A modest proposal to make safe the AAA

From The Australian following yesterday afternoon’s AAA panic:

S&P analyst Craig Michaels told The Australian “our view hasn’t changed” and said that the company continued to have a stable outlook on Australia’s AAA rating, with no significant risk to that outlook on current trends.

“We wouldn’t be surprised to see some material revenue writedowns in the May budget, given what we’ve seen in commodity prices,” he said.

“We still think there’s a polit­ical consensus for governments to run finances prudently, and a consensus on both sides of poli­t­ics that surpluses are a good objectiv­e. We don’t think that’s fundamentally changed.”

“There’s still a buffer there, but that’s one factor we’ll be looking at,” Mr Michaels said.

The presser included a reassurance that the rating was unlikely to shift in the next two years. That adheres to my own most likely timetable.

A modest $140 billion in spare debt capacity sits between Australia and the 30% net debt to GDP cap that sustains the AAA rating. If commodity prices fall to where I think they will then much of that will evaporate just on refinancing, let alone the next global shock:

gnetbwe

In case you’re wondering, the only reason that we have this incredibly low ceiling on our public debt is because of the massive private debt that is mostly borrowed offshore and is a contingent liability for the public purse.

Given how inequitable this is to those who aren’t a part of the public asset quango including our unborn children, let alone how corrupting it is for our democracy and market transparency, let’s make it official. I suggest that we adopt a new “house price support tax” of 1% of all property values nation wide per annum.

With a housing stock worth $5 trillion that would raise $50 billion each year, cure the budget deficit, and free the rest of the nation from dragging around this giant ball and chain.

Comments

  1. Gosh there’s a worldwide outburst of modesty in proposals at the moment!

    This site has been pushing for a land tax for quite some time, together with other tax reforms (super lurks, NG etc). All of which are pretty modest, in my view.

    I think you’ve got a better chance on the super/neg gearing front than this one, just through looking at the number of people that would be directly affected by such changes. Super and NG would be, what, 10% of the population if that? This would affect the majority.

    • We are at the unhappy juncture where young adults are excluded from home-ownership, many owners are trapped in houses that no longer match their needs, so-called investors are taking horrendous risks with debt and govenment is too frightened to adjust policy in case it crashes the economy.

      The urgent and important change before us is land reform – so all may reasonably aspire to own a parcel and the independence, privacy and security it provides. But that high principle of the Australian settlement – originally held by left and right, rich and poor – has been defeated by a conga line of ticket clippers pursuing a zero-sum game of sectional advantage. We know allowing all to flourish is the path to universal prosperity – genuine win-win. The sooner we resume that, the sooner we can depart our current difficulties.

      Australian voters have been trained to bristle when anyone talks tax reform. Their lived experience is that any and all reforms hurt them and transfer cold hard cash to the one per cent.

      Nobody likes writing a cheque to the government; and government wants a quiet life. But the cost of our suite of taxes, notable for their construction wherein the statutory incidence falls on one party and the economic incidence on another, now costs us about 5-6 per cent of GDP in deadweight losses. Government collects 24 per cent of GDP while we pay 30 per cent.

      The welfare losses here are staggering. We drive with the handbrake on. The case for land reform and tax reform makes itself.

      A nil-exemption land tax – whether state or federal – would correct much of these distortions. It would give government the fiscal space to remove those 125 taxes Ken Henry was so rude about.

    • Agreed, I think this area is incredibly important to reform. I do think this sort of idea needs to be presented as a package alongside other reforms explicitly targeting clear lurks benefiting the wealthy, to make it palatable. On its own this proposal will go down in flames.

  2. So people who have borrowed intelligently/conservatively now have to front up something like 5,000 – 10,000 a year? (500k-1M VALUE)

    Um, sorry, no.

      • Um no.

        You seem to be labouring under the fundamental misapprehension that everyone is playing “the game”. (Whatever that is.)

        I am not in a game.

        Cast your mind back 50-80 years, to when people saved their butts off for a deposit, borrowed conservatively, and lived within their means. To put a roof over their family’s heads.

        That’s us.

        I don’t need an extra 6,000 in tax for what is essentially a low risk asset. But thanks.

        Your suggestion is missing an important factor: risk weighting.

