Target the rentseekers, not workers on tax

keep calm stay on target

Cross posted from The Conversation

by Warwick Smith, Research economist at University of Melbourne

Tax is back in the spotlight with coalition MPs and the Australia Institute talking about getting rid of some of the exemptions to the GST. There has also been a lot of talk about whether or not corporate Australia is paying their fair share of tax. Many big companies, including Apple and Google have been in the firing line because of the small amount of tax they pay on their Australian earnings. Some suggest that our corporate tax rate is too high and this creates a strong incentive for multinationals to shift taxable income to other countries.

Lowering our corporate tax rate and shifting to taxes that target economic rent could help resolve structural problems with our tax system, create a more productive economy and reduce incentives for corporate tax dodging. Such a tax shift could be designed to be revenue neutral or to increase overall tax take.

Even for many economists, economic rent is a slippery term that’s difficult to grasp. Economic rent is unearned income. This means that it has no clearly associated cost of production.

Unearned income can be obtained in many different ways but is almost always derived from privileged access to something scarce. The market power that monopolies can employ to raise prices generates economic rent. A rise in land values beyond inflation generates economic rent for the owner (the “earned” income from real estate is the actual rent or value derived from the use of the land). Unearned income also comes from artificial scarcity created by government policy. Taxi licenses and poker machine licenses are clear examples.

When a communication company uses a part of the electromagnetic spectrum for profit making, nobody else can use that wavelength. The auctioning of electromagnetic spectrum is an effective type of economic rent tax. The spectrum gets put to efficient use and the public is compensated for giving up a shared resource. The company then profits according to how well they use the resource rather than simply because they have a monopoly over it. There is bipartisan support for the auctioning of electromagnetic spectrum but the principle can be applied much more broadly.

The same logic sits behind mineral resource rent taxes – such as the first incarnation of the now-abolished mining tax. When the international price of a resource goes up, those who own the resource (every Australian) receive little benefit. The benefit goes to the mining companies even though they have done nothing to facilitate those price rises and they don’t own the material whose price has risen. This is unearned income and could be taxed in order to return the income flows to the public.

Most businesses in Australia would greatly benefit from a tax shift to economic rents with a commensurate reduction in company tax and the abolition of inefficient taxes such as stamp duties and insurance taxes.

Vast sums of money that are currently directed towards rent seeking would be redirected into productive activity, generating employment and diversifying the economy. Boom and bust property cycles would be flattened due to reduced speculation and, as a result, the broader scale ups and downs of the business cycle would be somewhat moderated.

While the 2010 Henry Tax Review recommended many rent-based taxes (including land tax, gambling taxes and a resource rent tax) as well as taxing environmental degradation, very few of the recommendations were endorsed, let alone implemented. The most significant of the recommendations that were implemented (even if somewhat half-heartedly), the carbon tax and the mining tax, have recently been repealed, primarily due to the inevitable backlash of the rent-seekers.

The political hurdles to serious tax reform are very high. However, the consequences of not reforming the tax system are severe. Tax reform policies are easy prey for opportunistic political opponents. This is why we need some clear principles for tax reform that are clearly explained to the public.

Liberal politicians should favour shifting taxes off productive business and onto economic rents and the exploitation of shared resources because such reforms target market failure and free up productive and sustainable businesses to flourish. Labor politicians too should approve of these principles because they reduce taxes on labour and shift them onto the rent seekers who contribute little to society. The inherently progressive nature of most rent taxes should also appeal to The Greens, the Labor left and the increasing number of others concerned about economic inequality.

Our politicians will need courage to stand up to powerful individuals and groups who have an interest in maintaining the status quo. They can get that courage from the rest of us who stand to benefit from a taxation system that supports a more productive and sustainable economy.

Comments

  1. The problem is that our politicians think they are patriots. They are nothing but leaches. They should be willing to sacrifice their political careers to enact structural reform that would be hard but would benefit Australia in the long term.

    • +1

      Noel Pearson summed it up well when he said of Gough term in office, something like it was triumph of Policy over pragmatism.

    • Although as we have seen. A politician can go through the effort of enacting a fairer tax system only to have the next lot repeal everything again.

    • In the defence of the politicians (cant believe I just said that) I dare say most of them have worked hard and dedicated a good portion of their lives to get where they are. To ask them (or anyone) to sacrifice their livelihood for the sake of the rest of Australia is a big ask. At the core we are all out for ourselves first and foremost and if the politicians as individuals don’t get anything out of a policy decision then change for the ‘good of Australia’ is going to be few and far between. I get angry at the injustice of it all the same as you people but until we get unbiased politicians to represent us (probably not possible) there will always be a self serving bias to the policies that come out. Greater accountability is what we need but by who is the question. Maybe a random jury of mixed age/race/sex/religious people should be reviewing these policies before they hit the streets to mitigate some of this bias? My two cents.

    • Absolutely, part of the problem with expenditures is that there is little oversight or accountability in regards to how funds are spent. The other issue being transparency, with it being all too easy to hide behind particular legislation in order to cover up poor public expenditure on projects. Think wesconnex and East-West link.

    • NO. NO. NO. NO. NO. NO.

      We MUST debate revenue sources apart from expenditures. Swirling the two together just muddies the water.

      A good tax system would lift Austalia’s GDP by 5-6 per cent recurring by eliminating deadweight losses. This is serious money currently wasted; tax reform deserves our undivided attention. Get this right.

    • We also need to discuss how money is created, who creates it and who benefits from usury. Let’s discuss how money is lent.

  2. Excellent, Warwick.

    Taxing economic rents causes no harm. The costs are very low and these taxes can’t be avoided or passed on.

