All posts by Bryan Kavanagh

I'm a real estate valuer who worked in the Australian Taxation Office (ATO) and Commonwealth Bank of Australia (CBA) before co-founding Westlink Consulting, a real estate valuation practice. I discovered, by leaving publicly-generated land rents to be privately capitalised by banks and individuals into escalating land price bubbles, this generates repetitive recessions and financial depressions. We need a tax-switch: from wages, profits and commodities onto economic rents/unearned incomes, if we are to create prosperity and minimise excessive private debt.

RENTIER CAPITALISM: A FORM OF THEFT?

This is arguably the essence, the heart and soul, of Henry George’s “Progress and Poverty”.

The 20th century and the first part of the 21st has been unable to get to grips with the importance of this simple formula, and although much poverty has been ameliorated over the period, the outset of the 21st century in the developed western world has been marked by increasing private debt and poverty. The increased privatisation of land rent explains escalating land prices and taxes, accompanied by declining earned wages and earned profits as rent-seeking banks and monopolies have done obscenely well.

I was struck by a wayward interpretation of Henry George’s distributional formula in an addendum to the launch of Australia’s Future Tax System, that I was inspired to make the first of my two (or was it three?) submissions to the inquiry:-

The popular reception of Progress and Poverty–arguing that not to publicly capture rent was theft and the cause of poverty–was such that the powerful rent-seeking class was forced to re-cast the study of economics into ‘neoclassical economics’. It still rather pointedly declares that there is no moral difference between man-made capital and ‘land’, viz nature in general.

GREAT LEGISLATION 100 YEARS AGO (SINCE DEFEATED)

Hat tip to Global Arts Collective for the above clipping.

Thanks to the work of EL Keirnan, the state of Victoria passed a Bill in 1920 allowing municipalities to switch their rating base from net annual value to unimproved capital value rating (now known as site value rating).

At the outset of the 1990s, more than half of Victoria’s population lived in municipalities which had chosen to use EL Keirnan’s legislation to rate on land values only. This change thereby acted to penalise the holding of lots out of use and vacant for speculative purposes, and not to penalise those who built homes, factories, offices, shops, &c.

In the 1990s, the Kennett Victorian Government offered municipalities what amounted to bribes were they to switch away from site value rating or net annual value rating to capital value rating. All but two councils have since made this unfortunate shift, and no Victorian municipality now uses site value as its rating base.

The states of New South Wales and Queensland continue exclusively to employ site value rating for municipal rating purposes.

INDUSTRIAL RELATIONS PROBLEMS SOLVED. WHO’S AGAINST?

OK, so we know there’s sufficient rent to run government, to support a living wage basic income, and to keep the currency stable? (ATCOR & EBCOR, John Locke, Mason Gaffney, Joseph Stiglitz, &c.)
See https://www.prosper.org.au/wp-content/uploads/2018/04/TrickleUp22.pdf
And that we’d eliminate rent-seeking, and all the deadweight losses created by taxes on productivity. However, after this Twitter exchange with Lindsay David suggesting it would also solve our industrial relations problems, I got to thinking about who might possibly oppose a universal living wage basic income.

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Lindsay David@linzcom
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After a week up the coast it’s pretty clear Sydney will eventually lose more locals to regional NSW and elsewhere. And big business could save a fortune shifting administrative roles et al out of the CBD and Metro area320

Bryan Kavanagh@bryankav123

Replying to @linzcom It’s looking that way. I’m expecting businesses’ 3rd iteration: when an Australian living wage basic income is introduced, they’ll only have to pay some amount additional to the UBI to attract employees. IR solved! 2:40 PM · Oct 10, 2020·Twitter Web App

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So, I began to ask myself who might be against a decent socio-political arrangement that could introduce an economy of abundance. I discovered five potential answers:-

  1. Although small businesses would be in favour of a UBI, banking and the big monopolies, who currently make super-profits from extracting rent from the economy, would be against the idea because it clearly acts to reduce their super-profits/unearned incomes.

2. Then, if it solves industrial relations problems, what’s the role of the union movement? Wouldn’t it only have a ‘keep watch’ involvement then? And wouldn’t the system act to reduce super-profits of industry superannuation funds, as also with the the commercial funds (and other monopolies)? So, they might be against a UBI, too! (But a UBI would surely help workers!)

3. I also realised that those modern monetary theorists who are wedded to the idea of a ‘job guarantee’ would probably resist a living wage UBI, not because it wouldn’t work for people, but because it shows up the silliness of what amounts to gig jobs (i.e. enforced work for the minimum wage).

4. Then there’s The Church. They’re into rent-seeking, too. In the days of the land rent, they would have supported the idea of a universal living wage basic income, because it wasn’t at all necessary! But in these days, where “The land shall not be sold” and usury have been relegated from any public consideration, isn’t it everyone’s ‘moral duty’ to work? So maybe the churches will resist a UBI, too?

