Quick!  Where’s the next European diversion?

Can you see how it’s all unravelling?  There’s a new script under construction here: non-continental European nations didn’t have their very own real estate bubbles …. [er, unless it was somewhere in the distant past?]

Although the USA and UK remain in dire financial straits—and remember Australia’s mortgage debt is worse than them all—we’re transfixed as a diversion by the daily procession of events in Europe, instead of immediately putting comprehensive taxation reform into place to regenerate the economy.

Julia Gillard says we’re doing that, but raising income tax thresholds and the watered down MRRT doesn’t cut it.

The Henry Tax Review provided an imperfect but good template, but the Grattan Institute wants to backslide from such sweeping tax reform, believing getting women and oldies out to work–oh, and extending the GST–will fix things for us.

Meanwhile, let’s have a meeting in Brisbane to tell ourselves how lucky we Australians really are! It’ll save us from undertaking essential reform.

Let’s all stop being pessimistic, or else Europe will sink us.  We’re absolutely blameless.

Australia is different, because the mining boom is going to pull us through.  It’s just a matter of confidence (until the Labor government can get out of here).

Yep, the script says everything’s fine here.  Pity about Europe.  That’s the problem all right.

You can bet when Australia’s property market eventually turns extremely toxic, it’ll still be continental Europe wot done it to us, gov – regardless of what party is in power.

Tragic!

For sceptics, or others, concerning society’s surplus, a thorough treatment of rent is compellingly presented by Dr H William Batt in “Taxable Rent”.

I toddled along at 6:00 pm tonight to the Grattan Institute meeting at the State Library of Victoria.

George Megalogenis from THE AUSTRALIAN did a pretty good job questioning Grattan’s CEO John Daley about the Institute’s new report, Game-changers: Economic reform Priorities for Australia, and Daley covered a multiplicity of topics in the hour allocated for his response.

Megalogenis opened with surprise that industrial relations rated so lowly on Daley’s priorities. They then proceeded up a list of  items to which the report gave greater weight.

These included increasing workforce participation of women and older people, so Australia may grow its GDP.

I was a little disappointed when John Daley suggested we needn’t be best at anything in particular, as long as we sought to adopt world best practice in many areas.

But we do already lead the world in having assessed an accurate land value on each property in Australia, John.  ABS Catalogue 5204(061) shows this accumulates to $3.785 trillion, the figure representing the private capitalisation of our surface land rents.  Our best economic minds should be investigating the potential of this land rent to replace damaging taxation, in order to increase our productivity by removing the leadening impost of taxation’s deadweight, particularly that of the the GST.

In looking at workable tax reform, the Grattan Institute’s priority was removal of the GST exemptions for health education and fresh food which accounts for some 40% of spending. There’s little doubt in my mind that had Ken Henry’s “Australia’s Future Tax System” been allowed to canvass the GST, it would have actually moved the opposite way, to roll it back.

Grattan’s secondary but substantial game-changing recommendation, that the states abolish stamp duties and replace them with a reformed land tax (as also suggested by The Henry Tax Review), didn’t rate a mention in the dialogue.

So, I began to frame a question in my mind.

My hand went up, but only three or four questions were taken before time ran out on us.

The beauty of a blog is that I can get my question out here:

“George, perhaps industrial relations didn’t loom large on John’s radar because the fight between labour and capital is largely a manufactured one , distracting us all from the influence of the almost invisible third party of which to some extent many of us are members, namely the rent-seeking class, who steal vast sums from both labour and capital?

Had the Institute’s recommendation for greater land rent capture via the state governments been in place already, is it not arguable that there would be less rent available to be capitalised into the massive land price component in their mortgages to which many people in tonight’s audience have been shackled?”

I’m sure the question would have struck a chord with many of the mortgage tyros in tonight’s audience of 250 to 300.  Australian household debt is preposterous.

Even though it sees a place for state land tax reform, Grattan’s half-heartedness on the point shows it hasn’t discovered the enormous quantum of publicly-generated land rent within the economy.

Prosper Australia Press Release:

In 1999, at the outset of the greatest real estate bubble in world history, Andrew Lawrence developed his amusingly interesting ‘Skyscraper Index’. It put the proposition that the construction of the world’s tallest building presages economic collapse.

Lawrence’s index is a more superficial treatment of the case British journalist/economist Fred Harrison developed for an 18 year peak in land values, building cycles and economic recessions in his 1983 study “The Power in the Land: Unemployment, the Profits Crisis and the Land Speculator”.

