Turnbull opposes affordable housing

Responding to Labor’s proposals on negative gearing and capital gains tax, Malcolm Turnbull has warned that property values will fall as a result. He is surely correct. To put the same point in different words, Turnbull agrees that Labor policy will make housing more affordable and thinks that this is a bad thing.

There are some obvious electoral advantages in Turnbull’s scare campaign. As I observed when this topic came up during Abbott’s Prime Ministership, most voters own houses and therefore benefit from making housing less affordable. For this reason, Australian public policy has long been to make housing as unaffordable as possible.

The difficulty for Turnbull arises from precisely this point. He has more or less promised to do something about the tax treatment of property. But, from our current starting point, almost any change must make existing owners worse off. So, when and if he does anything, he will be hoist on his own petard.

Labor’s response to Turnbull has been interesting and, I suspect, effective. The line has been to accuse him of a dishonest scare campaign, without explicitly denying that property values will decline with the removal of unjustified tax concessions.

While this is an example of a non-denial denial, it is I think, defensible. Turnbull is mounting a scare campaign, and doing so dishonestly, attacking policies he might otherwise embrace. This is a much fairer use of the term than when it was used to apply to Labor’s reiteration of its longstanding opposition to expansion of the GST at a time when the government was clearly floating the idea. Pointing out that it was never formal government policy is a silly evasion – it wasn’t as though Labor was inventing the idea.

46 thoughts on “Turnbull opposes affordable housing

  1. Both Shorten and Turnbull oppose affordable housing because they both favour population growth.

  2. One person’s capital gain is another person’s unaffordable rent, or unaffordable house price. This contradiction is inherent in our elevation of the idea of home ownership to the level of sacred. In any daily newspaper it is not unusual to find, in the editorial pages, an outcry against rising house and apartment prices, while in the property section of the same issue, the headlines proclaim a booming market for investors and developers. The challenge for public policy (and we do not have a national affordable housing policy, other than by default) is to find some way of delivering enough housing at an affordable price, while also attracting adequate investment in the housing construction sector. Many excellent ideas about how this can be done have been put forward over many years; we know what to do, but perhaps lack the political will to do it. Both major parties are indeed similar in this regard. Neither perhaps can be said to actually “oppose” affordable housing, but both have certainly neglected housing, especially social and affordable housing, as a policy priority.

  3. It does not seem good policy to me. It makes the tax system complex by distinguishing between new and preexisting housing. The effects seem complex to me. The present value of housing investments is reduced which should depress prices but there will be supply effects. Capital assets are purchased without recognising costs of purchase in assessing net returns and capital gains are subject to increased tax. Shorten won’t be PM so the issue is moot but even as an issue of academic policy design it does not seem smart.

    I noticed the RBA this week again reaffirmed their view that interest decuctibility should be allowed. It is arguable that the discount on capital gains tax should be reduced but that assumes you stick with interest deductibility.

  4. Declining house prices: “But, from our current starting point, almost any change must make existing owners worse off. ”

    Investors: There are people who put their savings into real estate for long term rental income in retirement. The effect of a decline in real estate prices is akin to a fall in some other asset prices in the short term.
    There are people who negatively gear to minimise their taxes in the expectation of making a capital gain with reduced tax obligations. These are the only people who unambiguously are affected by a decline in real estate prices.

    Home owners (no investment property).
    a) people who bought at the peak of a cycle. Regrets for misjudgement or impatience. But no worse than people who pay into superannuation (compulsory) including at peak securities prices.
    b) others. They are not worse off if house prices decline because if they wish to move then they can buy at lower prices. On the contrary, since real estate fees and stamp duties are linked to sales prices, some people may be able to afford to move.
    c) People in Sydney (upper North Shore) with children seem to be very concerned about housing affordability.

    I am very surprised about the PM’s announcement because it so unambiguously supports tax minimising negatively geared property speculators.

  5. I disagree that house prices will fall as a result of adjustments to negative gearing. I had a bit of a look to see what the history of negative gearing was. It seems Labour might have introduced NG back in 1986. In the following 2 years house prices moved up 50% then stabalised following the CPI closely for the next eight years until 1996 when Howard was elected. Keating attempted several times to make changes to the NG legislation but was pounded into submission by the real estate lobbies. But the fact is that House prices remained largely stable through the Labour period.

    The real hike in real estate prices began with Howard who began adjusting the top tax brackets handing substantial purchasing power to the higher earners, and the real estate rampage began. The real estate bonanza was driven by a favourable investment regime, higher free capital in the hands of the wealthy, strong global growth through the noughties, and lowering interest rates.

    Click to access File:20100517_Australian_House_Price_Index_1986_-_2009.pdf

    Much is made of the argument that national debt is stealing from future generations, but by far the greatest theft from the future is the intentional inflation of real estate prices by a government determined to place most of the nation’s wealth in the hands of fewer individuals.

    This is why the Morrison’s of our world are determined to provide “tax relief”, they just do not want the party to end.

  6. A question for the economists – particularly hc
    (Assuming I have this correct) Why should property investment be treated differently to other forms of investment allowing people write off loses on property against salary income? This policy has resulted in a market distortion for the purposes of reducing personal income tax for higher income earners. I’m I wrong? Why would you defend this?

  7. @Ernestine Gross
    Excellent summary again Ernestine! Generally agree Bilb – NG alone won’t cause a significant drop in property prices.

