“The world has been sinking too much private debt into land price bubbles. And, by definition, bubbles have a habit of bursting.” – Bryan Kavanagh, Land Valuer (Ret), Australian Taxation Office
Anthem for a brazen new era:
Laissez faire economic rationalist neo-imperialism: Why do people, including many economists, think a recession causes house prices to fall, when in reality falling house prices cause a recession? Banks have been raising their stakes since 2000, consequently, many people have 'lost everything'. The push to 'allow' millennials to draw on superannuation funds for a home deposit goes back to 2017, when banks and 'real estate agents' began offering 2 and 3 year fixed interest loans. The problem is that if young people commit their superannuation savings for 3 years 'fixed interest' and, afterwards, can't afford to pay the new 'variable interest' rates, they could lose both their home and their deposit. Facing Homelessness – yet another consequence of Real Estate bubbles. Once freed from 'survival mode', people can be creative. Meanwhile, families are struggling, unnecessarily.
How will this end? – Maireid Sullivan, 2017
"You really need to be 'yupped-out' now to be able to buy a house in Australia."– B. J. Wood III (private communication, 2017)
Yuppie- Young Urban Professional Noun
1. Fashionable young middle-class person with a well-paid job.
2. The term yuppie originated in the 1980s and is used to refer to young urban professionals who are successful in business and considerably affluent.
Economics Professor Michael Hudson:
"The wealthy don't make income - they make "capital" gains, especially unrealised gains from land and other rents.
Tax that instead."
Excerpt: For everyone of the tax department’s underpaid lawyers, we employ four highly paid experts incentivised to outsmart them; who do you think wins every time?
the “Big 8” is now the big four – PwC, Deloitte, EY and KPMG – bigger and more powerful than ever, each of them employing more tax experts than the ATO, being paid princely salaries for the best advice that money can buy. Advice on how to avoid paying tax is one of the most lucrative areas of consultancy in the big end of town.
…
Questions will also have to be asked about the wisdom of using multinational tax avoidance experts to advise the Australian Tax Office.
Why that question wasn’t asked in the first place beggars belief, and there may well be scapegoats to be found inside the ATO, too. ...>>>more
More than 100 economists and tax experts have published an open letter calling on Prime Minister Anthony Albanese to reconsider the Stage 3 tax cuts for high income earners, labelling the tax cuts as economically unaffordable and unfair.
The open letter appears as a full-page advert in the SMH & The Age today. High profile signatories include Nobel Prize Winning Economist Professor Joseph Stiglitz, former Governor of the RBA Bernie Fraser, Former ACCC Chair Professor Alan Fels AO, tax expert Professor Miranda Stewart, Professor John Quiggin, and former Department of Prime Minister & Cabinet Secretary Dr. Mike Keating AC.
“More than 100+ economists and tax experts are calling on the Prime Minister to reconsider the Stage 3 tax cuts in the interests of responsible economic management,” said Dr. Richard Denniss, Executive Director at the Australia Institute.
“Economists & tax experts are telling us that these cuts are bad for an inflationary economy, unaffordable, and unfair.
“The RBA has just forecast inflation to be above the 2-3% target range by the end of June 2024, a day before these cuts are scheduled. Handing out a quarter of a trillion in tax cuts to high income earners will fuel inflation, damage our fair-go tax system, and lead to cuts of essential services.
Scott Morrison’s scheme from 2018 is the wrong economic plan for the Australian economy in 2022,”concluded Dr. Richard Denniss.
Fmr RBA Governor Bernie Fraser said “Stage 3 of the previous Government’s personal income tax changes was always unfair and unaffordable. It is even more so today and prospectively, on both counts. The choice ahead for Labor could not be more clear-cut; it can stick with its “phoney” commitment to Stage 3 (“phoney“ because it was adopted not because it was viewed as a valuable social reform but more for base political reasons), or it can choose not to go down this path and channel the substantial savings involved to the many very valuable – but very expensive – social reforms promised in the lead up to the last election. Which way Labor decides to go here will be a good test of the strength of its commitment to fostering a fairer and more caring Australia.”
Fmr ACCC Chair Allan Fels AO said “The tax cuts will add to our inflationary woes, are fiscally inappropriate in light of major demands on the public purse, and unfair unless linked with wider tax reforms.”
Tax Expert Professor Miranda Stewart said “The Stage 3 tax cuts permanently flatten the income tax rate structure. The removal of the 37% bracket delivers a permanent tax cut to top income earners, mostly men. This makes the structural fiscal deficit worse, with a substantial fiscal cost without efficiency and equity benefits.”
Professor John Quiggin said “While increases in interest rates are forcing millions of Australians to tighten their belts, the promised Stage 3 tax cuts are a step in the opposite direction for high income earners. With the knowledge that there will be an extra $9000 a year in to their pay packets in eighteen months’ time, those earning $200,000 a year or more have no need to scale back their spending. This inflationary fiscal policy is counteracting anti-inflationary monetary policy”.
“Stamp duty was introduced to NSW in 1865, and the system has not kept pace with the changing way people live, work and move.”
CREATING JOBS and SECURING OUR FUTURE (pdf)
Progress Paper for June 2021
Making Home Ownership More Achievable in NSW
BUYING IN NSW, BUILDING A FUTURE
NSW PROPERTY TAX PROPOSAL
NSW Treasury June 2021
www.treasury.nsw.gov.au
Excerpt from the INTRODUCTION
As part of the 2020-21 Budget, the NSW Government unveiled a proposal to change the NSW tax system to give property buyers the choice to pay stamp duty (and any existing land tax, where applicable), or alternatively to pay a smaller annual property tax when they purchase a property.
