Select Committee on Value Capture: Public Education campaign vital
Following our Parliamentary submission, Prosper Australia was asked to appear at the Select Committee into the Scrutiny of Government Budget Measures – 05/11/2015. The transcript is now available.
CASHMORE, Miss Catherine, President, Prosper Australia
FITZGERALD, Mr Karl, Project Director, Prosper Australia
CHAIR: I now welcome the representatives from Prosper Australia. Information on parliamentary privilege and the protection of witnesses in giving evidence to a Senate committee has been provided to you. I now invite you to make a short opening statement, and at the conclusion of your remarks I will invite members of the committee, which includes Senator Dastyari, who you cannot see—he is on the line—to ask questions. I will just let you know that, unfortunately, because of weather and other factors outside of our control that we are running late, so we will have to cut you short by 10 minutes, like we did for the last couple of witnesses. Your opening statement is up to you; you can make it as long as you like but it leaves more time for questions if you do not make it long.
Mr Fitzgerald : Good. The role of infrastructure and its influence on property prices is becoming more and more pronounced. You just have to visit the local newsagent and look at a magazine such as the Australian Property Investor, where basically, I think it was in 2011, they had a whole edition about it. The front cover said, ‘Transport, infrastructure and property prices: the road to riches’.
So this can be advertised out there. We have companies, such as Cedar Woods Properties, which make astute decisions based on where future infrastructure is to be built, such as the multimillion-dollar developments at West Footscray station under the Regional Rail link and also the Williams Landing train station, which cost an astronomical $110 million, including overpasses. They bought the land surrounding that infrastructure and just this week they have launched, I think, 300 apartments within 300 metres of this incredible Williams Landing train station. It looks like the Millennium Falcon—it is amazing!
So here is public expenditure leading to these incredible private gains. Cedar Woods have the knack, and have also bought land near the St Albans level crossing removal that is happening, and down in Clayton South as well. It is a well-known fact that this is how to make easy money, and I am just so happy to see that this concept of land value capture is now gaining in popularity in Australian policy circles—it is catching in the wind, if you like.
We have seen and noted historical examples in Hong Kong and Japan, through to recent examples in London, with the London Crossrail tunnel, and through Washington, with their Rhode Island extension. And there is New York, their No. 7 train line extension. Value capture has played an important role in accelerating the rate of infrastructure provision.
So the concept is out there, and we are confident that it can deliver infrastructure at the least cost to public revenue, whilst simultaneously encouraging good use of that ‘location, location’.
CHAIR: I have to ask you before we proceed: did you get a phone call from the Prime Minister at all on this?
Mr Fitzgerald : Well, I hope that is coming! As I quoted in my submission, Malcolm’s wife, Lucy, has been a strong advocate of value capture. In my big report in 2012, Total Resource Rents of Australia, I actually quoted Malcolm on DNA privatisation and Lucy on value capture. So this is a big story we are talking about, and value capture is an important first step in the public recognising the role they play as a community in creating the windfalls that are driving these sorts of inequality gaps and government pressures.
CHAIR: Okay. Before we get to a bit more discussion on value capture and how it might work, what is the history around it in this country and elsewhere? Can you give the committee some examples to look at?
Mr Fitzgerald : Certainly. Going back 100-odd years, the formation of Canberra was based on a wider version of value capture with their leasehold model. Every 20 years the land was revalued and that lease payment went under the freehold system to government to help finance infrastructure. It is not well-known enough, but about 30 per cent of the Sydney Harbour Bridge was financed using value capture from the incredible uplift in land values for those on the North Shore.
Miss Cashmore : The betterment tax system.
Mr Fitzgerald : It was regularly known as the ‘betterment tax’.
Miss Cashmore : And it was widely accepted by the public at that time, that they were going to benefit from the uplift in land values and that paying some of that back was worth that benefit.
Mr Fitzgerald : Also, of course, here in Melbourne there was the Melbourne City Loop. The first City Loop tunnel had a 25 per cent value-capture-type funding arrangement via the council rates surrounding Flagstaff Gardens there. A former Prosper Australia President was a prominent Melbourne City Council member and then bureaucrat, and he really helped to ride that through. John Bradfield, who was the chief engineer for the Sydney Harbour Bridge, was also what we would call a ‘Georgist’, who understood the teachings of Henry George, and how public infrastructure leads to locational value.
