“Modern Georgists enter this period of danger and opportunity in relatively good shape. Several have outstanding scorecards calling the current crash. These include Fred Foldvary (2007, The Depression of 2008); Fred Harrison (2005, Boom/Bust); Michael Hudson (2006, “Guide to the Coming Real Estate Collapse”, Harper’s, May); and Bryan Kavanagh (2007, Unlocking the Riches of Oz).”
Mason Gaffney, in “The Great Crash of 2008” Groundswell July/August 2008
Municipal councils shouldn’t be granting favours to the holders of vacant or underutilised land, but in the state of Victoria they most certainly do. Victorian councils appear to have sold out to speculators. So much so that one begins to wonder whether cash actually changes hands, or whether it’s due to some other form of political pressure wealthy landholders apply to Victorian councils.
Surely it couldn’t be a matter of municipal councillors’ ignorance?
Is this another reason Victoria or, more particularly Melbourne, remains the hub for Australian speculators?
Although Australia’s two other main east coast states, New South Wales and Queensland, base their municipal rates on vacant land values–so as not to have the tendency to discourage development and redevelopment, nor reward the holders of vacant or underutilised land–Victorian legislation didn’t allow this until 1920. Until then, Victoria had been firmly ensconced on the net annual value (NAV) rating system which assesses the rental value of properties as improved.
Between 1920 and the early 1990s, municipalities containing half the population of Victoria chose to switch from NAV rating in order to operate under the site value (SV) rating system. The Land Values Research Group studied all these municipal changes to SV rating which were either introduced by councils themselves or by a poll of ratepayers. It found rates based on unimproved land value (UCV)–now site value (SV)–to be the fairest and most efficient way to raise local government revenue and to encourage underutilised land back into use.
In every case where a municipality switched from NAV to SV rating, it was accompanied by a sharp increase in applications for building permits in comparison to those Victorian municipalities which chose to remain on NAV rating – even when the change in the rating system was made during a period of recession. LVRG studies to this effect were later confirmed by an independent research visit to Victoria by Professor Kenneth Lusht from Penn State University, although he did find the initial growth spurt was not maintained over the longer term. The latter was a quite reasonable conclusion.
The Kennett Victorian Liberal government effectively pulled the plug on the site value rating system in the 1990s by offering vicarious incentives to those municipalities which changed to the new capital improved value (CIV) rating system which, similar to NAV rating, takes the value of improvements into account. One is inclined to wonder at whose behest other than speculators this was, because, when offered a vote on the matter, Victorian ratepayers had usually favoured SV. Though a few SV councils held out for a time after the introduction of CIV rating, the inducements were such that all Victorian municipalities again now rate on improved values, effectively giving rates breaks to vacant and underutilised land. Instead of applying SV rating, a few councils have since tried to react by applying penalty charges to long held vacant sites: this is surely a second-best option?
But neither is it all quiet on the New South Wales and Queensland front these days. Although wealthy landed interests in those states failed to overthrow the underlying system of rating on vacant land values, they have discovered a method whereby the effects of SV can be thwarted. Few ratepayesrs seem to have cottoned onto the trick du jour, ‘minimum rates’. Minimum rates means that a number of lower-valued properties pay the same minimum rate: that is, they no longer pay an ad valorem charge against the value of their land.
The situation has got to the stage where some councils actually boast that they have “80% per cent of our ratepayers on minimum rates” as though this is a good thing, when it effectively means the 80% of ratepayers with lesser-valued lands are therefore subsidising the 20% with the most valuable land. [!] This defeats the very rationale of the SV rating base and is a more subtle way of applying something close to a poll tax. Incidentally, it hasn’t induced similar riots to those in England in 1990 when Margaret Thatcher attempted to introduce the poll tax. Surely this has been a nice trick played on ratepayers by vested real estate interests?
The crassness and lack of principle in raising revenue at local government level in Australia appears to know no bounds.
You say we need more funds to tackle poverty, homelessness, health, the environment, education and infrastructure? I say instituting the Henry Tax Review is a BIG step towards solving those problems.
Did they fight, and many die, for this way of life?
– Australia and New Zealand’s land and natural resource rents flowing mainly to the banks and to the 1%?
– Privately-captured land rents sending land prices so high that they deny access to many of our kids?
– Bubble-inflated mortgages that keep others poor?
So that the natural outcome is a deflation that deepens into an economic depression?
LEST WE FORGET
You say we need more funds to tackle poverty, homelessness, health, the environment, education and infrastructure? I say instituting the Henry Tax Review is a BIG step towards solving those problems.
A. The US approach: deficit budgets and printing money, in order to:
1. bail out the banks
2. keep the economy from falling off a cliff and
3. make ‘no hasty reforms’, so that
4. things might eventually improve
B. The European austerity approach: cutting government excess to ‘restore economies’:
1. bail out the banks
2. slash government services, in order to
3. augment the pool of unemployment, and
4. let the unemployed compete for jobs by cutting wages
C. The untested model: make business and industry more efficient and cost competitive by:
1. abolishing taxes on labour and capital
2. deriving necessary revenue from the holders of land and natural resources, based upon the value of land and natural resource ‘super profits’ (rents), and
3. reforming government expenditures as the economy improves
4. bailing out no banks
You say we need more funds to tackle poverty, homelessness, health, the environment, education and infrastructure? I say instituting the Henry Tax Review is a BIG step towards solving those problems.
OK, so now we’re getting down to it: what Prosper Australia has been saying for years we need to address.
