Bad taxes are destroying our jobs and enterprises – here’s proof

Communityreport

World-class fertiliser producer Incitec Pivot Ltd has painfully written $105m off its Gibson Island plant in Brisbane – squeezed by high gas costs, low Urea prices and bad taxes – just as it enters a major ‘shut’ to refurbish this key national industrial asset.

Turning gas into nitrogen fertiliser is genuine value-adding, unlike the three brand-new unviable LNG plants at Gladstone that merely make gas an easily transportable commodity.

IPL is one of the few domestic manufacturers not yet destroyed by the rent-seeker biases in Australia’s economic settings. We have an obligation to listen to CEO James Fazzino in his significant cost-out task ahead.

He said he wasn’t asking for a cash handout from government. But changes to regulation and reform around payroll tax would make the factory – which currently operates at a profit – viable in the long-term.

The government has got a role to play in terms of the taxes and charges on the plant. We paid $7 million in the last half – that’s a tax on manufacturing jobs,’’ Mr Fazzino said.

“I can assure you that our competitors offshore don’t pay that tax, and in terms of tax reform not enough people talk about tax on jobs, and taxing Australian manufacturing jobs.

“I’m highly aware that at the same time the government has got other calls but one thing for sure is if the plant shuts, we won’t be paying any of those taxes.”

Economic theory suggests Payroll Tax falls on labour or is passed on in higher prices.

Capital has little or no capacity to bear taxation – it moves away or refuses to reinvest, which is the dilemma Mr Fazzino faces today. Unable to pass Payroll Tax on in higher prices or lower wages, he must accept lower returns on investment and watch his, and Australia’s, competitive position drift away.

I am repeatedly astonished the Australian Labor Party tolerates Payroll Tax in any form. It skims the cream from work while other incomes from rents, interest, dividends and capital gains enjoy a free carry. Unsophisticated workers may think Payroll Tax falls entirely on business, while their alleged political champion knows better yet just looks away.

In recent months, a bizarre political charade has been played out before us. Prime Minister Malcolm Turnbull has energetically raised tax reform ideas then discarded them as unworkable. Two tax bases remain uncontaminated by this process: Payroll Tax and land tax.

I condemn Payroll Tax. It injures the honest and innocent while deterring economic activity. Give it up.

One tax base remains worthy of our attentions. One base that doesn’t cause harm: land tax.

(Disclosure: David Collyer owns IPL shares)

 

10 Comments

  1. david singer11-05-2016

    Well expressed David.

    On the issue of a broad based land tax I would draw your readers’ attention to these highly significant remarks made by two very influential people on Q and A last Monday night:

    1. Cassandra Goldie – Head of ACOSS – Australian Council of Social Services

    “The other big reform, which is actually both in terms of tax reform and housing affordability, is a switch to get rid of stamp duties over time and to broaden the base of land taxes. Now, that’s a State reform, but the Commonwealth Government has a key role in encouraging that. That would have been a good – not a thought bubble but a serious proposal for the Commonwealth Government to put to the states, and we really hope they do that. So it’s very… It’s not… There are a number of levers, but it cannot go in the ‘too hard’ basket anymore for all the reasons you say. ”

    2. Innes Willox – Australian Industry Group Chief Executive

    “The issue of housing is part of the Australian dream, but we also need to be mobile, so Cass’s point about stamp duties is completely right. It’s one of the greatest rip-offs of all time, State stamp duties, and there are ways you can get around that. So, if a government wants to think big and bold about tax, Tony, let me just put on idea out there for you. What if we implemented something like a Federal land tax, say five cents per square metre? That could raise about $200 billion. You could get rid of State land tax duties, you could get rid of payroll tax, you could get rid of a whole range of other taxes with that sort of tax manoeuvre which would bring money into the Federal Government, would allow mobility, would probably drive prices down in housing stock, and would make it easier for young people to buy.”

    The three pollies on the show from the Government, Opposition and the Greens remained silent and did not seek to state their views – the only time that occurred during the show.

    Why?

    This is a reform every political party should embrace for one simple reason – they all need more money to implement their programs and to get rid of that dreaded budget deficit costing $1 billion in interest per month they all are pledging to reduce.