CHAIR: You mentioned, at the very beginning of your submission, that historically Australia’s infrastructure was financed using municipal bonds repaid by municipal rates. I have not quite tied the value capture into that yet, but was value capture part of that?
Mr Fitzgerald : It is in effect the outcome of what the council rating process or any land base holding charge does. The council rates—
CHAIR: They are based on sites for land—
Mr Fitzgerald : are based on land valuations, so as those land values go up a percentage of that would go back to finance the infrastructure in a dedicated fund, if you like, to repay the infrastructure. That was traditionally how we built things, and as Catherine mentioned—
Miss Cashmore : And extended the boundaries of the city. A very useful way of extending, rather than having development levies, is to sell municipal bonds based on the uplift in land value so that you can make plans for that ahead of time.
CHAIR: Presumably if the bond owner owns the bond, and the value or the price of the bond goes up, over time they benefit from land value directly as an investor?
Miss Cashmore : Absolutely.
CHAIR: You make the point though that today we have these bonds that are called ‘infrastructure bonds’ but the repayment method is different to building of infrastructure at least cost. Before you answer that, I cannot find any infrastructure bonds. We have been asking people about them and if the concept sounds great. There are some here in Victoria from what we gather today, but there do not seem to be many examples of an existing—
Mr Fitzgerald : Not in Australia generally. It is a snazzy word for using the sovereign ability to sell securities and have that sovereign guarantee to repay them, which is underpinned by the value capture process. That is as simple as it is.
CHAIR: You comment about the repayment method straight away from the building of infrastructure at least cost. Could you explain to me what ‘infrastructure at least cost’ means?
Mr Fitzgerald : That is the triple element of: by having a land value capture charge in place it acts to keep a lid on land prices, so that then is passed onto the community with lower mortgage costs, and from that they can spend more money in their local community rather than it hiving off to Collins Street or wherever the banking world is. So that is one element. The second element is that, of course, government can borrow from the open market at a lot lower rate than private industry so that is a huge benefit there.
Miss Cashmore : You do good careful cost benefit analysis on the land. In other words, because the cost is being reaped back from the land values there tends to be much more efficiency in the benefits that the infrastructure will actually create ahead of time. More so than we see now you make sure that the infrastructure is going to benefit the community best, and you get more community involvement in that and more acceptance from the community about the infrastructure that is going in and that is going to provide them with those benefits if they are going to be paid back out of the value capture in their land values.
CHAIR: World’s best practice say bonds are repaid by municipal rates on the land over a lifetime of 20 years, and the values captured by the increase in land prices derive from the publicly financed infrastructure. But how do we capture that increase in land prices at the moment? How is it levied versus what you are suggesting?
Mr Fitzgerald : We have a land tax on investment-owned land so that is one of the main measures. But as the ACT is showing us, the broadest measure is through the council rating base because it includes residential and commercial, so all bases are covered there. That is the best way to operate, but unfortunately over the last 40 or 50 years the percentage of holding taxes on land, which incorporates land and council rates, has fallen dramatically. Even in the last decade we have seen where land tax is most needed, on land under $350,000, the land tax system here in Victoria has all but been wiped out for affordable housing. So the land tax take has fallen, and it is no surprise to us that, as that has occurred, land prices have increased. They work as a counterweight to each other, so as I pointed out in the submission, at present people are buying properties above what their wages can justify, above what the rents they can earn on that property. They do that, because they are confident their expected future capital gains will be able to repay that money.
CHAIR: Helped along by a capital gains discount of 50 per cent.
Miss Cashmore : Absolutely. Every tax incentive that you give just gets fed down into land values. You want higher land values, and the tax exemptions and everything feed directly into that. As Karl said, we have got a problem here where the threshold is lifted for land tax so that has happened multiple times in Victoria—and I am sure elsewhere. We have the same problem with councils rates being capped so that they are not being increased. So what is happening essentially is a transfer of wealth to landowners who are reaping the gains of not only the infrastructure investment that we have going on here but also the tax exemptions that they are getting on the base of their land. It sounds great if you are a landowner but what it eventually does is break down the economy generally because it causes more burden on future home buyers and businesses, which have to pay higher rents and then have less to pay for wages and investing elsewhere.
