Prosper Australia

Letter to the Age

Thursday June 26th

WHEN we hear that the rental vacancy rate is less than 1% (”$155-a-week Lalor ’shack’ highlights rental crisis”, The Age, 25/6), we need to remember that this figure includes only dwellings offered “to let”. If it included vacant lots and other unoccupied properties that are not on the rental market, the vacancy rate would be at least 10 times higher.

One obvious solution is a holding tax of several per cent per year on the values of all vacant sites, including those with buildings that have been vacant for more than a month. To avoid the tax, property owners would build on vacant lots and seek tenants for unoccupied buildings.

Gavin R. Putland, Dandenong.

The day after the 2008 Federal Budget, Gavin Putland (our Research Officer) sent three letters to newspapers.

This one was sent to THE AGE, which exercised its editorial discretion not to publish:

Cop-out On Inflation And Rents

If a Budget is to be anti-inflationary, it must stimulate supply more than demand. Most importantly, it must stimulate supply of accommodation, not only because residential rents feed into the CPI, but also because goods or services cannot be supplied unless (a) enterprises can afford commercial accommodation, and (b) employees can afford housing within commuting distance of the enterprises, on wages that the enterprises can afford to pay.

To boost the supply of accommodation, the Budget could have made the First Home Owners’ Grant available only for new construction, or confined negative gearing to new construction, or made the discounting of property investors’ capital gains contingent on new construction, or at least on offering the properties for rent. None of these things happened.

Meanwhile the Government proposes to increase the intake of immigrants, ostensibly in order to boost the supply of labour. Never mind that immigrants also demand goods and services and, most importantly, housing!

These observations show that the top priority of this “Labor” budget was not to contain inflation — let alone rents — but to maintain a desperate shortage of housing in order to drive up rents and prices for the benefit of incumbent property owners.

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Re. “Babcock bounces as Bear Stearns extracts more value” (March 25, item 17).

The Macquarie infrastructure model is dead, not because of any failure to “internalise management”, but because of a failure to tap the benefits of infrastructure in order to amortize the capital cost. The benefit of a new road, net of tolls, is manifested as an uplift in land values in locations serviced by the new road (or by other routes on which congestion is reduced by the new road). Hence, if the benefit exceeds the cost, the cost (net of tolls) can be defrayed by clawing back some fraction (less than 100%) of the uplift in land values. The rest of the uplift is a net windfall for the land owners — who therefore should enthusiastically support this financing method because it would finance projects that would not otherwise proceed, yielding windfalls that the owners would not otherwise get. But when a Public-Private Partnership builds a toll road, it doesn’t claw back any of the uplift in land values, but tries to finance the whole cost out of tolls. So the tolls are too high, patronage is too low, and the operators can’t pay their debts.

Gavin Putland

Letter to the Herald Sun

Monday Jan 28th, 2008

It is appropriate that the surge in Melbourne home prices has rekindled debate on stamp duty, but not at all appropriate that the discussion has focused on the size of the duty instead of its base.

Stamp duty is a transfer tax on the total value of a property, including the building(s) and the land.

By taxing buildings, the duty deters construction and thus reduces the supply of housing.

And by separately taxing every transfer in the supply chain, it impedes the process of bringing new homes to
market (and discriminates against owners who need to move frequently).

The solution is to apportion the duty to the increase in the land value since the last transfer of title.

Dr Gavin R. Putland, West End, Qld

Read Gavin’s commentary on Stamp Duty and development levies

submitted to the Age on January 22nd, 2008

Dear Editor,

Martin Feil and Ernest Rodeck in “The debt penalty: a matter of great import to all Australians” (Opinion, 21/1) express concern at the accumulation of foreign debt, partly due to two decades of buying foreign goods instead of Australian.

It is often said that we cannot compete with Asian countries because of their low wages. That is only a small part of the problem. If one buys an item for $10 in a supermarket, the cost of labour in making it might be less than $1. The remainder goes to handling, marketing, profit taking, etc.

What appears to be the main problem is 55 of the 56 taxes imposed in Australia, most of which directly or indirectly end up increasing cost of production. It penalizes manufacturing. At the same time those who hold land, which only has value because of the community and the infrastructure provided by government, pay very little for the benefit. A realistic community resource charge (or tax ) on land values would allow scrapping most of the 55 taxes. A good start would be payroll tax.

David Barkly

Letter to the Age

At last there is some openness from the property investor lobby! Caroline Lawrey, Housing Industry Association Victorian executive director, claimed that a property owner had the right to determine when and when it was developed (Age 16/11).

With rising land values, leaving land idle and preventing its use by others causes land values to rise. And it is not “houses” whose costs are spiralling upwards, but the land on which they sit!

The proposal to tax holders of under-used land more heavily would free up underused land and assist in making homes more affordable. But the HIA consider that property should be deemed an investment opportunity rather than as a family residence.

Karl Williams
Tecoma

Letter to the Age

Dear Sir,

So let me get this right. Messrs Howard and Costello say the economy has been going so well that the RBA intervened by increasing interest rates to slow it down again? But why should anyone want slow down a healthy economy? Did the government have it going too well? Can Mr Costello explain where the line is between going well and going too well?

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Letter rejected by the Age (Melbourne)

As the Federal Government is planning an emissions trading scheme — not a carbon tax — why will households foot the bill? (”Householders to bear brunt of trading scheme”, the Age, June 25.)

Answer: An emissions trading scheme is a carbon tax payable not to the government, but to private polluters. As carbon credits become scarcer relative to demand, producers who need to purchase carbon credits will pay higher prices, which they will pass on to you and me. And who will be the beneficiaries? Obviously the sellers of carbon credits — who in the main will have received their credits as rewards for causing greenhouse emissions before the scheme was introduced!

An honest carbon tax would go entirely to the Federal Government, so that taxpayers might be compensated by cuts in other taxes. But polluters’ profits from carbon credits will be taxed as discounted capital gains, so that the rest of us will have far less opportunity for cuts in Federal taxes but will still pay the private tax.

Manningham Leader

Dear Sir,

I am appalled at the ignorance displayed by the councilors and ratepayers alike reported in the Manningham Leader with respect to the rating system in connection with the differential rates to be applied to vacant land. Differential rates are wrong because they are arbitrary and unnecessary if the correct rating base, site value (SV), is used. The currently used capital improved value (CIV) penalizes those who develop and improve their land with higher rates and assists those who hold their land idle with lower rates. (more…)

Dear Editor,

Re: BCA: 56 taxes a company curse (The Age “Business Day” 10/4/07)

We hear low overseas wages given as the reason our manufacturers cannot compete with Chinese imports, but we don’t hear of the penalizing effect of the multitude of taxes on our manufacturers. It would be surprising if Chinese manufacturers were similarly penalized. Production wages form only a small proportion of the price paid by the public for overseas products, particularly in these days of automation.

The joint Business Council of Australia and Corporate Tax Association call for a comprehensive review of federal and state business tax arrangements, should receive wide support, however, removal of a number of charges, such as payroll tax, should not await completion of such a review, whilst we have an escalating $500 billion foreign debt, with no end in sight and manufacturers disappearing almost on a weekly basis. These penalizing taxes on production should be replaced with realistic community resource charges on the use of land and all other finite resources including forests, water, oil, gas, minerals and the electro-magnetic spectra.

Yours sincerely,
David Barkley