        Our title is 10 acres of prime rural farmland. They ain’t making any more land.

        Of course, your suggestion has merit on investor mortgages.

        Your other revenue measures have much more merit: MP, negative gearing, perhaps a land tax, super concessions, FBT, etc.

      • You’re part of the “wealth effect”, fella, which is a direct result of the public framework of support for your property prices.

        You can’t take one without an obligation for the other.

        You gotta pay. I own a home and am conservatively leveraged. I’ll pay.

      • Well when prices revert to mean / any other reasonable measure of sustainable affordability, the support tax will naturally halve, or, no longer be required since the market (lol) can stand on its own 2 feet without the current extreme inequality and risk. On balance, I’m for it.

      • You’re missing the point HnH.

        And to clarify, I know you’re much smarter than me (on economics).

        I’m no economist.

        But, that is a hefty burden to wack on people, especially in regional areas.

        It will need thresholds, caveats etc

        I again state that it makes sense on IPs to start with.

        I recognise that the family home has a huge wealth effect and we need to restore the family home to its place as a roof over the head.

        I am suggesting there might be another way than your suggestion above.

        By the way, can we keep these boards clear of the personal snark and snide crap.


      • By the way, can we keep these boards clear of the personal snark and snide crap.

        Were you referrng to this thread or a general request? Genuine question, no snark intended.

        This thread seemed to have a very low snark quotient to what is prevailing currently, but I agree that the prevailing snark quotient warrants lowering. Fortunately, so far boojum sightings have been rare, at least.

      • HnH it’s a valid point though. It’s a bit unfair to slug people with the tax regardless of their ability to pay – is that not a regressive tax? The land tax should at least be on the value of of the property net of debt held against it.

        Then again a broad-based net wealth tax would accomplish the same thing without preferentially treating non-land owners.

      • Sounds like typical whining for an exemption to me – the root cause for half Australia’s problems and one of the major reasons our Tax code is such a joke and so easily circumvented.

        You can’t expect older Australians to be prepared to make ANY sacrifice when you carry on like that.

        I own a house in Sydney, not as an investment but as a place to live and I fully support paying a land tax even though it will likely leave me significantly worse off, by costing me money each year and potentially erode capital I have tied up in it.

        Why do it? It leaves Australia a far fairer place for my kids.

        Somebody has to cop it if we’re to make this country a better place, sadly a lot of that burden will fall onto GenXs and Ys who have benefited far less (if at all) from the Baby Boomer land bubble.

        Nobody gets out of here alive.

      • No, HnH, you are going to be killing a lot of young people just trying to put a roof over the head of their families. These people are too vulnerable already.

        You can still penalise the property spec crowd by going for a net wealth tax instead.

        If/when housing falls apart/returns to sensible levels, there are going to be lots of innocent victims. Go after the housing mobsters and be sympathetic to those who are just collateral damage.

      • I would need to see (in its completed and rolled out form) how foreign ownership and other distortions are dealt with.

        I will need to see that it will be better for the future. My trust is just too battered to support what might be another wealth transfer for political advantage.

        I guess the democracy or lack there of issue needs to be number 1 priority, in my opinion.

        Steps 1 through 10, restore trust.

    • I’ll tell you why it doesn’t seem fair: your great grandparents, grandparents and parents effectively had their houses paid for via inflation.

      We aren’t getting that free ride. We are sitting behind 30 years of governments deliberately stopping inflation. That’s not fair.

      • And changing CPI in 1998 to misrepresent inflation – that is to not report what would have been textbook hyperinflation and allowed the appropriate policy responses. No disagreements with your point either.

      • tmarsh – that whacking great public debt bubble that’s been building since the 1980s exactly corresponds to when our stupid governments started listening to neo-liberal economists and set all the levers of policy to the extinction of inflation.

        It’s proved ruinous to every industry we ever had, it has turned housing into a monster that is about to consume the entire economy and the only people who benefited were oligarchs. Far from being some kind of demon, inflation is a leveller and a redistributor of wealth par excellence to ordinary people and we need it back. Now.

      • Governments control inflation?
        Now I’ve heard it all.

        At their root, perhaps.

