Except for some sort of miracle, Australia is going to have a Liberal Party government from September 8^th.

The budgetary shortfall of $30 billion in the Liberals’ promises won’t count against them.

Tony Abbott’s stupidly costly paid parental leave proposal won’t matter.

These things only matter to ‘welded on’ Labor supporters.

However, nether was it Kevin Rudd’s pink batts, nor his mining tax, nor Julia Gillard’s carbon tax, nor the minority government, nor Labor’s economic competence that sealed its doom.

Those issues matter only to ‘welded on’ Liberal supporters.

Journalists might run through a litany of possible contributors to the swing against the government and to the opposition, but they will always miss out on the one critical element.

It is what usually–if not always–removes the government of the day:-

It is only the swinging voters who will ensure there’s a change of government. More particularly, swinging voters (a) who have taken out a mortgage in the last few years, or (b) who are currently unable to afford a home.

(a)         because this group is finding it increasingly difficult to service their bubble-inflated mortgages, and believe the Labor government is totally responsible for this, and

(b)         because the frustrations of this group have also spilled over onto the incumbent government.

Oppositions do not win elections, governments lose them. However, the primary cause–how the “hip pocket nerve” is faring–seems always to become lost and invisible to journalists and punters, even to the swinging voters themselves. This is because we tend subconsciously to project any personal budgetary shortfall onto some aspect of the government other than the subliminal concern of the swinging voter: housing affordability.

Here’s the evidence since 1972:-

I listened with interest to Hugh McKay on Saturday Extra this morning speaking about Australia’s need for a vision which might include a greater egalitarianism.

Hugh McKay is an erudite and interesting social researcher, always worth reading or listening to.

However, there it was again …. the “but”. Of course the economy is important, but we also need to have a vision for Australia. If Hugh were Prime Minister, he would have members of parliament show respect to each other no matter their divergences of opinion on matters. The economy is important but we need a vision that would include the egalitarianism that used to distinguish Australia, McKay opined.

But, Hugh, the economy is life. What if a reformed economy was the vision? What if there was an economics that ensured a greater equality of access to education, food clothing and shelter …. the greater egalitarianism you seek?

And there is.

It’s a sad fact of life that many decent people will shuffle off this mortal coil without ever having seen the cat.

I think Deakin University researcher Philip Soos may have his tongue planted firmly in his cheek in this piece:-

Australian Housing Market Special

By Philip Soos

They’re expressing concerns about high housing prices in Australia! For goodness sake! Streams of commentary about first home owners having to take out big mortgages. Poor them! For example, TV producer and freelance writer Tom Whitty’s article in The Age.

When will they come to understand growing housing prices are good for us? (Meaning, for we who matter.) After all, we have most of you onside already: almost 70 per cent of Australians own their own home, and close to two million own an investment property. But best of all, the majority of property is concentrated into the hands of we, the one per cent!

And as prices increase, so through the wealth effect does consumption. Everyone should be happy: owner-occupiers, investors, bankers, insurers, real estate agents, not to mention our political parties. As your house prices skyrocket, there’s you free ATM: more cars, holidays, furniture, conspicuous consumption – indeed, the Australian way of life.

Some even claim a housing bubble exists! We have been hearing this nonsense for years now, and still no “bubble” burst! Misguided propagandists and self-promoters Steve Keen, David Collyer and the MacroBusiness crowd have all been proven wrong. So relax, folks, there is no bubble!

Such people are patently un-Australian, seeking to undermine the faith we Aussies have in rock solid real estate. In fact, there has never been a better time to buy! Mark Bouris, the upstanding director of Yellow Brick Roads, a wealth advisory firm, knows that property will continue to boom into the future.

What makes land valuable is the rental income it produces, net of land tax and rates, which is then capitalized into a market price at a discount rate. If land tax and rates are removed, this leaves more rental income for the owners, thus making land more valuable. Prices increase as a result.

There can be no downside! Theoretically, with a financial sector ready to provide every greater fool with loans they have little hope of ever paying off, the price of land is infinite.

Simply put, any impediment to rental incomes and/or capital values should be eliminated. This has the effect of freeing up much rental income to be capitalized into prices, including the leverage from bank credit. Higher prices obviously mean more debt repayments to the banks, enriching them in the process. This is bad? If we are serious about promoting the goal of higher prices, politicians must be willing to do the right thing and enact policies to make property even more attractive, for the sake of banks and our good selves.