CHAIR: So it contributes to housing affordability.
Miss Cashmore : It breaks the economy down, and that is essentially why you have housing crashes because, at some point, the economy cannot sustain the gains that have been created. So there is really no option, as I see it, but to capture that value back from the land values. You let it go either into private interests, which obviously causes the problems that we have got with all the senate inquiries going on about housing affordability, or we find a way of capturing it back. Unfortunately, they are the hard tax reforms of broadening the land tax base.
CHAIR: By broadening it, you mean extending it to your primary residence?
Mr Fitzgerald : Yes. That is the challenge we have coming up at the state level. I just want to finish off that point that, whilst they (home buyers) are expecting these future capital gains to come forward, when a land value capture—which is essentially a micro-version of a land tax-comes into play, people start incorporating their future land tax liabilities into their purchase price. Because this is a cost of ownership, they have to recognise that that $450,000 they are considering paying may well come with another $200,000 in land taxes over the next 20 years. So that then starts them thinking: ‘Hang on a minute! I’m probably only going to commit $250,000 to this property.’ And, as that ripple works its way around the economy, people realise that this is actually a great advantage for the Australian economy if we have lower land prices, because look at what is happening in our industrial and commercial land sites. We are the only organisation in the country that is seriously monitoring the role of what we have termed ‘speculative vacancies’. These are vacant properties held empty for capital gains.
CHAIR: Do you look at electricity or water rates and other stuff?
Mr Fitzgerald : Catherine is the author for our Speculative Vacancies report.
Miss Cashmore : We use water usage as a proxy and we look at it over it 12-month period. We look at what would be very low water usage, because obviously you have got leaks and people still watering their gardens and whatever in empty homes. By doing that, we can work out how many properties in Melbourne are empty—essentially vacant—for a period of 12 months or more. We are very lucky in Melbourne that we can do that, because most of the apartments, or a large proportion of them, are separately water metred. We have tried to do it for other states but, with Sydney, most of the blocks have a single water metering so it is very difficult to adapt it.
The idea of the study is just to give ministers and policymakers a chance to see what the result of current policy is. We want to stimulate building activity. We call upon foreign investment to help us to do that. One of the justifications of saying that foreigners can invest in Australian real estate is that they buy a new property and they add to the housing stock, but we are not actually increasing the supply unless that housing stock is utilised—that is, unless it is available for renters and buyers. At the moment what we are seeing is a lot of the high-density stock just is not available—a high proportion of it—for renters and buyers, so we are not adding to the housing stock. More worrying is, if we do get a downturn in house prices—which will eventually happen under the policies that we have got; it is just inevitable—that is usually when the latent vacancies become visible, because that is the time where investors do need to generate more funding and more cash. Of course that just exacerbates any downturn.
But there are so many consequences of having empty properties. There are fewer people around to take advantage of the businesses, so the businesses suffer, or people have to commute longer distances to work. More worrying is the land banking that we find going on in the fringe areas. There are a large number of vacancies in those fringe estates—up to 50 per cent in some cases. So it is something that needs to be addressed.
CHAIR: Yes. Thinking about it intuitively, we had Standard and Poor’s here today and we were talking about levels of national debt, and obviously our household debt is some of the highest in the world. I have not looked at the stats, but I presume a lot of it is mortgage.
Miss Cashmore : It is the third highest in the OECD.
CHAIR: The third highest, is it?
Miss Cashmore : Yes, behind Switzerland at 179 per cent. We are on our way to second.
CHAIR: It is very high. How you would transition to a tax on property when there is already very high leverage and very high debt in existence would be complicated.