    When will commonsense come to the fore and all political parties embrace this long overdue and much needed reform to the tax system before we lose our AAA credit rating and millions of Australians fall deeper into poverty and social despair?

  2. Andy11-05-2016

    Hi Mr Singer,
    I noticed that comment from Mr Innes Willox too. It surprised me!
    The fact he had that statistic to hand (5c per sqm) shows genuine interest from the AIG. Either he has an extremely good memory, or the AIG have recently completed some interesting modelling. Whatever the case, good on you Mr Willox! Keep the stats coming. Raise $200B from a broad based land tax? Yes please.

  3. Theo11-05-2016

    Malcolm Turnbull is showing his true colours now on tax reform. Hypocrisy and an interest only in protecting his electoral constituents interests, he has revealed not only is he unworthy to be called the PM but corrupt. Correct me if I am wrong but wasn’t it Malcolm Turnbull that said in 2005 negative gearing was ‘”tax evasion”? Why the change of heart Malcolm or should I say wallet?
    PS-Maybe the last half of his surname says it all.

  4. david singer12-05-2016

    Hi Andy

    Good on Mr Willox and Ms Goldie for placing the issue of a broad based land tax on the political agenda during a nationally televised broadcast.

    The system of assessment proposed by Mr Willox based on sqm of a property however seems unfair and inequitable – eg a 600sqm property in Bourke would pay the same land tax as a 600 sqm property in Bellevue Hill

    A far more fairer system of assessment would be based on the council rates each of those properties were paying (eg 5c per dollar). If the property in Bourke was paying less council rates than the property in Bellevue Hill then the Bourke property would pay less land tax.

    Nevertheless we are all agreed on the need to broaden the land tax base to get rid of stamp duties and help repair a burgeoning budget deficit of bankrupting proportions.

    When will Malcolm Turnbull and Bill Shorten join hands in a truly bi-partisan manner to reform the tax system by introducing an agreed broad based land tax to rectify Australia’s growing financial crisis ?

  5. Andy12-05-2016

    Hi David,
    Yes – good point. The same rate per square metre would not be fair nor equitable. The rate should be calculated as a percentage of unimproved land value, but could still be calculated on a per square metre basis.
    Another important consideration is the collection method. Rather than lump people with quarterly payments (or worse annual) – I think the PAYG system should be utilised.

    Regarding your question – while I can’t picture Mal & Bill holding hands, on the flip side it gives me some comfort to believe they could do it without being embarrassed.

  6. david singer13-05-2016

    Hi Andy

    I must disagree with your suggestion that the rate should be calculated as a percentage of unimproved land value calculated on a per square metre basis.

    Certainly in NSW the use of the system of mass land valuation to determine the unimproved land value of properties has led to the current values of every property in NSW becoming seriously open to question.

    It is a system that is open to manipulation and has been manipulated as I first discovered back in about 2001 when I uncovered two reports determining land values in two valuation districts that had been prepared within one month of each other by the same valuers in the then State Valuation Office (since disbanded) resulting in substantially increased land values for tens of thousands of properties being determined in the second report.

    Of course the land tax collected on the basis of the second report substantially exceeded the land tax that would have been collected under the first report.

    The two valuers were never required to give a public explanation to justify how they could substantially change the values of the same properties within the space of just one month or who told them to prepare the second report.

    You might like to read what the Ombudsman had to say about the land valuation system in his 2004/5 Inquiry into land values in NSW – which I finally succeeded in getting him to hold – but only after many failed attempts.

    https://www.ombo.nsw.gov.au/__data/assets/pdf_file/0020/3377/Land-Valuations-October-2005.pdf

    My submission to the Henry Review called for the scrapping of land values as the basis for determining land tax and replacing that corrupted system with one based on the council rates a person pays on his property.
    http://taxreview.treasury.gov.au/content/submissions/pre_14_november_2008/David_Singer.pdf

    Property owners know with far greater certainty what their annual council rates will be than what some valuation notice says their property is worth. Council rate increases are generally capped annually to CPI Increases. Land valuation increases are subject to the whim of a valuation system that becomes very expensive to challenge if you want to dispute the value to try and get your land tax reduced.

    Governments love to use land valuations as the basis for assessing land tax because it usually results in substantial over-collections of land tax they promptly pocket beyond that estimated in the Budget.