To this end, all political parties in Australia need to support the “Rentier”, primarily in the form of tax expenditures: the owner-occupier exemption from capital gains and land taxes; from income tax; GST on imputed rents; the 50 per cent discount on capital gains tax for investment properties; and, of course, negative gearing. These tax expenditures are quite hefty, reaching $50.4 billion in 2005-06, and $53 billion in 2007-08, with a greater proportion rightly going towards the wealthiest households. Why miss out on these?

The Howard government set the course by providing 50 per cent discount on capital gains tax in 1999 for investments held for at least one year, but it is now time for this tax to be scrapped entirely. Why not allow the backbone of the economy, we property investors, to fully privatize the uplift in their land values? The most pernicious of all taxes, the land tax, must therefore also be eliminated. After all, if owner-occupied residential property is exempt, why not all property?

On a positive note, state governments have started to make further inroads by increasing the thresholds for land tax; but, of course, it’s best not to penalise we landed gentry and speculators at all. Income taxation on any positive net rental cash flows should also be permitted to go the way of the dodo, and owner-occupiers must be allowed to deduct mortgage interest costs against their personal tax liability, as in the United States, which is even more generous than Australia’s negative gearing. We have much to learn from the great US in this regard.

Much like land tax, council rates have the unfortunate effect of lowering land values. Local governments may complain if we reduce council rates, but an alternative revenue stream might come in the form of grants from state governments raised by increasing inefficient payroll taxes and motor vehicle duties. Already a positive move in this direction has been made by converting from site value rating  (SV)–basing rates upon land value only–to Capital Improved Value (CIV) which now taxes both land and dwellings in many areas across Australia.

Certainly, in Melbourne, where housing prices have boomed more than any other capital city, every municipality now bases their rates upon the land and dwellings, rather than land alone (Monash was the last holdout). If we are to optimise real estate profits, council leaders in Queensland and New South Wales (where SV still remains the rating base but is fortunately being overcome by “minimum rates”) should also enforce a reversion to CIV rating, if not the abolition of rates altogether.

As stamp duty has the effect of slightly depressing housing values, it should also be eliminated and gambling taxes on ne’er do wells used to plug the hole in revenues.

The federal and state level First Home Owner Grants (and Boosts) worked spectacularly to inflate housing prices in 2000 and 2008. It is to be commended as a bonanza for vendors -the more important party in the exchange. Unfortunately, the Western Australian government has lowered and restricted grants to newly constructed homes: this restriction should be resisted!

Fortunately, with privatization, deregulation and liberalization of the financial, banking and real estate sectors gaining pace throughout the 1980s under the Hawke and Keating administrations, the Labor government has jettisoned any pretence of still being a traditional labour or socialist party and fallen into line with their rent-seeking Liberal colleagues.

Ex-Prime Minister John Howard ranks deregulation as one of his greatest achievements. The Big Four banks – CBA, ANZ, WBC and NAB – now own and control the entire banking system and the parliaments. This is all to the good.  While some may allege the FIRE sector is a cost centre to be minimized, it is rather a profit centre which must be maximized for the sake of Australia.

With the Coalition, Labor, Greens, ASIC, APRA, ATO, RBA, economists, journalists and mass media now in our pockets, finance is now free to predate upon the middleclass and the poor. The persistent interloper, Denise Brailey, and her so-called Banking & Finance Consumers Support Association is proving to be a fly in our ointment – though luckily APRA and ASIC claim they know nothing.

Just as the banks properly own and control the financial and political system, property developers are learning to do much the same with new housing construction and fringe land on the outskirts. They are showing enterprise in bribing councillors at the local government level. This tends to yield attractive returns.

The move away from efficient and affordable government development of local infrastructure (or the private alternative) towards developer charges has served to make new property more expensive. This has proved a bonus for everyone involved.

Infrastructure is very important to land owners, as it helps to increase the value of our real estate portfolios: that’s why property magazines encourage we investors to buy near infrastructure corridors. Government knows how to finance infrastructure to our benefit, utilizing user-pays rather than beneficiary-pays systems. Case in point is the British commercial whistle-blowing landlord Don Riley. When the taxpayer-funded extension to the Jubilee Line through South London was completed in the late 1990s, it raised the value of his office properties by more than all the taxes Riley had paid over the last 40 years.

Clearly, windfall profits from infrastructure are a godsend to we propertied class, and these have occurred with the assistance of the Howard/Rudd/Gillard/Rudd governments. New research shows residential land values rise by around $50,000 for a house located close to a railway station in Melbourne. Be there! Buy there!

Self-managed super funds (SMSFs) have also become a popular method of minimizing property tax liabilities. Before retirement, both capital gains and rental income are taxed at 15 per cent, falling to 10 per cent for capital gains if the property is held for more than one year. After retirement, there is no tax liability on either. Any and all liabilities should be removed to promote greater investment through SMSFs.