    The Abbott government wants to tax food, a regressive tax that hurts the poor. Their pretense that there are high principles behind their agenda would be laughable but the consequences are too high for levity.

    Australia needs tax refom to lower the burden on wages. The answer lies in taxing economic rents, not what we eat.

    • True. The other issue with high business costs is the ridiculous prices of land with no clear fundamentals to support their listed values.

      • Disagree that land is the driving force, at almost any price, its not like were living in the 1700s – 1800s. What is more likely is a feature of mature economy’s, no more west ward ho, no more cheap inputs available to recycle into quick profit. And as such risk is seen as the grim reaper, to be avoid at all costs, that and the market pool is leverage to its maximum potential.

        Skippy… peak world problem…

      • True that. No more cheap unused land, no more squatters rights – that’s all been done before and it can’t happen twice, so every new user pays in full for their land and roads and parks and amenities.

        Why didn’t virgin land in 1812 come with sewerage, NBN, mown parks and gardens?

      • @PF 11.36am

        your statement:

        “No more cheap unused land, no more squatters rights – that’s all been done before and it can’t happen twice, so every new user pays in full for their land and roads and parks and amenities.”

        Is a bundle of sloppy thinking masquerading as a proposition.

        We have millions of square kilometers of cheap un(der)used land. It is very dry, but it exists.

        The value of this land is a mere fraction of what is extracted from outer urban subdivisions by a conga line of rent-seekers – all of whom add unnecessary cost and can veto an individual’s access to land – including the vendor, council, the developer, planners, state government, federal government, sales agents, and financiers. Oh, there’s vile parasitic scumbag mortgage brokers in dirty underpants too.

        Our country is most unwell. We have diverted our attention and investment dollars from building genuine economic capacity to rent-seeking. This is what we need to change, and the tax system is exactly the tool to achieve it.

      • @ david collyer,

        Not all land is of equal quality for use, just gross generalizing land in a Georgian manner is actually sloppy thinking imo.

        Skippy… now if you want to quibble over endemic corruption in both the Public and Private spheres, wrt the processes, we might get down to brass tacks. This is complicated by the “private contracts are sacred crowd” as they want their cake and eat it too.

      • Not all land is of equal quality for use, just gross generalizing land in a Georgian manner is actually sloppy thinking imo.

        I don’t think that’s an argument he’s making. Quite the opposite, if anything.

      • Ahhh! Skippy. You want to defend the indefensible too.

        Not all land is of equally bounty, which is how economic rents emerge – just as a taxi license in Marble Bar is worth less than in Sydney metro.

        Oh, and I am a fan of Henry George, not of the four Hanoverian kings of Great Britain. Amateur.

      • Why David, you are quite welcome to venture far and wide to buy your little acre at a low price, the issue is that you won’t want to live there.

        Everyone wants the same acre.

      • @drsmithy,

        Sorry but I’m not compelled by pre industrial agrarian notions out of antiquity, when the global population was about billion and our entropy was order of magnitudes lower. It gets all early Victorian with small pots and a cow, gawd picks the winnars and loosers, Royalty [heraldic wealth of any kind] of course is precluded, sheepskins w/ Jman as an ancestor is a fist class ticket imo.

        Next is energy and logistics w/ increases in severe weather patterns. More bush fires followed by heavy unseasonal rain fall culminating in floods and land subsidence. In the last decade or so much of the RE has been built on previously nominated flood plains within the 100 – 150 year cycle [normal]. But yeah securitized MBS said risk off. The bush fire bit is acerbated by increasing heat waves which then weaken the energy transmission system which then creates the bloody bush fires in the first place, its a feed back loop.

        But yeah lets just deregulate land and building like we did in the financial – banking sector since that worked out so well, a chicken in every pot as it were, no dramas.

        @Peter… gezzz I left Calif for a reason, why do they want to duplicate that here FFS!

        Imagine driving over an hour more like two, one way to work, just so one could have that big house with the big yard in the terraformed desert…. ahhh… the good life….

        Skippy… At the end of the day land property is not a god given right, but, a claim established by law and conditional on responsibility. The responsibility bit has been watered down quite a bit by the fundie free market brigade. as its an impediment to looting and rentier activity’s.

      • @ skippy – I don’t know, I haven’t stayed in LA – I’ll take your word for that. Hope the new country offers you better.

      • I was a lucky one living on the beach, never more than a few blocks away if not right on it. The poor sods at the office or by personal affiliation was like watching people slowly die in their cars. And some wonder why so many BSD fly into and out Santa Monica airport on a daily basis from San Luis Obispo region, Bel Air, Beverly Hills, Pacific Palisades, Brentwood is for the upper middle classes.

        Calif is just a kinder period in the Roman Empire transported froward in time imo roflol.

        Skippy…. yes the last 15 years has been a charm and hope my brood contributes positively to its future.

      • @Peter,

        It is and was the main reason I decided to raise my family here and not in the states or other options.

        Hate to see the place get trashed by fundie ideologues.

      • But yeah lets just deregulate land and building like we did in the financial – banking sector since that worked out so well, a chicken in every pot as it were, no dramas.

        Straw man.

        Imagine driving over an hour more like two, one way to work, just so one could have that big house with the big yard in the terraformed desert…. ahhh… the good life….

        You could give every family in this country who wanted one a “big house with a big yard” and then everyone who wanted one an apartment, and probably not have taken up much more land than the ACT.

    • We already have taxes on food. Payroll tax, income tax, company tax.
      GST applied to everything equally is more efficient and probably better for everyone than GST allied in a complex and inconsistent manner like we currently do.

      Of course taxing rents is vastly superior to all the above.

