THANK GOD WE’RE EDUCATED!

We’ve graduated from tiresome trivialities such as manufacturing, because we’re now oriented towards tertiary industry. We’ve machinery and appliances to assist us and have become too smart to be involved in physical work.  So, as the education and knowledge we’ve acquired represents power, Australia can properly be said to have become a post-industrial power.  [Hmmm …]

Oh, certainly, some primary and secondary industry still persists but, with the exception of mining, it’s really nothing to speak of. That which remains is just an aberration, the appendix of an era that has fortunately passed us by.

So, apart from mining, Australia is these days mainly about education, finance, insurance, real estate, restaurants and entertainment. Oh, and analytical commentary by a multiplicity of experts, which in itself constitutes a substantial tertiary industry.

You’ll observe that the Chinese are much less progressed. Therefore, they still have many years ahead of them in manufacturing before they can hope to become post-industrial like us.

Yes, we’re post-industrial all right.

How did we do it? How were America and Australia able to make this near-magical transition from manufacturing wealth, to leaving other countries tossed about in the wake of our service sector?

It wasn’t easy. We were astonishingly clever.

Both in Australia and America, taxation scholars noted that in the early days, we didn’t have a tax on our incomes. The US introduced income tax as a WWI measure, and Australia only introduced it federally during WWII.

That was because in the early years of both countries we’d set our sights on manufacturing. I mean, you don’t levy an income tax if you want to be tops at producing things, do you?

In those days, apart from excises, taxes on land were commonly used to raise revenue. Philadelphia’s first tax law was, in fact, passed unanimously on 30 January 1693 as follows:-

“Put to the vote: as many are of the opinion that a public tax upon the land ought to be raised to defray the public charge, say ‘yea’.” ….
“Carried in the affirmative, none dissenting.”

So, after WWs I and II respectively, US and Australian tax scholars and politicians began to think we really ought to keep a lid on manufactures by retaining these new income taxes. Conversely, we should start to get taxes off land if we wished to extend and to foster the real estate industry and banking, and other such tertiary industry.

Their thinking was inspired!

And so it was that taxes on land began to be wound back as we sought to promote property investment, progressively relying on greater income taxes to curb the possibility of overproduction in the manufacturing sector.

In Australia, Prime Minister Menzies removed the federal land tax in 1953, and, at the outset of the ’70s, Gough Whitlam decided to fund half of local government – which had formerly funded itself from property rates – out of the federal income tax.

We were well down the track to becoming post-industrial!

[Fast forward to the end of the first decade of the 21st century.]

HEAVEN ON EARTH?

So, here we are, Australia and America, along with other post industrial nations, having sent most of our industry offshore to China, to keep them making goods cheaply for us that we used to have to make for ourselves.

This allows us to direct our attention into using our often tertiary-educated brains to invest. We have the choice of investing in the share market, in real estate, on the gee gees, or on the pokies. And the super industry is able to invest our compulsory superannuation levy on any combination of all four! These are but some of the benefits of the tax system having liberated us from the daily grind of actually producing widgets. We are free to exercise the gifts our education has given to us in so many other areas.

We have been liberated and have so much leisure time on our hands, with few cares or concerns.  [On this score, has anybody noticed the tax regime has rendered our Productivity Commission redundant? Can’t they all just retire and go home now?]

And here we are on 24 July 2011. Aren’t things going just swimmingly in the post-industrial west? Is this not what the Indians call nirvana?

I can’t image who permitted Ken Henry’s ‘Australia’s Future Tax System’ panel to break into our reverie to suggest we ought to abolish most of our taxes on industry, and to institute a federal land tax and a mining rent.

That’s not post-industrial at all.

Tell him he’s dreaming!

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The following 2005 letter gives the right impression if it shows I’m no real friend of the current operations of the RBA or APRA.  They like to react to events, rather than planning for them and making necessary suggestions to government that might facilitate their operational efficiency.

From The Australian Financial Review
www.afr.com Monday 21 November 2005:-
_________________________

Home truths for RBA and APRA

Phil Naylor, the chief executive of the Mortgage Industry Association of Australia, argues that mortgage brokers should not have to “take the rap” for the poor quality of home loans (“Don’t blame the brokers”, Letters, November 18).