The NSW Government released a Consultation Paper outlining the benefits of this proposed change, along with a proposed policy framework. …
ACKNOWLEDGEMENT OF COUNTRY
NSW Treasury acknowledges that Aboriginal and Torres Strait Islander peoples are the First Peoples and Traditional Custodians of Australia, and thank them for their custodianship of Country – land, seas and skies. We acknowledge the diversity of First Nations cultures, histories and peoples, recognise their enduring connection to our State, and we pay our deepest respects to Elders past, present and emerging.
11 June 2021
Financial Review Land tax plan to cut housing prices by John Kehoe and Finbar O'Mallon
Excerpt
Housing could be 4 per cent cheaper under a proposal to axe stamp duty and give future buyers the option to choose an annual land tax, as part of a planned shake-up the federal government is under pressure to help states adopt.
Home ownership could rise 6 per cent if the property tax system is overhauled, reversing a decline in the rate from 70 per cent in the 1990s to 64 per cent today, according to a NSW government report released on Friday. >>>more
Prof. Dr Pasquale Pistone and Prof. Dr Philip Baker, directors of the IBFD Observatory on the Protection of Taxpayers’ Rights (OPTR), present the 2020 Yearbook on Taxpayers’ Rights, and explain some of the main events and trends arising in the protection of taxpayers’ rights last year.
The 2020 Yearbook contains information on developments concerning the effective protection of taxpayers’ fundamental rights around the world, as a step towards establishing a block of technically reliable data that can be used to support a constructive dialogue between taxpayers and tax authorities. This publication, the fourth of its kind released by the OPTR, compiles up-to-date information on the effective protection of taxpayers’ rights in 42 countries worldwide up to 31 December 2020. This publication, the fourth of its kind released by the OPTR, compiles up-to-date information on the effective protection of taxpayers’ rights in 42 countries worldwide. >>>more
Malcolm Turnbull’s memoirA Bigger Picture, released in April 2020, has captured the attention of one of Australia's leading forensic journalists, Quentin Dempster, substantiating "claims that the church has been duplicitous and unaccountable in distributing taxpayer money within its school system."
Government money is received by the Catholic system in one big cheque but, according to Turnbull, is distributed, not on the basis of educational need, but to keep school fees lower in middle-class schools to enhance enrolments and maintain “market share” against public and independent schools.
Former NSW education minister, Adrian Piccoli (Nationals) now director of the Gonski Institute for Education, said Turnbull’s account of 2017 conversations with the Archbishop of Sydney, Anthony Fisher, vindicated his own public complaints about the use of taxpayer funds within the Catholic schools system.
“Malcolm is right, they had us all fooled. It’s certainly immoral and unethical,” Piccoli said. ...
Turnbull persuaded David Gonski, an old school friend and fellow merchant banker, to appear at his press conference with his then-education minister Simon Birmingham to announce his government would follow Gonski’s formula for schools funding to be allocated on the basis of need.
...
The exchanges with Archbishop Fisher were some of the most “unedifying and disappointing” Turnbull had undertaken with a church leader.
“This was the fundamental issue: he was objecting to transparency and accountability and wasn’t prepared publicly to defend how they moved government money around their school system.”
... Professor Piccoli said unaccountable Catholic schools funding prevailed to this day... “So the reason the Catholics were giving high SES (socio-economic status) schools more money than they were entitled to under needs-based funding had nothing to do with need. It had everything to do with keeping market share in wealthy suburbs. I thought that was pretty disgusting.”>>>more
Excerpt: The proper function of the property industry is to keep the productive economy housed as cheaply as possible, so that investment in future production is not crowded out by the cost of occupying space — that is, by the cost of mere existence. To serve this purpose, the property industry must itself be productive — by building a plentiful supply of accommodation and by genuinely seeking occupants.
The industry naturally disagrees. It thinks its job is to charge the productive economy as much as possible for the right to exist. And it has been largely successful in getting its way with the legislators.
In particular: >>>more
The only beneficiaries of higher house prices tend to be landlords, banks, real estate agents and builders. The share of GDP attributable to workers and businesses has been steadily shrinking during the past century, gobbled up by tax and landlords.
Putland says: “Since 2003, the economic rent of land has consistently exceeded 15 per cent of GDP. The extraction of this economic rent, no less than the extraction of taxes, is a drain on the capacity of workers and employers to invest in future growth.”
Putland dismisses the wealth effect, that making landowners rich will help the economy.
“On past form, successful producers will invest their gains in further production, while successful rent-seekers will invest their gains in further rent-seeking,” he says. >>> more
Excerpt: Returning the budget to surplus as soon as possible must remain a key priority for the Coalition to rebuild the government's fiscal reserves ahead of the next economic crisis, particularly as the Reserve Bank of Australia's scope to help has declined, says Saul Eslake.
While arguing that the economic case for income tax cuts is better than for company tax cuts, Mr Eslake also chided Opposition Leader Bill Shorten for his planned hike to the top marginal tax rate, challenging him to explain "how much more should this lemon be squeezed, and why".
Mr Eslake – a firm supporter of Labor's promised crackdown on negative gearing, taxation of trusts, and the dumping of tax office refunds for unused franking credits – said he was "just as implacably" opposed to an even higher top marginal tax rate for those earning more than $180,000. >>> more
Excerpt:
We often say that the apple doesn't fall far from the tree. But for some multinational firms, their tax affairs often do.
In May 2013, Apple's chief executive, Tim Cook, was grilled by United States senators about the nature and structure of his company's tax affairs. The senators were scrutinising a complex corporate structure, and how Apple had come to amass over $100 billion of largely untaxed profits offshore.
Cook's retort to the subcommittee was: "We don't depend on tax gimmicks ... We don't stash money on some Caribbean island."
As The New York Times reported after the release of the Paradise papers: "True enough. The island Apple would soon rely on was in the English Channel." Jersey, to be precise.
Like millions of Australians, my life is better as a result of using Apple products. But I want the company to succeed based on product innovation, not tax innovation.