    • “Taxing economic rents causes no harm.”

      Well not directly. But a good question to ask is what would the 1% do if we fought back and took away their rents?
      Several assessments of the politics around the peoples budget in 1908 (product of an actual Liberal Party) suggest a connection with that and the increases in military spending that followed and then the War. Maybe thats just conspiracy theory but one thing for certain. The rich are not likely to give up without a fight. They will retaliate somehow.

    • Expanding the GST is a debate the nation has to have as part of a broader discussion on tax and subsidies to both the individual and corporations. I reckon the people of Australia are ready to listen but don’t believe our elected representatives are capable of leading a rational debate. It’s unfortunate that we, as a nation, never had the debate about resource reservation: that bullshit decision was made on our behalf.

      Look at Labors response so far, they’re taking the bog standard ‘Liberal party in opposition’ line, no sensible counter argument nor even the hint of a bipartisan discussion. Labor needs to move on and talk.

      The Libs are totally incapable of separating ideology from the discussion – look at Hockey’s chest thumping about profit shifting then quietly dumps the idea in the MYEFO but yet the Libs are more than happy talk about taxing Australians more!

      This is the debate Howard and Costello should have had with the national 10 years ago when we were awash with cash and resources coming out of our asses. That, however, was never going to happen when you have a PM on the ropes and a bucket of cash to splash. Instead, we’re now where we are, fractured and divided politically and NSW faces a gas shortage yet we’re swimming in the shit. It’s a shame we only have politicians and not leaders.

  3. Corporate tax rate to zero, no more sin taxes – replaced with land tax?

    I personally love the idea

    Should be easy to legislate…

    I just saw a Ham with Wings fly past my office window…

    Australia gives people living in $1m homes with $800,000 in cash welfare and wonders why it has a structural deficit.

    • 95% of Australians are more concerned with this …

      “http://www.watoday.com.au/lifestyle/life/popular-culture/selfie-sticks-and-belfie-sticks-proof-that-the-world-has-gone-mad-20150108-12k0jm.html”

    • The minds of 95% of Australians were too small to comprehend the reforms of the Hawke/Keating era and Howard’s introduction of the GST too, but the pollies still managed to sell the reform by leveling with the electorate.

      The current mob are driven by ideology and too downright stupid to even raffle a chook in a pub.

      • Is populism an ideology?

        If so – I agree with everything you say above.

        What was the last hard (unpopular but smart) decision made by a Federal Government?

        Was it the GST? How long ago was that?

      • Carbon Tax was arguably a structural reform, as was the original Resource Super Profits Tax that killed Rudd and Work Choices too, that sealed Howard’s fate.

        GST was probably the last structural reform that got through and stuck.

        Howard took the GST to the 1998 election and won with an (IIRC) small margin, but he still won and had a clear mandate to implement a tax that effectively buried Dr Hewson’s political career.

        GST was implemented on 1st of July 2000.

    • The minds of 95% of Australians are – too indoctrinated – to comprehend any of this… Fixed.

      Skippy…. maybe more chaplains in schools will set things right.

  4. Rent is indeed a slippery concept which most economists do not fully understand. And I fear that that may include Warwick Smith.

    (It could be that Mr Smith is presenting a simplified argument, in which case I mean no offence but it is important to present the full story because it goes to the heart of policy.)

    Most people – in fact most professional economists – do not realise what a monumentally complicated matter rent is. They are like classical physicists assuming the existence of an absolute frame of reference, an “economic ether” on which they can base their calculations.

    In economics, that “absolute frame of reference” is the “initial state”, and the problem of rent is ultimately inseparable from the “initial-state” problem: the problem of who is entitled to what in the “initial state”.

    Most professional economists proceed by blithely assuming an arbitrary initial state (usually one which benefits themselves) apparently without even realising that they are doing so.

    To understand the problem, let us consider a specific problem of “resource rents”.

    To whom do these rents belong?

    Do the “resource rents” of, say, Western Australia, belong to Western Australians? Or to Australians as a whole?

    Or – going in the other direction – do they perhaps belong to the mining companies? Or to the landholders (as they do in the US, for example.)

    If we assume, for example, that they belong to the people of Western Australia (as the Constitution seems to suggest), then any federal rent tax is simply a form of “rent-seeking”: individuals who might otherwise engage themselves in useful pursuits are to be found spending time and using resources (for example writing on-line articles) seeking to have legislation passed for the purpose of accessing those rents!

    That is rent-seeking.

    But what if we assume, for example, that those rents belong to the landowners? Then any State tax (and the activities seeking such legislation) will be “rent-seeking” activity for the same reason.

    Now let us look at other some rents. What about monopoly or oligopoly rents earned by market dominant firms based in Sydney or Melbourne. Should they be subject to “rent tax”? And to whom would the proceeds of such a tax belong?

    The Henry Review actually contemplated such a comprehensive tax in the form of the Allowance for Corporate Equity. However, the rent-seekers of Sydney and Melbourne quickly watered this down to a rent tax on resources only, a tax which would subsidise them with resource rents from Western Australia and Queensland while exempting the rents from their own market exploitation.

    The underlying problem here is that one man’s assumed rent is another man’s assumed property right.

    To solve that problem, one needs to solve the “initial-state” problem.

    There is a logical solution to that problem, which is too long to set out here, but an outline may be found here expressed in terms of the “democracy eigenfunction” and the “democratic polity market”.

    If we assume that that problem has been solved, then “rent” may be defined with complete generality as follows:

    “A perceived benefit sustained over time arising from a metastable distribution of rights.”

