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The Forum > Article Comments > Whither tax? > Comments

Whither tax? : Comments

By Nicholas Gruen, published 30/7/2010

What's to like and not like about the Henry Tax Review?

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Most of the 1500 words were suitably bland. But this confused me.

"Your family home is exempt from various taxes including capital gains tax. It makes little economic sense but would be electorally impossible to overturn. But why should the concession be extended to the very wealthy few who live in houses worth more than, say, $4 million."

I read this as "the exemption of the family home from various taxes including capital gains tax makes little economic sense"

"Economic sense" for whom, Dr Gruen?

Using your proposed threshold of $4 million for capital gains tax, what revenue do you expect this would generate?

Both as a "prominent Australian economist" which is how your personal Wikipedia entry describes you, and as a professional mortgage broker, you would certainly have these numbers at your fingertips.

Have you perhaps given a thought to the possibility of unintended consequences arising from this new tax? I know for certain that if ever my family home were to reach that level, I would spend some time and effort making sure it did not click in.

Altogether, it is not surprising that the proposition would never feature in an election campaign.

But it is your claim to "economic sense" that continues to bug me - what on earth do you mean by it?

In which universe does capital-gains-taxing the family home make any sense at all? At any level?
Posted by Pericles, Friday, 30 July 2010 11:58:26 AM
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Whither tax? is indeed economics' big question , but though Nicholas Gruen does come close on occasions, he doesn't have the answer. Yes, it's a politcal no-no to tax our homes. And so it should remain, even for $4m plus homes.

But the Henry review's case for a federal land tax would exclude the house and other improvements, and you'd pay for the value of the land you hold, a value that no one but the community created, and having created it, it's partly owed back to the community.

And rather than surrender because it's politically difficult, maybe it CAN be sold the way Rudd didn't sell the miners' RSPT. If EDUCATION were brought to bear, even economists may come to learn that land 'tax' is a natural resource rent, not a tax. Land and resource rents can't interfere with production, no matter how loudly you, I, Andrew Forrest or Clive Palmer may proclaim they can.

Once Tony Abbott and others have learnt that a resource rent is not a "great big tax", there's hope for us all. Remember this global depression is sponsored by tax regimes which tax doers and reward we parasites who privatise the public's rent. Well, we'd have to be silly if we worked (and were slaughtered by taxation) instead of becoming property 'investors', wouldn't we?

Big landowners claw back the last cent they've ever paid in taxation via the uplift in their land values. Can renters, or those who only own the land on which their house is situated, do this?

So what could be fairer if, instead of taxing $4m dollar homes each and everyone of us paid a flat rate charge upon the value of the land over which we hold title, and other taxes are slashed concomitantly?
Posted by Bryan Kavanagh, Sunday, 1 August 2010 11:26:11 PM
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I've read most of the Henry Tax Review report and it generally makes a lot of sense. It's comments on taxing profits from resource developments was of particular interest as they showed how incompetent the Gang of Four ministers (Rudd, Gillard, Swan and ?) were in understanding and applying Henry's recommendations. Kevin's gone because of this incompetence, will Julia follow?
The problem with Dr Gruen's article is that he dismisses any need for government to respect private property rights (yes, I know, that old right-wing chestnut!) which is unforgivable for an economist. One of the foundations stones on which all modern, successful, capitalist societies and economies are based is private property rights and, if these rights are to be tampered with, then a more powerful argument than "Why should your chances in life depend on your skill in choosing your parents?" is required. This is a shallow argument and ignores so many more important questions such as: what makes governments better at distributing taxpayer money than the taxpayers?
The Henry Tax Review makes many sound and well-argued recommendations for tax reform that should be more widely debated in the Australian community. Dr Gruen's article wrongly (in my view) assumes that the Review was all about gaining higher levels of taxation from Australian businesses and individuals. In fact, the Review also sought to make taxation fairer, more equitable, with fewer economic and social distortions. It's a pity that these other aims of the Review seem to have been largely ignored since the Review's publication.
Posted by Bernie Masters, Monday, 2 August 2010 11:16:06 AM
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Thanks Nicholas. I agree with much of this, but see a more sinister move in Henry's recommendations - increase taxes on labour and cut taxes on capital, especially mobile capital. Most economists support this because they support the exploitative system in which we workers create the wealth and bosses expropriate it. Hence Henry's seeming wish for a broad based GST at higher rates.
Posted by Passy, Wednesday, 4 August 2010 9:10:22 AM
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The problem for government is that unpopular and intrusive taxes put pressure on goverment to be more accountable in how they spend our money.

And yet governments are notoriously and famously wasteful of other people's money: self-regarding, indulgent, and inaccurate in their assumptions and forecasts.

According to a World Bank study released in November last year, Australia is one of the highest-taxing countries in the world for business. Australia came 127th out of 183 countries for total amount of money removed from business via tax.

See link:

However, this shocking statistic was underplayed in the press, in favour of vague rankings that correlated and presumably weighted the different aspects of the study, such as 'ease of tax payments' and 'number of tax payments'.

Australian small businesses and individuals sorely need tax relief.
Posted by floatinglili, Wednesday, 4 August 2010 11:42:42 PM
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