        Do governments control food prices? (You could argue indirectly yes, through a minimum wage for fruit pickers etc, what about ag machinery costs…electricity)

        So really, what we need is a completely free market, free from all gov’t control, no minimum wage, no regulations around workplace health and safety, no environmental regulations, etc etc, and alllll the attendant costs that find their way into inflation (abolish unions too). No support for banks, no central bank, allow smaller banks like in the old days where depositors/investors could lose it all.

        Then, we can see where inflation ends up.

        Hope you’ve got land, firearms, food, water and power. Should be a hoot!

      • Strictly speaking, it wasn’t “inflation” per se but nominal income growth (wage/salary etc) which gave boomers the free ride. Nominal income tends to track CPI inflation over time so point taken though.

        HnH why not just hit the banks directly with a “too big to fail” levy? Not one of your better thought out articles i am afraid.

        And yes, lets keep the personal abuse off this forum. If people are paying money to subscribe then personal attacks and baiting should be filtered out by the mods.

      • Are you being deliberately obtuse tmarsh? Of course governments control inflation. For an extreme example see Zimbabwe.

        Or just read this: http://www.marketeconomics.com.au/2435-keating-and-the-recession-we-had-to-have

        Key quote: “The early 1990s recession saw inflation fall sharply. After a couple of years of low inflation, RBA Governor Bernie Fraser saw an opportunity for Australia to join the low-inflation countries and in 1993, he started to articulate an inflation target of 2 to 3 per cent. That target is still the prime focus for the RBA today.”

        The end result? We are screwed.

      • Inflation redistributes wealth alright – from teheprudent to the profligate – people like TMarsh would be even more screwed than currently – together with teh whole country.
        The problem with the inflation target was that ALL other signals for the economy were totally ignored. The CAD used to be a serious consideration and a worry. What they found was that by importing inflation could be forced down. So the CAD was let loose because the higher the CAD the lower has been inflation….until now. End result massive foreign debt and asset sales – but we got low inflation caused by ‘negative’ inflation in tradable goods. RBA Gov gets his dough; Bank execs get even more; Euphoria has reigned….until some time in the next year or two!!!!!!!

        Over the next few years you will get a lesson about whether governments control inflation – we are going to get it and no government nor RBA policy will be able to stop it.

    • In other words, “tax everyone else more except me”. Gotcha.

      I love it how quickly people who brag about their wealth turn around and claim they shouldn’t be taxed because they “earned it”.

      • Um, no.

        I am far from wealthy.

        Good assumption-making, though.

        The ingrained biases on here are very, very clear.

      • Well you’re always bragging about your large property on here so assumptions will be made.

        Anyway I am with Morris on this one, a net wealth tax is way better, and less distortionary.

    • So people who have borrowed intelligently/conservatively now have to front up something like 5,000 – 10,000 a year? (500k-1M VALUE)

      The taxation of gross property values is regressive, which may be one reason why even elitist institutions (like The Economist) are supporting it.

      Also, it captures only a tiny part of capitalised economic rent: that part which is capitalised into land values. The vast bulk of capitalised rent manifests itself as the value of shareholdings in companies which exercise market power.

      The way to tax such rent is either:

      a) directly through a comprehensive rent tax (of the type suggested by The Henry Review); or

      b) indirectly through a comprehensive tax on all net wealth as used by the Swiss cantons.

      Wealth subject to cantonal wealth tax includes (see http://www.pwc.com/us/en/hr-international-assignment-services/assets/switzerland-folio.pdf) not just real estate but:

      – immovable assets (real estate);

      – movable assets (securities and other investments);

      – cash, gold, precious metals;

      – cash value of life assurance policies;

      – shares in undistributed inheritances;

      – business capital, shares in a partnership; and

      – motor vehicles, boats, etc.

      Pension funds are not considered as assets, and all liabilities can be deducted in order to determine net wealth. In some cantons there is an allowance depending on the status of the taxpayer (married, single, number of dependants) while in others an allowance is made in the tax rate.

      Taxpayers must declare worldwide assets belonging to all immediate family members. Foreign real estate and qualifying business interest are exempt but made be taken into account in determining the tax rate. Liabilities are allocated according to the location of gross assets.