Mr Fitzgerald : The word is out there in the property investment world. I heard some property investors at a pub in Carlton say, ‘It doesn’t matter what side of the tracks you’re on, as long as you invest near the tracks.’ I thought, ‘What a great line that is!’ This trend flows through all of our infrastructure. Our vacancies study for the last eight years—we are just about to release the eighth one—has shown that around Carlton, Carlton South and Melbourne university the speculative vacancies are huge.
Miss Cashmore : Yes, the inner city ones in the high-density stock. What they have tried to do with the high-density stock is build up around the train stations. They have said, ‘We’ll put all the apartment blocks and everything around the train stations so we can have less space for parking.’ All that has happened is that a lot of it is not being utilised. The gains are going to landowners.
As for transitioning to land value capture or broadening the tax base, the question really is how to do that. Canberra at the moment is the only model that we have that is doing that over a 20-year period, but of course it is simplified in Canberra because the decision maker is the council as well as the government.
Mr Fitzgerald : And they have that history of the leasehold system there. It is quite powerful as a measure. But there are lots of other little things happening around the nation. The light rail in Queensland is obviously a good example, but it is a flat fee that is being charged there. I think it is $111. We would prefer it to be—
CHAIR: A flat fee on what basis?
Miss Cashmore : As in it does not matter where you are located.
Mr Fitzgerald : Yes. They have an assessment district, I think, and those people are paying. So there are various (LVC) models, like the one that was in the West Australian just yesterday or the day before, where they were talking about as a first stage giving the air rights above a new train station to the company and using those development rights—like the joint development fee I list in my submission—to finance this infrastructure.
CHAIR: So they can ring-fence it and reallocate it.
Mr Fitzgerald : Here in Victoria they have a similar system with the level crossings, but I am yet to see how significant it is going to be because they are saying that on the land they are reclaiming around these level crossings there is going to be some sort of value capture mechanism to recycle some of this uplift. That is quite a clever way to get the ball rolling and for people to start getting their heads around how much of our finance is going to fund this infrastructure. At the moment it is a giant lolly jar that politicians use for marginal seat campaign platforms. The Andrews government has pushed three level crossings through the marginal seat of Bentleigh, and they come with a price tag of $131 million each.
They are also building a $21 million train station for Westfield at Southland. So it is a nice little package for those people who own property there, where the median value is over $1 million. Whenever such infrastructure is announced, property values seem to increase by a minimum of 10 per cent, all the way through to Fishermans Bend, where there was a 500 per cent plus increase in land value.
So, it is just becoming so obvious, and we wish government could assist us in promoting these leakages from public expenditure and people coming to realise that of that $131 million price tag in Bentleigh—and, again, I will just use a flat fee, but that is not how we would like to do it; we wish we had the money to get each land title valuation and do the proper modelling on it—the windfall gain is going to be about $150,000 to $170,000. And if property owners pay 13 per cent of that back over the next 20 years, there is a closed-loop infrastructure financing mechanism that makes sense to the market and must make sense to property owners when they can say, ‘Well, I am paying a little bit back, but I still get 87 per cent of the windfall gain’—not a bad deal.
Miss Cashmore : The other issue we have is that council rates are rated on capital improved value rather than site value. For broadening the base, that is something that needs to be addressed. In other words, they are rated on the building and the land. So, if you improve your building you are up for higher rates, and we would really like to see that change. It has been one of the things we have pushed for, for a long time. The reason we have pushed for it is that we have a wealth of studies that we did during a period when Victoria was I think the only place in the world that had different municipalities using capital improved value and others using site value at the same time, and also changing over the same period, which has allowed a whole host of studies to be undertaken on those sites. We have found in the studies that have been done that overwhelmingly the building activity, the economic activity within the municipality that rates on site values, has been way in excess of those that rate on capital improved value. In other words, there is no question that rating on the land does stimulate land use and density and all of those things that state governments are so concentrated on doing at the moment to cope with the broadening population. The only way you can really do it is by educating the public. That is always the hardest thing. These things sound great in theory, but how do you sell it to them?
CHAIR: And then the politicians will follow that.
