Australians are going to have supply chain issues as we emerge from the pandemic, but we certainly have a greater overlooked problem regarding the private debt bound up in impossible-to-service mortgages over the next three years. Meanwhile, the talk about government ‘debt’ is largely irrelevant.
So, what do we do? How do we handle massive private debt?
Well, the usual response to a national financial emergency is that we need to look to the concerns of big business, but big biz doesn’t always have a handle on matters because it tends to silo its own position at the expense of small businesses and the general populace. Moreover, governments attuned to the neoliberal economic position have developed a habit of listening to the well-heeled guys and their advisers before they consider what’s in the best interests of their people, and therefore business – especially small business.
If we understand that ‘businesses’ comprise commercial, industrial, rural and other interests, and that the rest of us may be classified as ‘residential’, our land values may offer a little perspective.
At 80% of total Australian land values, residential is clearly the largest component. Residential land of course includes the many owners of businesses. The idea of looking at where most land value lies is not to diminish the importance of the roles of the business, rural and agricultural sectors, but is it possible that these may be best provided for if governments were first to address the issues of where Australians are housed to examine possible flow-on effects for businesses.
Let’s examine the proposition.
In a 2019 paper produced for Prosper Australia entitled Trickle Up Economics: Assessing the impact of privatised land rent on economic growth, Dr Gavin Putland produced a version of the following chart which showed that taxes, their deadweight losses and other economic rents now account for 50% of the Australian economy, leaving a net 50% only to be shared between wages and profits. Of course, we need to recognise that banks and monopolies making super-profits derive these from the 50% of the economy that is shown as the 50% that makes up extractive ‘economic rent’.
The chart represents the first occasion on which the Australian economy has been separated into earned and extractive incomes. This may appear to be a normative statement at first flush, but the ongoing and increasing financialization of repetitive booms and busts provides strong a posteriori support, so let’s go with it for a moment.
Aren’t some of these tax ‘extractions’ necessary for redistribution to pensions and the poor? Certainly, but it could be done much better without all the deadweight losses incurred by so-called ‘conventional’ taxation. Taking the recessions from bursting real estate bubbles into account, I’ve assessed the deadweight loss to be some $2.34 for each dollar of tax that Australia levies. Of course, most economists will dispute this: they must, or else be seen to have been remiss in not alluding to it. However, the late Professor Fred Foldvary endorsed my approach in his comment on my method here.
It was John Locke who first noted that as all taxes come out of rent (ATCOR) that’s where they should come, directly. The late Professor Mason Gaffney made the necessary addendum that the excess burden of taxation also comes out of rent (EBCOR). Economic rent cannot be passed on in prices, so why are economists silent on this point?
Public policy needs urgently to address all this tax-induced misery, because for each dollar of tax we apply, we’re actually losing $2.34. That’s not only deducted directly from the earnings of labour and capital, but it’s passed on directly into the prices of all our goods and services. It could be done so much better by direct public capture of land rent (the dark blue in the chart) which would do all that the expropriation of wages and profits currently does (the red in the chart) and much more towards societal health. It would massively reduce prices and leave wages and profits untaxed. The seekers of unearned economic rent, owed equally to everybody, including banks, monopolies and property speculators wouldn’t be too happy of course, but we’d at last have a tax regime giving all the right signals to doers instead of to leeches.
That’s the first step in dealing with private debt.
I think we could manage that, but having the current tax regime designed for themselves has undoubtedly proven rentiers to be an impressive lobby against which to test ourselves!