Prosper Australia

Michael Hudson

If the economy deteriorates in the L-shaped “hockey-stick” rut that many economists forecast, what political price will President Obama and the Democrats pay for having returned the financial keys to the Bush Republican appointees who gave away the store in the first place? Reappointing Federal Reserve Chairman Ben Bernanke may end up injuring not only the economy but also the Democratic Party for years to come. Recognizing this, Republicans made populist points by opposing his reappointment during the Senate confirmation hearings last Thursday, January 27 – the day after Mr. Obama’s State of the Union address.

The hearings focused on the Fed’s role as Wall Street’s major lobbyist and deregulator. Despite the fact that its Charter starts off by directing it to promote full employment and stabilize prices, the Fed is anti-labor in practice. Alan Greenspan famously bragged that what has caused quiescence among labor union members when it comes to striking for higher wages – or even for better working conditions – is the fear of being fired and being unable to meet their mortgage and credit card payments. “One paycheck away from homelessness,” or a downgraded credit rating leading to soaring interest charges, has become a formula for labor management.

As for its designated task in promoting price stability, the Fed’s easy-credit bubble has made asset-price inflation the path to wealth, not tangible capital investment. This has brought joy to bank marketing departments as homeowners, consumers, corporate raiders, states and localities run further and further into debt in an attempt to improve their position by debt leveraging. But the economy has all but neglected its industrial base and the employment goes with manufacturing. The Fed’s motto from Bubblemeister Alan Greenspan to Ben Bernanke has been “Asset-price inflation, good; wage and commodity price inflation, bad.”

Here’s the problem with that policy. Rising prices for housing have increased the cost of living and doing business, widening the excess of market price over socially necessary costs. In times past the government would have collected the rising location rent created by increasing prosperity, public investment in transportation and other infrastructure making specific sites more valuable. But in recent years taxes have been rolled back. Land sites still cost as much as ever, because their price is set by the market. Land itself has no cost of production. Locational value is created by society, and should be the natural tax base because a land tax does not increase the price of real estate; it lowers it by leaving less “free” rent to be paid to the banks.

The problem is that what the tax collector relinquishes is now available to be paid to banks as interest. And prospective buyers bid against each other until the winner is whoever is first to pay the land’s location rent to the banks as interest.

This tax shift – to the benefit of the bankers, not homeowners – has made Mr. Obama’s hope of doubling U.S. exports during the next five years ring hollow. This is the upshot of “creating wealth” in the form of a debt-leveraged real estate and stock market bubble. Labor must pay more for debt-financed housing and education, not to mention payments to health insurance oligopoly and higher sales and income taxes shifted off the shoulders of finance and real estate.
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With debate over the impact of China’s real estate bubble leading to a stock exchange ‘flu’ this week, moves are afoot as:

… today’s Beijing Youth Daily reports that the Ministry of Land and Resources recently released a list of 18 land development projects nationwide including five in Beijing that involved developers failing to develop their land timely.

The Ministry stated that it would urge developers to start development of the idle land. Those who failed to develop one year after bidding for development rights will face fines of up to 20 percent of the amount of their bids. If they still leave the land idle after two years, the land will be taken back by the government.

The logical conclusion from this statement is that land hoarding is ok if it is constantly rotated every 10 – 11 months. Whispers are that there are hoards of vacant apartments. These too are a loophole for speculative largesse. It seems that the CCP is willing to allow another class of mandarins or gentry to evolve:

The issue of land speculation has reached such zenith’s that influential blogger Patrick Chovanec reports:

The (TV) series “Dwelling Narrowness”, which aired on Beijing and Shanghai TV, focuses on the difficulties facing average Chinese people in an environment of spiraling apartment prices and official corruption.

The show was quickly pulled from the public airwaves for recensoring.
Wiki describes the past influence of the scholar – gentry:

Now known simply as landowners, they were criticized for demanding and collecting high rent from their tenants during the republican period. Many organized violent gangs to enforce their rule. They were frequent targets of the communists who were able to rally much of the peasant population through their promises of agrarian reform and land redistribution. After the People’s Republic of China was established, many landlords were executed by class struggle trials and the class as a whole was abolished. Former members were stigmatized and faced persecution which reached its heights during the Cultural Revolution. This persecution ended with the advent of Chinese economic reform under Deng Xiaoping.

