“We have now inflated the current residential bubble to voluminous proportions and economic growth is primed to tank into a major deflation.  In the week ended June 3 (2005), Treasurer Peter Costello warned that the Reserve Bank of Australia should not increase interest rates. Early the following week, the RBA seemed to have listened.  However, Costello’s advice may have been redundant in the current deflationary environment, because the next adjustment of Australian interest rates would more properly be down.

If we wish to arrest the decline into financial collapse, it may be time for analysts and policymakers to consider to what extent (Sir William) Petty’s national rent offers potential to slash the taxation of productive activity. Replacing taxes with resource rents could also help to keep the lid on skyrocketing land prices, which have played such a destructive role in Australia’s economy during the second half of the fourth Kondratieff wave.”

I wrote the above in an article entitled “Resource rents hold the property key” in THE AGE on 15 June 2005 to make the point that the Reserve Bank of Australia’s monthly cash rate announcements are extremely myopic in view of the overarching deflationary environment that ensures interest rates are heading to zero, regardless of what action the RBA takes.

You can either have a property bubble or a rising GDP: you can’t have both.

Some people argue that rates should have gone up in order to take the steam out of the residential market that even then had been in bubble territory for almost ten years in Australia. But I contend that monetary policy is a particularly poor means of achieving such a worthy end, because it also hits those who have borrowed for productive purposes.

The Howard, Rudd, Gillard, Rudd and Abbott governments all had the opportunity to deflate the real estate bubble with fiscal measures that are adequately discriminatory in nature – such as reintroducing a federal land tax, requesting the states to reform and extend their land taxes, abolishing the negative gearing of real estate investment, or requiring local government to be responsible for raising a greater part of its revenue through council rates. But in fear especially of a backlash from the real estate lobby–or maybe of their own real estate investments turning sour?–they chose not to do so, leaving the RBA to carry the can for effective action.

In fact, against the deflationary trend, the RBA did actually increase interest rates from 5.5% to 7.25% from May 2006 to March 2008 pillorying many businesses, before they were overtaken by a dose of reality in the six months to February 2009, slashing the cash rate to 3.25% – down a massive 4%!

We should be alert by now to the fact that a monthly tweaking of interest rates is a very blunt and ineffective instrument that will never replace the good government we’re not receiving, namely, the untaxing of workers and businesses and the capturing of more revenues from land and natural resources.

Time to choose what kind of tax system we want

“The income tax exemption for the home should likely be retained – but we should be taxing those who have a home more comprehensively with a land tax – while removing duties, helping housing affordability. Such a change is underway in the Australian Capital Territory and has been proposed in South Australia.”  – Miranda Stewart, Professor and Director, Tax and Transfer Policy Institute, Crawford School of Public Policy at Australian National University

See the late great Margrit Kennedy put land in perspective.

[Acknowledgement to Maireid Sullivan’s Global Art Collective website.]

http://www.macrobusiness.com.au/2015/02/dads-army-presses-panic-button/

WHO IS REALLY STEALING AUSTRALIANS’ WELFARE? (THE REAL WELFARE BILL!)

There was Treasurer Joe Hockey at Question Time in parliament today, still glorying in the fact that his government has abolished the mining tax!

Joe, please understand this: the economic rents of our natural resources and government-granted privileges are a SURPLUS in the production process. They are not part of wages or profits, but are a community-created surplus.

As such, economic rents do not belong as a bonus to mining companies over and above their profits, or to landholders, or to those who have licenses to the electromagnetic spectrum, etc.  They belong, equally, to all Australians and are therefore the natural source of revenue.

To the extent that we do not capture these and other economic rents–and it is vast–those who are permitted to privatise and monopolise them are existing parasitically on Australians’ welfare.

These rent-seekers are the leaners, Joe: workers and businesses are the lifters.

Get rid of welfare for the rentier class, Joe, because the welfare system is much more than the $150 billion you talk about.  Taxing workers and business into penury and unemployment–as the tax regime encourages property bubbles–has generated economic depression in Australia.

But you haven’t a clue about rentier parasites, do you, Joe?  Nor does your boss.

Household debt, that is.

Prosper Australia’s David Collyer responds to a MacroBusiness ‘modest’ proposal for a 1% tax on homes.

(Well that’s getting there, Houses ‘n Holes, but what about vacant land and comm/industrial property?)

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“We are at the unhappy juncture where young adults are excluded from home-ownership, many owners are trapped in houses that no longer match their needs, so-called investors are taking horrendous risks with debt, and government is too frightened to adjust policy in case it crashes the economy.

The urgent and important change before us is land reform – so all may reasonably aspire to own a parcel and the independence, privacy and security it provides. But that high principle of the Australian settlement – originally held by left and right, rich and poor – has been defeated by a conga line of ticket clippers pursuing a zero-sum game of sectional advantage. We know allowing all to flourish is the path to universal prosperity – genuine win-win. The sooner we resume that, the sooner we can depart our current difficulties.

Australian voters have been trained to bristle when anyone talks tax reform. Their lived experience is that any and all reforms hurt them and transfer cold hard cash to the one per cent.

Nobody likes writing a cheque to the government; and government wants a quiet life. But the cost of our suite of taxes, notable for their construction wherein the statutory incidence falls on one party and the economic incidence on another, now costs us about 5-6 per cent of GDP in deadweight losses. Government collects 24 per cent of GDP while we pay 30 per cent.

The welfare losses here are staggering. We drive with the handbrake on. The case for land reform and tax reform makes itself.

A nil-exemption land tax – whether state or federal – would correct much of these distortions. It would give government the fiscal space to remove those 125 taxes Ken Henry was so rude about.”

See Christina Zhou’s land price table in THE AGE