WITHOUT REVENUE REFORM THIS IS A POINTLESS ELECTION

So S14 has become S7? Would it be too churlish to think that’s about the biggest political change we can expect “going forward” as they say?

Oh sure, the Lib/Labs will screw us over in different ways, but it’s tantamount to each of the political parties deciding which of the Titanic’s chairs they will re-arrange for us as they direct us towards the inevitable iceberg.

If I don’t agree with him on guns, I’m certainly with former Minnesota governor Jesse (the body) Ventura that political parties are proving to be a blight on western society because they’ve slowly but surely become corrupted.

Now wait a minute! I’m not simply being negative. I’ve thought this through from a long way out and it sends my blood pressure racing to watch Australia relentlessly following my script into a depression, a script that says without the necessary political action we’re about to put many Australians and their businesses onto the scrap heap, signifying the period of Nikolai Kondratieff’s fourth long wave since 1790.

Economists don’t believe the K-wave exists. They can’t, because it demonstrates their supreme impotency which came about when they threw out the classical handbook and began to conflate land with man-made capital. Almost to a man they now hold that the future is unknowable, and, as if to underline the point, Treasury has just announced a revenue write-down of $33 billion in a matter of months. And it aint going to get any better, guys! You can forget about that proposed surplus for financial year 2017!

How do I know this? How do I know any better?

Well, I understand how an economy works because I am both a Henry Georgist and a real estate valuer. I know Australia has to generate real wealth, not just blow up asset bubbles which only provide the pretense of wealth.

I know the tax regime has increasingly given a green light to rent-seeking and a red light to labour and capital since 1972; such that average real wages are now less than they were in 1972, and; such that the current level of household debt can no longer be repaid.

Most importantly, I know the difference between land values and land prices. I know what constitutes a bubble. And that bubbles burst.

However, it aint just me, anybody with an open mind knows something has to give, and in a big way, unless we act immediately to change our tax system to support all Australians, not just the privileged few.

A revolutionary change along the lines of Ken Henry’s excellent recommendations which will capture much more of our publicly-generated natural resource rents will certainly help us resist catastrophe. (Remember the original mining tax? Remember the all-in land tax?)

But governments, ignorant of the overarching picture I’m able to paint because they believe their economic advisors, will most likely continue supporting the “big end of town”–banks and other rent-seekers– in a futile attempt to keep land price bubbles inflated, instead of properly managing their deflation.

Bubble in land prices, some may ask? Yes, take a look at this biggie. Some mistakenly say it’s caused by population growth and a concomitant shortage of land, but as I’ve divided the total land prices of Australia by our GDP that takes care of such overly-simplistic excuses.

SV to GDP

You’ll see land prices got as high as three time our GDP because the tax system favours rent-seekers and fines creators of real wealth. This only assists the 1% and is quite wrong: full stop.

So, in the early 1990s I thought I’d create an index that would hit people between the eyes to make my point. What if I was to gather all Australia’s real estate sales, residential, commercial, industrial and rural, and divide their prices by our GDP for each year? Would the index confirm my analysis, I asked myself?

kpi1-2012

It does. You’ll note the current massive bubble from 1997 is well into its final deflation. Australian governments will usually change hands at the end of each real estate bubble as the change in the index closely approaches, or crosses below, the -25% mark. This one looks headed below the -50%!

Some people hold that the share market is the best economic indicator, but it’s not. You won’t have a recession or depression if the real estate market hasn’t burst first. It had in the mid-1920s: it hadn’t in October 1987.

Initially dubbed the “Barometer of the Economy” in a number of public addresses I’d given, my index morphed into the “Kavanagh-Putland Index” (or KPI) more recently, after I had secured the estimable mathematical assistance of Prosper Australia’s Dr Gavin Putland.

Don’t let Australia’s politicians know (because they won’t listen anyway) but there’s $1 trillion to be written off in the current real estate debt bubble before Australia can hope to emerge from the upcoming disastrous price-drop. It’s not at all shaping up well for Australian society. Unless, that is, as Professor Irving Fisher said before the US stock market collapse of 1929, we have reached “a permanently high plateau.”

If neither political party has the fortitude to press for the Henry Review panel’s recipe for reform of Australia’s terminally ill revenue regime, politicians of all stripes are likely to prove to be as delusional as Irving Fisher when he was faced with a real depression. This one’s as real as they get, so it’s not time for the political process to freeze!