In 2006, the Chinese rich list found that:

Seven of the 10 richest are property developers.

What would Sun Yet Sen say? He proposed the capturing of the windfall gains that accrue to property owners from the public’s productivity. This was a core issue in Sun Yat-Sen’s Three Principles of the People. Read more on Sun Yat-Sen’s influence.

Patrick Chovanec discussed the bubble on China Radio with the following key points:

• The main driver of mounting housing prices in China isn’t short-term speculation (“flipping”) but longer-term stockpiling of empty apartments as a “store of value,” like gold.
• If “flipping” were the main problem, we’d see a much more active secondary market. In fact, China’s secondary market is quite weak, suggesting that new housing is being stockpiled off-market and not being priced.
• This phenomenon is partly due to a limited range of other investment options, and partly due to low holding costs (my empahasis), particularly the absence of an annual property holding tax. Other holding costs, such as maintenance fees, can often be minimized or avoided entirely.
• Because it addresses the wrong problem, the government’s new tax on speculative “flipping” is unlikely to have much impact, and may actually make things worse by increasing the incentive to holder vacant property longer.
• Local governments in China depend on land sales for as much as 40% of their revenue, so have a keen interest in keeping prices high — in effect, a kind of “hidden tax.” The point of an annual property holding tax is not to increase the overall tax burden, but replace this revenue stream with a more rational and sustainable structure that rewards productivity.
• The so-called “affordability ratio” in China is sky-high. As a result, the unaffordable price of housing is already becoming a hot social issue in China

The flipping issue could be debated re this quote, which some could see as a sign that those ‘in-the-know’ are getting out:

Dec. 21, 2009 (China Knowledge) – Beijing’s second-hand apartment transaction volume was 19,861 units in the first half of this month, an amount 56.6% higher than the 12,680 units that changed hands in the same period of last month, sources reported. About 1.88 million square meters of second-hand apartments changed hands, compared with 1.19 million in the first half of October.

Sun Yat-Sen would be fuming at the formation of a new generation of gentry. As Patrick describes above, the ‘flipping tax’ (which seems to be akin to our stamp duties), impedes the turnover of property. Turnover taxes like this do accentuate hoarding for greater periods until the desired profit is delivered.

A Land Value Tax or Site Rental on all land would ensure that both flipping and hoarding are discouraged.

Perhaps 2010 will be defined by the economic leadership of China, especially as Professor Michael Hudson has recently visited China and inspired deeper thinking on this core issue.

photo credit: Omar Eduardo

Taken from an early 1900’s document

I don’t know what the country is coming to; I work from morning till night every day of my life and yet it’s as much as I can do to make ends meet.

I am Simply Working for the Landlord ! ! !

How often do we hear such a declaration; yet, how few, even among those who make it, pause to consider its full signifcance ? There appear to be a mysterious tacit mental agreement that, above all things, no matter who else may go short,

The Landlord Must Be Paid.

Why the LANDLORD more than the butcher, baker, grocer, or other persons who furnish us with one or other of the daily necessaries of existence ? Is it because the landlord needs the money more than others? No! for, as a matter of fact, he needs it less than any of them, for he generally has plenty and to spare. Is it that he gives us more of the good things of the world in return for money than any of the others? No! for, as a matter of fact, he gives us nothing except permission to continue to occupy a certain portion of God’s earth, and he raises the rent as often as possible, and still gives nothing in return.

Is IT BECAUSE WE HAVE A GREATER AFFECTION FOR HIM as an individual than for anyone else ? Hardly! for, in point of fact, our feelings towards him have rather an opposite tendency.

What Then is the Reason ?

Sinply that the landlord, by reason of his ownership of the site upon which we live, or carry on business, has THE POWER TO BRING RUIN AND DESTRUCTION UPON US if we refuse to pay the tribute he exacts from us. This is a very serious matter to every householder, every shopkeeper, and shop employee, every business man and clerk, and, in short, every worker, whether by hand or brain, throughout the length and breadth of the land; for, in the power of the landlord to exact from each and all rent tribute for the

Permission to Occupy a Piece of the Earth

lies the secret of trade depression, industrial inactivity, Iow wages, and scarcity of employment. This may not at first sight be apparent, but a little enquiry into the operation of “the law of rent” will soon reveal the fact.

