Well, the 2014 budget was indeed tough: everyone including pensioners to pay $7.00 to the doctor, on top of Medibank contributions; petrol will cost more, etc., etc. …. but that’s not the worst of it.

For me, the outstanding feature is the clearly inadequate level of state funding for education and health. I actually agree with you, Treasurer Joe Hockey, that the states should be more responsible for their own funding ; so should local governments for that matter.  Why do municipalities and states believe they have a right to keep putting their hands out to the federal government for funding when they have their own revenue bases? This was not the way federalism was designed.

But, Joe, I can’t help think this is your big play to make the states get together to request an increase in the GST from the federal government, as is necessary if the GST is to be increased beyond the existing level of 10%.

You’ve prepared the ground well.  You’ve had the Grattan Institute and desultory neoclassical economists pave the way, promoting extension of the GST as the only “reasonable” way to go to get out of this one:  to such an extent that the very people who would be pilloried most by such an increase are now actually advocating that this should happen!  Nice, but absolutely misbegotten!

And that’s most likely what will happen.

Joe, you know that business ends up not paying GST, so it’s only consumers who’ll pay more, and those who earn less and spend what they earn will pay proportionally more GST out of their income. So, where’s the equity, because the GST is regressive? And, of course, the Grattan Institute has been funded by a couple of the big four banks who don’t have to pay GST – or increases or extensions to the GST. How good’s that!

There’s another fairer option, Joe. One we rarely hear about.  Can you explain why?

You know full well the states run land taxes, Joe, and they’ve badly mismanaged them, with all their thresholds, exemptions, multiple rates and aggregation provisions.  Why not take over their land taxing powers, as you did their sales taxes, apply a single rate in the dollar to all site values (including banks!) and rebate the revenue back to the states? Didn’t the Henry Tax Review recommend as much?

Oh!  You can’t do that because the 1% would then have to pay their fair share, and that won’t do at all? And because Australians must be treated like mushrooms: kept in the dark and fed bullshit that land tax is unfair, Joe?

___________________________________________

Also -> see the budget reply by the Land Values Research Group director, Dr Gavin Putland.  It’s well worth reading!

We’ll see tonight whether the Australian budget is as tough as promoted and expected.

The ABC’s “Q and A” had an interesting budget-eve discussion last night, “Loopholes and Heavy Lifting“, Tony Jones’ panel comprising finance expert Satyajit Das, Liberal member of parliament Sharman Stone, Journalist and Commentator David Marr, Australian Industry Group chief Innes Willox, and Labor member of parliament Alannah MacTiernan.

The words ”land tax” even slipped momentarily out of the lips of the AIG’s Innes Willox, but in the following context, unfortunately: the Goods and Services Tax should be extended to get rid of payroll tax, stamp duty and land tax.  [Sigh!]  I supposed misguided industry boffins can be expected to want a tax it can claim back–so that it only falls on the rest of us–but how exactly do you manage to square two of the most damning taxes with a land tax, Innes, which has been shown to be the most efficient of all revenue bases? Good trick!

Now for the budget which is being sold as repairing Labor’s legacy. But there aint much hope of Australia improving its sluggish productivity sans an overhaul of the tax system along the lines of Ken Henry’s thoroughgoing review of the tax system.  Yep, “The Henry Tax Review” …. remember that?

In “Unlocking the Riches of Oz” in 2007 I said:  “We witness instead the private plunder of vast slabs of community resource rents, whether by Russian oligarchs or Nigerian oil crooks abroad, or to a lesser extent by Macquarie Bank and leveraged buyouts of our natural resources at home.”

I see the Nigerian oil crooks get a new going over here.  Nothing has changed.

Prevention and treatment of recessions

 “Everything should be made as simple as possible,” said Einstein, “but not simpler.” What then is the simplest possible explanation for the present global economic downturn? What’s the simplest mode of prevention? And is it also the simplest cure? In a growing economy, one should expect land values to rise. But rational expectations gave way to belief in the greater fool. Banks lent money against land values inflated by that belief, until the illusion became unsustainable: the bubble had burst. So land values fell, leaving borrowers owing more than their collateral was worth, and lenders unable to collect, hence unable to lend again: a credit crunch. Every “unexpected” credit crunch has started with a speculative bubble, usually in the land market, occasionally in the stock market—but never in the market for buildings, because a building is worth no more than the cost of constructing a similar building, whereas land, as a gift of nature, has no construction cost; so the speculative component of “property” values is in land values.