Mr Naylor is correct, of course, because this smacks too much of searching for scapegoats. The competition between banks and lending institutions to write home loans during property booms has a habit of getting out of hand, and this highlights a structural problem which needs to be addressed at a much higher level.

The creation and eventual bursting of land price bubbles has a history of bringing the Australian financial system to its knees at regular intervals, so the Australian Prudential Regulation Authority ought to be pressing for a federal charge on all land values if it is to be effective in tending to the health of the financial system.

In fact, APRA and the Reserve Bank of Australia need to get their heads together in order to demand of our politicians that the RBA administer an all-in flat-rate charge on land values. Such a charge should replace state stamp duties, payroll taxes and land taxes (the latter with their notorious thresholds, exemptions, aggregation provisions and multiple rates), and the revenue delivered, GST-like, back to the states. Maybe the charge ought also to replace the costly GST.

It is not the job of the RBA to hose down the economy by non-discriminating interest rates, but, as with APRA, it is its job to protect our financial system against the creation of property bubbles.

If the RBA tweaked a federal charge on Australia’s land values as assiduously as it has done with interest rates, both APRA and the RBA might finally begin to carry out their appointed duties, instead of seeking to put the blame elsewhere for the ritualistic lead-up to financial collapse.

– Bryan Kavanagh, Director, Land Values Research Group, Melbourne

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Wasn’t it marvelous therefore to see the page one headline in THE AUSTRALIAN FINANCIAL REVIEW this morning: “Banks forced to plan for a crisis”?

The story tells how APRA has asked the big four lenders to draw up plans setting out how they would break up and sell off their businesses in the event of a financial crisis.

Excellent!  But I doubt that APRA instigated this measure: they’re not that creative. I’ll bet it was at the direction of the Financial Stability Board, set up in Switzerland in April 2009 after the G-20 Summit.

Never mind.  Reform is reform, even when it’s forced upon you.

This may be a case of it  being to our advantage that  Australia is one of the last cabs  off  the rank in experiencing a collapse in its land market, because the Financial Stability Board prefers a model that has shareholders, rather than taxpayers, responsible for bailing out banks who lend too much – even if they are our  ‘big four’.

This is a step in the right direction in exposing the myth that ANY bank is ‘too big to fail’.

I like it!

WANT TO OPT OUT OF INCOME TAX AND THE GST?

Right about now Treasury and the RBA’s greatest concern should be whether the Australian property market is about to drop off a cliff.

What can they do in this circumstance? If they do nothing, many property owners will find themselves in negative equity. If the June quarter’s National Accounts show negative growth in September, we’ll be in technical recession.

Many Australians have a feeling, or dread, that something big’s afoot; they’ve virtually stopped shopping, because they’re busily paying down Australia’s record household debt.

So, it’s not at all fanciful to conclude that we’re almost certainly facing a recession, and that the relatively low unemployment rate will shortly start to spike.

I’ve already assessed elsewhere that we’d spent $2.8 trillion on real estate during the term of the current bubble to 2010, and that some $805 billion of that amount is actually within the bubble itself.

So, Treasury, the RBA and Australian government are going to have to tread very warily, if our ‘big four’ banks are to remain solvent.

Although I see greater public capture of natural resource rents, including land, is the only medium to long term response, I’ll readily confess to not having much of an idea about how we deal with the obvious short term economic shock that is ahead of us.

Enter Dr Gavin Putland, director of the Land Values Research Group, who has been busy working on this problem for some time.  Having assured himself that it works, he blogged his response earlier today.

Property owners should be given the right to opt out of the income and GST system says Putland.  His proposal for a “no losers” system does prevent home owners from plummeting into negative equity – except the “bailout” element is financed not by taxpayers, but from the saving in deadweight costs!

Hey! Julia, Wayne, Treasury, RBA, are you listening?  Something that works is surely something worth considering, especially if it obviates a US style crash in property values and has no losers?

Putland suggests the only possible opposition to the tax exemptions rent (TER) can come from opponents of choice – and he’s right.

Should persons have aspirations regarding the achievement of confusion in the minds of the recipients of their correspondence, it is of importance to ensure the fabrication of such material takes the form of an abundance of nounal and gerund-laden verbiage contained within unnaturally prolix sentences.