Last week the Business Council of Australia called for “meaningful tax reform” and yesterday the Grattan Institute pointed out that huge budget deficits are looming for Australia.
Grattan Institute chief John Daley says the combined deficits of state and Commonwealth government budgets could reach 4 per cent of GDP by 2023, or $60 billion in today’s dollars. He concluded that if government programs are considered essential, “the gap can only be closed by higher taxes”.
Of course Grattan, touted as an “independent and non-partisan” think tank–though supported by the Victorian and federal governments, BHP, the National Australia bank, the subdivider Stockland, and Wesfarmers–favours extending the goods and services tax (GST). Funny about that: extending the GST’s not likely to offend Victorian and federal governments, BHP, the National Australia bank, the subdivider Stockland, nor Wesfarmers. It’ll just hit the people again: especially those with no propensity to save.
I’ve never heard John Daley nor the Grattan Institute support the mining tax, nor a federal land tax to replace the mish-mash of state land taxes and the grab-bag of stamp duties on conveyances. Nor do they seem particularly troubled by the impossible level of Australia’s bubble-driven private mortgage debt.
Yes, tax reform is essential, but it would be a pity if the Grattan Institute or the Business Council of Australia are permitted to be its drivers, ‘cos they’re not proposing real tax REFORM, a shift from taxes to rents.
Everything should be on the table. Everything.
Including the excellent recommendations of the Henry Tax Review.
Grattan Institute: you’re next to useless!
You say we need more funds to tackle poverty, homelessness, health, the environment, education and infrastructure? I say instituting the Henry Tax Review is a BIG step towards solving those problems.
Greater Sydney’s higher population and traditional physical constraints have tended to set its residential prices higher than Melbourne’s, although the gap has recently narrowed.
Sydney’s prices moderated several years ago during the current residential bubble, but Melbourne’s kept on escalating. Only in the last year or two have we seen residential prices slacken off in Melbourne.
Melbourne has a history of outdoing Sydney at the rate of increase off this lower base during boom and bubble periods, however.
The point is demonstrated in the above chart by Melbourne analyst, Philip Soos, who has recently compiled Australia’s most comprehensive data set on real estate prices.
Constant quality real housing price indices for Melbourne and Sydney allow us to make the Melbourne-Sydney comparison, from the 1880s boom (documented in Michael Canon’s “The Land Boomers”) to the starker differences during the current bubble (which is likely to spawn many post hoc books).
The slight downturn from Melbourne’s current peak suggests this may not be the time to buy in Melbourne.
Although Richard Cobden and John Bright had demonstrated to the British people’s satisfaction that the Corn Laws, and protectionist policies in general, only act to keep prices very high, particularly landlord’s, and Sydney accepted this free trade argument, Melbourne historically adopted a protectionist stance under the influence of David Syme at THE AGE.
And the banks were always happy to be headquartered in Melbourne which seemed a little more alert than Sydney to the lurks, perks and blandishments of finance and real estate. If land prices were about to skyrocket, Melbourne would be there in spades; production and manufacturing could come second.
That’s what people fail to realise: there IS a definite tension between productivity and real estate speculation. This is more readily visible at this point across the USA and Europe, but the Australian denouement proceeds apace.
You say we need more funds to tackle poverty, homelessness, health, the environment, education and infrastructure? I say instituting the Henry Tax Review is a BIG step towards solving those problems.
Will Carleton’s “The Mortgage” makes the point, too.
You say we need more funds to tackle poverty, homelessness, health, the environment, education and infrastructure? I say instituting the Henry Tax Review is a BIG step towards solving those problems.
Let’s hope it’s the end of an era.
It’s not to be doubted that governments have made terribly wrong decisions, but it’s nonsense to believe that anything connected with government must therefore be bad. Ironically, an open-minded read of Ayn Rand’s “Atlas Shrugged” which is meant to make the latter case fails completely to do so.
The most successful economies will be those free enterprise mixed economies in which government plays an essential role.
The greatest error of the Reagan-Thatcher era, to which many current day governments are still obviously wedded, was the selling off of natural monopolies as ‘a matter of principle’. These had been built on the backs of our forbears whom we disrespected terribly for the sake of a dollar when things got tough.
It was quite wrong, just as ‘user pays’ often is. Let the beneficiaries–usually the 1%–pay, the rent.
You say we need more funds to tackle poverty, homelessness, health, the environment, education and infrastructure? I say instituting the Henry Tax Review is a BIG step towards solving those problems.
Oxfam’s 100 km walk is on once again this year over the weekend 19 to 21 April. It commences at Jells Park Glen Waverley and finishes at Wesburn after traversing through some beautiful countryside to Melbourne’s east. There’ll be 700 teams taking part: amazing!
As with institutions such as World Vision and St Vincent de Paul, Oxfam works to fight poverty and dispossession, a most worthy aim.
It’s ultimately disappointing, however, that these bodies–espying that poverty is man-made–still won’t contemplate signing up to a revenue system that will put an end to the 1% ripping off and dispossessing the poor.
To them Georgism remains akin to the mad uncle who must be kept up in the attic and never mentioned.
Donating money to projects to alleviate poverty can be palliative but can never replace the economic justice promised by land-based revenues.
I’m reminded of a withering letter the soap manufacturing magnate, Joseph Fels, sent in reply to a begging letter from the dean of a theological institution.
Fels’ response is sharp but not cruel because it covers the issue so factually. See what you think.
You say we need more funds to tackle poverty, homelessness, health, the environment, education and infrastructure? I say instituting the Henry Tax Review is a BIG step towards solving those problems.