    A metastable distribution of rights is a distribution of rights which is not equilibrium – and which would be negotiated away in the absence of transaction costs or the anti-catalytic effects of Prisoners’ Dilemma – but is sustained over time due to those barriers.

    Note that this definition does not depend on any “absolute frame of reference” in the form of assumed “cardinal values”. It is couched solely in terms of perceived benefit and metastability assessed against the initial-state of the democracy eigenfunction.

    If the initial-state is defined, and if transaction costs barriers are eliminated, then any rentier activity giving rise to deadweight losses would simply be eliminated through negotiation.

    From there we may proceed to identify three species of rent:

    a) entrepreneurial quasi-rents (which are not really rents at all but normal returns);

    b) windfall rents; and

    c) incumbency rents (including political rents) which generally arise from incumbency protected by Prisoners’ Dilemma.

    The ultimate solution to rents then is to remove the preconditions for metastability by:

    a) defining initial-states as above; and

    b) removing transaction cost barriers.

    And given that the biggest of those barriers is political incumbency, that in turn requires some form of direct democracy which would break the monopoly power of political agents.

    However I suspect that that solution would be repugnant even to those economists who claim to oppose rent seeking . . . . but are, in their own way, rent seeking.

    • Agreed Stephen

      I would contend that governments should avoid establishing the environments for rents to be generated (unnecessarily regulated industries) but be extremely conservative when trying to tax so-called windfall/incumbency rents.

      Rents are a theoretical concept of the economic community.

      Their treatment via tax regimes can lead to serious ‘unintended consequences’ outside of the ‘elegant’ solutions foreseen by the academics.

    • @ Stephen Morris

      As the political agents are just front men for vested interests, seems silly to focus on the secondary feature and not the primary source.

      For example – is Leighton suffering from over arching government or is government policy a direct result of Leighton driving the agenda…. that best suits its interests.

      Skippy… BTW you do know that game theory wrt humans has been refuted and only those schools which are reliant upon it, to give it any sort of validity cling to it.


      • you do know that game theory wrt humans has been refuted

        Do you have a link to the papers describing what seems like a major mathematical advancement?

      • @ StatSailor,

        “papers describing what seems like a major mathematical advancement?”

        That’s the whole point, you can’t reductively mathematize human beings, especially from a binary barter scenario e.g. there can be no advancement as its fatally flawed from inception. It just another bad example of taking metaphysical proclamations, whacking on a bunch of wonky mathematics and physics, to breath life into it.

        Psychology and neuroscience preclude any such attempts to define reality in such a manner, which them sets up the observation of which is more influenced by this activity, the practitioner or his imaginary subjects.

        Skippy… Just use any academic white paper search engine to find what you seek, bias free as it were.

      • That’s kind of what I thought you meant.

        Just because humans don’t behave rationally doesn’t mean that game theory doesn’t work. Game theory is bigger than just humans and economies (though giving the Quasi Nobel Prize for Economics to game theorists in 2012 doesn’t give the impression its discredited in economics). Works fine for computer science and ecology, for example. And it still works fine to analyse, you know, quite a few games (it works fine because there are rules).

        And, of course, just because humans can’t be relied on to be rational, doesn’t mean they’re reliably irrational either.

      • Game Theory is like any other theory. It works within the domain of its assumptions.

        Game Theory – as applied – often ignores the fact that many people are actually involved in “repeated games”. Their strategies in one round are formulated with a view to giving signals for a future round.

        The only reference to Game Theory in the original comment related to Prisoners’ Dilemma as an impediment to collective action that could eliminate rentier behaviour. This is perfectly consistent with observed outcomes.

        Consider the example given in the link to incumbency rents:

        Let us consider a classic case of the owner of an established network, such as the electricity grid. First let us consider how it might possess incumbency advantages in the presence of transaction costs, and then whether rentees would negotiate those away in the absence of transaction costs.

        Over time, the possessor of a natural monopoly might come to charge prices not only in excess of marginal cost, but in excess of marginal cost plus the return on capital required to attract others to replicate the monopoly.

        How can that come to pass? With such high returns available, why would a competitor not duplicate the monopoly and reap the excess returns?

        Because the duplication of the monopoly would lead to enormous over-supply and a collapse in prices. The incumbent monopolist might suffer, but the new entrant couldn’t benefit. In anticipation of that, the new entrant will not make the attempt, and the incumbent monopolist may continue to reap returns in excess of that required to duplicate the monopoly.

        Does this fit the definition of rent?

        Yes. In the absence of transaction costs, rentees would negotiate with a potential competitor and contract to transfer all business to the new entrant, thereby guaranteeing its income and removing the risk of entry. In anticipation of this, the incumbent rentier would reduce prices.

        The existence of transaction costs makes such negotiations unfeasible. The transaction costs are magnified by the existence of a Prisoners’ Dilemma. Who will spend the time and effort doing the negotiation? Everyone has a dominant stategy of leaving it to someone else. That allows an incumbent to derive an ongoing benefit from a metastable distribution of rights.

        It is worth noting that in some jurisdictions the “rules of the game” are different and reduce the transaction cost barrier.

        In some US states, for example, the citizens enjoy the right of initiative which includes the right to initiate a transfer electricity distribution assets owned by a third party monopolist to a cooperative Public Utility Corporation owned by the citizens themselves.

        A simple change to the rules limits the ability to extract rents under metastable conditions.

        Of course, in Australia the right of initiative is denied to the People, and the lack of such a right makes it difficult to break the power of the corrupt political agency duopoly.

    • Thank you Stephen for your quality comment. I will think on it.

      Your pursuit of perfection does you credit. I, a lesser mortal, will settle for excellent. Which is what our tax system would be if we enacted Australia’s Future Tax System.

