Prosper Australia

photo credit: Dystopos

The Brumby government’s haphazard manner in dealing with Melbourne’s ‘urban sprawl forever’ attitude is straining government revenues. The desperate actions following from this with the $95,000 Growth Areas Infrastructure Contribution (GAIC) are the result of the ignorance of more efficient and equitable revenue raising systems. The GAIC has been called a Land Infrastructure Tax.

Such lump sum charges are a disaster waiting to happen. Similar to Sydney’s ‘Developer Charges’, lump sum taxes will be passed on. There is no doubt about it. Reports are coming through such as:

One caller to ABC Radio said his parents would be left with only a couple of hundred thousand dollars on a large property they had owned for more than 20 years.

Other landowners fear the proposed levy will dramatically reduce their property’s resale value.

These farmers will simply withhold this land until it’s price increases by at least $95,000 per hectare.

A fairer way to ensure that landowners pay for the benefits of a new rail link would be to charge a percentage on all land values. A Land Value Capture system would ensure that prime locations could not be speculated upon with reckless abandon. Nor could they be withheld until the landowner’s asking price is met. This would ensure that successive landowners over the life of the infrastructure contribute something back to the government in respect for this new service.

One generation of buyers is not hit with the full bill.

The above quote qualifies our addiction to windfall gains. Why should a handful of families benefit at the expense of people battling for a basic human right – for the right to a roof over their head? Who prefers being taxed for working but yet rewarded for owning large valuable tracts of land? At the same time we are sympathetic to the above landowners – Brumby is asking for trouble with this sort of slapstick charge.

The 2030 boundary is a farce. It forces up land prices inside the boundary, and forces them down outside the boundary – that is until lobbyists manage to bribe Brumby to extend certain sections. Why were land tracts bought prior to 2005 exempted from this new charge? One can only imagine…

This issue highlights the need for an educative process on the importance of Land Tax – especially with the Bailleu family lining up to storm into public office at the next election.

photo credit: kodama (home)

Suburbs hit with land tax increase

TAXPAYERS owed more than $227 million in land tax by the end of February – a 20 per cent increase since last year, Office of State Revenue figures reveal – with a Herald investigation finding that much of the pain is being felt in the Labor Party’s backyard.

The debt rise comes after the State Government lifted land taxes by 25 per cent on properties valued above $2.25 million at the onset of the recession in November last year.

This is another sign that the NSW housing market is about to unravel. Speculators in Labor safe seats, no doubt many of them investing in formerly ‘affordable’ suburbs, have made the most of the Land Tax threshold, which starts at $368,000. This means for a $500,000 land and house property investment in Sydney, the speculative investor would owe $2112. Not much. This property advertised in Parramatta for $479,000 would owe $1904.

Soon the financial pressures will add up and these vacant and under-utilised sites will be sold. The added supply will push prices down and thus assist affordability, breathing hope into the lives of the youth.

But small business must be hurting. The Rees Government gave a signal to the market that they prefer small business over speculators by reducing Payroll Tax from Jan 1 by 0.25% to 5.75%.

To avoid this sort of scare campaign by the Property Council, the Rees Government should flatten the Land Tax and lift it so that Payroll and the regressive GST can be removed. Prime locations such as Pipers Point have a higher locational value, rendering obsolete the need for differential tax rates. This will mute government criticism for using Land Tax as a wealth tax. It should be aimed fairly at all occupiers of land as a ‘beneficiary pays’ charge. Hands up for those who want to abolish income tax? This attitude would help us move away from the casino economics mentality that dominates policy makers.

Where is the hard yakka in shuffling paper?

photo credit: spike55151

Dr Terence Dwyer

 - B.A. (Hons) B.Ec. (Hons) (Syd.) M.A. Ph.D. (Harvard), Dip. Law (Syd.), FTIA, Visiting Fellow, Crawford School of Economics and Management, Australian National University.

Dr Dwyer’s Submission to the Henry Tax Review

Executive Summary

• The Treasury tax paper acknowledges the three factors of production but needs to follow through on the logic of its’ analysis.
• All taxes resolve themselves into taxes on the incomes of the three factors of production, land, labour and capital.
• All taxes are distorting, save a tax on economic rent. Taxes on capital and labour are both distorting – they suppress factor supplies to the economy.
• Land value taxation has long been endorsed by economists as a perfectly efficient tax. It also has long roots in Australian history.
• A basic argument for land value tax is that it is the one and only tax base that cannot flee in response to a tax. Capital and labour can emigrate – land cannot.
• Nor can a land value tax be shifted as an extra cost to business. Ultimately, a land value tax must be borne by the landholder at the time of introduction.
• Once a land value tax has been established, any purchaser of land discounts the price to allow for the tax and, in that sense, it is not a burden on anyone other than the owner at the time of introduction.
• Land value taxation is not distorting because it is capitalized – it cannot be avoided. A land value tax becomes a burden-less tax and has a zero marginal tax rate.

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photo credit: zen

The Financial Sector: “A House Burning Down”

Prof. Michael Hudson

March 16, 2009
Global Research
www.michael-hudson.com/

On the March 15 CBS show “60 Minutes”, Federal Reserve Chairman Ben Bernanke used a false analogy already popularized by President Obama in his quasi-State of the Union Speech. He likened the financial sector to a house burning down – fair enough, as it is destroying property values, leading to foreclosures, abandonments, stripping (for copper wire and anything else recoverable) and certainly a devastation of value. The problem with this analogy was just where this building was situated, and its relationship to “other houses” (e.g., the rest of the economy).

Mr. Bernanke asked what people should do if an irresponsible smoker let his bed catch fire so that the house burned down. Should the neighbor say, “it’s his fault, let the house burn”? That would threaten the whole neighborhood with fire, Mr. Bernanke explained. The implication, he spelled out, was that economic recovery required a strong banking and financial system. And this is just what he said: The economy cannot recover without yet more credit and debt. And that in turn requires trillions and trillions of dollars given by “the neighbors” to the bad irresponsible man who burned down his own house. This is where the analogy goes seriously off track.

But watching “60 Minutes,” my wife said to me, “That’s just what Mr. Obama said the other night. What do they do – have a meeting and agree on what metaphor to popularize?” They seem to have an image that will lock Americans into supporting a policy even though they don’t like it and many feel like letting the financial house (A.I.G., Citibank, and Bank of America/Countrywide) burn down.

What’s false about this analogy? For starters, banking houses are not in the same neighborhood where most people live. They’re the castle on the hill, lording it over the town below. They can burn down and leave the hilltop revert “back to nature” rather than having the whole down gaze up at a temple of money that keeps them in debt.
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photo credit: le niners

Whilst we’re looking at China and the fascinating powerplays of the economic superpowers, we read today that many of China’s local governments are struggling to avoid bankruptcy.

It turns out that local governments have been financing themselves by selling off the family jewels:

“Previously, local governments got all their money from selling land. This is not sustainable. Some areas have already sold quotas from the next 30 years.”

A number of large cities are thought to be at risk, including Kunming and Hangzhou, with their funding problems exacerbated by a slump in real estate sales.

Will China look at their neighbour Hong Kong and take on board the revenue raising measures that see it as both number one on the Heritage Foundation’s Economic Freedom index and is highly ranked on the UN’s Human Development Index?

Close to 30% of HK’s revenue is raised from land based charges. This ensures that the community gets a share of the rising land bounty over time as greater public infrastructure is developed and society itself makes improvements through technology, health and other factors. All these improvements are reflected in higher land prices.

HK is respected from both the right and left of the political spectrum on economic matters due to it’s willingness to ensure that land is used for it’s best and highest use.

China’s local governments should adopt a system of local council rates on land only so that a sustainable system of financing activities is possible.

photo credit: BK59

Chinese concern over it’s status as the ‘T-Bill Republic’ is leading to a diversification tactic that could well assist us in our aim for the public to share in the spoils of our natural resources.

Wenran Jiang writes in Online Opinion

Another effort by China to pull itself out of the dollar trap is to diversify its global investment from low-return T-bills and volatile securities to energy and resource assets around the world. There is no central government body in charge of such a strategy. But newly announced policy measures, such as the Adjustment and Renewed Plan for the Iron and Steel Industries, have encouraged, and simplified procedures for overseas acquisitions by the Chinese enterprises. The prestigious Caijing Magazine has called the new wave of Chinese overseas acquisitions as a “grand concert without a conductor”.

But the current world economic crisis has also presented opportunities with falling commodity prices and declining stock prices of many energy and resource companies. While still somewhat hesitant, some major Chinese companies seem to be on the move to increase their worldwide foreign direct investment portfolios. Leading the way are large Chinese mining companies, and the targets are primarily Australia’s mining sector. In February, Aluminum Corp. of China invested $19.5 billion in Rio Tinto Group, now pending for Australian government approval. Canberra approved an A$1.3 billion investment by China’s Hunan Valin Iron & Steel Group in Fortescue Metals Group Ltd.

Read more on the power of a Resource Rental system to assist a country maintaining some sovereignty over its’ resources, regardless of who owns them.

photo credit: night86mare

Fred Harrison will be proven correct with his apt title Boom-Bust 2010. With the Brumby government stepping up to the plate by offering further gravvy to the property lobby train with the $6000 increase in their First Home Owners grant, Natalie Craig reports that this will create another stampede:

REGIONAL builders say first home buyers are now waiting until after June 30 to sign contracts in order to get $36,500 in government hand-outs.
…
“We’ve seen a drop in demand probably in the order of 50 per cent,” Mr Fitz-gerald said. “The first home buyers were rushing in before June 30 to get what they could … now they’re wanting to hold off and get contracts in for the next period.”

The grants would still be “a great thing for real estate agents” and the construction industry…

When the Federal handouts stop on Dec 31st, this may be the signal for the land boom to final unravel in 2010. Unfortunately by then this will have seen over 180,000 young people manipulated into propping up the housing market at it’s virtual peak. Yesterday we calculated that this will see an annual $28 million dollar wealth transfer per year for the next 25 years from first home owners to the well-heeled property and banking industries.

Wealth divide anyone?

The only way to speed up affordable housing is to reduce the price of land. We can do this efficiently by placing holding charges on land so that developers like Mirvac don’t drip feed property to the market like they admitted on record. Find out how here.

photo credit: atzu

We are preparing a booming Renegade Economists radio show this afternoon with none other than Dr Gavin Putland critiquing the budget.

The sad thing about the lack of knowledge between infrastructure and land values is that the Ruddites look like building an underground rail tunnel and station in Northbridge, WA for $236m. However, not content at the boon this will provide to surrounding property owners, the government looks set to sell off the 50,000 square metres of land freed up by the tunnel to private (no doubt well-connected) interests!

Land Value Capture could save us the $8bn outlayed for road and rail projects, reducing the deficit stress for future taxpayers.

See more budgetary commentary on how $539 million can turn into a $4.6bn handout for the property lobby.