Deep thinking at the PARI launch

Last night saw the launch of the Prosper Australia Research Institute. A vibrant crowd attended our LSX headquarters to hear the detail behind Prosper’s new deductible gift recipient entity.

This was an important historical event with a sense of timing.  77 years earlier (to the day) the trust deed of the Henry George Foundation of Australia was formally lodged, establishing the organisational infrastructure for the financing of the national Georgist movement. In a significant move worth millions of dollars today, Edgar Culley bequeathed £13,000 to the movement, ensuring the message of economic justice and freedom was promulgated throughout the nation.

The capacity of PARI to attract further donations will build on this history, assisting the tremendous momentum we feel is underway at present. A Georgist supporter of 70 years said the last time he heard a Federal MP mention Land Tax was Casey, under Menzies – the administration responsible for removing the Federal Land Tax (1952).

It was a successful night with money raised. This will be put to good use with a research paper critiquing an expansion of the GST. We cannot allow such a damaging tax to go virtually unopposed.

The long-term PARI objective is to build towards the modelling of economic rents, portraying just how efficiency and equity could play out with a fairer tax system. A passionate line of questioning followed in the Q & A, pushing Prosper to reach new heights.

Reading the daily financial press, there certainly is a beckoning for greater research into the effects of unearned income on society. Why are billions spent on the God Particle or exploring space when we barely understand how the value of the earth effects society? It’s like playing soccer without rules – or gravity. We are inspired by the number of commentators willing to question the prevalence of rent-seeking. One rising commentator is Warwick Smith, who wrote a telling piece today in The Guardian on All Taxes Are Not Created Equal.

As usual, the reality is not as simple as Hockey makes out. Not all taxes are made equal. The best taxes don’t take other people’s money but instead recoup public money that’s appropriated by rentseekers.

In related news, some may believe it a good thing for banks to be charging a higher premium on investor loans. Ten basis points will do little to curb demand, with the added cost more than covered in a week’s land price uplift. If the charges were more significant, investors could always borrow from foreign banks, in the process pushing up demand for the aussie dollar. This would offset the RBA’s attempts to engage in neo-protectionism (currency depreciation).

The larger question is why the banks can benefit from higher interest charges on investors, but the public is told a Federal or State Land Tax is some time away?

The need for a land value tax continues in light of the post-GFC policy environment, where just years after the last property induced crash we are headlong into the next one.  Further pressures are set to build via State investors bulk up on real estate:

Big public sector investors are joining the global property boom, with plans to shift significant funds into real estate and infrastructure projects during the next three to five years.

The trend, reported in a survey by the Official Monetary and Financial Institutions Forum, highlights pressure on officials to boost performance in an environment of ultra-low interest rates – and raises the question of whether the public sector is helping to inflate property bubbles.

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Since the global financial crisis, monetary policy makers have driven borrowing costs to historic lows, but their actions have made it harder for those in public sector dealing rooms to generate returns on assets they manage.

The continued securitisation of the rental market is another emerging policy trend needing deeper analysis. Rental Backed Mortgage Securities continue their move into financial markets with acronyms such as SFR (Single Family Rentals) developing. Such derivatives are sold to the market with family home rental payments acting as the derivative income stream. The ‘single family’ definition is important in the American context as this highlights sites on typically large blocks of land in prime locations, set to enjoy considerable capital gains over time (all things remaining equal).

Such is the market power of investor interests in the land game that SFR yields are promising 9.2%!  The best of both world’s is possible for some with low purchase prices and high rents.

Not satisfied with securitising the residential mortgage market and (post-GFC) the rental market, the banking sector has opened up commercial  mortgage-backed securities as a product line. From India to Florida, the commercial sector is ‘enjoying’ the added liquidity. The question is whether the boon of speculative capital darting about the world can provide cover for the widening gap between rents and prices?

With these trends just a tip of the iceberg, PARI is set to build our capacity to address the many rent-seeking agendas prevalent. We look forward to your assistance in assembling the evidence and developing the media strategy to continue the mainstream analytical evolution underway. Begin that by joining us in economic reform as a member of Prosper Australia and then donating to enable further research via PARI.