What silly kind of a tax raises no money?

Overseas buyers of Melbourne real estate have had to pay a Foreign Purchaser Additional Duty since mid-2015. The tax raised $133 million last year, according to official figures released to The Age under Freedom of Information.

The newspaper tried to suggest this tax is intended to peel money off outsiders,

“a significant money-spinner for the Andrews government, with revenue almost doubling in a year.”

That’s a fun read, but completely misses the intention of the tax.

The Andrews government would prefer to make nothing – not one dollar – from this measure. The tax is a signal to foreign investors to GO AWAY!

Rent-seeking in any form is economically corrosive and a lazy placement of capital. Australia’s 1.3 million strong army of negative gearers may think they are onto the easy riches, but are utterly dependent on bad tax law and further rises in the already inflated price to rent ratio. By definition, they cannot all progress to owning a fat rent-roll – there aren’t enough rentable properties or prospective tenants in Australia for this empty dream to come true. Something else will happen.

At least they spend their profits in Australia, mostly on domestic goods and services. Foreign rentiers are an out-and-out loss for any economy. Their buying inflates the cost of land for all. Then the rents are consumed in another country. Ditto with capital gains, if any.

Physically absent foreign holders cannot put Australian land to use directly. Sure, they can develop it for others to occupy or rent it out, but these are second-order benefits:

“The best fertilizer is the gardener’s shadow.”

With this tax the Andrews government has biased landholding away from foreign investors. It is a form of signalling – with an economic price attached to it. Absentee rentiers are free to ignore the message, to the benefit of Victorian taxpayers.

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https://prosper.org.au/2017/08/17/what-silly-kind-of-a-tax-raises-no-money/