As the parties remain in denial, this bodes to be a “nothing” election for the Australian ship of state. Watch out as they start moving those chairs about your feet and around the deck, folks!

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17 thoughts on “WITHOUT REVENUE REFORM THIS IS A POINTLESS ELECTION”

  1. sorry brian, the “comuunity” doesnt get the raw materials or serives or products out of the ground, im pretty sure it takes capital and risking ones own money. Man, you are calling for theft or something that is unworkable, can you give us a reason why the USSR is not around? They collected all the “community” rents or am i wrong?
    If we put you in the gov, slowly you would steal the revenue or help your friends and relatives before the community, you obv dont understand human nature. Maybe puting limit terms and abolish career politicans would be a good start for reform. But reform is not gonna happen without a collapse, depression and most likely war.

    1. They only have to ‘win’ the resource out of the ground. They didn’t have to manufacture it. It was simply there. And it’s ours. Sure, it’s more costly than picking an apple off a tree, but as with any business tenants, they’re allowed to deduct ALL of their costs before net profit (before taxation) is assessed. That’s why market-based super profits are an excellent manner of assessing revenues: you’ve got to have captured rents in addition to profit before you’re assessed! The USSR NEVER captured their own land and natural resource rents. They taxed people and business remorselessly, and Tad their very own (even more privileged) rent-seekers. That’s why they’ve gone. Now, they’ve sold off their natural monopolies to the oligarchs! Because Russians were so big on talking about the “Mother Land” they had the opportunity, but missed the boat completely – both as communists and capitalists.

  2. I hear what your saying, and those theories of yours about royalties and company tax not being “enough”, if the gov where to tax them more, obviously they have to compete with other such producers with similar commods in other countries wich are selling their product at a specific price. If they have higher tax and royalties then they would just shut the mines and go elsewhere or you and I would have to pay the difference through higher prices which the poor will be shafted even more or the re distibution will be offset with higher price so we are back at square 1.
    Oh and you put in religious rants, after murder im pretty sure its thou shalt not steal and covet thy neighbours possessions. Hence the gov is based on stealing. thru tax but i dont hear anything about that.

  3. Oh and the template is in to do further bail ins all over europe, most likely in australia as well, stealing outright depositers money because they are creditors to the bank.
    Its one big insolvent mess and shifting taxes around cant stop this train from running off the cliff at this point.
    The banks should have been told long ago, you fail you go down..you have money in that bank you go down also, only way to stop bad business.
    Thats capitalism you win yu keep, yu fail your out.
    Whats going in will cause a collapse like USSR.

  4. No, what im saying is that no person is “owed” anything by birth right…..thats what your saying brian thats not me. Those people you dont like are the people who are cronies, they use the state to get contracts and business kick backs. If im not mistaken your advocating a form of marxism, you want to shift taxes around so your not much different to those your preaching about, you just want more coming your way. The 1% i want to know who it is you say this is?? Most of the super rich old money use trusts or corps, so what yur saying is yu want to change the corp laws, am i correct? No one has a billion dollars of shares in there own name for tax reasons.
    You want the gov to steal say BHP’s money and spread it around am i right?? Why doesnt the gov set up a rival company and compete? because it cant make a profit, am i right?
    What you should be howling at the moon at, is the bailing out of banks, bail ins, were talking trillions in taxpayer bailouts that the unborn must pay for. No mentioning of that??

    1. The 1% are the big rent-seekers for God’s sake! Miss that and you miss everything! In the US the top 1% control 40% of wealth and almost all of those are rent-seekers in natural resources and other government-granted privileges. Miners? BHP? You obviously don’t see that that Gina Rinehart, BHP, etc., have a contract with the Australian people. A license over which they ought to pay the MARKET rent to the people, and that’s far more than their company tax plus state royalties – and would still leave massive private profits! Yes, by all means, let them deduct the latter taxes from the 50% of net profit before tax, but 50/50 of net profit is simply the USUAL lease arrangement between the lessor of any ‘going concern’ and the tenant. As is, we’re virtually giving away OUR minerals to them for all time. If you understand the concept of a ‘super profit’ (rent) tax, there’s still more than adequate private profit remaining, but the full resource rent is owed to the public. See http://thedepression.org.au/?p=2931

      Big concept few get these days, yet not so long ago before the post WWII federal income tax we used to capture a lot more of our natural resource rents through rates and land tax, etc. Just about every major philosopher has come to the conclusion natural resource rents aren’t theft, whereas taxes do steal from your spending and earnings and add to costs. Rent’s don’t. See even the Bible, which Jews and Christians completely ignore. (Lev 25:23, Eccl 5:9, Mark 12 1-12)

      And, yes, the only thing owed EQUALLY to every citizen is his/her share of the annual natural resource rents and other government-granted privileges. THEN AND ONLY THEN will you have a truly FREE enterprise society. What we have now is NOT capitalism, it’s rentierism. And it has led us into this depression. Rant ends.