Mr Fitzgerald : The great one is the No. 7 extension in New York, where Mayor Bloomberg at the time said, ‘I’m the local government here, and this is a state-run train line that I want extended to the Hudson Yards.’ They did the numbers and said, ‘Hang on a minute: we can increase the property tax take by $30 billion over 30 years; that is ample for us to be able to sell some bonds to the market and then use that to repay it.’ So, they stepped into the next jurisdiction, using their sovereign risk, their guarantee, and sold this to the market and got things moving so much faster. That is the sort of thing that happened in London with the Crossrail, where the business community could see the benefit that this would bring, so they were the ones who actually drove this forward. Let’s hope that sort of understanding can help free up the gridlock that is choking Sydney, for example.
CHAIR: I was wondering whether the Brisbane light rail project might have had something like this included, but it looks like it has been federally financed anyway.
Mr Fitzgerald : That was the flat fee I was talking about before. Property owners are contributing something, but those who live within the first 500 metres, for example, are the ones who would take more than half the windfall gains, and that is exemplified if the air rights are handed over with that, which is what they do in Japan and Hong Kong. They say, ‘Look, we’ll build a train station, but we have to have a 10-storey apartment block above it, and the first two storeys are for shopping.’ From what I have heard, you actually walk through a department store to get out of the train station. That is the innovative development funding process they have gone through there. And MTR in Hong Kong, which also runs the trains here, has delivered dividends to its shareholders in Hong Kong in the past 13 years. That is how powerful a mechanism it is. Yet in the West, up until recently, it has been thought that public transport is a loss-loss. It is time to make it a win-win.
Senator URQUHART: I just want to pick up on one of the points in your submission where you talk about superannuation as an infrastructure financing vehicle. You talk about a few things there, like the Clem Jones Tunnel and a few others. I think you called them an ‘unmitigated disaster’. Surely there are a lot of success stories you could point to as well?
Mr Fitzgerald : With superannuation as the infrastructure vehicle?
Senator URQUHART: Yes.
Mr Fitzgerald : The problem there—and perhaps I should have qualified it—is that superannuation could be a funding source, but only if there is a value capture mechanism supporting the user charges and possible federal grants. If it was part of the funding mix, that would be okay, but I am just horrified by the thought of workers’ hard-earned savings being thrown to the wolves because of these extravagant infrastructure costs, extravagant traffic flow funding models, and then a poor financing mechanism using $14 or $15 tolls for people to get to work each day. It is just not going to work.
Senator URQUHART: I do not think anyone would disagree. I certainly would not disagree with you about workers’ money. But I guess the issue is that you have obviously, just in a very short spot, pointed out some disasters, but there must be some good stories of where things have been returned back to superannuation funds.
Mr Fitzgerald : To tell you the truth, I have only seen the bad stories.
Senator URQUHART: Okay.
Mr Fitzgerald : I would like to learn more about that incredible funding base there, because it is quite a honey pot—$2 trillion-plus and growing. So yes, it would be good if these cost-benefit analyses included the cost to the funding mechanism if value capture is ignored. Here we are struggling to fund the Metro Rail Loop in Melbourne, with no long-term financing established, and Premier Andrews has allowed Parkville, neighbouring one of the most prominent train stations around Melbourne university, to be rezoned. He has handed out the free lunch before we have actually figured out how to fund that lunch—this train line that is going to lead to double or triple the land values for those who have those development rights within the first 500 metres.
Miss Cashmore : Rezoning is a real problem, because as soon as you rezone land the land price takes the gain. We are talking about increasing density, and a lot of land around Melbourne and particularly north of Melbourne has been rezoned to increase density, whereas the southern councils have restricted that by having what are called Neighbourhood Residential Zones, which limits density to just a subdivision of two. But the more you increase the density the more the land can yield, so obviously the land price takes the gain; it makes it more valuable to developers. That is another problem: we cannot deliver affordable accommodation while we are always feeding growth in land prices, which is the biggest component of the property price.
CHAIR: Obviously you are seeking a holistic change to policy to implement a land tax regimen for all land—
Miss Cashmore : Ideally.
CHAIR: But if that is politically unpalatable, and obviously you have been fighting this fight for a long time, is it possible to ring-fence it—a tax just around developments, a one-off kind of thing?