While much has been made of foreign investment in the residential property market, the government is quite correct to provide little information about such investment. If Australians are becoming hesitant about taking on more debt, the obvious alternative is to open our borders to foreign investment to take up the slack. It’s arguable foreign investment needs to be deregulated further for best practice’s sake.

Whilst not impacting upon housing prices as much as speculation, rising rents (imputed and actual) remain a blessing for we owners. The Labor government under Rudd and Gillard has gifted landlords with manna from heaven, cramming our cities full of immigrants from 2007 onwards in order to raise our rents, generating the financial stress that will keep the plebs subservient. It may sound harsh, but it needs to be remembered renters are simply vermin. The government has also enacted the National Rental Affordability Scheme (NRAS) to subsidize we investors, ostensibly for the benefit of our tenants. Smooth!

Along with the NRAS, the Commonwealth Rent Assistance (CRA) scheme is another policy the FIRE sector should well support, because it increases tenants’ purchasing power, placing upward pressure on rents (at the expense of taxpayers). To assist landlords, it’s hard to better increasing the subsidies to the NRAS and CRA schemes, combined with a doubling of our immigration rates.

With up to thirty-two policies to choose from, our governments have plenty to consider when enacting landlord-favourable economic reform. Although housing prices are currently at historical highs, there is plenty of room for improvement. With enough effort and commitment to such critical reforms, average prices may be able to reach $22.4 million by the time we turn 85 years of age, according to “Property Professor” Peter Koulizos.

Under this scenario, the price to income ratio will rise to 50, experienced also in newly progressive places such as China, Pakistan and Bangladesh.

The noxious influence of the social welfare sector, namely the Australian Council of Social Service and Australians for Affordable Housing, should be destroyed, along with those “academics” and “researchers” claiming a real estate bubble exists. They simply can’t be brought to understand there’s no bubble and that high prices are good for Australia.

Ministries of Housing should be privatised and run by State real estate institutes in order to ensure only the correct information, vetted by responsible experts, is reported in the mass media and journals of professional opinion.

RP Data Rismark, APM and Residex should be elevated to the level of gods and any of their contradictory analyses assiduously overlooked. State and territory government instrumentalities are to be commended for selling their data collection to these bodies.

The real estate-run Ministry of Housing could also help re-educate people from the falsified history of housing and land markets. Australian history is littered with such misinformation that “asset bubbles” end in recession and depression. It is even said the early 1970s saw the build-up and subsequent collapse of dual commercial and residential bubbles, when we all realise it was nothing of the kind: it was simply the OPEC crisis.

Then there’s a bubble now, they say. Harrumph!

It’s important the public remain ignorant of the fact that large land owners never pay a cent in tax. Productive businesses and labour can continue bearing the brunt of government revenue (from the 419 taxes and tax-like fees, their deadweight losses and administrative costs). The middle class and the poor must know their place and rank, and be kept in it.

We must acknowledge the hard work of Andrew Wilson, Christopher Joye, Mark Bouris, Bill Evans, Enzo Raimondo, Lucy Ellis & Co. who constantly advise there is no bubble, thereby promoting our views.

It’s high time the Australian public got off its high horse and stopped complaining about high housing prices and rents. If they were to open their eyes, they would see it is in their best interests to maximize land owners’ returns. It is quite un-Australian to dream of financial stability, small mortgages, fair pricing of consumption items and low debt servicing ratios.

In a post-industrial society the FIRE sector is clearly our saviour. It only remains for the GST to be increased to 30 per cent to aid with the program of eliminating all property taxes.

As a most influential person was wont to say: “Only then will cultural learnings of the FIRE sector for make benefit glorious nation of Australia.”

Thanks to Dr Gavin Putland for this suggestion:-

Could cheaper housing pay for Tony Abbott’s promises?

Housing is unaffordable because there isn’t enough of it where it is needed (that is, where the jobs are!) or because too much of it is held off the market while the owners wait for “capital gains”. In either case, the rental value of the underlying land is not fully realized as rent paid to a landlord, or as earning opportunities enjoyed by an owner-occupant (“imputed rent”), but is wasted because the required housing has not been built or isn’t fully occupied.

This waste is encouraged by the tax system. Why spend any of your money to build apartments and pay tax on the rental income, if you can spend all your money on vacant land and pay tax on only half the “capital gain”? Why live in the house you own, when only absentee owners are allowed to claim “negative gearing”? Why build a dwelling to let, if you can claim “negative gearing” by simply buying an established dwelling? Why keep your investment home occupied, if you can claim “negative gearing” by making the home “available” to let while demanding too much rent or being too picky about tenants?