The shenanigans uncovered by tax leaks are not always illegal. But what is legal is not always moral or economically sound. Public health and education services are threatened when tricky tax tactics erode the tax base. Aggressive tax planning can erode public confidence in the tax system itself. After all, one reason most of us pay the taxes we owe is that we believe we live in a society where our fellow citizens do the same. Bad apples can spoil the whole barrel. >>> more
It is on the biggest earnings' driver for our banks — real estate. Consider these sobering facts.
• Australian capital city real estate is among the world's most expensive and least affordable
• Australian household debt is among the highest in the world
• The big four banks hold 80 per cent of all Australian mortgages, worth about $1.4 trillion
• Real estate accounts for about 60 per cent of their loan books
. . . Articulating that could be enough to light the fuse that everyone pretends simply doesn't exist, and it may well be that property misdeeds will escape the full glare of the commission.
The draft terms of reference for the royal commission, released this morning, include references to superannuation but fail to mention anything about real estate.
In fact, the only reference to property, oblique though it is, is that the commission specifically cannot look into what is known as macro-prudential controls — policies that have been implemented by the regulators to put a brake on property loans.
There are a couple of other specific carve-outs as well. The commission cannot replicate any other inquiry and it is not to delve into the adequacy of our regulators.
At first glance, it would appear the banks have managed to at least partially contain the potential fall-out. >>> more
"The inquiry Turnbull had to have"
Note: The controversial investment banker and Goldman Sachs partner, Malcolm Turnbull was the 29th Prime Minister of Australia from 2015-2018, leader of the Liberal Party from 2008-2009, and member of the House of Representatives from 2004-2018.
Banking royal commission: Malcolm Turnbull hates this inquiry, but it had to happen
by Louise Yaxley
30 Nov. 2017 The Prime Minister has spent the past 18 months stridently opposing calls for a royal commission into the banks, but in the end resistance was futile.
Excerpt: Malcolm Turnbull has called the royal commission he had spent a year and a half opposing.
"Government policy remains the same until it is changed," he conceded.To stop an inquiry happening against his will, he had to give in. "While we regret the necessity of the decision, we have taken it is in the national economic interest," Mr Turnbull said. >>>more
Excerpt:
Congratulations to Philip Hammond in rescuing millions of first time homebuyers from the hated impost of stamp duty.
True, as the Office for Budget Responsibility quickly noted, the Chancellor's decision to abolish the tax for first-time buyers purchasing a home for £300,000 or less will lead to higher prices and benefit existing homeowners more.
…
Accordingly, it would need to be replaced by something.
The logical replacement is an annual land value tax. Such a tax would reduce speculative buying and hoarding of land - something Mr Hammond suspects stops more homes being built.
It would provide a genuine incentive for people living in homes too big for them to downsize, freeing up housing capacity and letting others move up the housing ladder. It would stop house values being exaggerated. It would have the advantage of being hard to avoid, as land cannot be smuggled out of the country, hidden in a foreign bank account or disguised as another asset.
Properly implemented, it could also take the place of other inefficient and unpopular taxes, like council tax and business rates. It would also be progressive - the more valuable your land, the more you pay. And, being levied on land rather than the property itself, it would not - unlike Council Tax - penalise people who do up their homes. >>>more
Interview with economist Andrew Charlton, who was the economic adviser to former ALP Prime Minister Kevin Rudd.
ABC-RN PM
Duration: 3min 57sec
Broadcast: Thu 2 Nov 2017, 6:21pm
Featured: Andrew Charlton, economist
Partial transcript:
Introduction:
The trend of traditional jobs being replaced by new jobs, but potentially fewer jobs is something we will have to get used to, according to economist Andrew Charlton.
He says automation and artificial intelligence are sweeping through the services sector, which had been immune to job losses until recently. Andrew Charlton has recently completed a study looking at whether the rate of job loss to automation is higher now than it has been historically, and found that the rate is similar, but the type of job affected has changed.
New technologies, automation, artificial intelligence are now sweaping through the services sector, which until recently had been relatively immune from job losses which had been focused in the agriculture sector and manufacturing sector. And now we’re seeing those technologies come into banks, retail, telcos and many other parts of the services sector.
Q. You’ve done study recently on this. What were you looking at specifically.
AC: Whether the rate of change of job-loss to automation is any higher than it’s been historically. We hear so many news reports about robots taking our jobs, mass unemployment for humans, and the outcomes of our work were that it’s not so much the rate of job-loss to machines is any higher today than it was in the past, but the type of job being affected is very different.
Q: So were there actually times in history where the rate of automation was greater than it is at the moment?
AC: There were. The current rate of automation - every year we lose about 0.5% of all jobs to automation. And that’s actually lower than it was in the 50s and 60s, when agricultural technology was pushing workers off farms by the thousand. It’s lower than it was in the 80s and 90s when robots and automated processes were taking jobs from the factory floor.
Q: In those other times, was it easier tho’ to find different employment? Is that the difference?
AC: Great question. I think the truth is that its never been easy to find new employment. And Australia doesn’t have a very good record at helping workers transitioning between jobs. Think about the significant job-losses in the early 1990s recession in Australia where we lost a lot of workers from the factory floor.
Q: So you’ve found that in fact its much greater the proportion of people who’ve become unemployed who remain unemployed now than in the past.
AC: That’s right and we need to try much harder to make sure that worker transitions which will become an increasingly important part of all of our career experiences - that those transitions are better supported: there’s more training, there’s more job-matching, so that we facilitate the dynamism which is just an inherent part of our future working lives.
Q: So what’s the answer? I know a lot of work is going into those workers at Holden, for example, in trying to help them transition into new jobs, but what is the answer?
AC: Well our education system is just poorly equipped at supporting that transition. It’s set up for an ‘old world’ style of career trajectory: where you leave school in your late teens, you acquire a qualification - whether it be a university qualification or vocational education - we attach some debt to that qualification, and that’s not the reality of the modern labour market.