      Typical assessments for 2010 on CHF1,000,000 owned by a married couple were (from the same source):

      Zurich 0.2% (CHF2,000)

      Basel City 0.58% (CHF5,800)

      Geneva 0.62% (CHF 6,200)

  3. Beautifully put…….

    In case you’re wondering, the only reason that we have this incredibly low ceiling on our public debt is because of the massive private debt that is mostly borrowed offshore and is a contingent liability for the public purse.

    Given how inequitable this is to those who aren’t a part of the public asset quango including our unborn children, let alone how corrupting it is for our democracy and market transparency, let’s make it official. I suggest that we adopt a new “house price support tax” of 1% of all property values nation wide per annum.

    With a housing stock worth $5 trillion that would raise $50 billion each year, cure the budget deficit, and free the rest of the nation from dragging around this giant ball and chain.

    Of course that wouldnt be accepted by our politicians – either side – but I do think it pertinent to note again and again openly just how much of a productivity issue the cost of Australian residential real estate is.

  4. A land tax was one of the proposals in the Henry Tax Review of 2010. From memory, his argument was that it is a form of taxation that can’t be avoided by off-shoring.

    Although I’d have to pay it, I’m of the opinion that it’s an excellent idea. It could even be progressive so that expensive properties attract a higher rate.

    • [email protected]

      Yep I’d cop that Geof.
      If thats the price of a sustainable tax platform then I’m in.

      • NO

        Rid bad taxes and remove politics from enforcement of statutes ATO, FIRB and APRA to nowm a few.

        No trust = no tax changes that could be gamed.

  5. Surpluses are not a good objective as an end in themselves.
    They increase the tendency to recession unless offset by gains in the external balance.
    This is not a matter of opinon but of the identity of GDP whereby GDP = G + P + E (Govt + Private + External).
    For the same External result, if Government has a surplus, the Private sector must have a deficit.
    Sectral analysis from the US shows empirically that recessions have generally followed shortly after government surplus, eg following Clinto era surplus.

    The Labor Party and Greens ought not be frightened of seeking surplus, rather than the RBA needing to raise interest rates, during inflationary times, but resist cuts in the deficit at times by reducing incmoe of those who spend most on recurrent demand for local goods and services when times would otherwise be deflationary.

    This applies to the Liberals as well except their constituency benefits massively from cuts to interest rates that cause PE multiples of shares/businesses and property to rise, giving them massive windfall gains.

  6. Why does it have to specifically target land?

    Why not a 1% wealth tax across the board? It would be even broader.

    • There you go. Excellent.

      Above a certain threshold which ought take account of a basic need for shelter (roof over head) measured per area, taking into account land size etc, improvements and so on, and not simply based on medians.

      • Don’t load it up with heaps of exceptions and concessions, calculations, that just turns it into another frankenstein tax that distorts behaviour like all the others. Even a land tax is distortionary as it preferences other investment assets over land.

        A simple, flat tax, on the net wealth held by anyone who has lived in the country for > 6 months in the year is the obvious solution.

      • Yawn – wealth taxes are easily avoided via creative accounting and family trust structures or simply shifting the ownership of the asset out of the taxable jurisdiction…. you can’t shift land.

        Frankly wealth taxes to me (apart from a land taxes) are a stupid idea, firstly for the above reason, secondly, because rather than undertaking reform at the root cause of the inequality, the revenue it raises (largely from collateral targets and small fry bystanders) simply goes to perpetuating the current ineffective system.

        If Australian property and land prices fell by 15% it would result in the largest single wealth transfer in Australia’s history. “Wealth” tied up in obscene land prices, would be redistributed to poorer households via lower implicit rents.

        If you want the benefits of a wealth tax by way of reducing inequity, smash house/land prices.

      • Bullshit Stu. For every asset there is an owner. You can put it in a trust but people still own that trust.

        Wealth taxes are one of the hardest to subvert or ‘account’ away.

        Wealth taxes apply so that land is still being taxed – but just on equal footing with all other assets.

        Suggesting that we can solve a problem caused by a distortionary tax regime by applying another distortionary tax makes no sense.

