Gittens: Speculative Behaviour Trumps Social Contract

Misinformation
Creative Commons License photo credit: jimjarmo



Ross Gittens displays a neo-classical economist’s spectacular lack of understanding in today’s article Land Tax reform rehouses a flawed focus on rational.

As every politician understands, people’s “revealed preference” is to have tax extracted from them in ways they are less conscious of and so feel less pain and resentment about.

From this perspective, conveyancing duty is a tax people don’t greatly object to paying. The tax is dwarfed by the price of the property, and in return for paying it you get the different house you fancy.

By contrast, land tax is highly unpopular because it’s so visible. Every year you have to post a large cheque to the government, but get nothing in return.

You get nothing in return? Land Tax is one of the state government’s biggest income earners. This helps fund the wages of teachers, firemen and nurses. It funds road and infrastructure building and maintenance too.

We must recognise that these developments make a community more desirable. This in turns adds to land values. Wherever a new road is resurfaced or a new school gym built, the surrounding property takes the windfall gains for private profit. Land Tax is the best way to share those community funded benefits with the people that paid for them.

Because Land Tax is so small and ineffectual (as it is presently administered), key resources such as schools are surrounded by vacant land, sprawling our travel times and carbonising our kids future.

Unfortunately, due to the fallacies of commentators like Gittins, this perspective is rarely discussed. If it is, the property lobby will direct something quickly to the press to shoot it down. Isn’t it interesting that the week after the Henry Review experts talked about the need to move taxes onto immovable assets, both the Herald Sun and the Age have front cover stories trying to shoot down holding charges on land?

There are over half a dozen think tanks representing the property lobby in Victoria alone. We have 2.8 people and a growing number of volunteers. We’d love your help!

To debate Gittins other key points – yes Land Tax is visible. That reflects transparency. Public education is needed to show how much pain the layer upon layer of taxes we face in running a business or paying for goods effects the economy. These are called compliance costs and deadweight taxes.

Local Councils now send out public information documents showing what your council rates pay for. Why doesn’t the State Government re Land Tax?

Holding charges on land such as council rates and Land Tax are a way of paying something back for being part of a community. There is only such an uproars because of a well funded property lobby mobilising their army of PR agents to continue the fallacies.

Gittins second critique is that money isn’t the only factor that influences decisions. How right he is. But the point of clarity needed is that property speculators have pushed up the price of housing so much that the percentage effect of taxes like Land Tax and conveyancing have been magnified. If speculators were ushered out of the market by a higher, flatter Land Tax (with no threshold), then the price of land would not be so high. Genuine home owners would not be crowded out of the market. There should be no impediment to labour mobility. High land prices and high conveyancing charges should both be forced down by reforming holding charges.

The third critique is that improving land based charges will ruin families because elderly parents will have to move out of the family home. How many families are being driven apart by the speculative stress that housing prices are placing on workers in their prime, driving young people away from their parents due to affordability? Workers are forced to live in the sprawl and commute an hour each way whilst their retired parents live in big, airy houses near the city wishing they had a nice view of nature. If only young people were better letter writers and had millions of dollars to spend on PR, weekend advertising and editorial lunches.

One can only assume that Gittins believes the rights of the speculator trump that of the citizen.

Read Bryan Kavanagh’s letter responding to the above issues.

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https://prosper.org.au/2009/06/29/gittens-speculative-behaviour-trumps-social-contract/