    Property owners are being taken to the cleaner annually as a result – paying far more than the Government estimated they would be paying.

    If Governments use “rates paid annually” as the basis of assessment – they can collect to the dollar the amount of land tax they budget for.

    Open, honest and transparent. Isn’t that what Government should be about?

    My system is called POST (Property Owners State Tax). It is collected quarterly by the local Council with the quarterly rate payments and remitted to State Treasury less an administration fee enabling additional income to be spent on improving local government services and infrastructure.

    It could equally be used if a Federal Land Tax was to be introduced.

    I understand that Federal Treasury modelling has shown that replacing stamp duties with a broad based land tax would deliver an estimated $24 billion a year or 1.5% of GDP into taxpayers pockets by removing the deadweight losses Stamp Duty imposes.

    Whilst Messrs Turnbull and Shorten do not jointly – or even individually – embrace this reform – either will soon be captaining a ship slowly sinking in a sea of debt – but both will be guilty of gross dereliction of duty for not having taken up this sensible and much needed tax reform.

    I have sent my submission to the Henry Review to Mr Willox and Ms Goldie this week following their comments and will let you know if they respond.

    We are all agreed on the need for such reform. We now need to agree on the basis of assessment that should be used to raise the revenue.

    Hopefully I have persuaded you – and hopefully Mr Willox and Ms Goldie will be similarly persuaded.

    The next step will then be to persuade Messrs Turnbull and Shorten.

    Someone in the media pack currently following both leaders around Australia should ask them this question in the next seven weeks – “Will you undertake to introduce a broad based Federal land tax to be levied on all properties in Australia with the amount raised in each State or Territory being returned to those respective States and Territories who abolish stamp duties payable on property transfers?”

  7. david singer16-05-2016

    Hi Andy

    I posted a comment to your above reply that was published on 12 May but has now mysteriously disappeared from this comments section.

    I have not been notified of any reasons why it should have been removed.

    Could anyone running this website care to explain how this could have occurred and why?

  8. david singer16-05-2016

    Hi Andy

    My comment that I thought had disappeared has somehow re-appeared.

    Apologies to all.

  9. Paul Meleng17-05-2016

    The land tax is easy to apply. Every property is already officially valued as to unimproved land capital value and its improvements. Standard valuation method is always to adjust recent sales records for the replacement cost of the improvements ( buildings) and their depreciation so as to arrive at the vacant land cost which is the used as example to arrive at the vacant land cost of property being valued to which the actual improvements on that property are valued and added back. So the UCV or Unimproved Capital Value is is all on the record. In WA for example a land tax is calculated for every property, but then exempted if it is your principle place of residence ( which helps explain a few multi mill mansions) . Then some attempt at fairness is made by aggregating an owners properties and charging a steeply increasing tax. This cannot be escaped by owning in multiple entities as they aggregate everything you effectively control. It makes the big powerful landholders as mad as hell. Yesterdays news has big developer Nigel Satterly deliberately throwing Gossip grenades into the Cabinet and Press about alleged leadership tensions etc because he is probably the party’s largest donor and not happy he didn’t get a land tax cut in the disastrous budget. So the steeply progressive land tax along with the windfall gains of re-zoning and development approvals totally and utterly corrupt the whole process of government and it is so structural that I would defy even the best of people to not play “the game” the way is has always been played since the very first grants of all the best land to the founding fathers. A universal flat rate land tax with no exceptions is the ONLY answer.

  10. david singer17-05-2016

    Paul

    The use of land values as the basis of assessing the universal flat rate land tax is open to manipulation as I discovered and uncovered over a decade ago.

    This is certainly so in NSW and I would suggest in other States where the mass system of land valuing is used.

    I can point to dozen of successful appeals against land values that have not resulted in the values of other properties within the same component code being reduced – despite an undertaking by the then Valuer General that this would be done.

    Basing land tax on the council rates paid on your property is a far fairer and transparent basis for assessment.

    Yes – it is a revolution in the same way as water rates in NSW – formerly based on assessed annual values – were replaced with a system based on usage.

    I am still waiting for Turnbull or Shorten – or better both of them jointly – to seize the bull by the horns and bring in this tax reform which is so urgently needed for the financial health of this country.

    All properties pay council rates for the provision of local government services. They should all pay land tax for the provision of state government services.

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