      • Love your work Jason and counter points FF and SS. Thought provoking. (That’s the real value of MB, I think)

        🙂

        When you say FF that a land/property tax shouldn’t worry/affect me….but it does. An extra $5,000 a year or whatever is not an insubstantial amount of money. That might cause some on here to have their eyebrows raised, to laugh, shrug their shoulders or be otherwise shocked (because I get the sense there are some very successful/wealthy people on here), but it is what it is. Like I said, wacking on 5k-10k (500K-1M value) on people due to availability of debt, and remember that is unrealised/immobile wealth) is just silly.

        Maybe a levy on the capital profit. Unrealised though. Again, silly.
        Can you imagine the accounting in policing this?
        Another govt valuation or body (or Land Valuer), annual valuations
        Gawwwwd, give me a break.

        I think Jason is closer to the root cause of the issue.

      • Sorry to disappoint you Jason, but in a former life as a Chartered Accountant I was regularly involved in transactions where the true owner was supplemented for a tax effective holder.

        Maybe if you were prepared to allocate nearly as much money towards policing and enforcing your wealth tax as it actually raised (and I wouldn’t put it past Australian politicians to do so) you might achieve some equalising outcome – certainly you’d be successful in redistributing far more income to my former profession. Maybe even enough to entice me to go back to it.

        Nothing beats a land tax for simplicity and efficiency. When you also consider that the overwhelming driver behind the majority of inequality in the west is due to land ownership, why fuck around trying to collect the pennies when you can go after the pounds?

      • Another furphy TM – land taxes are easy to levy (they already exist in Australia on investment properties) and could be equally simple to collect if a Govt with backbone simultaneously pushed our banks as the same time as rolling out such a tax, to act as tax collection agents. It’d come out of your salary like your PAYE tax currently does.

        Texas does a very good job of running one of the largest economies in the world on little more than land taxes.

        http://taxes.about.com/od/statetaxes/a/Texas-state-taxes.htm

        The other point is, that as land prices gradually deflated the amount of tax payable would also be revised down.

        Oh and finally, as also argued extensively on this site, the roll out of any land tax should also be accompanied by income tax reform, such that most people – presumably yourself included, should see a nearly equal and offsetting decline in your income tax bill.

      • Sorry Stu, Stephen Morriss’ Swiss Taxes (Wealth) have more more appeal.

        If the Swiss can administer it, so can we.

        I agree with Jason (I’m not an accountant)

      • The Swiss also have a strong sense of solidarity helped by their national service which underpins a sense of civic duty in paying their taxes…. are we going to roll that out as well?

        Don’t forget FF that it wouldn’t just be our tax law. Swiss law is derived from Germanic Law and legal precident – as well as entirely re-writing Australia’s tax laws, you would also need to completely re-write our corporations law and throw out 400 years of legal precedent inherited from the UK.

      • TM, I will correct myself – there is one other wealth tax that would work very well in Australia…. death duties.

        These could be applied very easily to estates above a certain size.

        The could be even more easily applied to SMSF above a certain threshold. Residual capital after the death of the beneficiary, could easily be taxed at a punitive 75%. To avoid them pulling out excessive amounts prior to death, again, amts above a certain annual threshold could be (and should be) taxed at a much higher rate. There should be NO grandfathering of treatment to any demographic.

        I am equally in favour of this sort of wealth tax as I am of a land tax.

      • Well if all that is the problem is the guarantee and the private debt levels then why not levy the banks directly for it? Why penalise people who aren’t in debt (and thus getting minimal benefit from the guarantee)? If you bring a land tax in, what stops the loose capital from simply moving from land to shares?

        What problem are we trying to solve here? Are we trying to solve the inequality of land treatment? Then targeting land with a tax will only cause the pendulum to swing the other way, towards non-land assets.

        Can’t we all agree that the real heart of the issue is growing wealth inequality? The real question is how do we deal with growing wealth inequality so that the ability to fund government social services is not affected by those increasingly wealthy people who shuttle their wealth into tax-priveledged vehicles?

        Everything else is really just fiddling at the margins.

      • There is a fundamental difference between a land tax and wealth tax. A land tax is to capture some of the private “wealth” generated by public spending such as infrastructure etc.

        Whether you are in debt or not, you have gained from the infrastructure and the stupid policies of the government.

        Are we trying to solve the inequality of land treatment? Then targeting land with a tax will only cause the pendulum to swing the other way.

        Yes. How so?

