Must try harder, Part 2

According to standard economic theory, the least distorting of all taxes is a land tax. This point can be pushed too far – for example, most land is improved to some extent, and that may be capitalized into land values. Nevertheless, given the financial difficulties of state governments, their failure to make use of this revenue source is an indictment, especially since they impose much more distortionary taxes on transactions involving land, such as transfer duties. All states exempt owner-occupied homes and primary producers from land tax, while taxing land sales and purchases across the board. The effect is to benefit existing landowners (except owners of rental housing) at the expense of new home-buyers and tenants.

It appears to be beyond the realm of political possibility to change this, but a government facing a supposed financial crisis, and looking for luxury items to cut, could start with land tax exemptions. As you might expect, Queensland has both a high threshold ($600 000) and a low rate (1 per cent increasing gradually).

None of the usual justifications for Queensland’s low tax effort apply here. Land tax exemptions do nothing to attract business to Queensland. They are a straightforward handout to landowners, mostly wealthy households with investment properties.

Unsurprisingly, this handout attracts zero critical attention from the Commission of Audit which states “Queensland has historically maintained a competitive taxation environment compared to other states.” This is entirely wrong as it applies to land tax. Since land is immobile, there is nothing competitive about low rates of land tax.

32 thoughts on “Must try harder, Part 2

  1. @Fran Barlow

    I have been able to find some common ground with libertarians in economic matters; for example on the issue of avoiding tax churn which is taxing and returning to the same demographic. A fair bit of this does happen with middle class welfare. A fair bit also happens with business taxes and rebates. Businesses and landlords can receive various egregious subsidies like negative gearing and fossil fuel subsidies. On the other hand they are forced to pay rather absurd and anti-pigovian taxes like payroll tax. Remove all the churning I say.

    However, I cannot accept the libertarians’ and fellow travellers’ almost pathological* aversion to virtually ALL taxes, to virtually all redistributive, welfare and equity policies, of properly costing negative externalities and of a significant mixed economy and regulative role for properly constituted democratic government. The strands of libertarianism oppossed to these principles I can never and will never accept.

    * If the phrase “almost pathological” is too strong I should say this. I find the minarchist libertarian position solipsistic** in philosophical, moral and socio-economic terms. Also minarchist libertarianism demonstrates a general failure, in my view, to understand the set of ideas contained in the moral philosophy of enlightened self interest or else badly misjudges how to promote enlightened self interest and the greatest good of the greatest number in constitutional, representative democracies. Minarchist libertarianism uses a specious chain of reasoning and specious sets of claims, all refuted by masses of empirical evidence, historical and current, to claim that extreme libertarianism and lassez-faire market systems lead to the most moral, efficient and equitable outcomes.

    ** colloquially: the notion that only the self really exists or only the self really counts.

  2. Interesting. Was the plug pulled early? The date of death falsified? Did the departing thoughtfully leave early? Or was their speedy passage assisted?

  3. Thank you for the clarification.

    I won’t pretend I’m now completely clear on the issue, but at least I’m clearer than I was, and probably as clear as I’m ever going to be without learning a lot of economic theory. So I’m grateful.

  4. @Ikonoclast

    I have been able to find some common ground with libertarians in economic matters; for example on the issue of avoiding tax churn which is taxing and returning to the same demographic.

    In theory, I’d agree. Taxing and returning to exactly the same folks makes no sense. Taxing and returning to very similar groups makes not much more sense. In practice though, I’m not sure that transactions of this kind are common or account for very much of of the revenue movement within economies like Australia’s — though they may well be more common in Scandinavia. It seems as if there’s a lot of socially horizontal redistribution from people without children to people with them which is not quite the same though perhaps objectionable on other grounds, outside, perhaps, of basics such as education and health.

    Businesses and landlords can receive various egregious subsidies like negative gearing and fossil fuel subsidies. On the other hand they are forced to pay rather absurd and anti-pigovian taxes like payroll tax.

    All landlords/businesses get negative gearing but only a handful would pay payroll tax or get fossil fuel subsidies in the usual sense. Really though, bearing in mind that the states essentially duplicate functions that could be carried out at lower marginal cost by the commonwealth, the issue is not merely how to raise levies more efficiently and effectively but how to avoid administrative duplication and fragmentation.

    I’d be OK with landtax. I’d also be OK with phasing out the deductibility of “dirty energy” from income and withdrawing rebates. I’d also be happy to have a broader consumption tax than we have now and have it at 12.5% providing that the extra funds were directed at services of especial value to the bottom three quintiles and means/asset tested to ensure that that was who benefited. I’d also charge for road usage on at least the main connecting roads, based on TARE, accident, compliance and skill profile of the driver, road contention and tailpipe emissions etc. and trade that for CTP and registration and fuel excise. The revenue from that could then be fed into better public transport, heavy rail freight infrastructure, urban consolidation and so forth.

  5. Ikonoclast – stay focused on the points of agreement. It will prove more fruitful. Disagreements about welfare and redistribution probably have more to do with means than ends.

  6. It looks like the ACT govt is moving in the right direction with an increase in land tax matched by a decrease in conveyance duty http://www.treasury.act.gov.au/TaxReform/Index.shtml

    Re: Uncle Milton @ #5: I’m surprised that the real estate industry hasn’t been lobbying _for_ this policy change. Less conveyance duty is sure to increase the volume of property transactions, which will increase business for them.

  7. I think it’s worth pointing out Land Values Research Group for their analyses of land taxation.

    Basically, most of the value of a particular piece land has arisen from processes other than the efforts of the owner of that land. i.e. they accrue capital gain in excess of their effort (if any). Not only do the owners acquire capital gain without effort, it usually isn’t taxed very much. This represents an enormous tax concession which, if removed, would allow the lowering of economically harmful taxes such as income tax.

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