Q: Does it mean that people who find themselves without a job need to be doing, you know, computer courses - they need to be learning how to code. Do they need to be learning those sorts of skills?
AC: Well, look, those are some of the skills in demand in the economy, but by no means are they the only skills in demand. There is enormous growth in the health and community services sector. Massive growth in disability care, child care, education. All of those areas where there are - the caring sector is crying out for more workers.
Q: All of those areas where the wages are the lowest.
AC: And this is one of the great challenges. The nature of the current economic circumstances are that we are losing higher wage jobs and gaining lower wage jobs. And that’s part of the reason, not the whole reason, but part of the reason why wages growth in Australia has hit record lows. (3:57)
A recent study found that offshore wealth held by Australians was about 6 per cent of GDP.
Who Owns the Wealth in Tax Havens?
Macro Evidence and Implications for Global Inequality
Annette Alstadsæter, Niels Johannesen, Gabriel Zucman
NBER Working Paper No. 23805
Issued in September 2017
Drawing on newly published macroeconomic statistics, this paper estimates the amount of household wealth owned by each country in offshore tax havens. The equivalent of 10% of world GDP is held in tax havens globally, but this average masks a great deal of heterogeneity—from a few percent of GDP in Scandinavia, to about 15% in Continental Europe, and 60% in Gulf countries and some Latin American economies. We use these estimates to construct revised series of top wealth shares in ten countries, which account for close to half of world GDP. Because offshore wealth is very concentrated at the top, accounting for it increases the top 0.01% wealth share substantially in Europe, even in countries that do not use tax havens extensively. It has considerable effects in Russia, where the vast majority of wealth at the top is held offshore. These results highlight the importance of looking beyond tax and survey data to study wealth accumulation among the very rich in a globalized world.
Abstract
In recent years, a series of studies have been undertaken in Australia that use static general equilibrium models with a representative household to compare the relative efficiency of different Australian taxes. This paper aims to complement these earlier studies and contribute to a broader discussion about the structure of Australia’s tax system by estimating the welfare cost and identifying the economic incidence of marginal changes to the tax system. Our estimates of the additional welfare cost of a marginal tax change (that is, the marginal excess burden) of major Australian taxes largely align with estimates reported in earlier Australian studies. Consistent with earlier studies, stamp duty on conveyances and the company income tax are the least efficient taxes (that is, they have relatively high marginal excess burdens), while the most efficient tax is a hypothetical broad-based land tax. We test the sensitivity of the ranking of the efficiency of major Australian taxes to a range of assumptions about economic agents and the structure of the Australian economy and find that the relative marginal excess burden of major Australian taxes is robust to a wide range of model parameters. Finally, we show that the incidence of major taxes is largely borne by workers through lower real wages caused by lower labour productivity.
Excerpt: page 8
It is inherently difficult to capture this type of capital transaction tax in a model with a single representative agent. The approach adopted here treats real estate services as an investment good which improves the productivity of the firms, including the housing sector. One way of thinking about this is that real estate agents play a valuable role in finding producers that value the capital the most. Therefore a potential owner will be willing to pay a real estate fee equal to the profit they will enjoy over the previous owner. Within this setting the conveyance duty is treated as a tax on the value of investment and subsequent productivity gains facilitated by the transfer of land and structures.
Translated it reads “our model can’t capture transaction taxes so we’ll just assume the tax is something else to fit it into the model we do have.”
Stamp duties on conveyances
Stamp duties are a tax paid on the value of an asset when ownership is transferred, often inclusive of the value of any capital improvements. Stamp duty on conveyances is currently levied on the transfer of motor vehicles, insurance, and land and structures. The analysis reported here only focuses on stamp duty on conveyances levied on the transfer of land and structures.
It is inherently difficult to capture this type of capital transaction tax in a model with a single representative agent. The approach adopted here treats real estate services as an investment good which improves the productivity of the firms, including the housing sector. One way of thinking about this is that real estate agents play a valuable role in finding producers that value the capital the most. Therefore a potential owner will be willing to pay a real estate fee equal to the profit they will enjoy over the previous owner. Within this setting the conveyance duty is treated as a tax on the value of investment and subsequent productivity gains facilitated by the transfer of land and structures. We demonstrate that the return on investment is the same for a tax on investment or a tax on capital income (for example, company income tax) with the same rate. However, the investment tax will collect less revenue than the capital income tax and is therefore less efficient (that is, implies a larger marginal excess burden).
It is important to keep in mind that the approach taken here captures some of the efficiency costs of stamp duties associated with the distortion to value creating transactions. As such, the analysis aims to illustrate the potential efficiency impacts of stamp duties. p. 8 >>> more
What is Value Capture? The Australian government - seeking ideas
"from other governments, from industry and the community".
...opening up a conversation on how we can make better use of value capture to fund the critical transport infrastructure needed for the future.
The need for further transport infrastructure projects is greater than can presently be funded through traditional grant funding and user charges.
Value capture can provide for a more efficient and equitable approach to infrastructure development and delivery. This is why the Australian Government has a strong interest in making greater use of value capture.