  5. Just shut your site down, your not interested in discussion, only deleting posts you find on the contrary. Who is this “wealthy”?? The corps?? its shareholders?? who exactly are you referring to? i know a few folk who bought proprty sit on there ass and say the rich are hoarding so the economy is no good, hehehe. The real capitalists have to produce or sell or trade something of value.I dont think there stealing any “rents”.
    Or we shud elect yu people fuhrer to steal the corps and shoot the “rich”, maybe then yur pol pot theory might work, visit cambodia b4 yu speak.

    1. I’ve deleted nothing of yours so far, Gonzo, but you’re giving me ideas. Look, 1% of Americans control 40% of its wealth, not because they work hard in the vast majority of cases, but because they exploit (steal?) the greater part of the economic rent of the USA’s publicly-generated natural resource rents that are owed EQUALLY to each citizen. Just spell it out: you’re in favour of these parasites and don’t mind us being taxed for spending, working and investing whilst they rent-seek.

  6. Oh, and im all for no income taxes or no taxes anywhere for that matter.
    I agree with you on the no tax on workers and capital, wich means you have to crop the public sector or privatise it all. If you tax only the land, well you will have the problem of it being not worth owning, That will just create instead of land bubbles, rent bubbles, huge rents.
    You cannot stop speculation, each person does what is best for there own interest, sorry we will have to crash and collapse as a society, marxism has failed.If we tax the rich 100%, who then will employ us, the poor?
    You need the corrections to wipe out the bad debts wich cannot be repaid. I agree with Andrew Mellon, liquidate everything and the pain will be great in the short term.

    1. Careful, you’re becoming a Marxist. Of course people will still want to own land if they have to pay the rent of the land over which they have title. (Oh, except for the 0.1%. Is that you?) People will pay NO tax. Business will pay NO tax. Production, employment and prosperity will skyrocket.

  7. Sorry, again the land bubbles you speak of are not the work of the 1% or your marxist class wars…the government creates the land bubbles and then tries to stop the correction with even more bubble inflating, hence 2008 rudd bailouts and FHBG and the RBA left rates to low for 2 long. The RBA moved rates to 15% back in mid 2000’s there would not be a house or land bubble. High rates low prices, low rrates high specs. Its common sense.

    1. People were suckered into this bubble by the purportedly “low” interest rates. When interest rates were at 20%, inflation was running at something like 17%, so you’ve got to look at REAL (inflation-adjusted) mortgage rates. Now we’re in an incipient deflation, so real interest rates are actually very high. Debt in inflationary times is a feather on your shoulder, but to be in debt right now will prove to be a boulder squashing people into the ground. I say again, in a HEALTHY economy, interest rates should always be low. And interest rates would have to have been INCREDIBLY high to stop this bubble occurring – and would have crippled business. Your analysis is too simplistic, Gonzo: interest rates are a rotten tool. We needed federal land tax, like the one we had between 1910 and 1953 to keep the lid on this incredible property bubble.

  8. Indeed Bryan.

    The primary problem we have is an uneducated public that has been indoctrinated in the false dichotomy between industrialists/capitalists and laborers /proletariat, and has been brainwashed by the ever-faithful fourth estate that government profligacy is the problem.

    Of course, Gonzo has never heard of the term rentier, which is just the way the 1% like it, so he doesn’t understand the real problem is the inadequate capture of surplus economic rents (the figurative economic cake is too small).

    Thus, because we are allowing the undeserving rich to become wealthier due to inadequate taxation arrangements e.g. LVT, proper MRRT etc etc, the public is impoverished via poor government service delivery, and we have to put up with clowns who flood the internet spectrum with neoliberal claptrap.

    Summary:

    Gonzo – no such thing as a free lunch mate. The rich get richer off economic rents, and you parrot their partly line that benefits their agenda.

  9. we have a “spending” problem…..
    the gov spends and promises more than it takes in then has to indebt its serfs with borrowing…we need to produce not find ways to use marxism to shift stolen money around, sorry.
    Half the country pretends to “work” like a re “valuer”.

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