One way to “stop the waste”, as Tony Abbott might say, is to tax wasted land as if it were not wasted, so that the owners can’t afford to waste it. For income-tax purposes, let every non-owner-occupied property be deemed to be earning an annual rent of at least 7.5% of the site value — that is, 7.5% of the value of the land and airspace, excluding buildings. If the property earns more than this Minimum Deemed Rent (MDR), it is taxed on what it actually earns; if it earns less (or nothing at all), it is taxed on the MDR.

Because the MDR ignores values of buildings, it does not penalize construction, and is not unduly ambitious when expressed as a rental yield (7.5% of the site value is a lower percentage of the total value). If your property is fully developed and fully let, it will already be earning more than the minimum rent, so the MDR won’t affect you. But if your property is grossly underdeveloped or underoccupied, the MDR will increase your taxable income, hence your tax bill. No longer will you game the “negative gearing” rules by demanding too much rent or being too picky about tenants, because you’ll pay tax on the minimum rent whether you get it or not.

Under no circumstances will it be possible to “pass on” the MDR in higher rents. The MDR imposes a tax penalty for not having a tenant, forcing you to reduce the asking rent to attract a tenant. Until you get a tenant, there is no one to whom to pass on the penalty; when you have a tenant, there is no penalty to pass on.

If you are land-rich but income-poor, any additional taxable income due to the MDR will fall in a low tax bracket. If your tax bill still isn’t low enough, you really ought to get a tenant or several.

I note in passing that if every mortgage were deemed to be yielding at least a certain minimum rate of interest for tax purposes, lenders would have an incentive to reduce the principal on non-performing mortgages, so that the Minimum Deemed Interest would not lead to bigger tax bills than the mortgages are worth. This simple and permanent tax reform could avoid the need for more radical temporary measures such as jubilees, court-ordered cram-downs and eminent domain.

To estimate how much revenue the MDR would raise, let us suppose (conservatively) that rural land is already fully utilized, so that the additional revenue would come from Australia’s residential and commercial land, whose total value is about $3 trillion. If 1/15 of that is unoccupied (to say nothing of how much is underused), that’s $200 billion of site value, on which the MDR (at 7.5% per annum) would be $15 billion per annum. At a marginal tax rate of 30%, the extra revenue would be $4.5 billion per annum. That may not be enough to fill the black hole left by Mr Abbott’s middle-class welfare, corporate welfare and tax cuts. But every little bit helps.

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Just to finish off on Treasurers, it would be wrong not to mention the role played by Gordon Brown, the man who broke Britain. His hubris was amazing.  Just before Britian’s real estate bubble burst, he claimed he’d killed off its boom-bust cycle as Treasurer.

Failed world Treasurers have been complicit in delivering average real weekly wages that are now less than they were in 1972 and in providing the 0.1% an enormous slice of the economic pie.

It’s time we lifted their game.

The ABC’s “Q and A” last night featured typical political dyspeptics between the Australian Treasurer, Chris Bowen, and Treasurer-To-Be, Joe Hockey.

In actuality they will join a long list of failed Treasurers, albeit economic commentators and the media may give them a pass mark, or even elevate them to the position of “world’s greatest Treasurer” a la Keating, Costello and Swan, which of course was monstrous nonsense.

Keating gave us compulsory superannuation for God’s sake! Costello presided over the world’s greatest real estate bubble and Swan did nothing to keep the lid on it, spending tens of billions of dollars in taxpayers’ money simply to delay it from bursting on his watch.

Joe Hockey took the opportunity on Q and A to display his ignorance of the difference between a tax and a rent, disporting himself triumphantly to the effect a Liberal government will abolish the mining ‘tax’. He also thought shortage of supply had something to do with the impossibly high price of housing (as was also proven wrong in the case of Southern California). Chris Bowen was too compliant and dull to pick him up on either important point.

Hockey had a brief flash of inspiration when he asserted that the current level of taxation adds to costs and prices, making Australia uncompetitive, but hadn’t the insight to discern that the capture of economic rent for revenue reduces costs and prices. Yes, even the mining ‘tax’–actually a natural resource rent, Joe–reduces costs and prices when employed as a tax offset.

So, as our various Treasurers have slowly but surely (relentlessly?) directed us into yet another economic depression, I wondered what a look back into the history of the 1890s depression might show us.

A peep at a 120 year-old copy of “The Beacon” dated 1 August 1893 shows there’s nothing new under the sun, at least until Australians have the wit to elect a Georgist Treasurer, the like of The UK’s David Lloyd George.

