Workers’ share of productivity has shrunk for some time.
Analysts fail to espy, however, wages and non-rent profits to be what is left after economic rent has been privatised into land prices. Although most of us are involved in the process, a significant share of land prices is held by only a small fraction of the population.
No political party wants to acknowledge this reciprocal relationship between land prices and wages, because many Australians are heavily committed to treating homes as an investment, instead of a place to live.
This is undoubtably a function of the tax regime giving all the wrong signals to investors.
Since 1984, land prices on all categories of real estate have risen at an average of 9.25% pa while GDP growth has increased at nothing like that rate. Australian Bureau of Statistics catalogues 5204 and 6416 show that the land component of average home values has reached 66.63%.In many locations the land share of residential value is beyond 80%.
The land share of real estate values may be managed by an all-in land tax, together with the abolition of some one hundred inefficient taxes, as recommended by The Henry Tax Review. However, the attack by vested interests killed that option more than ten years ago, together with political ardour for tax reform.
As the profits share of GDP has been rising comparative to wages, the principle of calling for higher taxes on businesses is obviously a sound one: but how to do it? We need to discriminate between the struggling small to medium enterprises and those making super profits, the latter companies having obviously displayed the ability to shrug free from paying a fair contribution.
Therefore, it’s worth noting that land cannot be hidden – nor flee overseas.
As the cost of living rises, the Australian tax regime is overdue for repair if workers’ real wages are to increase.
It’s time for the Albanese government to resurrect “Australia’s Future Tax System” overseen by Ken Henry.
Is it up to it?