Key points:
• Financial Services Council says allowing people to use super for house deposits will drive up prices
• Assistant Treasurer says any changes to super system would be 'finely calibrated'
• Labor says idea would undermine retirement savings
... Financial Services Council chief executive Sally Loane said tinkering with superannuation would undermine public confidence in the system and be counterproductive. "Withdrawing superannuation savings to buy a house — especially when house prices appear to be at the high end of the cycle in the major states — will not help first home buyers into the market," she said in a statement. "It will only further fuel the increase in house prices. ... We do not support diluting people's retirement nest eggs to solve a housing affordability problem." >>>more
'The uplift in the value of a property due to “ordinary market growth", like the uplift due to infrastructure, is not the owner's work, but rather the owner's appropriation of the fruits of other people's work. As both uplifts are unearned, the owner has no greater moral right to the one than to the other, and suffers no injustice if any part of either uplift is clawed back through the tax system.' – Dr. Gavin Putland
Excerpt Dr. Putland's submission to this enquiry:
1. What factors would cause beneficiaries, in particular property owners, to see a value capture charge as ‘just another tax?’ How can these factors be overcome
Property owners will object to a value-capture charge as “just another tax” if it is imposed in addition to existing taxes. To avoid the objection, a value-capture charge should replace as many existing taxes — especially property taxes — as possible. It is easy for the same value-capture charge to replace existing taxes and pay for increased expenditure on infrastructure, because there are two separate mechanisms involved. Even if there is no increase in infrastructure spending, a new tax on land values or on uplifts in land values will generate a certain amount of revenue that can be used to replace old taxes. But such a new tax will also enable the government — and indeed incentivize the government — to spend more on infrastructure, because such expenditure expands the base of the tax. In summary, the replacement of existing tax revenue comes from applying the new tax at an appropriate rate on the existing base, while the funding of increased infrastructure spending comes from expansion of the base.
There are two basic ways to change the property-tax base so as to increase its effectiveness in capturing value conferred by infrastructure. One is to tax the land value (or site value) rather than the combined value of land and buildings (because values of buildings are fixed by construction costs, so that values due to location, e.g. proximity to infrastructure, must be expressed in land values). Examples of this approach include (at State level) replacing stamp duty by land tax, and (at local level) imposing rates on land values alone, rather than rating total property values or (worse) imposing fixed charges or “minimum general rates”. The other approach is to tax changes in values over time, rather than current values. Examples include replacing stamp duty by a capital-gains tax, or changing the land-tax base from the total land value to the increase in the value since a specified base date. In the terminology of the discussion paper, “passive” value capture can be highly efficient. (I leave it to others to debate the relative merits of these various options. I note in passing that, to the extent that any particular option depends on the States, the Commonwealth can enforce it through the conditional-grants power, or by imposing its own value-capture tax and making it fully rebatable against any State tax on the same base.)
Other State taxes that we might replace by a general value-capture charge include insurance taxes (which are largely de-facto property taxes) and payroll taxes (because we can!). Of course, replacing a wider range of existing taxes requires a higher tax rate on uplifts in land values, which in turn allows a wider range of infrastructure projects to become self-funding by expanding the tax base, so that a larger number of infrastructure projects proceed for the benefit of property owners!
– Are there examples of mechanisms currently being used in Australia or internationally which provide a clear nexus between payments and the benefits provided by the infrastructure?
– How can governments accurately estimate the incremental value uplift generated by infrastructure projects as compared to uplift due to ordinary market growth?
– When identifying beneficiaries, how should governments determine the geographical boundaries around new infrastructure assets? Should governments focus on all properties directly around the new assets, within the wider region or at a city-level?
Excerpt:
Ensuring adequate incomes for poor working families is a key policy challenge in many countries. The growth of low-paid and part-time work, sometimes in circumstances of unstable or temporary employment, has increased inequalities in work and means that for many people wages alone are not enough to keep the family at an adequate standard of living. This is particularly true if there is only one potential earner in the family, and so in many countries it is lone mothers and couples with pre-school age children who are particularly likely to face financial hardship. >>> more
A Critique of the Decoupling Strategy: A "Limits to Growth" Perspective' In late 2015 the CSIRO - Australia's most prominent scientific organisation - published the 'Australian National Outlook Report' which argued that Australia can grow its economy and achieve sustainability without questioning consumerist values. In response to that report, the Simplicity Institute published 'A Critique of the Decoupling Strategy: A "Limits to Growth" Perspective' (Alexander, et al. 2017).
Download the report in pdf format here
Abstract
This paper presents a critique of the decoupling strategy which underpins the dominant ‘green growth’ paradigm within sustainability discourse and which shapes both national and international political and economic policies. The decoupling strategy assumes that all nations on the planet can and should pursue economic growth in terms of Gross Domestic Product (GDP) and that this is consistent with sustainability because GDP can be sufficiently ‘decoupled’ from environmental impact through a range of technological and market-based innovations. This decoupling thesis will be critically analysed by way of a detailed case study of the 2015 Australian National Outlook Report published by the CSIRO, which attempts to make the case for ‘sustainable prosperity’ via economic growth and decoupling. We show that the report contains a series of highly questionable and problematic assumptions that together undermine its case for decoupling as a plausible pathway to sustainability. Furthermore, even if the report’s most ambitious scenario were to be achieved, we show that it would still not provide a long-term sustainable and just solution beyond 2050, which further undermines the decoupling strategy. Our analysis then steps back from the specific case study to briefly unpack the key implications of the analysis and explain why the limits of decoupling support the case for an alternative ‘degrowth’ strategy of planned economic contraction. To conclude, some broader reflections on the debate over sustainability are offered, hoping to make clear the magnitude of the task for those who want to make the case for ‘green growth’ via decoupling.
Capturing Value -
Advice on making value capture work in Australia(pdf) December 2016
Executive Summery
Excerpt:
Australians rightly expect high-quality infrastructure services. Infrastructure underpins our quality of life, supports our economy and enables every individual to contribute to our collective prosperity. When issues with our infrastructure emerge, Australians expect our governments to step in and fix the problem. What is often missing from discussions about infrastructure is how we pay for the services we use and the improvements we expect.
. .
Government seeks public and industry input on value capture MEDIA Release
16 November 2016 Minister for Urban Infrastructure Paul Fletcher and the Assistant Minister for Cities and Digital Transformation, Angus Taylor
Using ‘value capture’ to help deliver more infrastructure is the subject of a discussion paper released today by Minister for Urban Infrastructure Paul Fletcher and Assistant Minister for Cities and Digital Transformation Angus Taylor.
New transport infrastructure delivers economic value – for example property prices typically jump near a new rail station. Tapping some of that value to help fund the cost of the infrastructure is an increasingly common technique.
