MY FRIEND PATRICK KILLILEA IN THE US SENDS THE FOLLOWING – IT INCLUDES SEVERAL AUSTRALIAN ITEMS 

BTW, check out Patrick’s site patrick.net.  It inspired Australia’s own Dan Cox at Bubblepedia.

I’m a baby-boomer myself, but I reckon the planet’s going to make it through OK if Gen Y’s excellent response to the homebuyers’ strike is any indication.

Comments on “GetUp”‘s site, at Prosper Australia , and on Facebook shows Gen Y has the ability to navigate itself safely through all the hype, dross and lies fed to them about the residential property market by mainstream media.  Taking on incredibly excessive debt for 30 years doesn’t appeal to them.

In what way is it a real “market”, by the way?  Can the fruit and veggie market keep produce off the market until we are starving and have to pay blackmail prices?  No, the fruit and tomatoes would rot. Can manufacturers hold cars, computer equipment, etc., off the market? Wouldn’t they become obsolete and rust?

But what happens with real estate ……? Yes, that’s right!

Using the novel approach of researching those properties having no water usage, EarthSharing‘s Andrew Sadauskas found one in every 15 properties in his Melbourne study area were vacant, held off the market without a tenant, the owners apparently pinning their trust in making a capital gain rather than running the risk of a tenant damaging their properties (for a 3% return, or less).

Sadauskas’ 2009 report I Want to Live Here concludes “The most astounding results, however, came from the 11.05% vacancy rate in Carlton, the 16.56% Genuine Vacancy Rate in West Melbourne, and the 28.96% Genuine Vacancy Rate in Carlton South”.   [!]

As an article in The Herald Sun today continued to give all the wrong  reasons for “the supersonic property boom that has us reeling”, I just had to leave the following comment:-

Apparently Planning Minister Matthew Guy sees no connection between these fantasyland house prices and the winding back of rates and land taxes over the last 40 years, or the fact that the Income Tax Assessment Act slaughters salary earners and promotes property speculation with negative gearing? No, it’s just supply and demand. [Sigh!] They don’t improve, do they?

Keep on challenging all the real estate institutions’ crud, people! They’re not working for you!

I wouldn’t be at all surprised if GetUp’s spectacular new top-rated suggestion for a home buyers’ strike is not taken up by GetUp – because it carries deeper implications.

You see it works like this. The economy is a mystery to many people, apparently including our political leaders and the vast majority of economists who don’t understand the often destructive part real estate plays within economies.

And reform movements are currently more committed to remedying the secondary effects of failing economies, such as pollution, money and credit, any of which I can easily imagine GetUp supporting as a campaign.

It seems politics and causes must be about things other than why we reward real estate monopoly and speculation with negative gearing and 50% concessions on capital gains; about things other than why we fine workers and companies for daring to work and being productive; about things other than allowing the few really big rent-seekers to claw back every red cent, and then some, of what they’ve paid in taxes over the years via the uplift in the prices of the properties over which they hold claim.

We’ve managed to avoid tackling the fundamental stupidity of a rigged taxation regime for so long that it makes us feel silly, a little self-conscious, to address it now. Why have we accepted such an obviously corrupt revenue regime for so many years, yet want to say it’s wrong now?

So, it’s much more comfortable and much easier to campaign about other things.

So, let’s forget that the current tax system delivers billions of unearned dollars – owed equally to all Australians – into the hands of billionaires whilst the other ninety-nine per cent of us struggle to meet payments for food, clothing, health care, education and the mortgage and we sink deeper and deeper into debt.

Australia’s GDP should be $2 trillion, instead of $1 trillion, our land prices and debt levels should be far lower, and our wages and salaries much higher – without being at all inflationary. We should all be sharing in this wealth, but we’re wedded to a tax system designed by rentiers that consigns most Australians into debt – and many into penury.  

Ken Henry’s panel inquiring into Australia’s Future Tax System has recommended a federal land tax should be used to abolish the wretched array of state land taxes, payroll taxes and stamp duties, and also argued for a 40% resource rent on mining profits.

What an incredibly enlightened development!

