Property Council talks its book on tax reform

By David Collyer, cross-posted from Prosper Australia:

The Property Council of Australia (PCA) is out in The AFR calling for a 12.5 per cent GST, a universal land tax of 0.25 per cent and a cut in company tax to 27 per cent.

This may seem a useful way forward in the tax reform debate, until you realise the top rate for State Land Tax in Victoria is 2.25 per cent on land over $3 million – applicable to the wealthy landowners the PCA represents – and reducing this to 0.25 per cent would deliver very large windfall gains to the rentier class.

Not only would they make large cash gains, but the lower tax rate would be immediately capitalised into land prices and drive them even higher.

The PCA claims:

In addition, all land, including owner-occupied properties, would be taxed at a flat rate of 0.25 per cent and other existing exemptions would be abolished. That would raise $3.6 billion.

This increased revenue would offset the $19.8 billion it would cost to reduce the company tax rate to 27 per cent and remove stamp duties on conveyances. Raising $3.6 billion this way goes nowhere toward meeting their lofty tax cuts.

Last week, the Grattan Institute found the states raised around $15 billion in stamp duty and a broad-based nil exemption land tax would need to be set at 0.4 per cent to remove it. I don’t think the PCA’s numbers add up – but then, they probably aren’t supposed to.

The Henry Review recommended Australia introduce two taxes: a land tax and a Resource Super Profits Tax to fund the removal of 125 very bad taxes we know are economically damaging. The review modelled land tax at a one per cent rate, calculated on a per square metre basis.

This is the path forward, not in fighting for a larger slice of the pie.

On company tax, reducing the rate is good, but when we consider companies have very little capacity to bear taxation and most of the revenues raised derive from lower wages and higher prices, reducing the rate by three per cent makes very little difference at all. A better change would be to remove company tax entirely and put it in the land.

Comments

  1. SamscoutMEMBER

    A tax on land is a tax on productivity. How about a Capital gains tax on housing profits or even better reintroduce a stamp duty on share trading. i.e. tax the speculators. In regards to the super profits tax on mining should it not also apply to lawyers – they use the peoples law to make profits – does not the law belong to the people created by politicians that we the people pay for – any law firm that generates a ROE of over 10% should pay a super profits tax.

    None of the above will happen of course because the lawmakers live around Sydney harbour where housing profits are the greatest and incomes are derived from the law and finance industries.

    • flyingfoxMEMBER

      A tax on land is a tax on productivity.

      How so?

      does not the law belong to the people created by politicians that we the people pay for – any law firm that generates a ROE of over 10% should pay a super profits tax.

      Do law firms ship dirt?

      • SamscoutMEMBER

        Do law firms ship dirt – not sure what the relevance of that point is – law firms use government property to generate a profit just as mining firms use government property (or the peoples property) to generate a profit – if we tax one industry we tax should tax all industries who use the peoples property.

      • flyingfoxMEMBER

        law firms use government property

        Whoa? Your taxes pay for your justice system. Whom you hire to represent you and how much you pay them is your problem.

        Natural resources belong to the people of the country, past, present and future and the people shoudl be adequately compensated for the sale of their natural resources.

      • SamscoutMEMBER

        If my taxes pay for the justice system then why do I have to pay again for a lawyer. No my taxes pay for politicians to make the law. The law is then used by lawyers to generate an income. It seems to me you want to socialise the cost of making law but capitalise the profits from law. Doesn’t seem very equitable to me as only the rich can afford lawyers and even they end up being screwed (refer hockey’s case – the only winners were the barristers if you think about it). As they say “everyone’s innocent until proven broke”.

      • “If my taxes pay for the justice system then why do I have to pay again for a lawyer”

        Because courthouses don’t erect themselves for free, the judiciary doesn’t sit for free. You are also entitled to free representation in criminal cases if you can’t afford it.

        The final bit about ‘paying for a lawyer’ is a user pays features for choice of representation.

      • SamscoutMEMBER

        As a matter of interest do lawyers pay to use the courthouses – I thought courthouses and the judiciary were paid for by the government but stand to be corrected – if I’m right then not only do lawyers get to use the law for free they also use the courthouses at no cost either – maybe we need to increase the super profits tax even further. I’m not a criminal – does that mean I need to commit a crime to get free use of the law but if for some reason I am accused of a civil violation I have to pay – doesn’t seem equitable to me.