To prevent bubbles and the ensuing bursts, we need auto-stabilizers on asset values—feedback mechanisms that limit buying and promote selling when prices rise, and vice versa when prices fall, so that asset-price growth stabilizes around the long-term trends. Such mechanisms can be obtained by tax reform: get rid of taxes on income, profits, payrolls, sales, consumption, value-added, savings, capital gains, inheritances, and holdings or transfers of “property”, and replace them with a holding charge of so many percent per year on the values of shares (payable by the company, for simplicity) and land—not buildings, just land. When asset values rise, the holding charges rise, making the assets less desirable and limiting the price rises; and the reverse when prices fall. What could be simpler?

Is the preventative also a cure? Yes, because governments funded via charges on asset values have an incentive to do things that increase asset values. Such things include provision of infrastructure, which creates employment, raises land values in serviced locations, and increases profitability, hence share prices. And the resulting expectation of rising asset values—due to genuine improvement, not speculation—makes it safe again to borrow and lend against the assets. What could be simpler?

How shall asset values be assessed to calculate the holding charges? For shares it’s simple, because shares are continuously traded and all shares in the same tranche have the same value. For land, in this age of computers and geographic information systems—think of car GPS units and Google Maps—it’s only slightly more complex. Property transaction records could be purged of personal identifying information and entered into a cumulative database, together with zoning restrictions, and the system could continuously update the assessed value of every piece of land in the jurisdiction.

In Australia, governments have assessed land values and derived at least some revenue from them since long before the computer age. Computers merely speed up the process. Land is a huge revenue base; in Australia the total land value exceeds $3 trillion ($3,000,000,000,000). If Australia’s 125 taxes were replaced by a holding charge on land values and another on share values, its system of revenue would be as simple as possible, given the need for auto-stabilizers.

The reform could even be voluntary: taxpayers could choose to remain in the old system, temporarily or permanently, or opt out by accepting holding charges. The applicable rates could be negotiable on transition to the new system, but standardized when the assets next changed hands.

The simplicity of the new system would attract enough participants to make the auto-stabilizers work. Stabilization of asset values via holding charges would repair the capitalist system by ensuring that the fruits of productive effort are enjoyed by the producers—not confiscated by taxes, nor blown into asset bubbles that end in golden parachutes for the few, bankruptcy for the many, and recession for all of us.

Can Australia again lead the way?

Robert McAlpine, BTRP PhD FAPI MRAPI MRTPI

Gavin R. Putland, BE PhD

PROSPER AUSTRALIA

If nothing else, the discussion emanating from the commission of audit and the lead up to the budget is starting to address some pretty big questions for Australia. This can’t be bad.

Not the least of these questions is if Australia is a federation, why do the states constantly cede their taxing powers to the federal government? Why do the feds collect the GST for them when they already have their own tax bases?

Maybe we should question the methods of the states. They’ve been granted certain taxing powers but they only want to use the least efficient of these, then stuff up land tax–the base that studies show to be the most efficient–by having a range of exemptions, thresholds, multiple rates, and aggregation provisions, in order to create a monster out of what land tax ought to be – that is, a base that is completely fair to everyone.

Maybe we need to re-visit federalism. Do we need it? Do we need the states? They’ve become too costly – and too supplicant to the feds. What’s their rationale today if they look to the central government for much of their support? Does Australia need beggar states?

http://www.dissentmagazine.org/article/kapital-for-the-twenty-first-century  (Not very glowing!)

Why not join James Galbraith, Steve Keen, Michael Hudson, Ann Pettifor, Edward Fullbrook and Dirk Bezemer at IDEA ECONOMICS?

THE AGE  letters, 3 May 2014

By Michael Pascoe

For all their whingeing about vertical fiscal imbalances, the states already have plenty of responsibility for trashing their own tax bases. Having ditched death duties, they routinely whittle away at their payroll taxes and refuse to use their powers to get serious about land tax – removing all exemptions – while continuing with their inferior, inequitable stamp duties.