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The Forum > Article Comments > Paternalism (‘we know better than you what to do with your money’) > Comments

Paternalism (‘we know better than you what to do with your money’) : Comments

By Bryan Kavanagh, published 5/2/2010

The government's always coming up with ways to spend our money: it won't get out of our pockets so we can look after ourselves.

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"There’s a natural source for government revenue, fellas! Try publicly-generated land rent!"

Not that I want to give any encouragement for the idea that government should have more sources of revenue, but supposing publicly-generated land rent were to be used as a source of revenue for government, how might it work?
Posted by Peter Hume, Friday, 5 February 2010 11:19:39 AM
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Your point that it should not be just another tax is well made, Peter. The public capture of publicly-generated annual land values should be an ALTERNATIVE to taxation, and should only be employed to replace existing taxes. Although cynics will claim that 'a tax is a tax', strictly speaking a 'tax' on land values is in the nature of a rent and behaves quite differently from taxes.

How would it work? It would function much as municipal rates (on site value) and state land taxes do, except if ratcheted up sufficiently, it could be used to keep a lid on bubbles forming in our land market in future. In this respect, it would be a more selective tool than RBA interest rate policy. Hopefully, it would also be at a single rate in the dollar, without all the exemptions, thresholds and aggregation provisions that characterise state land taxes.

While Joe Hockey has been calling on the government to release Ken Henry's recommendations (believed to recommend a land tax of some sort), I see the coalition hasn't released Henry Ergas' year-old taxation review that also apparently recommended a land tax. Ergas rightly recommended including the family home, as the land 'tax' base becomes horribly distorted if the imputed land rental of family homes is excluded.

Although the principle is a sound one, it won't come easy to those people who fail to see the GFC as a direct result of taxing production, thrift and exchange while we undertax land. We captured to the public purse only $40 bn of the $325 bn land rent generated in 2007 (estimated by the Land Values Research Group). This allowed some $285 billion to be privately capitalised into the Australian bubble, the world's greatest.
Posted by Bryan Kavanagh, Friday, 5 February 2010 12:11:25 PM
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It is very odd that our taxation system seems to punish most those who work for a living and reward those who do nothing. Wages are taxed at the highest rate, speculating with money is taxed at a lower rate while inheritance (essentially sitting back and doing nothing) isn't taxed at all.

It is also very odd that as a society we seem to believe that higher and higher house prices are a good thing, despite the fact that very few people actually benefit from this. Those benefiting are people who have enough money to be able to invest in multiple properties, or those with rich parents who die and leave them the proceeds, while the rest of us end up just paying more in interest to the banks and more of our income to cover housing costs.

Taxing land value (including the family home) would mean that people would have to stay in the job market longer to pay either their land tax or rent. Wayne Swan would be happy with that but I'm not sure many older people would be.

Eventually, of course, everything would even out, but there would be a very painful transition.
Posted by Cazza, Friday, 5 February 2010 12:48:28 PM
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You are correct that the transition would be the most problematical point, Cazza. The director of The Land Values Research Group, Dr Gavin Putland, has actually developed several most interesting proposals to introduce a land value 'tax', including a 'no losers' plan, and one in which it would be optional to remain under the present tax regime. The latter might sound incredible, but what's wrong with offering options, to opt into the tax system of your choice, if it can be shown to be both fair and to raise the same gross revenue?

Of course, those who own more properties and the more valuable properties would be likely even to resist an optional system. The poor widow would undoubtedly be upfront and central to their campaign, as usual. Although her special circumstances can be accommodated easily, that this is a most selective empathy (for the poor widow) can be shown by her disappearance at the time of the introduction of the GST.
Posted by Bryan Kavanagh, Friday, 5 February 2010 1:21:13 PM
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Deck chair floor plan alterations anyone?

Any philosophy that doesn't *Fully* consider the human element first('good and bad') and subsequently relies on ad hoc myopic fixes(like this one) is merely protracting the inevitable, failure. All these ad ons simply make the structure more complex and therefore less predictable.

The GFC had many causes depending on which myopic is speaking at the time. That is the comfortable thing about economics it is an interpretational and non-predictive discipline.
Posted by examinator, Friday, 5 February 2010 1:51:59 PM
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The Rudd Government's economic policies are the same as any other socialist government's. Don't be fooled by Rudd's claim to be a Social Democrat. Only the socialist pary is right; there is little democracy.
Posted by Leigh, Friday, 5 February 2010 2:10:28 PM
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