1. Moses led the Hebrew slaves to the Red Sea where they made unleavened bread, which is bread made without any ingredients.

2. Moses went up on Mount Cyanide to get the ten commandments. He died before he ever reached Canada.

3. Socrates was a famous Greek teacher who went around giving people advice. They killed him.

4. Socrates died from an overdose of wedlock. After his death, his career suffered a dramatic decline.

5. In midevil times most people were aliterate.

6. Joan of Arc was burned to a steak and was connonized by Bernard Shaw.

7. Finally Magna Carta provided that no man should be hanged twice for the same offense.

8. Nero was a cruel tyranny who would torture his subjects by playing the fiddle to them.

9. Julius Caesar extinguished himself on the battlefields of Gaul.

10. Solomon had three hundred wives and seven hundred porcupines.

11. Ancient Egypt was inhabited by mummies and they all wrote in hydraulics.

12. The climate of the Sarah is such that the inhabitants have to live elsewhere.

13. Queen Elizabeth was the “Virgin Queen.” As a queen she was a success. When she exposed herself before the troops they all shouted “hurrah.”

14. Actually Homer was not written by Homer but by another man by that name.

15. History calls people Romans because they never stayed in one place for very long.

16. Romeo and Juliet are an example of a heroic couplet. Romeo’s last wish was to be laid by Juliet.

17. Miguel Cervantes wrote “Donkey Hote.”

18. Milton wrote Paradise Lost. Then his wife died and he wrote Paradise Regained.

19. Christopher Columbus was a great navigator who discovered America while cursing about the Atlantic. His ships were called the Nina, the Pinta, and the Santa Fe.

20. Later, the Pilgrims crossed the ocean, and this was called Pilgrim’s Progress.

21. One of the causes of the Revolutionary War was the English put tacks in their tea.

22. Delegates from the original 13 states formed the Contented Congress.

23. Thomas Jefferson, a Virgin, and Benjamin Franklin were two singers of the Declaration of Independence.

24. Franklin discovered electricity by rubbing two cats backwards and declared, “A horse divided against itself cannot stand.” Franklin died in 1790 and is still dead.

25. Under the constitution the people enjoyed the right to keep bare arms.

26. The nineteenth century was a time of a great many thoughts and inventions. …The invention of the steamboat caused a network of rivers to spring up.

HAPPINESS WITH HIGH LAND PRICES: THE SACRED COW IN HOUSING AFFORDABILITY

Inquiries into housing unaffordability always involve much cant and hypocrisy, because they usually turn out to be exercises in inflating prices even further.

To help get young people into a home in Australia we’ve had a “first home buyer grant”.  As vendors quite correctly regard it as a reason to increase their asking prices in order to profit from such a government-granted bonus, it would more properly be named the “home seller’s grant”.

You will NEVER see recommendations for land tax in order to make housing more affordable, even though it most certainly would. The property lobby even goes so far to say land tax will make houses dearer, but it won’t provide an answer to the simple question: “For which block of land would you pay more?”

A tension has developed between the generations: smug older homeowners with their mortgages paid off, or nearly so, versus Gen Y unable to afford somewhere to live as a result of bubble-inflated prices.

Another reason land tax can’t be mentioned in this context is that banks don’t like land tax. Escalating home prices are good for banks, especially when land prices in Australia have developed into an enormous profit-generating bubble since 1996.

So, with banks and most Australians who purchased at lower prices to be appeased, tax reform is off the radar in the September election.

BUSINESSES ALSO IN TROUBLE AND UNEMPLOYMENT FORECAST TO RISE

It’s the same process, of course, that’s seeing businesses being wound up in great numbers in Australia, many by the Australian Taxation Office. But banking and real estate, having been set upon a pedestal, make their super-profits at the expense of business and good government.

Watching Alan Kohler’s Inside Business on the ABC this morning, I was entertained by his expert panel winking and nodding as they discussed the faux emergence of the US and Europe from the Great Recession and the over-valuation of world sharemarkets.

The dye has been set. There will be no world recovery as long as  1) property owners retain the unearned increases in the value of their land and  2) we continue to tax people and businesses for daring to work.

Although our arse-backwards tax regime has generated both housing unaffordability and a financial collapse, most of us remain completely wedded to the status quo. We’re having this depression because we fear revenue reform.

Now there’s a grim irony!   [Bob Dylan has it just about right in his best ever song.]

Three items caught my attention today:-

The Atlantic discovers differences between US and French rent-seeking.

“Houses and Holes” on the rise and rise of rent-seeking at MacroBusiness.

Jonathan Green discusses the trivialised Australian election (wherein rent-seeking remains undiscovered) on the ABC’s The Drum.