Mr Fitzgerald : Certainly, and that is where these joint development rights come into play, and that is what MTR does in Hong Kong. It also happens in China. I cheekily included a list of resources at the end. If you just need a little bit more reading there is a great book listed there called Wheels of Fortune, by Fred Harrison, which goes through the history of the English canals right through to the East Asian tiger economies and how they have included this value capture type of process to regenerate economies that are not endowed with natural resources like we are. That idea of no-losers development rights above train stations is certainly a powerful step forward.
Then, once that is proven and it is shown that it can be a useful element of infrastructure finance, we would like to see that expanded to at least the first kilometre around a train station in what is known as a Special Assessment District. Landowners there should be engaged in a strong public education campaign before the project is announced—that is a key point. ‘If you want this here, would you be willing to pay X amount—13 per cent, let’s say—over the next 20 years?’ So we need to get that public education on board because that is the big one.
Miss Cashmore : It is. It is the only key to sustainability with any policy that you put forward—that you get that understanding.
Mr Fitzgerald : Third, of course, would be the broadening of the land tax base onto the family home, which would then enable the rebuilding of libraries, parks and all those little hot spots around waterways—anyone with a beautiful view.
CHAIR: Which themselves continue the multiplier effect of adding to land values as well.
Mr Fitzgerald : Yes.
CHAIR: Could you tell us why stamp duty is not an effective way of capturing that same revaluation of land? If my house goes up 20 per cent near a new rail line, and I sell it, I have to pay more stamp duty.
Miss Cashmore : First of all, the instance of stamp duty falls on the vendor.
CHAIR: The seller?
Miss Cashmore : Yes. In other words, the stamp duty comes off the house price. If you took away stamp duty, house prices would go up by the amount that you took stamp duty away. There are a host of studies to show that. Also, it is only levied on people when they actually move, so you do not have to move. You can gain that benefit. Every property investor knows that you do not sell. The way that you benefit from the market is you never sell your property. You just use your property as an ATM and leverage the equity from it.
There is only about four per cent of the population that is moving at any one time, so that means that your tax take is being levied on that four per cent. Obviously, what we want to do is encourage people to be more fluid in the housing market. People do need to move for work purposes. We want the security of owning a home but we want people to downsize. You cannot have stamp duty and say, ‘We want to incentivise people to downsize,’ because that is a disincentive to downsizing.
CHAIR: That is why I wanted to get this on record. Under your proposal you would basically get rid of stamp duty?
Mr Fitzgerald : Absolutely.
CHAIR: You would essentially transfer that into a tax.
Miss Cashmore : It must be replaced with a land tax. You cannot get rid off it and replace it with higher GST because, again, property values are just going to go up. Land essentially sits at the base of the economy. It takes all the gains from the economy.
CHAIR: Do the proponents of these land taxes suggest it is a revenue neutral measure, or are they more—
Mr Fitzgerald : Certainly. Our aim is to reduce taxes on the productive sector and replace them with those taxes that are capturing some of this unearned income. So last Friday’s national accounts found that land values increased in one year alone by $525 billion, and to replace taxes on all three levels the government is about $500 billion, so it is immense. The year before that it was $345 billion. If you read the economics textbooks, they say this free lunch—this unearned income—is only one to two per cent of GDP, so don’t even bother looking at it. We are at the forefront of saying, ‘These land rents are closer to 14 to 15 per cent of GDP and we need to look at them seriously as a public financing vehicle.’
CHAIR: You are under parliamentary privilege here, but who lobbies against this kind of thing? Who has the most to lose if we changed this?
Mr Fitzgerald : It is interesting, because typically the Property Council of Australia has lobbied hard against this, but in recent years some press releases have come through supporting the replacement of stamp duty with land tax from one particular state division of the Property Council, and then there will be another one that says something else. So there is talk within the property lobby that perhaps the time has come to remove stamp duties, for example. Seeing what has happened in London in particular, with the business community coming on board, I think there is a real potential for the business community to step into this space and say, ‘It’s only fair that these big commercial landowners pay something back.’
