May I be permitted to respond to the challenge Treasurer Jim Chalmers has posed on #InsidersABC this morning?
How can we obtain wage rises in a sustainable way without affecting inflation?
Well, it’s like this Jim Chalmers (Phil Lowe and Sally McManus): wages and earned profits are low because land prices are high.
Land prices and taxing other than land prices are the generators of inflation.
However, 143 years after this was carefully explained, nobody wants to go there.
And that’s what’s created the problem that neither side of the question wishes to address.
If they don’t or won’t face the facts, they won’t solve the problem.
[But you see we’re not allowed to talk about the enormous bubble in Australia’s land prices?]
We’re worrying more about our future. In such difficult financial times, will our kids be able to make it? For that matter, will we be able to make it?
Russia’s invasion of Ukraine, political division across the world, COVID-19, influenza, energy shortages, consumer price inflation. What’s next? Well, high land prices are our next stumbling block.
Before European invasion and settlement, Australia’s first peoples had never experienced land prices, much less excessive land prices and their accompanying levels of extraordinary private mortgage debt. Their use of the land was both practical and spiritual. The land was sacred.
But we disagree. We know better. Yes, the land is to be lived on, but it’s also a speculative commodity investment from which we may obtain rent as landlords, or sell at a profit. We want our governments and banks to keep pumping up land prices. We don’t think there’s anything spiritual or sacred about the land. Our politicians are no different from us in this regard: they’re part of the rent-seeking crowd. Is there more than a handful of politicians who don’t have property ‘investments’? Yeah, it’s a bit of a pity about the poor.
It’s remarkable, but true, that the landlordism founded by Henry VIII–i.e. grab the monastery lands, enclose the commons, levy more taxes and reduce rents–is much the same system under which we still travail. We’re part of a great retrogression that followed the 15th century, at which time the rent of land was captured for the common good. No, we’re not living under a capitalist system: it’s rentierism pure and simple.
Rentierism? That’s permitting the rent of land to be privatised by the few, but having the rest of us believe that we’re all well invested and greatly assisted by the ‘capitalist’ system – and that we will all receive our just reward.
However, it’s becoming clearer to many that we’re not.
Although neoclassical economics textbooks continue to dignify the extent of publicly-generated rent captured privately as working ‘free market capitalism’, rentierism has reached a point in the economy–34% in Australia in 2018 and increasing–that if it ever was capitalism, it most certainly is no longer. Tax regimes have abolished death duties and reduced rates and land tax as a proportion of all taxation. This has fostered after-tax, non-rent profits and wages to decline rapidly since the 1970s–to less than 50% of the economy, and declining.
Rent-seeking businesses are doing marvellously at a great cost to the nation, and now that unions are involved in managing superannuation funds, they no longer bother to make the distinction between earned and unearned incomes. This is more than a pity, because the poor are getting poorer as a result of the rent-seeking mechanism. It’s dividing Australia.
More than a handful of academics, policymakers or politicians won’t admit to these things, because status quo interests paint thoroughgoing reform as ‘socialist’ or ‘communist’. Those labels frighten us, so they’ve proven sufficient to direct us away from investigating essential reform.
Therefore, we’ve become unsucessfully obsessed with trying to manage rentierism’s destructive outcomes. “Power blackouts, how can we deal with that?”
Real reform is ‘not on!’
We had an example of how far big rent-seekers are prepared to go against genuine economic reform when the Rudd government failed to achieve the 40% resource super-profits tax on Australia’s miners. They spent tens of millions advertising against the proposal – and had our money with which to do it!
We proved ourselves to be fools to side with the miners on this, because elsewhere in the commercial world all other going concerns do pay a rent of 50% before tax to their landlord. Hey, we’re the landlord in this case, guys! Hence, as we’re also learning with our gas exports, we’re not receiving anything like we are due by way of rent for our forever-extracted resources.
Other than miserly royalties, extractive natural resource industries not only consider they should continue to be exempted from a 50% resource rent, but they often then manage to pay no income tax!
Australia has become a ship of fools. We’re about to pay heavily for not treating our land and resources sacredly by putting a market rent on their use. Instead. we stupidly tax our own incomes and our own goods and services.
Australia’s land and resources are an enormous problem in another respect. Since the Progessive Era at the outset of the twentieth century, no Australian government has been prepared to tax our land prices sufficiently, so we’ve had them rise into the following speculative fantasyland. If Dominic Perrottet and Daniel Andrews continue to skirt about the admittedly difficult problem of the under-use of land tax that has resulted in land prices escalating incredibly as below–no, it’s not a function of under-supply!–it will result in land prices correcting themselves in the upcoming depression.
In this scenario, may I wish you the very best of luck, Albo!
This current period reminds me of circa 1987-1988. when Westpac put this advertisement out.
Which of course I had to tweak as follows: