Prosper Australia

photo credit: Pulpolux !!!

The Business Council of Australia wants to raise GST in return for a halving of corporate tax rates in its latest Henry Review submission. This will increase the regressive rate of taxation upon the less privileged.

With effective corporate tax rates at barely 5% due to the plethora of tax loopholes, this proposal will do nothing to reduce boom bust blowouts, let alone a future based on economic justice.

If that’s the best the leading lights of the business community can do, then it is no wonder the social fabric of society is falling apart.

ABC reported:

However, the Federal Treasurer Wayne Swan has poured cold water on the BCA’s GST proposal within hours of its announcement, saying it is one of the few areas of taxation that is off limits to the Henry Tax Review.

“There’s only one exclusion, or two exclusions that we’ve put in place in terms of Henry: we’ve said we’re not going to raise the GST which I see has been put on the agenda today by one of our business organisations,” he said.

“That aside, the one other exclusion, it is a genuine root and branch review of the tax system.”

Whilst that last quote may get tongues wagging, Swan forgot to mention that the second exclusion was superannuation related. We are concerned that this week’s Henry Review tax summit in Melbourne is an ‘invite only’ affair and that none of our 11 submission authors were invited. This suggests that the inclusion of land rents as a plausible tax option is also being excluded.

This is a concern in an age where globalisation is threatening resource sovereignty, tax loopholes abound, infrastructure deficits have a 20 year backlog, urban sprawl forever dominates, environmental refugees are looming and carbon speculators are soon to make a killing.

And yet the BCA wants to ignore this and look after their own lot.

If land rents are allowed to be capitalised into higher and higher land prices, the stresses on the community will threaten our very freedoms. Ross Gittens quoted taxes on immovable property as the most efficient tax in his Monday article ‘A light on the hill for future tax reformers :

This view is that, in an ever-more globalised world where the barriers between national economies are being broken down, the least mobile factors of production should be taxed most and the most mobile factors should be taxed least.

This suggests a hierarchy of taxes running from the least economically inefficient and hence most growth-enhancing to the most inefficient and growth-inhibiting. So, running from best to worst, we have: recurrent taxes on immovable property (such as land tax and council rates), consumption taxes, personal income taxes and company income tax

Treasury officials would do well to read Gavin Putland’s Recessions Begin at Home and Dr Terry Dwyer’s submission to the Henry Review.

photo credit: josef.stuefer

The Yekaterinburg Turning Point:
De-Dollarization and the Ending of America’s Financial-Military Hegemony

Michael Hudson

Challenging the American Empire will be the prime focus of extended meetings in Yekaterinburg, Russia (formerly Sverdlovsk) this coming Monday and Tuesday for Chinese President Hu Jintao, Russian President Dmitry Medvedev and other top officials of the six-nation Shanghai Cooperation Organization (SCO). The alliance is comprised of Russia, China, Kazakhstan, Tajikistan, Kyrghyzstan and Uzbekistan, with observer status for Iran, India, Pakistan and Mongolia. The SCO countries include former Soviet and CIS republics belonging to the Collective Security Treaty Organization (CSTO), established in 2002 as a counterweight to NATO. The two overlapping groups, formally aligned in 2007, will be joined on Tuesday by Brazil for trade discussions among the BRIC nations (Brazil, Russia, India and China).

The attendees have assured American diplomats that dismantling the US financial and military empire is not their aim. They simply want to discuss mutual aid – but in a way that has no role for the United States, NATO or the US dollar as a vehicle for future trade among these countries. US diplomats may well ask what this really means, if not a move to make US hegemony obsolete. That is what a multipolar world means, after all. For starters, indeed, in 2005 the SCO asked Washington to set a timeline to withdraw from its military bases in Central Asia.

As in most summits, key agreements already have been worked out and are ready for ceremonial signing. Yet the meeting has elicited only a collective yawn from the US and even European press despite its agenda is to replace the global dollar standard with a new financial and military defense system.

The last rites of American hegemony began in April at the G-20 conference. This week’s meeting is for China, Russia and India to take the lead in “build[ing] an increasingly multipolar world order,” as Mr. Medvedev expressed it in his plenary address to the St. Petersburg International Economic Forum last Saturday, June 5.

Translation: We have reached our limit in subsidizing the United States’ military encirclement of Eurasia while also allowing the US to appropriate our exports, companies, stocks and real estate in exchange for paper money of questionable worth. “The artificially maintained unipolar system,” Mr. Medvedev continued, is based on “one big centre of consumption, financed by a growing deficit, and thus growing debts, one formerly strong reserve currency, and one dominant system of assessing assets and risks.”
(more…)

photo credit: //endless∞

John Young

In all the discussion about the economic crisis and its causes, the part played by land prices is nearly always underrated. The unique character of these prices is usually not even recognised.

I am not speaking of the price of the house or other improvements on a site, but of the site itself. A vacant block of land in a desired location may cost a fortune, without any contribution of the owner to the value. In this article I want to examine that question and note some of its consequences, particularly in relation to buying one’s own home and in relation to economic crises.

Think of two identical parcels of land, one in the outback, the other in the middle of a city. The second will be worth many times that of the former, mainly because of the advantages conferred by society on that site. There are physical amenities such as roads, water and electricity; there are social benefits such as schools, shops and the opportunities available for work and for mixing with other people.

The price of these two blocks, one in the outback, the other in the city, will be determined by such factors as the above, combined with the relative scarcity of city sites compared with those in the country. The price does not come from anything the owner does.

Yet in modern societies the benefits conferred by the community and by natural factors like climate, a beautiful view or valuable minerals (and by scarcity) flow to the owner. But he did nothing to deserve them!

Look at the plight of young people struggling to save enough to buy a house and land. In Sydney particularly, but in all our cities to a lesser extent, it is often impossible. This is not primarily because houses are expensive, but because the land is expensive.
(more…)

photo credit: id-iom

Dr Michael Hudson

Breaking News: Dr Hudson will tour Australia in October 09

Last month the G-20 authorized the International Monetary Fund to increase its loan resources to $1 trillion. It’s not hard to see why. Weakening currencies in the post-Soviet states threaten to raise default rates on foreign-currency mortgages as collapse of the Baltic real estate bubble drags down Swedish banks, while the Hungarian property plunge threatens Austrian banks. It seems reasonable to infer that creditor-nation banks hope to be bailed out. The IMF is expected to lend the Baltic, central European and other debtor-country governments money to pay them. These hapless debtor economies are then to follow IMF “conditionalities” to squeeze enough money out of their populations to pay foreign creditors – and repay the Fund by imposing yet more onerous taxes on their labor and industry, making them even more high-cost and therefore pushing them even further into trade and credit dependency. This is why there have been so many riots recently in Latvia, Lithuania, Estonia and Ukraine, as was the case for so many decades throughout the Latin American countries that introduced the term “IMF riot” to the global vocabulary.

For fifty years the IMF has organized such payouts to creditor nations. Loans are made to debtor-country governments to “promote exchange-rate and price stability.” In practice this means pouring tens of billions of dollars into currency markets to make bad gambles against raiders. This is supposed to avert the beggar-my-neighbor nationalism and financial protectionism that aggravated depression in the 1930s. But the practical effect of IMF lending is to demand that debtor countries impose onerous IMF “conditionalities” that stifle their domestic markets. This is why the IMF was left with almost no customers until last year’s debt crisis deranged the world’s foreign exchange markets.

It is supposed to be merely incidental that the largest IMF shareholders, the United States and Britain, happen to be the major creditor nations and their banks the main beneficiaries of IMF loans. But in a Parliamentary question-and-answer session on May 6, Britain’s Prime Minister Gordon Brown spilled the beans. Under pressure for his notorious “light-touch regulation” as Chancellor of the Exchequer (1997-2007), he undid half a century of rhetorical pretense by announcing that he was pressuring the IMF to bail out Britain in its nasty dispute with the Icelandic owners of a British bank that went under. He was in a position to know the nitty-gritty of who owed what and which nation’s monetary authorities were responsible for which banks. So when he said that he was strong-arming the IMF and other organizations to force Iceland’s government to pay for his own government’s mistakes, he must have known this was breaking the unwritten law of pretending that the IMF is not the servant of creditor nations in bilateral disputes with smaller economies.
Read more

photo credit: SnaPsi xyzzy

The highly regarded Robert Shiller writes:

HOUSE prices in the US have been falling for nearly three years, and the decline could continue for some time. Even the US Government has projected price decreases next year. As a baseline, the stress tests recently performed on the big US banks included a scenario with a total fall in housing prices of 41 per cent from 2006 to 2010.

Their “more adverse” forecast projected a drop of 48 per cent – suggesting that important housing ratios, like price-to-rent, and price-to-construction cost – would fall to their lowest levels in 20 years.

Such long, steady housing price declines seem to defy both common sense and the traditional laws of economics, which assume that people act rationally and that markets are efficient.

Missing from this analysis is the difference between land price and land value.

Land price represents what the current market can convince people to pay. Land value is what can actually be earnt off the land, reflecting the genuine value that should be offered when buying a property. When the difference between land value and price is great, we have market distortions such as the staggering overbuilding in the US housing market.

John Young expands on this here.

The ponzi-like nature of the land and housing bubble was orchestrated by the government’s continual nod to those in the know to speculate in land (and with that housing). If the community created land rent was collected by the government, there would be no room for speculators to enhance housing scarcity in order to manufacture profits.

If only US house prices were easier to find we could display this in statistical terms.

photo credit: smooshmasterflex

But will they be able to wrestle with, as Winston Churchill once put it, ‘the mother of all monopolies, the landlord’? This will be a fascinating battle between David (chain stores…sorry I still can’t bring myself to type the co name) and Goliath (the landlord).

May 29 (Bloomberg) — Starbucks Corp., the world’s largest coffee-shop operator, is pushing some U.S. landlords for as much as a 25 percent reduction in lease rates, taking advantage of a declining real estate market to save on rent.

Faith Hope Consolo, chairman of New York-based Prudential Douglas Elliman’s retail leasing, marketing and sales division, is generally advising about a dozen landlords to work with Starbucks after they received letters seeking rent reductions of 20 percent to 25 percent. She hasn’t seen the correspondence.

Separately, two other letters were confirmed by two property managers, who declined to be named because the negotiations are still under way.

“In this environment, what we’ve seen in general is the landlords and the retailers really have to work together more closely to prevail,” Consolo, 50, said in a May 27 telephone interview. “We’re talking a lot about tenant retention.”

Read more at Bloomberg

photo credit: Latente 囧 Le Sbarbine nel Governo

From the Subprime to the Terrigenous: Recession begins at Home

Gavin Putland’s excellent new report, being picked up by all sorts of websites and e-news services

Background

The American word “subprime” refers to the credit-worthiness of borrowers. But that wasn’t supposed to matter, because if the borrowers defaulted the lenders could simply sell the collateral to repay the loans. The scheme came unstuck because the collateral was residential property, which was overvalued due to a speculative bubble. When the bubble popped, borrowers owed more than the collateral was worth, so that lenders couldn’t collect and therefore couldn’t re-lend — for housing or anything else. Thus the financial system communicated the housing crash to the rest of the U.S. economy.

What is commonly called a “property” bubble or “housing” bubble is actually a land bubble. A building is worth no more than the cost of producing an equivalent building, and loses value due to deterioration and obsolescence. But land does not have a production cost, and its locational value tends to increase due to improvements in location-dependent services. Moreover, from the viewpoint of private entities, the overall supply of land is fixed, as is the supply that can be legally used for any particular purpose, and the supply within acceptable distance of any particular services, infrastructure, or markets. Yet access to suitably located land is essential to economic participation. So land values are competed upward until they absorb the economy’s capacity to pay. In a growing economy, one should therefore expect land values to rise. But rational expectations periodically give way to belief in the greater fool: rising prices attract buyers who expect to sell at still higher prices, and that expectation becomes the sole support for current prices. Banks create credit against speculatively inflated prices and, in so doing, facilitate further inflation.

Eventually the illusion becomes unsustainable: the bubble bursts. At first, the “burst” is manifested as a fall in turnover while prices flatten out, as prospective sellers refuse to take losses. This in itself can be enough to cause a recession, not only because builders and developers slow down while waiting for unsold stock to clear, but also because slower sales cause a credit contraction by frustrating the sellers’ plans to repay loans. If sellers cannot wait for the market to meet their expectations, prices are forced down, leaving other borrowers with negative equity, in which case the credit crunch and recession are obviously worse.

The word “subprime” is therefore a distraction. Yes, loose lending helped to pump up the U.S. housing bubble; but rising collateral values came first, and loose lending was the response. Moreover, not all of the loose lending was to subprime borrowers (to say nothing of those “subprime” borrowers who met all the criteria of higher-rated borrowers, except the unwritten one concerning skin colour).

Read More

photo credit: Birta Rán

Letter to the Age 01/06/09
Buy Australian veto
David Barkley
Box Hill

Dear Editor,

Finance Minister Lindsay Tanner says the Government will not accept a push that breaches trade rules (29/5). All we hear is what it won’t do. The Rudd Government should be saying what it will do, – not what it won’t do, to increase manufacturing in Australia. If we are to reduce future unemployment we need to stop penalising manufacturing.

The relatively high Australian wages are blamed for our uncompetitive prices, however the amount of production wages, here and overseas, in many items is only a small proportion of the final selling price in the market. There are 56 or more taxes and other charges in Australia, many of which impinge, directly or indirectly on manufacturing costs.

Government could exempt or rapidly refund taxes and other charges that unfairly affect manufacturing and make up the loss in revenue by a Federal flat rate tax on land values. A parliamentary inquiry into the effect of taxes and charges on our competitiveness in manufacturing should be held as a matter of urgency.

Yours sincerely,
David Barkley

Timely when local current affairs talk about 20,000 homeless whilst 20,000 vacant houses are holding these people to ransom In Lost Vegas.