      • I, a lesser mortal, will settle for excellent. Which is what our tax system would be if we enacted [all of] Australia’s Future Tax System.

        Which includes a comprehensive tax on rents, not just a tax on the rents of the exporting States with the proceeds used to subsidise and perpetuate rent-seeking in the inefficient metropolises.

  5. Why can’t we just keep it really simple? We talk about all this complexity, but we should just go back to the drawing board and ask ourselves two questions.

    1. What services do we want government to provide?
    2. What is the most efficient way of raising the funds, in a fair way that everyone pays their share?

    The pillars should be:

    A). Everyone to be paid electronically. Cash wages are illegal. It’s not 1970’s anymore. Any business that cannot show electronic payments of wages for works gets shut down.

    B). Tax returns are outlawed. Everyone pays a flat 15%. No concept of deductions for crap like negative gearing and salary packaged cars/entertainment.

    C) GST raised to 15% and includes all products. Therefore unavoidable.

    B + C = You then raise 30% of unavoidable taxes. Rules are the same for everyone.

    D). GST of 50%+ for Alcohol, Tobacco, Fatty Foods (take away, QSR’s, junk food in supermarkets).

    E). Free gym’s, sporting clubs, universities. Healthy well educated people take the country forward!

    F). Superannuation at 15%

    G). Company tax down to 15%. Avoiding tax through transfer pricing and creative accounting cracked down on.

    • A) Everyone to be paid electronically using MY BITCOIN SUBSTITUTE. Cash, gold and Westpac to be banned.

      B) Everyone pays a flat 15% OF WHAT? Income = ingoings – legitimate outgoings. What is legitimate?

      C) GST raised to 15% and includes all products. Deposit $100 in a bank, pay $15 tax. That won’t work too well.

      D). GST of 50%+ for Alcohol, Tobacco, Fatty Foods (take away, QSR’s, junk food in supermarkets).
      and GST of 70%+ on things that RaglanParade likes to buy.

      E). GST of 80%+ on gym’s, sporting clubs, universities. Healthy well educated people can afford to pay more.

      G). GST of 90%+ on moronic lists.

    • E). Free gym’s, sporting clubs, universities. Healthy well educated people take the country forward!

      “We will jog for the master race, and always wear a happy face.”

    • Well that should certainly squash class mobility like a tiny bug.and get that wealth gap widening nicely. Shouldn’t take more than a generation to get us back to the good old feudalism days of lords and peasants.

      That is your objective, right ?

      • Yeah nothing screams ‘encouraging class mobility’ than a 45% top tax bracket

        Especially since by the time that’s relevant, you’ve moved past >95% of the population’s incomes.

        “Class mobility” at that point is usually about how frequently you replace your car and how many overseas holidays you take, rather than whether your children can sleep in different bedrooms, get a decent education, and wander safely through your neighbourhood.

      • Yeah right

        Tell someone who doesn’t get to earn decent money until they are in their mid 30s – has huge debt from university – has to borrow $500,000 to buy an apartment and spends $25,000 on child care a year that they deserve to pay 45% in tax because they are now in the upper class.

        You might want to consider that accumulation of assets and passive income are a sign of true class mobility.

        Not working your arse off to get paid $200,000 – only to pay over a third of it into socialist schemes designed to promote upward mobility by paying out pension benefits to people in million dollar homes, free doctors and ‘family tax benefits’.

        With the end of the resources boom Australia is going to have a lot less people with $180,000 plus taxable incomes for the government to divert. Heaven forbid they start selling their real estate…

      • Tell someone who doesn’t get to earn decent money until they are in their mid 30s – has huge debt from university – has to borrow $500,000 to buy an apartment and spends $25,000 on child care a year that they deserve to pay 45% in tax because they are now in the upper class.

        Nobody in their mid-30s on $180k+ should have ANY debt from University, let alone “huge debt”.

        If they do, I’ll be happy to explain to them that a 45% marginal tax rate is probably the least of their financial problems.

        Spending half a million dollars on an apartment and $25k/yr on childcare are, to use a phrase people like you love to throw around, “personal responsibility” issues.

        You might want to consider that accumulation of assets and passive income are a sign of true class mobility.

        It sure is. Class mobility from comfortably well-off to rich.

        Not working your arse off to get paid $200,000 – only to pay over a third of it into socialist schemes designed to promote upward mobility by paying out pension benefits to people in million dollar homes, free doctors and ‘family tax benefits’.

        I do not recall, at any time, supporting “pension benefits to people in million dollar homes and ‘family tax benefits’”. Nor do I understand how you could try to argue those things are intended to “promote upward mobility”.

        Happy to support free doctors, for the same reason I’m happy to support free education and free police services.

        With the end of the resources boom Australia is going to have a lot less people with $180,000 plus taxable incomes for the government to divert.

        Most anyone on $180k+ is doing plenty of “diversion” of taxable income themselves.

        Chin up, though, with a lot less people for you to get all teary-eyed about because their tax bill means they can’t buy that third jetski for the kids, your anxiety levels should go down a bit.

        Of course, all those people who suddenly aren’t employed might have more important things on their mind, like food and shelter. At which point the more prescient amongst them might realise that, hey, maybe that “socialism” thing isn’t so bad after all because they’re not out on a street corner begging for money and sending their children out to sweep chimneys.

        Heaven forbid they start selling their real estate…

        Can’t wait.

      • Thankfully I finally left your socialist dream world Smiffy last year so I could actually maintain some of the money my wife and I make in our short careers by moving to Asia.