        Can’t we all agree that the real heart of the issue is wealth inequality? Everything else is really just fiddling at the margins imo.

        In Australia atleast this is mainly due to the cost of housing. I believe the numbers will back me up.

      • It’s very difficult to draw an income in this country without it being directly or indirectly derived from mining or RE (and therefore bolstered by implicitly government guarantees). People manufacturing or growing food purely for export are possibly the exceptions, but they’re not groups associated with unfeasible or even mundane wealth.

        Hence, my answer to the question posed by ff is ‘the clear majority’.

      • Because the capital that is juicing housing will simply go somewhere else, into other tax-advantaged assets.

        If you want to engineer a massive deflation in land prices, then sure target it with a tax, ensuring the capital flight from the asset class and corresponding collapse in values. The real wealth won’t get taxed, it will simply move into other classes. In fact it will disadvantage the average home owner because they will have pretty much all their wealth in a house that they can’t easily move to a tax-advantaged class. In this way a land tax is regressive.

        All the people who want housing to come down in price want it for their benefit. That’s why they ignore the broader implications of microeconomic actions on housing.

        I don’t know how you could be in favour of removing tax concessions for reasons of equitable tax treatment, while at the same time pushing for a tax on one specific asset class. Doesn’t that seem counter-intuitive to anyone else?

        The real issue is that we live in a society that encourages the concentration of capital (wealth) and yet we don’t tax that capital (or it receives preferential treatment compared to other assets or flows). So it naturally follows that Government budgets will continue to get crimped until people realise the bleeding obvious!

      • Because the capital that is juicing housing will simply go somewhere else, into other tax-advantaged assets.

        Some of it will and there is no way around it. How many tax advantaged asset classes to the magnitude of housing do we have?

        The real wealth won’t get taxed, it will simply move into other classes.

        What is the real wealth and why should it be taxed? You have not made a case for your wealth tax.

        In fact it will disadvantage the average home owner because they will have pretty much all their wealth in a house that they can’t easily move to a tax-advantaged class. In this way a land tax is regressive.

        The average home owner like tmarsh claim all they want is a roof over their head. This should make no difference to them. If you are using housing as a tax advantaged store of wealth, especially to get welfare than don’t say you only want a roof over your head.

        All the people who want housing to come down in price want it for their benefit. That’s why they ignore the broader implications of microeconomic actions on housing.

        No, most people here that want housing to come down want to do so because they see the damage it has done to the economy and society. Better it be done in a soft, manageable manner than what happened everywhere else. Personally, I can afford to buy right now and if I accept help from the parents and inlaws, without a mortgage.

      • What is the real wealth and why should it be taxed? You have not made a case for your wealth tax.

        Real wealth is the BRW Rich List, the corrupt plutocrats, who have much less of their wealth tied up in land than the average Australian does. They will be the people least affected by a land tax.

        Everyone is talking about the budget problem right now, but they’re ignoring the underlying trend. Yes preferential tax concessions have caused a loss of revenue and distorted some markets, and that is a major contributor to the current budget woes.

        Hardly anyone is talking about the concentration of wealth and what it means for Government budgets however in the long term. We live in a society that encourages the concentration of wealth, and yet we don’t tax that wealth. We might tax some the income streams off it, but that is quite easy to hide and distribute. In a low-growth world those incomes are reduced anyway.

        But anyway, if you think abolishing of negative gearing, capital gains concessions and introduction of a land tax is going to softly deflate the housing market then I have a bridge to sell you. You’re removing distortions only to replace them with another operating in the opposite direction!

        Eliminating the concessions and instituting a wealth tax is far superior because it levels the playing field for everyone.

      • You’re removing distortions only to replace it with another!Eliminating the concessions and instituting a wealth tax is far superior because it levels the playing field for everyone.

        Which other one? Why is there a case for a wealth tax if there are no concessions? All the income gets taxed on it’s way to the wealth right?

      • Which other one? Why is there a case for a wealth tax if there are no concessions? All the income gets taxed on it’s way to the wealth right?

        A land tax is the other distortion. It targets land, thus treating other assets preferentially (shares, commodities, livestock, precious metals, etc.).

        A land tax is a subset of a wealth tax (a wealth tax is basically a ‘capital holding tax’). So under your argument why tax land? Income gets taxed and is used to pay for the land?