But these recommendations have hit a political brick wall because they offend the rentier class. With a few notable exceptions, Australian politicians are unduly in the thrall of these kleptocrats, simply because of their money and their corrupting influence. Unfortunately, at this point in Australia’s history, the question might fairly be asked, just who are our politicians really representing?

I suggest the Prosper Australia campaign may likewise hit a brick wall at GetUp, not because GetUp represent rentiers, of course, but because the campaign would get right to the heart of our systemic economic flaw.  Coming to that understanding can almost become too much for some people – it’s so stunningly mind-blowing – and can leave them like stunned mullets. And you don’t get too much action from a stunned mullet!

As a comment on the penultimate post, AusHousingCrash recommended I update my chart of Australia’s total land prices to GDP going back to 1911.

Here ’tis.

Don’t be misled by the 2007 on the X axis, that was the peak. The last year of the graph is actually 2010.

NOTE: Over the years the average land values relationship to GDP has been about 1:1, so might I suggest 2.86 is looking a bit ‘toppy’?

KEEP UP THE GOOD WORK, GUYS!

In yesterday’s blog I understated the number of people providing leadership in educating people to the Ponzi scheme residential property ownership now represents for new home buyers.

Dan Cox’s Bubblepedia website today lists a number of websites blowing the whistle on a complicit mainstream media. 

Congratulations, folks! I know it’s a tough often unrewarding job breaking through the sort of media hype that results in people at auctions actually applauding a young couple who’ve just paid a record price for their first home.  Applauding?  [Sigh!] 

We’ll crash through this crazy ‘homeownership at any cost’ mindset yet.

The only doubt that Australian real estate prices are in a bubble of gargantuan proportions resides in the minds of analysts such as former Treasury employees Paul Bloxham, Christopher Joye and their wishful adherents.

By publishing their highly contrived bubble denials, newspapers ingratiate themselves with their real estate advertisers and spruikers for the industry, thereby obscuring the overwhelming truth about the real estate bubble. It is relegated to the occasional article by Steve Keen, Gerard Minack, Gavin Putland or myself, or a rare IMF release.

The latter, though, are usually accompanied by a put-down from a disciple of the Bloxham-Joye school not noted for having found anything wrong with skyrocketing land prices other than an imaginary “shortage of supply”.

No guys: shortage of supply doesn’t cut it. Nor did it cut it in California.  Er, how about an errant tax system that gives all the wrong signals ….?

It’s most heartening therefore to see the great number of thoughtful people not sold on the “all’s well” line the media has constructed for them now having their own say in Prosper Australia’s call for a residential buyers’ strike as taken up by the social reform group GetUp.

It might assist discussion for me to provide an interim update of the Kavanagh-Putland Index. This is in two parts, showing 1) total real estate sale prices for Australia divided by GDP, and 2) real estate volatility as a driver of the economy’s direction.

I should emphasise that the broken lines for the current year represent incomplete figures. Although they are extrapolations based upon 2011 real estate sales data from South Australian and Western Australian government departments, I consider figures to come from the other states and territories will eventually confirm these dotted lines.

NOTES:

(A)        The 18 per cent bubble line is simply empirical.  (With the exception of the last of the banks’ 1994 distressed sales sell-off in other states, and the contemporaneous boom in Queensland, any time the ratio has surpassed 18 per cent Australia has experienced a recession. The better guide, though, is the ‘volatility’ chart.)

(B)        During the period of the current bubble, from 1999 until 2011, we’ve expended some $2.8 trillion on real estate, $805 billion of which appears to be within bubble territory.

(C)        A significant economic recession has been indicated when aggregate sales prices decline by 20%.

The Herald Sun tells us today that one in every four Victorians receives welfare assistance.

As government resources are currently stretched, questions will be asked about what categories of welfare recipients are less deserving than others, so that the welfare bill may be reduced.

That seems OK, doesn’t it?  People shouldn’t be receiving welfare they don’t deserve, should they?

That also appears to be in keeping with Dr Ken Henry’s recent inquiry into Australian transfer payments, where he suggested there are too many classifications for welfare recipients.