        Coming from a social position of having zero to begin with – it makes me sick listening to someone like yourself shrug your shoulders at $25000 in childcare, apparent no large HECS debts (like no couple has studied for 12 years between them) and a half bar mortgage.

        I suppose the top 5% of earners (as you like to remind me) should fund everyone else’s childcare.

        I rent now by the way – some other idiot can rent me his apartment at a 2% yield.

        Where possible I am short your thinking, your ideology and all the misallocations and boondoggles it creates – it certainly has a great track record of failure, I still can’t find a success story.

        As for this:

        “Of course, all those people who suddenly aren’t employed might have more important things on their mind, like food and shelter. At which point the more prescient amongst them might realise that, hey, maybe that “socialism” thing isn’t so bad after all because they’re not out on a street corner begging for money and sending their children out to sweep chimneys.”

        No they might realise that socialism stole their money and stopped them from actually building something of worth while they were making good money.

        Most of them wouldn’t have had the mindset that they should live their lives being dependent on a ‘government safety net’ and would only have to reach out in total despair after draining the fruits of their personal savings or what was left after your mob took their share.

        In the meantime your socialist fantasy will be running out of funding (it couldn’t even fund itself in boom times) and people will be crying that the government can’t live up to its promises.

        Let it go mate – it is a proven failed model but what do you care – you are after all a Doctor…

        A Doctor of Torts

      • @8~,

        So let me get this straight, you made your money or nest egg in this country by virtue of its laws and social infrastructure and then run off to Asia, so you don’t have to support the system you benefited from originally.

        Skippy… thank you for leaving if that is true… no hard feelings tho’.

      • No – our family grew tired of seeing our almost 15 year investment in ourselves being decimated by Australia’s tax system, outrageous property bubble and insane entitlement mentality and cost of living.

        We could see the writing on the wall for the economy and were lucky enough to be able to escape.

        From our experience – we would have been better off financially leaving school and getting cushy jobs in the public sector when we were 18 rather than investing 10s of thousands in our education (not all courses are publicly funded) and working 12 hour days with no holidays once we hit the workforce after living in scummy share housing while studying/working part time.

        As for benefiting from the ‘social infrastructure’ yeah I graduated from a shit public school and had to actually learn reality quickly once I got to university. Luckily we swam and didn’t sink.

        We paid privately for health services that now cost less in a country without a Medicare levy or surcharge.

        Our child care costs are 60% lower and our child learns two languages instead of getting a ribbon for losing

        You seriously don’t think Generation X benefitted from the government largess of the boomers do you?

        Keep the dream alive guys

      • Thankfully I finally left your socialist dream world Smiffy last year so I could actually maintain some of the money my wife and I make in our short careers by moving to Asia.

        Right. So having benefitted for most of your life (sufficiently, I’ll wager, to be comfortably in the top 10% of earners) from the social services and infrastructure paid for and provided by people like my parents, you leave because you can’t face up to that same responsibility for the next generation ?

        Let me guess. If it doesn’t work out and you end up unemployed and broke, your escape plan is to come back to Australia, right ? Do you buy return tickets ?

        Coming from a social position of having zero to begin with – it makes me sick listening to someone like yourself shrug your shoulders at $25000 in childcare, apparent no large HECS debts (like no couple has studied for 12 years between them) and a half bar mortgage.

        Ah, this sort of grossly dishonest misrepresentation always warms my heart.

        (I would have used one of those fancy latin phrases, but I know you don’t like them.)

        Let us contemplate, for a few minutes, the typical mid-to-late-thirty-something in the top tax bracket (a demographic I feel I can comment on with some confidence).
        * Their parents would not have been baby boomers
        * They would have passed through what was still mostly a high quality public education system
        * They would have had access to HECS, and accrued a relatively small debt from University education, with significant discounts for up-front/early repayments
        * For those who needed it, they would have had access to welfare that was enough to live on with relatively little desperation, even in major cities.
        * They would have exited the University system and entered employment from shortly after “the recession we had to have” to the middle of the tech bubble
        * Assuming full time employment in a job related to their degree and fairly typical career progression, even with minimum payments they would have little to no HECS debt by age 30.
        * They may have bought their first property in the late ’90s, or early 2000s, and – even if they were unlucky enough to have sold out a decade ago, have seen substantial capital growth in same, whilst experiencing mostly low interest rates.

        So, yes, when someone with a history that more than likely looks like that, probably married to someone else whose history also looks similar, collectively putting something in the ballpark of $15-20k in their bank account every month, complains about $25k worth of (probably taxpayer-subsidised to some degree) childcare that they have chosen to consume, I’m going to shrug my shoulders (and then tell them they should be thankful for how lucky they are).

        There will, of course, be outliers, but broadly speaking the only generation in Australian history that has had more advantage dropped in their lap than late Gen X, is early Gen X and Baby Boomers.

        Actually, fuck it, at $180k we don’t even need to think about being 30-something, we just need to consider the fact they’re earning $180k and individually getting nearly 30% more in their pocket each week than the typical household with two working adults that all but must use some form of childcare. So, yeah, regardless of whether they’re 30-something with the above advantages dealt by fate, or twenty-something and grew up in Parramatta, I shrug my shoulders and tell them to take a spoonful of cement and harden the fuck up.

        I suppose the top 5% of earners (as you like to remind me) should fund everyone else’s childcare.

        Ideally, people wouldn’t have to put their kids into childcare at all, because one modest income would be enough to support a family in relative comfort. But you’ve expressed quite clearly your contempt for “socialist” ideals like that in the past. All that money that could be going into some lucky bugger’s “passive income”.