5. Then there’s a media beholden to all of the above, in favour of a ‘rightful and proper status quo‘, even in view of the widening income gap and collapsing economies!

So, it’s not just land tax reform that’s ‘up against it’. There are interests that would possibly also oppose a living wage universal basic income, which otherwise seems to be an eminently fair proposition for both sides of politics?

THE FEDERAL BUDGET

How the whole nation hung on every word of Australia’s federal Treasurer last night! We were enthralled at how the government would deal with ‘the terrible socio-economic damage COVID-19 has caused’ (sic). The property bubble was invisible, as always.

Aren’t we fortunate to have all those federal government departments providing input to the budget, and Treasury pulling all the threads together, as best they could with the Liberal party putting their stamp on the outcome? Businesses fared much better than the precariat, the class at the bottom which has come increasingly to include large parts of the middle class: “Job, jobs, jobs!” said Treasurer Frydenberg.

Now, let’s take a step back. Could there be any better example of Upton Sinclair’s statement: “It is difficult to get a man to understand something when his salary depends upon his not understanding it.”? There were probably a thousand bureaucrats working on the budget and many millions watching it.

What did the bureaucracy do? It considered the myriad issues greatly exacerbated by the virus. The budget then committed enormous sums of money to be tacked onto as many of these particular issues as was thought possible. There you have it! No reforms! Well, there was one: taxation was reduced. [Unfortunately, many Australians who seem to believe that federal spending comes out of taxation are greatly annoyed with tax cuts: the hair shirt brigade.]

With all that money being spent, was anything done to address the fundamental economic failures that have been addressed in inquiries previous to the arrival of COVID-19? No, none.

We didn’t take the opportunity to address the concerns of the Henry Tax Review about too many damaging taxes, and the need for a significant all-in land tax to stem some of the tax avoidance and to keep a lid on land prices. In ten years, we’ve implement only two of 118 recommendations of a comprehensive report. Only 116 to go.

Nor did we do anything structural to put an end to ‘the trickle-up economy‘, to stop the widening income gap, and to care for the growing precariat. Wouldn’t a ‘living wage basic income’ have provided a little comfort and security to many people? Wouldn’t it also assist struggling businesses who’ve been making marginal profit? How would it do this, do I hear you ask? Well, with a living wage basic income in place, businesses would only have to offer an amount additional to the basic income, sufficient to attract employees. There’s a cost saving! Both sides should jump at the chance to implement a living wage basic income, but genuine reform is overlooked in petty politicking.

Last night’s budget could have acted to remedy the overarching ills that assail us, including delimited wages and profits–except for those of CEOs and monopolies doing marvelously, of course–instead of simply tacking money onto the multitude of problems that grow from not addressing what creates them.

Sigh!

DON’T MENTION THE WAR!

Jim Chalmers

One of the ALP’s better performers, Jim Chalmers, was on ABC “Insiders” this morning pushing the debunked myth that government deficits are “borrowed money” [which inferentially must be paid back].

I suppose he was only regurgitating a longstanding Liberal Party meme that’s come back to bite them on the bum at the moment–and in Tuesday’s federal budget–but it’s so boring: and completely wrong. Government plays an important role in assisting business, and government deficits translate to private sector surpluses. In fact, govt surpluses are rare and usually send economies into recession, even though they may purport to be ‘paying back government debt’.

But let’s go with the myth: let’s shut low wages, marginal small business profits and incredible levels of private debt–real debt that was in the process of crippling the economy ever before COVID-19 appeared on the scene–out of the equation, eh, folks?

Don’t mention the real problem, the bubble in land prices Australia has managed to keep inflated since 1996.

The conservative parties and Labor used to be able to talk about the ills of property speculation, and although there was resistance, Australia once had the wit to have land values taxed at all three levels of government. But the Menzies Liberal Party government changed an unspoken agreement on the point when it abolished the federal land tax in 1952, ostensibly ‘to leave land tax the province of state and local government’.

The ALP had been out of power for 14 years when its new national secretary, Cyril Wyndham, decided to write the federal land tax out of the 1964 policy platform of the Australian Labor Party. It was never voted out as required.

Wyndham was a smart bloke. He knew that home ownership had blossomed under the Menzies government, so why confront an increasing number of Australians with what earlier Labor Party supporters had though was a significant matter of principle? “This might be one of the things keeping Labor out of government?”

So, when Gough Whitlam achieved the first Labour government in 23 years in 1972 (since Ben Chifley’s which ended in 1949) on the slogan “It’s Time!”, a federal land tax was on nobody’s mind.

A federal land tax is now something no political party may mention. Too may Australians are into property speculation – and you wouldn’t want to offend them and lose votes!

So, let’s keep our mouths shut about what Australia’s extended property bubble has done to our socio-economic fabric, eh?

As for the thoroughgoing Henry Tax Review advocating an all-in federal land tax – bah, humbug!

Fat Chance!

[Don’t mention the war!]