The discussion paper examines the potential to more widely use value capture funding to supplement the billions of dollars each year already spent by all three levels of Australian governments on infrastructure.
It sets out a range of options for the Australian Government to action to stimulate the use of value capture in the development and delivery of infrastructure and describes various potential value capture approaches – including tools already in use by state and local governments.
Minister for Urban Infrastructure Paul Fletcher said the Australian Government was seeking public and industry input on the value capture concept.
"Many states and territories already use value capture funding models to support major upgrades," Mr Fletcher said.
"Similarly, developer charges are commonly used by local government authorities to help deliver utilities for new housing developments.
"If we are to make better use of value capture, governments must first understand why beneficiaries might be willing to pay for projects; identifying who these beneficiaries are and when they might materially gain from projects funded through this method."
Assistant Minister for Cities Angus Taylor said there was a need to find new funding models within the constrained fiscal environment.
"Government is getting smarter about linking transport investment with long term planning for affordable homes, closer to where people work and closer to services like schools and hospitals," Mr Taylor said.
"Through City Deals, we are looking at changing the way we fund infrastructure. Encouraging public private partnerships to pay for road and rail corridors where land values will increase, can be a wise way to invest taxpayers’ money."
Submissions on the discussion paper will be open until 3 February 2016. [correction/ 2017) - Source
NOTE: See Dr G. Putland's Feb. 2017
SUBMISSION, above.
Supportive housing is cheaper
than chronic homelessness
Cameron Parsell, Research Fellow at University of Queensland, examined the implications for Australians– "drawn from an analysis of linked government data."
“It costs the state government more to keep a person chronically homeless than it costs to provide permanent supportive housing …
Over a 12-month period, people who were chronically homeless used state government funded services that cost approximately A$48,217 each. Over another 12-month period in which they were tenants of permanent supportive housing, the same people used state government services that cost approximately A$35,117.
The significance of this cost difference is remarkable. Yes, people use A$13,100 less in government-funded services when securely housed compared to the services they used when they were chronically homeless. But, on top of that, the annual average of A$35,117 in services used by supportive housing tenants includes the A$14,329 cost of providing the housing and support." >>> more
Cost Offsets of Supportive Housing:
Evidence for Social Work UK study shows public housing is cost-effective.
Abstract
Policy makers and advocates in industrialised economies have increasingly couched arguments for addressing homelessness in cost-offset paradigms. In the USA, there is a robust body of evidence demonstrating cost offsets of supportive housing, whereas rigorous evidence from the UK, Europe and Australia is limited. The present article contributes to the evidence base with results drawn from a linked administrative data-set including: police, prison, probation, parole, courts, emergency department, hospital-admitted patients, ambulance, mental health and homelessness services data. The results show that in twelve months when people were homeless, they used on average $48,217 (£25,776) worth of government services; in the twelve months as tenants of supportive housing, the cohort used on average, including the cost of supportive housing, $35,117 (£18,773) in government services. Although social work only infrequently draws on cost arguments to substantiate practice and intervention, the article argues that cost-offset evidence is consistent with social work’s commitment to evidence base practice. Moreover, analysis of services that people use when securely housed compared to homeless adds further evidence to demonstrate that people’s actions, and their status as clients, is mediated by resources and opportunities available.
– Cameron Parsell, Maree Petersen, Dennis Culhane (2016), Cost Offsets of Supportive Housing: Evidence for Social Work, Br J Soc Work 2016 bcw115, Oxford University Press
Excerpts:
Stamp duty is a volatile source of revenue and inferior to land tax in terms of stability and predictability. ... Land tax is levied by all States except the Northern Territory on the ‘unimproved’ or ‘site’ value of land at progressive rates including a base exemption. A range of land uses are exempt, including primary production, owner-occupied residential, child care and aged care. Land tax raised $4.3 billion in 2007-08 (Treasury 2010c, p. 260); I currently estimate up to $10 billion. This is small relative to total land rent which I later estimate at up to $200 billion. … Henry noted that the higher tax on aggregate holdings discouraged large-scale investment in land; this may contribute to the investment housing market being (inappropriately) dominated by small investors (Treasury 2010c, p. 261). Because owner occupied housing is exempt, land tax is not fully shifted back to land-owners; rather, ‘the burden of land tax on residential investment properties is probably borne by renters through higher rents’ (Treasury 2010c, p. 262). (pp. 9-10)
Appendix 2
ACT Government initiative (excerpt from McLaren 2014, pp. 8-10). “The Australian Capital Territory (ACT) government undertook a review of its tax system in 2012 and one of the major recommendations was to broaden the land tax base to all principal places of residence and to gradually abolish stamp duty on the conveyances of real property. (Quinlan et al. 2012). By the year 2032, it is envisaged that there will be no stamp duty paid by the buyers of real property in the ACT. This approach generally follows the recommendations of the Henry Tax Review... (p.33)
10. Conclusion on land tax reform
I conclude, consistent with Henry and Mirrlees, that economic rent is a good subject for taxation and it should be taxed by robust, broad based taxes with very few if any exemptions. In particular the exemption for residential housing needs to end, and taxes on that and other land need to be at a flat rate with no thresholds. (p. 27)
View full report here( pdf)
New Laws have helped collect over $1.5 billion
Since July 2016, ATO action has already collected over $1.5 billion from large multinational corporations
By closing international loopholes, and actions by the ATO, more money is being collected from large multinational corporations. As a result, more money is being invested here, benefiting Australian communities and the economy.>>> more
Introduction Has a generation been shut out of the Great Australian Dream?