        Preferably, the cost of childcare would fall mostly onto the top 1% and increasingly more so onto the fractions of that 1%, given their grossly disproportionate remuneration and since it is their greed that is driving parents to leave their children to be raised by strangers. But, yes, if you’re in the top 5% of earners your vastly greater capacity to afford it should be reflected in contributing some share to the society that supports your ability to earn all that money.

        I rent now by the way – some other idiot can rent me his apartment at a 2% yield.

        You mean the same “idiots” you’re venerating with their $500k mortgages, $25k/yr childcare bill and negatively geared tax avoidance engine ?

        Where possible I am short your thinking, your ideology and all the misallocations and boondoggles it creates – it certainly has a great track record of failure, I still can’t find a success story.

        Other than the post-WW2-until-Thatcher-and-Reagan Anglosphere (you know, the society that has facilitated your ability to relocate to Asia and earn squllions without having to pay any tax while retaining a foolproof escape plan) and the Northern European countries (+ Switzerland, Germany and probably a couple of others) that have been leading pretty much every quality of life metric used for decades ? Those “failures” ?

        No they might realise that socialism stole their money and stopped them from actually building something of worth while they were making good money.

        Yes. I’m sure the thing that stopped them “building something of worth” was that they were “only” putting ten thousand dollars in their pocket every month instead of, say, the twelve thousand they’d get with an average tax rate of 20% over $180k.

        The median income in Australia is about $60k, which (simplifying) means ~$44k in the hand. Working from an assumption that the median income is at least enough to live a comfortable life on, that means someone earning $180k has $70k on top of that each year to spend on luxuries and “accumulating assets”.

        Now, if you want to argue that the average punter isn’t paid enough to live a decent life then, hey, I won’t disagree, but you might want to keep in mind how vociferously you have previously argued that high wages are a barrier for small businesses and we need to drive them down to help the economy.

        Most of them wouldn’t have had the mindset that they should live their lives being dependent on a ‘government safety net’ and would only have to reach out in total despair after draining the fruits of their personal savings or what was left after your mob took their share.

        The cognitive dissonance of someone who, on the one hand, exalts Howard’s Battlers doing it tough in the top tax bracket, while simultaneously attacking things like the family tax benefit that they would all have enthusiastically voted for and subsequently milked to buggery (because they earnt it, yo – after all, who pays all those taxes ?!), or who holds up childcare costs as some sort of vainglorious sacrifice while arguing against livable wages, is a sight to behold.

        Sadly enough, though, not an uncommon sight. Fucking libertarians – your greed and selfishness is sickening.

        It would be great if we could pick you all up and drop you on some desert island somewhere, so you could live out your Government-free lives just the way you want to – nothing given and nothing taken away.

      • Frederic Bastiat

        Why do socialist like Dr Smithy always use straw man arguments and make statements like this:

        “Fucking libertarians – your greed and selfishness is sickening. It would be great if we could pick you all up and drop you on some desert island somewhere, so you could live out your Government-free lives just the way you want to – nothing given and nothing taken away”

        Why is that people such 88888 and myself, who have worked hard, come from humble beginnings and now want to enjoy some success, immediately get threatened with “Love it or leave it” and get called ‘greedy”.

        What is greedy about wanting to keep a greater share of what is yours!

        Every day I catch the tram to work, drinking my pod coffee from home and my lunch packed…I save, I rent and I wait…yet everyday I see drug users get on without paying and abuse people going to work. They openly talk about their last hit, and they clearly have no intention of desire to contribute. But I guess I am a greedy, selfish prick for not giving them a hug and saying I bet you had a tough life or coming up with a hash tag to show how compassionate and enlightened I am #iwillsubsidiseyou.

        Then I get to work and I hear some snarling work colleagues bragging about their 3rd investment property. These guys wouldn’t know what the term macroeconomics actually refers to, yet they have over 1 million bucks in debt and not even 35 yet. They call me selfish for complaining that interest rates are too low and talking about ‘financial repression’. Many of these property millionaires are also ‘lefties’…they actually think the are being benevolent by buying properties, making a loss on the rents which get written off against their taxable income, and then watching the cap gains mount up and up.

        But you know who take the cake? Its those baby boomers that turn up to ABC Cuts protests and who vote Green, but who have accumulated massive wealth over the past 20 years for no reason other than they rode a massive asset bubble.

        So you can take your simplistic, hypocritical, and disingenuous criticisms of libertarianism and shove it up your ass, Doc!

        The libertarian movement is made up of a lot of smart, hard working, generous people… they dont need to leave the country – they need to change it, and we will!

      • Why do socialist like Dr Smithy always use straw man arguments and make statements like this:

        Now there’s some irony.

        Firstly, what’s a socialist ?

        Secondly, accusing others of making straw man arguments (which ones ?) then proceeding to make many yourself, is a little silly.

        Thirdly, the reason I make statements like that, is because greedy selfish arseholes weeping for the tax paid by the top few percent of earners while trying to undermine the foundations of civilised society that underpin their own good fortune, and deny others the same opportunity, all so they can live a somewhat more luxurious lifestyle, make me angry.

        Why is that people such 88888 and myself, who have worked hard, come from humble beginnings and now want to enjoy some success, immediately get threatened with “Love it or leave it” and get called ‘greedy”.

        You don’t.

        You first demonstrate a repeated pattern of behaviour over an extended period of time, THEN I call you out on your hypocrisy, greed, selfishness, and logical fallacies.

        Further, if you can’t “enjoy your success” with ten thousand bucks a month going into your bank account (so probably seven to eight grand of completely disposable income), I doubt twelve thousand (20% average tax) or, indeed, even fifteen thousand (no tax at all) will change that much.