For example, it is the essence of official correspondence that care should be taken in fashioning it in as indirect and passive language as possible, being replete with sentences containing a number of lengthy nouns conveying the appearance of the writer possessing a suitably high level of education appropriate to the transmission of such information as is contained therein, notwithstanding the resultant outcome having an appearance appertaining to carefully packaged garbage.

Unfortunately, much of academia also commits itself to this indirect technique, presumably in the misbegotten belief that it conveys a sense of superior knowledge and importance.

I note the Australian Taxation Office rarely sends letters bearing a name or signature anymore: and it’s virtually impossible to telephone anyone within the ATO. Why? Its best attempt to reform poor letter-writing is to ring you, rather than to write. However, any letters it has to send must apparently remain as meaningless and non-committal as possible.

I treasure two recent notes sent to me by the Tax Office. Both seem obliquely to acknowledge without apology my bank statements showing it had received months ago payments it had accused me (with attendant dire threats) of not having made.

Bureaucracy running amok stinks. For that matter, much of the public service could easily be reemployed elsewhere under the Henry Review’s far-reaching recommendations for a simpler and fairer tax system. The Henry panel’s proposals would act to reduce the need for much of the bureaucracy whilst offering enormous new scope for private employment.

However, like intelligible government letters, Ken Henry’s “Australia’s Future Tax System” seems to be off all agendas.

The Housing Industry Association (HIA) today issued a report “Land Slide Signals Further Home Building Weakness Ahead”.

It commences:

“Residential land sales fell for a sixth consecutive quarter in March 2011, signaling the prospect of weakening levels of residential construction through to at least the December quarter this year.

The HIA-RP Data Residential Land Report provided by the Housing Industry Association, the voice of Australia’s residential building industry, and RP Data, Australia’s leading property information and analytics provider (sic), found the volume of land sales fell to a record low in early 2011. Sales were down by 6 per cent over the March 2011 quarter and were 43 per cent lower when compared to the March 2010 quarter.”

The most important thing to come out of the whole report was that anyone would have to query RP data as “Australia’s leading … analytics provider”.

Karl Fitzgerald and I (representing Prosper Australia and the Land Values Research Group) had an appointment with the HIA’s Caroline Lawrey on 30 August 2007. We suggested there was bad news ahead for the Australian property market – housing construction in particular – and we’d be happy to provide, gratis, data and some suggested action the HIA might take to avert or, at least, minimise any housing collapse, at another meeting with the HIA’s then boss, Ron Silberberg.

Caroline received us well and agreed to get back to us. We didn’t doubt her good faith, so, when she didn’t get back, we assumed it was by direction from ‘up top’.

I spoke in a radio interview about a year later with the HIA’s Canberra policy officer, Chris Lamont. He seemed pleasant enough, too, but didn’t seem to be abreast of any impending housing collapse.

How could he be? The HIA have fastened themselves to RP Data, one of Australia’s more prominent property bubble deniers. ‘Leading analytics provider’? Bah!

Prosper Australia has also tried to put a case to the HIA’s chief economist, Harley Dale.

So, it was with a sense of resignation I sent the following e-mail to the HIA today about its report:-

This is news? But we’ve been telling Harley Dale this depression has been coming from a long way off – and proposing the only real solution to the HIA – the same remedy Ken Henry’s panel has suggested …. abolish many taxes and apply  a land tax to keep the lid on land prices to keep land affordable.

I mean, will the HIA actually represent its constituents, or simply provide a running account as a litany of builders continues to go broke as the bursting bubble worsens?

“People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.”     – Adam Smith (1723-1790)

HOW THEY MAKE THEIR PROFITS OUT OF US, COMING AND GOING [OR, HOW TO SELL YOUR COUNTRY OFF TO THE BANKS]

Why is it left to Max Keiser on “Russia Today” to explain how the banking system socialises its losses on bad lending?

(Look for Michael Hudson’s contribution from the 14:00 minute mark.)

.

A PRICE ON CARBON EMISSIONS

Climate change obviously occurs, but I reckon it’s more related to sunspot activity than man-made CO².  Were not sunspots and solar flares responsible for the global warming that occurred before the arrival of homo sapiens? That’s probably where making the “stop polluting” argument became unnecessarily sidetracked because, in my opinion, climate change is essentially about much more than man-made CO².

