 25 basis points over the next three years. Now, the RBA’s “seeing is believing” approach has witnessed it move into panic mode to lower interest rates an amazing 3.00% in just three months! Surely this hopelessly dilatory action is the really ‘astonishing’ event, Mr Macfarlane? It is a damning indictment of the very body whose raison d’etre is to maintain full employment and to protect Australians and their currency.

The Bank took no cognisance at all of the real estate bubble that I quantified and defined, prefering to listen only to its approved ‘experts’, any of whom I would challenge to match my forecast of the global collapse in the British Journal Geophilos in 2001.

In “Secrets and Lies” in the Business Spectator of 2 December, Alan Kohler noted that Goldman Sachs admits to tailoring the truth a little in delivering its economic prognostications, because it is a commercial organisation, and, well …. it just has to!  My colleagues and I at the Land Values Research Group and Prosper Australia are not such a commercial organisation and don’t have to ‘doctor’ and spin any of our studies.  We’ll simply stick to providing the facts about what they reveal, because once these are known and  understood it will be seen there are workable solutions to the financial implosion.

OK, so Ian Macfarlane seems to agree with Christopher Joye of RP Data Rismark and other crash-deniers that although our real estate bubble is some 1.7 times larger than the US’s, ours isn’t about to burst. Want a bet? Astonished?

Here comes “THE DEPRESSION”!


When you’ve seen this socio-economic collapse coming from a long way off, you need to get the absolute frustration with public policy out of your system – especially as it relates to the damaging effects of taxation!

Each of my ‘commentaries’ up to and including May 2009 was e-mailed to all Australian federal politicians – until I saw the pointlessness of that!

So, this commentary will be my catharsis. If others are interested, that’s great!

There’s been a hiatus since May, but as of 26 August 2009 The Depression is up and running!

– Bryan Kavanagh



Property still favourite