      • flyingfoxMEMBER

        if I’m right then not only do lawyers get to use the law for free they also use the courthouses at no cost either

        Mate you’re heading off on a tangent there is no coming back from. Good luck!

      • SamscoutMEMBER

        You’re right about that – god forbid anyone stand up to the legal industry. So was I correct or not – you forgot to answer my question – or was that deliberate!

    • How is a Land Tax a tax on productivity? The land tax is fixed in $ terms. Therefore it will encourage the best use ie: productive use, of the land to cover that cost. A Land Tax ‘encourages’ productivity by making sure that (1) land doesn’t sit idle and (2) any owner uses it to the best possible productive use.

      • SamscoutMEMBER

        Janet Hi – good speaking with you – I’ve enjoyed reading your posts over the last few months.

        Land is used by producers to produce goods or provide a service (i.e. a bed to sleep in) – to me the land tax argument is a sideshow to the real elephant in the room – capital gains on tax housing – why should land owners in Sydney make super profits on houses and not pay a cent on profits realised but yet my labour is taxed once my income reaches $18,200. Why should profits from personal exertion (i.e. labour) be taxed but not profits from personal property. There is already a land tax in my view which is rates and insurance. Furthermore most states already charge land tax above a certain value already – how is the new proposal any different. What about the nurse or teacher living in central sydney – how are they supposed to afford to pay land tax presuming most of them will already be struggling to meet their mortgage payments. Most business already try to maximise their profits from land but can be very cash poor. By applying a CGT at the point of sale the seller is cash rich at the time and can afford the pay the tax – it may not be the same with a land tax whereby the business or worker does not have the cash to meet the land tax.

        Furthermore the biggest drain on the Federal budget is the CGT housing exemption which is around $50 billion I think . Remove that exemption and lower income taxes – watch productivity fly then.

        Cheers

      • flyingfoxMEMBER

        A flat land tax along with minor tax changes alleviates most of the issues you highlight. As Josh below states, it is a tax on unproductivity.

    • I have no issues with a land tax, but there should be a safe harbor for a primary residence, or at the very least a primary residence for a retired person.

      Also, how is the percentage calculated? I could see how a property bubble would squeeze the shit out of retirees if it’s pegged to “current” land values. While I don’t advocate the California system, per say, but there is a cap of value increase and it’s base value is calculated on last transaction of the property. The Cali system could work if that primary residence safe harbor was also used there.

      In short, let me retire in a home without having to cough up a percentage to the Gov! But feel free to hit me hard on my NG properties around the shop 😉

      • Josh MoorreesMEMBER

        there is always the provision to let it accrue and be taken out of the estate. Ostensibly having a home for retirement isn’t so you can pass it on but so you don’t have housing costs. Taking it out of the estate achieves this. It isn’t the governments job to make sure your kids get an inheritance.

      • arescarti42MEMBER

        For retirees, letting the tax liability accrue until the property is eventually sold is the most sensible thing to do if cash flow is your concern.

        The Californian system, whereby the taxable value is based on its original acquisition value with increases limited to 2% PA is a horrible failure on almost all accounts because:

        -Like stamp duty, it acts as a strong disincentive to turn over property, locking people in to their existing homes and preventing efficient use of the dwelling stock.
        -It unfairly saddles new entrants to the market with the majority of the tax burden.
        -It’s a lousy source of revenue for Governments, and is part of why the state of California is such a fiscal basket case.

        That sort of system is probably no improvement on the current system of stamp duty.

    • Josh MoorreesMEMBER

      realistically land tax is a tax on unproductivity. If you are leaving it vacant (ie being unproductive) you are being taxed the most compared to the output of the land. whereas if you have built a factory on it the land tax is a small component of the income it generates.

    • Forrest GumpMEMBER

      Annual Capital gains Tax. When an investor lodges their tax return with the negative gearing, they also lodge their Annual Capital Gains Tax.

      Its better the ATO gets it annually rather than waiting till the investor retires and has zero income and hence pays zilch CGT.

      • drsmithyMEMBER

        Annual Capital gains Tax. When an investor lodges their tax return with the negative gearing, they also lodge their Annual Capital Gains Tax.

        That’s hardly fair if you’re deriving no benefit from the capital gain.

        I’d go for a loan refinance (for a larger amount) triggering a CGT event though. That seems eminently fair (and would put some pretty serious brakes on “equity mate”, I’ll wager).

  2. The Patrician

    Under the PCA model, who imposes/collects the “universal land tax”? State or Feds?