        This should be pretty obvious, or am I the only one seeing this?

      • There is a fundamental difference between a land tax and wealth tax. A land tax is to capture some of the private “wealth” generated by public spending such as infrastructure etc.

        The value and positional nature of the land is due to the development of society in that area that is funded from the government bourse.

        Moreover, having the distortions in land and in particular residential land is far more damaging than any other distortion I can think of.

        Again you have not provided any justification for a wealth tax apart from stating that we need one. If anything a wealth tax will just move capital overseas.

      • FF, I am not sure how I can make this clearer, a land tax is a wealth tax if we have a wealth tax then it will be applied to land as well as everything else. If we have a wealth tax instead of a land tax we will have a system that treats all assets and all capital equally.

        You’re basically arguing we fight a distortion by applying another distortion over the top.

        “If anything a wealth tax will just move capital overseas.”

        You ask for evidence and then make an assertion based on no evidence. All taxes levied by a state provide incentives for capital to move overseas, it is whether the return on that capital surpasses costs (including taxes) that matters to the capitalist. You don’t think that a land tax might disuade foreign capitalists from buying and investing in developing more housing? How will that affect the market?

        A wealth tax would be lower than a land tax because it is much much broader, and so its effect on any one individual investor decision will be considerably less.

      • Love your work Jason and counter points FF and SS. Thought provoking. (That’s the real value of MB, I think):)When you say FF that a land/property tax shouldn’t worry/affect me….but it does. An extra $5,000 a year or whatever is not an insubstantial amount of money. That might cause some on here to have their eyebrows raised, to laugh, shrug their shoulders or be otherwise shocked (because I get the sense there are some very successful/wealthy people on here), but it is what it is. Like I said, wacking on 5k-10k (500K-1M value) on people due to availability of debt, and remember that is unrealised/immobile wealth) is just silly.Maybe a levy on the capital profit. Unrealised though. Again, silly.
        Can you imagine the accounting in policing this?
        Another govt valuation or body (or Land Valuer), annual valuations
        Gawwwwd, give me a break.I think Jason is closer to the root cause of the issue.

      • Let me provide a physical example. Let’s say you’ve got an old weight scale (one of those see-saw type dealies) thats out of balance (has some weight on it already) and a bunch of weights of varying sizes and densities. What’s the fastest and most efficient (in terms of effort) way to balance the scale?

        Put one weight on each side until you eventually find some kind of balance?

        No. It is to remove the weights on the scale altogether. The economy is distorted towards unproductive investment in land. So start with removing the distortions. Don’t try and put another weight on the other side of the scale.

      • @Jason

        FF, I am not sure how I can make this clearer, a land tax is a wealth tax if we have a wealth tax then it will be applied to land as well as everything else. If we have a wealth tax instead of a land tax we will have a system that treats all assets and all capital equally.

        Ok, as a matter of principle, we don’t have double taxation. Instead we have income taxes and capital gain taxes which are treated in the same framework and stamp duties etc which are not.

        Expect that the principle place of residence is excluded from stamp duties and CG tax. Moreover, the majority of the individual increase in value of the land is due to infrastructure and policies of the government which are paid for by the other parts of the tax base.

        A homeowner staying put in a place since the 80s has got a potential million dollar gain with the only contribution being the initial stamp duty.

        Other wealth classes, they be businesses, shares, commodities etc don’t have CG exemptions. Moreover, the capital gains on these are usually due to some input by the shareholders, business men etc. These people are not getting something for nothing, well not for the most part. Nor is the value generated being paid for by the public burse.

        A wealth tax without reducing the distortions on the land component is just another form of double taxation and discourages savings and investment in australia. See below for some good counter arguments.

        http://www.theguardian.com/commentisfree/2012/aug/29/wealth-taxes-nick-clegg-bernard-jenkin

        Basically it boils down to whether land is just another form of wealth or does it serve a greater function as a social good. If it is another form of wealth then it should be taxed appropriately and a land tax is an equitable way to do this. If it is not, then we need to change our policies and remove distortions that make land appealing as a store of wealth. Again land tax is a good way to do this.

