Prosper Australia

“Communally created values must be safeguarded, and it is the function of government to collect into the public treasury the value attaching to land by reason of the presence of the people, as that is the natural source from which public revenue should be drawn.”

“This small bespeckled man was always looked upon in the parliament” – so says Clyde Cameron – “as the greatest debater the Parliament of South Australia had ever seen”. Clyde (a cabinet minister in the glory days of the Whitlam government) also makes the claim “that Craigie really was a very great figure – I think really the greatest man of this [20th] century, and it is a tragedy that he was not given the opportunity to play a more important role in the politics of our country”.
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Fred has gone digital! He also has a new website, and a new blog with the title cheekily borrowed off our own Renegade Economists radio show. Interest in his work is really taking off, such that a regretful property developer has made a 2 part clip featuring Fred’s analysis of the 18 year cycle. It’s a must watch:

photo credit: Paul Keleher

Gavin R. Putland

In light of the recent Tax and Transfer Review by the Federal Government, lobbying interests are moving to reduce capital gains taxes.

The term “capital gain” contains a deliberate contradiction: real capital doesn’t gain.

Capital, as defined by the classical economists, is a product of human effort. Land is not; its supply is fixed. When the effective demand for land increases because population grows, or because people have more money to spend, or because public investment in infrastructure makes people willing to pay more for land in the serviced locations, there can be no compensating increase in supply; therefore, in the long term, land increases in value. But if capital increases in value for any reason, the increase induces production of more capital, which competes with the existing capital, causing values to fall again.

Therefore any gain in the value of capital is temporary; in the long term, capital depreciates due to wear-and-tear and obsolescence. An exception arises when the owners of capital are given some sort of protection from competition, like that which nature gives to the owners of land — but in that case the “capital” has been stripped of its defining economic property and has become, for economic purpose, land-like.
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photo credit: x_jamesmorris

Wednesday’s release of the Architecture of Australia’s Tax and Transfer System
review paper saw commentary by lobby groups attacking capital gains taxes.

PETER ANDERSON, CEO ACCI: Our capital gains tax has not been looked at in an analytical way for more than 20 years. And capital gains tax as it currently is structured is a tax on investment. So we need to try and reduce the level of taxes on constructive investments.

The property lobby is also wanting to look after their interests. However, we were heartened to read in the government’s Tax and Transfer paper:

The OECD (Johansson et al 2008) has recently undertaken a cross-country study of the effects of different taxes on economic growth. The indications from this analysis are that property taxes have the least detrimental impact on growth, followed in order by taxes on consumption, taxes on labour income and taxes on capital income.

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Read the OECD report - Do tax structures affect aggregate economic growth? Empirical evidence from a panel of OECD countries
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Photo: Colin Cheesman

RENTS are expected to jump another 10% this year after building approvals fell to their lowest since the end of 2006.

Home-building approvals have dropped nearly 8% in a year, after falling another 0.7% in June, in seasonally adjusted terms. Apartment approvals have dropped 22% in a year, down 1.4% in June after a 19.5% slump in May.

Rents to increase a further 10% this year on top of the 12.7% increase over the last 12 months? Have our wages increased by 22%? No. They never will. Not from the waged sector. But those earning speculative income regularly have such growth.

But why the lack of new homes? Most likely is that land prices have reached such a zenith that it is no longer economical for builders to undertake risky ventures. The supply of cheap credit over the last decade has been filliped by tax carrots magnetising entrepreneurs into the land banking market. Thus the bubble in land prices.

Stag-Rental?
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State control urged as rent surges 12.7% is the headline that attracts our eager eyes in the Age today.

Many of the city’s most affordable suburbs have been hardest hit, with the typical rent on a two-bedroom house in Oak Park, Glenroy and Fawkner surging by 25%, according a report by the Department of Human Services.

Using our economic analysis we can see the Law of Rent strongly at play here. The crux of our argument comes down to this: landlords have a monopoly power over tenants in that they can say that renters must pay the asking price or ‘move out to the boondocks’! The 25% surge in rents see landlords playing the market, understanding that rents can be increased by that much in order to bring these affordable suburbs into line with other more trendy areas.

What option do renters have? (more…)

Gavin Putland

The ACT’s Land Rent Act, with promised savings of 79% compared to the standard mortgage-based system of home ownership, took effect on July 1. This is an innovative housing affordability policy. Here’s what I wrote about it a week before it became law.

I make the following assumptions (which do not seem to be spelt out in the Bill):

• that the capping of increases in rent will be apportioned to some measure of the general level of wages;

• that a land rent lease will be granted without any up-front payment other than the first rent instalment;

• that if a land rent lease is transferred, the transfer price (if any) will be included in the single price of the “house” or “home”;

• that the proposed extension of the scheme to lessees on higher incomes will be accomplished by repealing or amending paragraph 5(2) of the Bill.

From my reading of the Bill, I understand as follows:
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Leading Georgist author Fred Harrison was interviewed on the Renegade Economists last week regarding his new book The Silver Bullet.

Download his 16 minute interview covering issues such as Botswana’s success, a critique of Jeffery Sach’s Resource Curse theory and an overview of colonial motivations. Essential listening/ reading for those genuine in addressing the Millennium Development Goals.

Make sure you sign up to receive the Podcast to the Renegades delivered to your computer each week.

Hear the author Fred Harrison interviewed on the Renegade Economists tomorrow. Make sure you are podcasting us so you never miss the show.

Fred Harrison’s new book levels some very serious charges at the current leaders of the poverty industry.

The good intentions, the money, the rhetoric, the pity and the media histrionics are but a pinpricks to a world rampaging monster. They say there is no silver bullet.

It takes Harrison’s razor sharp pen few words to zero in on the limitations of Joseph Stiglitz, Naomi Klein and Jeffrey Sachs.

Economics is a damaged social science because its exponents fail to work with comprehensive models of the real world.

As our understanding of the Silver Bullet grows, so does respect for the level of investigative reporting in the very readable 179 pages. Insights to Zimbabwe’s plight, China’s growing elite and even the Kalahari Bushmen are viewed through the lens of land rights and the reform needed to encourage their ‘creative energy’. The reports Harrison unveils give us hope that academics are wary of rent seekers.
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The tax unit for an asset-holding tax should be the asset!

Gavin Putland

Recommendation 10 of the Draft Report of the IPART Review of State Taxation suggests “changing the tax unit for land tax from joint ownership to the individual” as a means of reducing complexity caused by aggregation of site values.

That raises the question: As land tax is a tax on site values, wouldn’t it be simplest if the tax unit were the site? Our first submission to this Review proposed a mechanism which would indeed make the tax unit the site, without creating winners and losers in the transition to the new system. With a little elaboration, the transitional arrangement can account for the effects of aggregation before doing away with it.

Origin of the problem

Because the acquisition of major assets requires income in excess of necessary consumption, the distribution of major assets, including land, is more unequal than the distribution of income. And because land tax (in NSW and other Australian jurisdictions) exempts owner-occupied residential land, the ownership of taxable land is more concentrated than the ownership of land in general. For these reasons, land tax would be strongly progressive even if applied at a flat rate with no threshold. The purpose of a threshold is not so much to make the tax more progressive as to limit the number of taxpayers, especially among swinging voters. But a threshold, by itself, creates the opportunity for landowners to minimize tax by holding a large number of low-valued sites, this strategy being especially viable for urban speculators who “buy at the fringe and wait”. To close the loophole opened by the threshold, site values are aggregated before the threshold is applied.
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