It used to be that Australians would spend 3 or 4 times their annual income on a house. Now it's 10, 20, even 30 times, putting home ownership out of reach for many, and especially for young people. The tax breaks that have helped fuel the unprecedented housing boom will be a big issue in the coming election campaign. Taken together, Negative Gearing and Capital Gains tax breaks cost the public purse 11.7 Billion dollars each year. Labor has promised to wind-back the concessions. But despite criticism of Negative Gearing from some Liberal politicians, including former Treasurer Joe Hockey, PM Malcolm Turnbull has ruled out any changes to the system. In tonight's program, experts say that Australia's housing market is already cooling. Economists are divided over whether we're seeing the start of a soft-landing, a correction, or a crash. For many in the Millennial generation, a crash is what they're waiting and hoping for.
Excerpt: (38:00) If the banks show the international investment community that they're lending to very, very credible borrowers -- credit-worthy borrowers -- then it's very, very easy for the banks to tap into very cheap debt and to be able to sell-off residential mortgage-backed securities with a triple-A rating.
Property and super:
What’s the deal? (15 popular Q & As) April 6, 2016 by Trish Power
‘How can I use my super fund to borrow money to invest in property?’ For the convenience of our 2 million readers, I have compiled a list of some of the most popular Q & As on the topic of property.
WHEN prime minister Malcolm Fraser unveiled a proposal to return some income-taxing power to the states in 1976 he faced fierce critics, but few fiercer than Malcolm Turnbull.
The young Turnbull wrote of Fraser’s plan: “It is nothing more than a cunning attempt to offload millions of dollars worth of government expenditure back on to the states without giving them any means, other than imposing an income tax, of raising the extra revenue needed.”
States were not so much being sold a pup, Turnbull argued, as being given “a large, extremely hungry and undoubtedly treacherous hound”.
As a correspondent for Nation Review, a now-defunct weekly, Turnbull had a ringside seat as Fraser tried in vain to implement a “new federalism”. He would therefore have been well aware of the political risks involved in pushing the state income tax idea.
When Fraser floated the proposal, Wran, then NSW Labor opposition leader, told Turnbull it warranted the same circumspect approach as a puff adder. But Liberal premier Sir Eric Willis embraced the puff adder and even had Fraser on the platform with him advocating the “new federalism” at the 1976 state election campaign launch.
The plan would give the states a guaranteed and flexible source of income, Fraser told the rally, adding: “It will mean that governments will have to stand up and be counted and take responsibility for their own actions.” >>> more
(Note: Google the title for free access to this subscription article)
The Australian Federal Treasury publication “Architecture of Australia's tax and transfer system” (August 2008) made a valid observation:
While there are at least a hundred taxes, they all ultimately fall on returns to owners of three possible factors of production; land or other naturally endowed resources (R), labour (L) or produced capital (K). The earnings of each of these factors make up the income of individuals, and when added up over the whole resident population for a given time period (t), the income of the nation (Y):
(1) Yt = rRt + iKt + wLt
where r is the return to resources, i is the return to capital and w is the return to labour.
This was a good starting point for how the three factors of production rate comparatively as revenue bases, but the case was curiously ambushed:-
This framework allows for an analysis of the relationship between the two main broad bases of income and consumption.
Income and consumption taxes may of course bear upon each factor of production, so we shouldn't be diverted. Let's stay with the equation, because it has an excellent pedigree... >>>more
"Over the past few years, over 40 per cent of all new mortgages originated have been interest-only mortgages....
"This is truly Ponzi financing, where home buyers only make money if their houses keep rising in value," – John Duling
Abstract
In recent years, a series of studies have been undertaken in Australia that use static general equilibrium models with a representative household to compare the relative efficiency of different Australian taxes. This paper aims to complement these earlier studies and contribute to a broader discussion about the structure of Australia’s tax system by estimating the welfare cost and identifying the economic incidence of marginal changes to the tax system. Our estimates of the additional welfare cost of a marginal tax change (that is, the marginal excess burden) of major Australian taxes largely align with estimates reported in earlier Australian studies. Consistent with earlier studies, stamp duty on conveyances and the company income tax are the least efficient taxes (that is, they have relatively high marginal excess burdens), while the most efficient tax is a hypothetical broad-based land tax. We test the sensitivity of the ranking of the efficiency of major Australian taxes to a range of assumptions about economic agents and the structure of the Australian economy and find that the relative marginal excess burden of major Australian taxes is robust to a wide range of model parameters. Finally, we show that the incidence of major taxes is largely borne by workers through lower real wages caused by lower labour productivity. >>> more
"Tax reform is in the news daily. Calls for fundamental reform have become louder, but there are diverse views on the direction and scope of the reform that is needed. … Five years ago, the Henry Review (Report on Australia’s Future Tax System, Henry 2010a) made a detailed examination of Australia’s tax and transfer system. ... Tax reform is fundamentally political. Rather than recommending specific reforms, we aim to identify key principles and directions for tax reform and to show what we know, and where the gaps are in our knowledge of tax policy (Stewart, et al. 2015)."
"Fairly and effectively taxing the mining industry has been the Labor party's white whale for decades. ... how can the Australian public get a fairer share of the profits from the extraction of its non-renewable resources, flowing largely to foreign-owned mining companies? ... The quandary helped Whitlam come undone, as it did Kevin Rudd. As this excellent radio documentary produced in 2012 for the ABC’s Rear Vision program. – [Transcript excerpt: 'We are selling off the farm’ was a common refrain in the late sixties and early seventies, a recognition that too much of those key mining and mineral resource areas were foreign-owned.]" – Paddy Manning, 2014
A uniform land tax in Australia: what is the potential for this to be a reality post the "Henry Tax Review"?
Dr. John McLaren, LL.B, MBA, LL.M, PhD, Senior Lecturer - Taxation. Published ion 1 April, 2014, Australian Tax Forum: a journal of taxation policy, law and reform, 29 (1), 43-58.