I counted up 13 think tanks at one stage who were taking this up. Then there is me, as a full-time employee, and we have got two part-timers. That is why we are saying to you guys that we would love some help with the immense public education program we have to undertake to try and counter the lucrative nature of reality TV—The Block and Location, Location, Location and so forth.
Miss Cashmore : I think that is the hardest battle, because you are dealing with a society that has been breastfed on the idea that you walk up the mythological housing ladder. That you have to start—
CHAIR: It is an aspirational thing.
Miss Cashmore : Yes, that is right. The HIA have come round to stamp duty being replaced with land tax—they can see the benefit of that. It is a great boost for builders and employment in the building industry, because it means that a lot more people will make use of their land. But there is a big fear out there among a lot of the property industry that it will in some way impact industry that runs off the speculative element of housing. In other words, it makes a lot of money out of advertising to people about how to take advantage of these gains, and, really, it is bad for the economy.
Senator URQUHART: I have just brought up your website and am reading your mission. I am not sure whether I have missed something, but it says:
To replace all existing taxes with an annual charge on government granted privileges and natural resources, including land.
So, that means all taxes completely?
Mr Fitzgerald : That is right. Payroll tax is one of the first to go.
Senator URQUHART: PAYG and all that sort of stuff? All the taxes?
Mr Fitzgerald : Yes.
Senator URQUHART: How would you deal with a scenario—it might be hypothetical, but I am sure you have thought it through—where you have someone who lives in a lower socioeconomic area? We do not have big train stations in Tasmania, where Heather and I are from. We do not have the population yet to support big train stations. In that situation, where you have people who live in low socioeconomic areas and who are maybe unemployed or on a very low income—the casualisation of the workforce is happening all over the country now and people are sustaining themselves on a very minimal income—how do you expect those people to pay land taxes?
Miss Cashmore : First of all, if they were living on marginal land the land taxes would be very low, because obviously your land tax—
Senator URQUHART: But they are not paying anything at the moment.
Miss Cashmore : If we were to get to an economy where we removed taxes from productivity and put them onto not just land—in economics, land accounts for mining and all natural commodities—but a resource base, you would find that the economy would blossom under that. A lot of the problems that you get now are, first of all, because marginal land is overpriced because of the land policies that we have. Regarding work, we have a lot of high deadweight costs with the taxes that we have at the moment, which are a disincentive to work. Gradually moving to that, or moving to that ideal, would greatly benefit what you see at the moment. I cannot see how that could happen at the moment, but it is something that is a transition to that.
Senator URQUHART: Another scenario would be someone who has worked, bought their home many years ago and own their home. They might be on an age pension or a disability pension, but their home might be in a very good area. There are places around Tasmania like Sandy Bay, which is somewhere where people used to just live near the water but now is a very costly place to buy.
Miss Cashmore : In the transition you could protect those people. You would say in that—
Senator URQUHART: It was just that when I read that, it did not explain to me how you would sort—
Mr Fitzgerald : Yes, the FAQ section covers a lot of those.
Senator URQUHART: Sorry, I did not get to that.
Mr Fitzgerald : That is all right. They are the questions we always get, and they are the type of things that have impeded this. But the numbers I have calculated show that the economy could grow by about 25 per cent, in terms of GDP, and from that the small business creation and the increase in wages would certainly help those people. Our Speculative Vacancy report shows that vacancies also focus on low socioeconomic areas where first-time property investors are jumping in under the land tax threshold of $250,000. So it is encouraging greater property speculation where we least need it. That is why, with this vertical fiscal imbalance play-off happening at the moment, we need federal parliament to really put some pressure on the states to say, ‘Look, don’t go down the GST path straightaway. You have the best revenue base possible. You need to be reducing land tax thresholds as a starting point.’ We need a big public education campaign.
Senator URQUHART: Maybe I will read your FAQs, and if I have a question I might put it on notice.
Miss Cashmore : Please, we would love that.
CHAIR: Thank you very much for coming in and appearing today. Apologies that we had to cut you off 10 minutes short. I thank the witnesses who have given evidence today, and I now declare the meeting of the Senate select committee into the Abbott government’s budget measures adjourned. I thank very much the hardworking Senate staff and Hansard for their coverage of today’s committee.