Although GetUp! wouldn’t go with Prosper Australia’s incredibly popular “Don’t Buy Now” campaign, their 2 minute video on the carbon tax makes more sense than “The world’s about to end!” scare campaign with which the Australian government is faced concerning the carbon tax (and which I note the Transport Workers’ Union has taken up with gusto).

And if Julia Gillard’s government can get farmers to re-discover humus in order to sequestrate vast quantities of CO² , instead of continuing to chemicalise their crops and land, that’d be good, too.

The real case that the world as we know it is about to end, however, is indeed about all other taxes, as I hope I’ve shown in these blogs.  It won’t result from fining miscreants for carbon pollution.

All taxes destroy and, hopefully, a carbon tax will help destroy pollution.

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ps. To give Julia Gillard her due, the logically powerful case she presented in the face of vehement opposition tonight on the ABC’s “Q & A” about the benefits of fines on pollution is the sort of strong leadership that has so far been missing from her prime ministership.

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Georgism has a long pedigree. It was alive and well in biblical times: “The land shall not be sold forever, for the land is Mine; and you are but strangers and sojourners with Me” (Leviticus 25:23).

In terms of disposable income, Thorold Rogers’ “Six Centuries of Work and Wages” tells us British prosperity achieved a peak in the 1490s that it has been unable to match ever since, when the humble labourer with a family of five still had 65% of his salary left after providing for food, clothing and shelter.

But the lords of the land, having begun to throw off their feudal responsibilities to the King as early as Magna Carta, were now certainly winning the day.

Richard Cobden documented the process in an 1845 parliamentary debate on the Corn Laws:

“I warn ministers, and I warn landlords and the aristocracy of this country, against forcing on the attention of the middle and industrial classes, the subject of taxation ….. If you were to bring forward the history of taxation in this country for the last 150 years, you will find as black a record against the landowners as even in the Corn Law itself.

I warn them against ripping up the subject of taxation. If they want another league at the death of this one – if they want another organisation and a motive – then let them force the middle and industrial classes to understand how they have been cheated, robbed and bamboozled …..

For a period of 150 years after the conquest, the whole of the revenue of the country was derived from the land. During the next 150 years it yielded nineteen-twentieths of the revenue. For the next century down to the reign of Richard III it was nine-tenths. During the next 70 years to the time of Mary it fell to about three-fourths. From this time to the end of the Commonwealth, land appeared to have yielded one-half the revenue. Down to the reign of Anne it was one-fourth. In the reign of George III it was one-sixth. For the first thirty years of his reign the land yielded one-seventh of the revenue. From 1793 to 1816 (during the period of the land tax), land contributed one ninth. From which time to the present one twenty-fifth only of the revenue of the revenue had been derived directly from land.

Thus, the land, which anciently paid the whole of taxation, paid now only a fraction, or one twenty-fifth, notwithstanding the immense increase that had taken place in the value of the rentals. The people had fared better under despotic monarchs than when the powers of the state had fallen into the hands of a landed oligarchy who had first exempted themselves from taxation, and next claimed compensation for themselves by a corn law for their heavy and peculiar burdens.”

Meanwhile, The French Revolution singularly failed to apply l’impote unique the Physiocrats had urged upon Louis XVI.

Similarly, in 1907, Georgism/landism/the Single Tax/the Feu/the Quit Rent was urged upon Russian Prime Minister Peter Arcadievich Stolypin by Leo Tolstoy as the most equitable way to appease an increasingly angry citizenry. Stolypin failed to do so, was assassinated, and the communist revolution resulted.

Back in Britain two years later the people took to the street to celebrate “The People’s Budget” which was to incorporate a national land tax. The lords of the land thought this was a bad idea and broke tradition to block the budget, preferring to wage WWI than support a land tax.

So wars continue to be fought over territory and resources, because of the failure to apply Georgism.

But despite the rationale behind Georgism and its long history, we continue to sweep it under the carpet, as so admirably once explained by Dr FWG Foat.

Why? Aren’t we better than suckers for the plutocracy?