      • Honestly, I don’t understand why you consider a wealth tax as double taxation but a land tax is not? Again, for the 100th time a land tax IS A WEALTH TAX. You want to tax the full value of the land because of some marginal improvement in that value due to economic rent. What happens if the value doesn’t rise, then isn’t that land tax actually worse from a double taxation point of view, because they have a loss on the property and they’re still liable for tax?

        If you want a fair non-double-taxation system then a capital gains tax is what you want, because that is taxing the ‘unearned gains’. However this is only collectable at point of sale, unless you want to come up with some hybrid land value gain tax so that owners are taxed on the gain in value in a year. But then this also exposes the Government in years of bubble busts – all of a sudden your revenue is up in smoke.

        I fully agree with eliminating concessions and exemptions, and I would prefer that happen rather than the introduction of new taxes.

      • Again, for the 100th time a land tax IS A WEALTH TAX.

        Yes it is. My argument is land should be treated as a special category of wealth because there are fundamental differences in how these assets are generated and behave.

        Moreover, most arguments fro land tax have been as a replacement for things like stamp duty and the like which pay for services that the landowners enjoy. If you are out in the rural country side, then you shouldn’t have to pay.

        Anyways, the point is mute if you remove all the distortions in the tax system.

  7. How do you measure net wealth?
    What’s included?
    So nothing’s excluded?

    Isn’t that going to encourage people to hide assets in debt?

    • Isn’t that going to encourage people to hide assets in debt?

      So people are going to prefer to pay 4% interest to a bank than 0.4% tax to the Government?

      No exclusions. Failure to disclose all assets and fraudulent valuations will be severely punished.

      • [email protected]

        Jason you should be the new taxation CZAR.

        [Still can’t fathom why broadening the tax base is so hard…gutless]

        Oh one other query.. would you go a tobin tax ?

      • Well personally I am not across the specifics of capital flows, but it seems like a Tobin tax would slow them down. Is that a desired thing? Maybe, I am not sure.

        But I think it’s insane that we live in a capitalist economy and yet we don’t tax capital.

      • So people are going to prefer to pay 4% interest to a bank than 0.4% tax to the Government?

        Sadly, I think they would. If there’s one thing negative gearing and novated leases demonstrate, it’s that when people hear the words “less tax” their brains turn off.

    • And even if they do cover it with debt, that debt will be an asset to someone else (company shareholders for example) and the value will be taxable.

  8. mine-otour in a china shop

    Ratings agencies – I hope GFC 2 wipes out these parasites.

    Everyone moves down a notch or two but the league table remain as is, until the big one hits.

    Where is the foresight and risk measurement within these agencies? They did well with that in Europe didn’t they – Australia and Asia will suffer the same fate regrettably and the agencies will be behind the curve once more, rather than ahead of it.

    • @mine-otour wholeheartedly agree. I would add that the TBTF Australian Banks cannot be ‘bailed-in’ or ‘bailed-out’! Once fellow bloggers get their heads around that statement let us stand back and proclaim that Australia’s current banking system will be dead and buried and we will have to start afresh.

      The gods help those holding paper wealth in Australia….that is all those self proclaimed millionaires and geniuses in Australia sitting on portfolios of leveraged real estate, sitting ducks or dead ducks waiting?

  9. I’m reading this one phone and in a hurry so forgive me if I have missed something.

    But after arguing against it for years are you suggesting that people who have resisted the high pressure to buy over priced property should now be forced to pay for the financial stupidity of others?

    No, a pure and clear clarion call of no.

  10. What about 0.1% instead of 1%. That is still $5Billion a year which would be a significant contribution to bridging the deficit.

    Maybe it could 0.1% on the persons home up to value of say $2Million and say 0.2% on an investment properties and on private homes worth greater than $2Million. You could even include a higher percentage, say up to 0.5%, on foreign investors/non residents in real estate which could be considered a form of compensation for owning property in Australia but not being required to pay the high levels of income taxes in Australia. This would probably fetch closer to $10 Billion which would be a very significant contribution.

  11. What is the root cause of the problem issues that we are seeking to correct?

    BANKING.

    Fix banking and all else will self correct.

    Money creation must be for, by and of the people. And I don’t necessarily mean governments.

    And yes Germanic law or some of its concepts would be of great benefit in simplifying our legal and tax systems.