Here is an illustration: Twenty years ago, the owner of a vacant lot in George-street built thereon a shop and dwelling, which, when completed, was let on a three years’ Iease at a rent £2 per week, the tenant to keep the place in good repair. Upon the renewal of the lease for a further short term, the rent was raised on the unhappy tenant (who had just got fairly established and could not afford to leave) to £4 per week, although the landlord had done nothing at all to increase the comfort or accommodation of the building.

The extra rent aimost ruined the shopkeeper, who had to reduce the wages of an assistant, whom he had engaged, as well as to deny himself and family of certain articles of food and clothing, to which they had hitherto been accustomed but by dint of close attention and untiring energy, he managed to improve his business, and ultimately, after he had earned the £4 tribute for his landlord, he had a little for himself, even after paying wages to the additional hands he had engaged to assist. But he did not enjoy the advantage of his extra work, worry, and anxiety long. The lease expired, and once more the lease went up and swallowed all the extra profits, entailing further reductions in working expenses and

Another Lowering of Wages.

And so the process has gone on until today, the rent of that one shop is £12 per week, although not a shilling has been spent upon it by the landlord since the day it was completed. Just think of the shame and the monstrosity of the thing. The tenant

Must now Earn £12 for the Landlord

every week before he can earn ONE SHILLING FOR HIMSELF, aud he gets nothing in return, except the wretched accommodation of a structure that when new paid the owner l0 per cent interest on his capital at a rental of £2 per week, and which now, after twenty years wear and tear, would not realise £I00 if pulled down and sold as old material.
It is self evident that with such a

Heavy Incubus of Rent

to meet weekly, the price of his goods must be raised to the highest point which competition with other shopkeepers in the same locality will permit, whilst the wages of employees will be reduced in a corresponding degree. And when we consider that the SAME PRINCIPLE IS IN OPERATION in every branch of industry, we can form some idea of the share of the earnings of every member of the community which is annually appropriated by landlords in rent.

Every advance in Rent

means a corresponding reduction in wages, for even when wages are not directly reduced by the rack-rented employer, the purchasing power is lessened by the ever advancing tide of rent. Rent is added to the cost of every commodity, and consequently every purchaser, in addition to paying rent directly to his own landlord is compelled to contribute his quota to the rent of every person with whom he deals.
And when we reflect that

Rent has to be Deducted from the Wages

of the men who get the raw material, the men who fashion it into a finished product, the men engaged in conveying the product to market, the wholesale and retail dealers and the clerks, storemen, shopmen and others in their employ, it is tolerably certain that rent absorbs an enormous proportion of the annual wealth production of the community; and the larger the proportion that is absorbed by the landlord in rent the smaller must necessarily be the proportion that remains available for distribution in wages to employees and profits to employers, and in inverse ratio, the smaller the proportion that is absorbed in rent the larger is the balance available for division between wages and profits. Obviously then it is to the interests of employers and employees alike to bring about a REDUCTION IN RENT

The Single Tax

will do it, for the value of land fictitiously inflated by private monopoly is the main factor in determining rent. The taxation of land values will destroy land monopoly and thus reduce the value of land. And as by the destruction of monopoly, a corresponding increase in the available supply of land will take place, it necessarily follows that rents will fall in corresponding ratio, wages will rise with the increased avenues open to the employment of labor and a HEALTHY ACTIVITY WILL SOON MANIFEST ITSELF IN EVERY BRANCH OF INDUSTRY THROUGHOUT THE LAND.

Michael Hudson

As published in the Business Age
The 2nd most read article in the Age website on the day as per the graphic billing

HIGHER land and house prices typically lead to an increased supply of housing. Yet at the peak of Australia’s perennial housing affordability crisis, the Housing Industry Association declared that there would be a 13 per cent fall in housing starts this calendar year, compounding last year’s 18 per cent fall.

In light of massive rezonings in Victoria and improved planning bureaucracy in many states, this can only be seen as a warning that property insiders expect there to be a price crash.

The public face of the housing industry is quite different. So, what do property investors expect that the rest of the population does not?

Government spokesmen reflect assurances by bankers and their major category of customers – the real estate industry – that Australia’s economy is defying gravity. In reality, that is as impossible in economic life as it is in physical nature.