Harrison was acknowledged to be the first economist to have forecast the current global financial collapse (GFC), pinpointing it as early as 1997.

I’ve also touched upon how cityscapes provide insights into property-directed booms and busts.

Just as the Burj Dubai was the harbinger of the GFC, the skyscrapers in course of construction on the skylines of China and India do undoubtedly herald the financial disintegration of the world’s two most populous nations.

It doesn’t have to be this way. A recessionary crisis is not a necessary outcome from a period of boom and prosperity.

The economists of China and India are no less remiss than those in the west for failing to understand the deep implications of Ricardo’s Law and the theory of real estate valuation for taxation and land management policy.

Financial collapse will only be understood in terms of this failure.

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New South Wales Treasurer, Mike Baird has brought down an $824 million deficit state budget which tries to do the impossible, that is, bring a properly dead property bubble back into existence.

The $7000 First Home Owners’ Grant is being replaced by a $15,000 state grant in order to entrap increasingly suspicious new builders back into the collapsing residential market.

Good grief! It won’t work, of course, but what can you expect from a former banker?

As usual, it seems people are secondary to the primary aim of Barry O’Farrell’s Liberal government, namely re-inflating house prices for real estate agents and banks.

Australian municipalities cried poormouth to the federal government the early 1970s, so Prime Minister Gough Whitlam chose to ‘assist’ them by meeting half the cost of local government out of federal taxation revenues.

Today, state governments, having mainly reneged on their promises to get rid of certain taxes if the national government instituted a goods and services tax and rebated it back to the states, are now also crying poormouth for all their inadequacies.

Each level of government should be accountable for funding itself.

Every government inquiry into taxation the last twenty years has shown land tax to be the most efficient of all taxes, but because of the squawks the property lobby raises, state land taxes, cursed by exemptions, thresholds, multiple rates and aggregation provisions, have never been reformed nor extended.

The trend over the last forty years in Australia as elsewhere has been to reduce reliance on property-based taxation, whether it be municipal rates or state land taxes.

That’s why the world has experienced incredible bubbles in land prices and extreme financial collapse.  Land taxes not capturing sufficient publicly-generated land rent, have left too much rent in private hands to be capitalised into these land price bubbles every 18 years.

It’s very simple: if you don’t choose the right fiscal path, you pay the penalty and experience the pain.

So, the Australian states should get off their bums and reform and broaden the land tax base, because it’s the most efficient revenue source, and they already have the land-taxing power.

Extending rapacious hands to the federal government for money is a cop-out: it’s not the states’ answer.  The best instrument lies in their own hands.

Thus, I find it extremely difficult to disagree with this article in THE AGE today.  Yea!!

[And, Victorian Treasurer Kim Wells, wake up to yourself – because it would be your own fault if federal funding were to be withheld for non-compliance!]

For Jewish and Christian philosophers (and other thoughtful people), only.

[IT’S CRAZY!]

The French Revolution replaced the monarchy with a bloodthirsty pack unaware of the capture of land rent that physiocrats, Quesnay, Turgot and others had promoted. [No, physiocracy was not just about agricultural rent as simplistically portrayed in the New World Encyclopedia.]

Similarly, recent Middle East revolutions have no workable economics to sustain them.

Nor does the well-intentioned Occupy movement.

Nor do Tea Party rednecks.

In rapid succession, the US, Ireland, Greece, Spain, Portugal and Italy are brought to their knees.  Who’ll be next?  Is Australia, with its massive household debt, really any different?

World share markets oscillate in time with the latest national bailout, and the financial pages divert us.

‘Experts’ clot together at the G8 or G20 to talk arrant nonsense as they try in vain to retain confidence in a world of high finance that has become terminal.

Well, then, let the historians write of wars, political struggles, and distress in social life. Let them write freely of the things that happened, and the suffering endured. But let them never mention land and the ownership of land as being the ultimate causes of these happenings. – FWG Foat

Also, never let them mention that surface land rent alone is 30% of the economy, before consideration of community-generated mineral, fishing, forestry and spectrum rents.

Lie to them that land rent is only 1% and not worth capturing.

Let the Grattan Institute propose an increase in the GST as the answer.

Don’t let them know The Henry Tax Review, with its call for a reformed land tax and resource super profit tax, offers a tenuous seed of hope.

Don’t let them know of the simple fiscal adjustment–publicly-generated land rents instead of taxes–because the public’s land rents have been reserved by the 0.1%.