Abstract
Land tax was one of the main issues examined by Dr Ken Henry in his review on ‘Australia’s Future Tax System’ and the review recommended its increased importance in raising revenue in Australia. The classical economists such as Smith, Ricardo and Mill recommended the imposition of a tax on land. Henry George also strongly advocated a tax on land instead of a tax on labour or capital. They also contended that such a tax was both efficient and equitable. This paper will examine the current position with land tax in Australia and the views of the early economists advocating the benefits of such a tax. The paper will then examine the recommendations contained in the Henry Tax Review and what would be required to reform this area of taxation law. The paper will also examine the initiative undertaken by the Australian Capital Territory (ACT) government in abolishing stamp duty on conveyances and imposing a land tax on all real property in the ACT. In conclusion the paper will contend that a reformed land tax is of critical importance for future governments and that it may not only raise considerable revenue but also result in reduced income tax rates for individuals and companies.
Abstract
Land transfer taxes are a substantial portion of the cost of moving house in many developed countries. Because stamp duties are endogenous with respect to the house price, we create an instrumental variable that is the stamp duty on a property, based on the starting house price in the relevant postcode and the national house price trend. In a specification with postcode and year fixed effects, this instrument effectively captures policy changes and non-linearities in the stamp duty schedule. We find that the impact of an increase in the tax rate is to lower house prices suggesting that the economic incidence of the tax falls on the seller. We also observe impacts of stamp duty on housing turnover. A 10 per cent increase in stamp duty lowers turnover by 3 per cent in the first year, and by 6 per cent if sustained over a 3-year period.
Transport planning off rails Melbourne's rich could not avoid typhoid in the 1880s. Nor can they avoid the transport crisis heading their way.
The Age, November 21, 2012
By
John Legge
IN THE 1880s Melbourne was a study in contrasts. It was the fastest growing city in the British Empire and one of the most prosperous. It was also the smelliest, with an appalling infant mortality rate and up to 3 per cent of the rest of the population dying of typhoid every year. Melbourne's rich could not avoid typhoid in the 1880s. Nor can they avoid the transport crisis heading their way.
The economists and the germ theory deniers said that this was the way things were, and the best thing to do was to do nothing. People in the wealthy suburbs south of the Yarra weren't worried by the smells since they could pay to have their sewage carted to the river and dumped in it. The poor would have to put up with the smell, which served them right for not being rich.
The rich weren't troubled by the smells, but they were victims of typhoid. They caught it from their servants and food suppliers: germs didn't respect suburban boundaries.
A royal commission reported in 1888 that the only way to control typhoid was to arrange for the sanitary removal and treatment of sewage; and every household had to be connected to the system before any of them were safe. A Board of Works was established, funded from a property rate and began work in 1891 in spite of a fierce economic crisis; and by the start of the 20th century the smells, and the deaths from typhoid, were a fading memory.
Melbourne in 2012 faces another crisis, not of contagious disease but looming economic stagnation. Once the transport system serving a city reaches its limits developers no longer want to build and building owners no longer want to maintain: eventually the city decays into a few buildings in a sea of bombsite car parks, like downtown Dallas or Los Angeles.
Los Angeles and Dallas are spending huge sums building up their public transit systems, not because of some sentimental leftie belief in the virtues of public transport, but to bolster inner-city property values and to get developers interested in the bombsites.
Melbourne has a superb public transport infrastructure - for 1935. The affluent have crossed the Yarra and now colonise almost all of the zone-one public transport area, delighting in the benefits of the public transport system built by our ancestors. They enjoy frequent tram services and fast and comfortable trains. They own cars and use them for shopping and visiting friends and relatives; but they don't rely on them to get to the city for work or play.
Extending Prahran-class public transport to all the built-up areas of greater Melbourne would cost a considerable amount; but generate far more in increased property values, as well as keeping Melbourne's CBD vibrant and prosperous. Our debt-shy state government won't do anything significant to save the city, whichever party is in power: both have prolonged the appointment of public servants who believe public transport is for losers and the best that public transport users should expect is an occasional bus on a crowded freeway.
We must go back to the future and establish a public authority, funded by property rates, with a mandate to build a genuine world-class public transport system. With such a system in place, no more than 5 per cent of Melbourne households would be more than 800 metres from a fixed-rail transport service. A rate of 0.1¢ in the unimproved capital value dollar would raise about $1.7 billion per year, while half of all households would pay no more than $11 a week. This is less than it currently costs outer suburban households to register and insure their third car.
Over a 20-year period such a public transport authority would raise and spend about $35 billion on Melbourne's fixed-rail infrastructure. This is sufficient to deliver the Footscray to Caulfield tunnel, the airport and Doncaster rail lines, and then build an additional 100 kilometres of twin-track heavy rail, add an express track on 100 kilometres of existing rail routes, build 1200 kilometres of light rail and tram routes, and eliminate 10 level crossings.
This would be a fantastic bargain for suburban battlers: over 20 years their transport rate would cost no more than $12,000 while their property value rose by $80,000. The attraction might seem a little less in Toorak or South Yarra with their excellent tram and train services built by preceding generations; but their property values would be protected from the consequences of the collapse of CBD values if the city were to be choked by inadequate transport.
The government has attempted to remove the politics from public transport by setting up Public Transport Victoria; but the people that it has appointed to the board have been involved in a series of disasters, not just myki, that have left Melbourne travellers paying too much for not enough. They are the people who scrapped 90 trams just as patronage started to rise; who closed two tram depots and sold the land, then sent their minister to tell the public that a new depot would cost half a billion dollars; who signed dodgy contracts with the first batch of franchisees giving Melbourne 20 bouncing trains and another 20 trains that wouldn't stop; who sent out their ministers to make public fools of themselves by saying new trams would cost $20 million each and a three-kilometre extension of the Epping line would cost $300 million.
The government has hinted at the creation of a public transport development authority funded by a metropolitan improvement rate. This will be a great idea, but only if visionary people like Sir Harold Clapp and Sir Robert Risson are in charge. The current crop of public servants can't be trusted with the future of Melbourne.
John Legge is an educator and consultant. He lives in zone one.
END