        What is greedy about wanting to keep a greater share of what is yours!

        The part where all the people around you play a key role in you having “what is yours”.
        The part where the generations before you gave up part (a much larger part) of what was theirs so you could have the opportunities you did, but you aren’t prepared to do the same.
        The part where you never have enough.

        Every day I catch the tram to work, drinking my pod coffee from home and my lunch packed…I save, I rent and I wait…yet everyday I see drug users get on without paying and abuse people going to work. They openly talk about their last hit, and they clearly have no intention of desire to contribute.

        Ah, if only Libertarians cared as much about abuse of the system by the top fraction of a percent as they do about those in the bottom. We might never have had the GFC. But it’s always hard to direct any attention or criticism at the thing you strive to be.

        Speaking of straw men…

        But I guess I am a greedy, selfish prick for not giving them a hug and saying I bet you had a tough life or coming up with a hash tag to show how compassionate and enlightened I am #iwillsubsidiseyou.

        No, you’re a greedy, selfish prick for not being prepared to help current generations the way previous generations helped you.

        Then I get to work and I hear some snarling work colleagues bragging about their 3rd investment property. […]

        Ah, blaming everything you don’t like on “lefties”. How very Libertarian of you. Though I suppose when you’re so far out there on the right, pretty much everyone else is a “leftie”, so it kind of makes sense.

        Somehow I doubt many of those people are voting Greens. Indeed, I’d be surprised if any of them were even close enough to centre-right to be voting Labor. They’ve got “Howard’s Battlers” written all over them.

        But you know who take the cake? Its those baby boomers that turn up to ABC Cuts protests and who vote Green, but who have accumulated massive wealth over the past 20 years for no reason other than they rode a massive asset bubble.

        Firstly, I doubt there’s a particularly large cohort of baby boomers voting Greens.

        Secondly, it’s a struggle to see how that behaviour in any way conflicts with Libertarian philosophy. Heck, your mate 88888 was, not 4 or 5 posts ago, cheering on asset accumulation and passive income as hallmarks of aspirational class mobility.

        So you can take your simplistic, hypocritical, and disingenuous criticisms of libertarianism and shove it up your ass, Doc!

        You shouldn’t use words you don’t understand.

        The libertarian movement is made up of a lot of smart, hard working, generous people… they dont need to leave the country – they need to change it, and we will!

        Libertarianism is a philosophy for children and psychopaths. All rights, no responsibilities. It boils down to little more than “me want” and “fuck you”. It was developed by a bunch of greedy sociopaths to justify their insatiable desire for “more” and ruthlessly exploit anyone they judged to be inferior with a clear conscience, and consequently added nothing to our economic, cultural or social capital – indeed, quite the opposite.

    • You want simple. OK.

      1. Services, there is no simple answer and I notice you didn’t try to provide one.

      2. Tax rents, for maximum simplicity focus on Land rents.

      Large tax on all land drop all other taxes except where purpose of tax is to change demand no raise money i.e. sin taxes.

      Cash payments no longer a problem, no payroll or income tax or company tax to avoid

      Local retailers no longer get to complain about competing with GST free imports as they are now also GST free.

      Impossible to avoid income tax or company tax as there is none.

      Foreign ownership of land less of an issue as most or all of the rent is captured. Only profit for foreign investment comes from actually using the land to build something or do something useful.

      Most of the problems with Alcohol, Tobacco, cheap food, are symptoms of poverty. Go back to 1 and do something about poverty. To large a topic for here.

      Scrap superannuation as it’s just a tax. Provide a proper pension. Superanuation is 1) services not 2) revenue many problems caused by getting those confused.

      Also your approach is very regressive. A great system for the wealthy. A big pile of pain for the poor.
      Land tax is much more progressive.

      overall not ideal but hard to beat for simple.

  6. Tax the ones trying to be capitalist on a “creditism” budget. “Rent seeking” is a great pillar of economics. If you work hard, efficently or create something others want then you deserve the capital and the opportunity to rent seek by supporting other industries/innovators in their efforts to better our country.

    Australias issue is that this isn’t exactly the case property trumps all else and this last splatter of credit our banks are pumping out is purely so the baby boomers can flog their crappy homes off and cash in. Its a shit sandwich.

    • Spot on

      A lot of economic rents took a lot of hard work and risk taking to create and deserve to be encouraged not taxed

      Then there is government subsidised leveraged property speculation…

  7. A man I grew up with bought a bunch of fishing licenses in the 90’s for around $100 a pop from WA Goverment. Today they are worth around $40,000 with a yield of about 5%. He doesn’t fish, doesn’t work just lives off the yield (which is about 100k-120k a year)

    Kudos to him but its rent seeking at its very best. Unproductive parasite for no reason at all. More tax could be obtained from the fishermen and this man could be sent back into the workforce.

    • Is this man you grew up with a psychopath?

      Key Symptoms of Psychopathy

      Emotional/Interpersonal:

      Glib and superficial
      Egocentric and grandiose
      Lack of remorse or guilt
      Lack of empathy
      Deceitful and manipulative
      Shallow emotions
      Social Deviance:

      Impulsive
      Poor behavior controls
      Need for excitement
      Lack of responsibility
      Early behavior problems
      Adult antisocial behaviour

    • Cotton farmers did the same with water rights but add some more zeros

      They just needed to do the paperwork, not even sure a $ was charged.

      $10s of millions of value now

      Governments are great for some…

  8. Apon talking to my wife she informs me it was in the late 80’s but the point remains.

    Anyway is he a psychopath? Such an odd question. Many years of being a rent seeker with nothing to do but going on holidays and gardening have certainly taken a toll on his mentality.