But what if there was another way of looking at the question?  What if every Australian was entitled to a universal basic income? 

That’d be great, but how could we possibly fund it?

Well, I’ve shown that there’s enough land rent available to abolish all taxation. So, what if Australians’ rightful entitlement to their share of mineral, fishing, forestry, spectrum and aircraft licenses were used for the purpose?

It’s certainly possible, and it would provide a universal basic income for everybody: a “citizen’s dividend”.

However, there’s a problem.

We’ve been brainwashed by the few people who aggrandize themselves by stealing our land and natural resource rents to believe that the current tax system is the best we can do for ourselves.

In fact, they’re already telling us that Australian wages will have to be suppressed if we’re not to fall into the economic recession that has gripped the world.

That’s actually a prescription for disaster. Lower wages will send the economy into a downward spiral.

It was understood in the “Progressive Era” that higher wages from production assisted economies, whereas lower wages did not, but Thatcherite/Reaganite economics has turned this logic on its head. We’re now told we’ve got to favour the big boys: risk-takers, entrepreneurs, employers, CEOs.  And we’ve come to believe it!

Progressive Era economists of all shades of politics would tell us this is nonsense, that it is workers with a dollar in their pockets to be spent who create employment for others. Today, there is no such middle ground consensus.

We’ve swallowed, hook, line and sinker, the web of lies neo-liberal economists have spun for us over the last thirty years of “economic rationalism”: wages must be kept to a minimum, and there is little or no place for government.    

George Orwell’s “Big Brother” is now well and truly ensconced in western society, favouring privileged rent-seekers at the expense of worker and industry alike.

And the results are there for all to see. As the West descends into terminal decline, lowly China is beginning to emerge economically, because she encourages production.

Nevertheless, there are warning signs that China, too, is falling victim to her real estate speculators. The difference is she is trying to deal with them; we aren’t. Systemic indifference to financial corruption is highlighted in the film “Inside Job”, but it’s a pity it failed to make the connection to tax systems’ complicity in setting us up for financial and economic collapse.

I should give Michael Hudson the last word on the incredible “back is white” economic system into which the West has now degenerated, where we penalise workers and production and reward uber-wealthy rent seekers. As usual, he’s right on the money.

AN ALTERNATIVE TO TAXATION

If, as I claim, tax systems are responsible for creating this (and every other) economic depression, how do we make the switch to land and natural resource rents for revenue?

“It’s impossible!” do I hear you say? “Too many vested interests in the status quo!”

Well, consider this. What if Australia was to introduce an all-in federal land ‘tax’ as advocated by Ken Henry’s panel of inquiry into “Australia’s Future Tax System”, and the new revenue could be offset by companies and individuals, not against other income, but directly against other taxes payable?

Think about it. You could reduce your tax liability by the amount you paid in land ‘tax’ (more properly, land rent).

Therefore, it does not become “just another tax”, but an alternative to tax, because it actually reduces the amount you have to pay in other taxes.

Let’s re-visit the mining tax fiasco, where Australian mining billionaires protested in the streets, claiming they couldn’t bear a 40% resource rent tax on their profits. The principle would also apply to them.  What if the resource rent abated their company tax, their payroll tax, etc., by the amount of resource rent they paid? Wouldn’t this pull the rug from under their argument?

Proceeds from land and resource rents could also be used to abolish the Goods and Services tax.

This in-built compensation system is so patently fair it would be interesting to see from which quarter detractors might arise.

No doubt existing rent-seeking parasites would trot out the case of the poor widow, crying crocodile tears for the fact that she doesn’t earn income against which to offset her land tax.  “She’s currently exempt from tax, but now she’ll have to pay!”

Oh, she doesn’t pay GST now?  You’re not currently worried about that? In circumstances where the poor widow’s children who might inherit her real estate can’t help her out, she could do what she is currently allowed to do, that is, not to pay municipal rates or land tax, but have them put as a charge on title, payable when she passes.

Easy!

Bring on the tax set-off!

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(Acknowledgement to Ray Brownlee and Bob Keall)