Property prices are defined by how much a bank will lend. Donald Trump claims that a man is worth what he can borrow. This usually depends on what a borrower can afford to pay, after meeting basic break-even needs (the cost of living, plus taxes). In the corporate sector, it means after-tax cash flow. So property prices are set by the banks, subject to the tax system.

The motto of real estate investors is that rent is for paying interest – and whatever the tax collector relinquishes is available to be capitalised into a bank loan as a flow of interest payments. The guiding idea is that affordability determines property prices. One example of how the tax system affects property prices is in its failure to distinguish land from capital improvements. Speculative withholding of prime locations from the market in an undeveloped or unsold state creates artificial scarcity. This raises prices.

Property speculators are able to afford this hoarding to the degree that the land’s potential site rent remains untaxed. Taxing the land would bring underutilised land and other property on to the market. It also would reduce the available free-lunch rent that is currently capitalised into bank loans to raise prices.
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photo credit: tsevis

Dr Michael Hudson

as appeared on Global Research
Dr Hudson will be touring Australia in October 09

The story is worse than just “Pres. Obama labored, and brought forth a mouse.” He is morphing into Joe Lieberman in reaching across the aisle for Republican support – and no doubt future campaign contributions from the financial sector. There also is a touch of Boris Yeltsin in sponsoring a financial “reform” disturbingly similar to what advisor Larry Summers backed in Russia – relinquishing government power to a banking elite (the notorious “Seven Bankers” in post-Soviet Russia). The Financial Regulatory Reform proposal promotes Wall Street’s “product,” debt creation, at the expense of the economy at large, and lets financial chieftains continue to self-regulate the debt industry – and by the way, to keep all their gains from the past decade’s worth of fraudulent lending, scot-free.

Confronting the wreckage of a debt crisis worse than any since the Great Depression, Mr. Obama has achieved what no Republican could have: rescuing the Bush Administration’s pro-creditor policies that fostered the Bubble Economy in the first place. “Most of the financial sector lobby community is happy with what has emerged,” the Financial Times summarized. A spokesman for the Financial Services Forum, a major Wall Street lobbying organization, called the proposals “careful and balanced.” With such endorsements, victims of predatory lending have good reason to worry. The Obama plan is just the opposite from reforming the financial system along lines that progressive Democrats and other critics have urged.

The plan’s six most fatal flaws are apparent in its preamble, which lays out a false diagnosis of the financial problem in a way that whitewashes Wall Street (in contrast to Mr. Obama’s nice televised populist speech giving verbal criticism to “culture of irresponsibility”). A false diagnosis must lead to wrong-headed cures – rarely by accident. There invariably is a financial beneficiary who gains from blind spots in a legal “reform” package.

1. Regulatory capture. Preparing the ground for future Alan Greenspan “free market” ideologues

The most serious problem is “regulatory capture”: control of the public regulatory process by the special interests being regulated. Mr. Obama’s speech introducing his reform was forthright in acknowledging that “some companies shop for the regulator of their choice … That is why, as part of these reforms, we will dismantle the Office of Thrift Supervision [OTS] and close loopholes that have allowed important institutions to cherry-pick among banking rules. We will offer only one federal banking charter, regulated by a strengthened federal supervisor.” It was the OTS, after all, that AIG and Washington Mutual chose as their regulator, as did GE Capital. The most incompetent, most ideologically opposed to serious regulation, its idea of a “free market” in practice was one free for fraud-ridden subprime lenders to do whatever they wanted.

One could go down the list of non-enforcement agencies – the Securities and Exchange Commission (SEC) not responding to warnings about Bernie Madoff, and the most deregulatory agency of them all: the Federal Reserve under Bubblemeister Alan Greenspan. Traditionally, the Fed has acted as lobby for the commercial banking system and indeed for Wall Street as a whole. (Its shares are owned by the commercial bank members of its system.) The Fed’s refusal to intervene to stop the subprime mortgage bubble, fraudulent lending and other elements of the Greenspan Chairmanship does not give much faith that it will take actions that will interfere with Wall Street’s money-making at the expense of the rest of the economy. Even today, the Fed is stonewalling Congress by refusing to release details on its $2 trillion “cash for trash” giveaway to favored Wall Street institutions.
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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.”
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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.
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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.
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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).

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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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