    Michael, (to my understanding) property investment isn’t treated any different to other forms of investing. You can negatively gear anything that’s an investment whether property or gold. I think it’s primarily used for property especially with personal investment.

  8. @Michael More to the point Michael, it isn’t (at least in this respect). You can negatively gear equities and other assets too.

    However, this is a case of formal equality vs substantive equality. In practice, it is much more common to gear into property than other assets for a number of reasons. Generally easier to get finance, no margin calls, typically higher share of gains from capital growth.

  9. JQ, Labor’s line on this is “more sustainable growth”, i.e. prices are not going to fall – just grow more slowly.

    Without doing any detailed analysis, that is probably going to be pretty close to the mark. There’s a lot of institutional and cultural resistance to prices falling without a big driver (and this isn’t it).

    @hc The design isn’t pure, but what tax policy is? Exempting new housing is most likely a political compromise to ward off the questionable attack about reducing housing supply, or a perhaps a deliberate ‘subsidy’ to encourage new housing supply. The added complexity is mild compared to many others (including the full grandfathering, another political compromise).

    The ‘excess’ interest is still deductible against the capital gain. There is a perfectly coherent academic tax policy argument for quarantining investment gains and losses from labour income – moving us closer to a Dual Income Tax model.

  10. Can we shorten the odds and turn the bull of this economic system around? No, not a chance. The poor pay the bill while the rich malc the system. There are no solutions from within the system. Systemic problems require systemic solutions.

  11. Sami,

    I can’t find direct stats on that with just a quick search.

    The ABS site says:

    “Home ownership rates have been fairly stable at around 70% for many decades. As measured in the ABS Census of Population and Housing, in 1971 the home ownership rate was 69% and in 2006 it was 70%, with small fluctuations around 70% in the intervening Censuses.”

    But it also says;

    “Owner (of a dwelling)

    A household in which at least one member owns the dwelling in which the household members usually reside. Owners are divided into two classifications – owners without a mortgage and owners with a mortgage. If there is any outstanding mortgage or loan secured against the dwelling the household is an owner with a mortgage. If there is no mortgage or loan secured against the dwelling the household is an owner without a mortgage.”

    From the above definition it would seem my wife and I would count as homeowners but our adult student children (2) still living at home would not be counted as non-homeowners as indeed they really should be. So this stat might give a biased picture of the situation. Indeed the stat seem to count “occupied, owned homes with mortgage or no mortgage” and not “homeowners” as such.

    What the above stat hides is;

    “The rate of households who own their own dwelling dropped from 42 per cent in 1994-95 to 31 per cent in 2011-12 while households still paying a mortgage increased from 30 per cent to 37 per cent over the same time.

    One-quarter (25 per cent) of all households were renting from a private landlord in 2011-12, up from 18 per cent in 1994-95.” – sydneymorningherald

  12. Perhaps I should have just posted this;

    “The rate of households who own their own dwelling dropped from 42 per cent in 1994-95 to 31 per cent in 2011-12 while households still paying a mortgage increased from 30 per cent to 37 per cent over the same time.

    One-quarter (25 per cent) of all households were renting from a private landlord in 2011-12, up from 18 per cent in 1994-95.” – sydneymorningherald

  13. @Ikonoclast

    Hmmm. Does ‘households’ only refer to actual ‘standalone’ houses (including, perhaps, multi-town house blocks) or does it also include apartments/flats etc as well.

    Because Sami’s question was: “Most voters own houses ?”

    Just offhand, does ‘negative gearing’ also cover apartments/flats and multi-town house blocks or just separate freehold properties, I wonder.

  14. @BilB
    “…the argument that national debt is stealing from future generations,…”

    Yeah, but, future generations are stealing from me ! All those things my, and my generation’s, taxes paid for that they are using and not even paying rent ! Roads, hospitals, airports, schools, defence equipment (who paid for all those ships and planes and tanks and guns etc).

    And I don’t hold anything that future generations will have to pay off.

  15. “The rate of households who own their own dwelling dropped from 42 per cent in 1994-95 to 31 per cent in 2011-12 while households still paying a mortgage increased from 30 per cent to 37 per cent over the same time.” [Source: as per Ikonoclast #13 above]

    I understand the above quote is from census data. If I recall correctly, the questionnaire asks whether the house (or unit, separate question), is completely owned or not.

    Some home owners, who have paid off their original mortgage completely, re-mortgage the house for the purpose of having equity for an investment property. There may be a margin of error due to alternative interpretations of the question.

    There may be other reasons than equity for real estate investment for re-mortgaging a property

    Some home owners have paid off their original mortgage but they keep an overdraft facility (implying that the bank keeps the title). Again, the question may be open to alternative interpretations.

    There may also be a discrepancy between the data held in the Land Title Office and the census data due to people who have received the title back from the bank not registering the discharge of the mortgage with the Land Title Office.

  16. Very good point, GrueBleen.

    We both get to be right. My point that the next generation is being forced to buy accommodation at horrendously inflated prices is indeed the past stealing from the future.

    But your point that government debt being passed forward can be seen as the future generations sharing the cost of the infrastructure that is handed to them to use, very clearly points out the LNP fallacy on government debt.

  17. The way its going, the old owning houses have solved their aging problem, because they will have the resources to commandeer the labour of the young to look after them. The old who don’t own houses will be stuffed.

  18. @Michael

    I think Michael that people are taxed on their income from all sources but the cost of aquiring a capital asset can always be claimed as a tax deduction. Labor policy is radicalsince it eliminates the deductibility of interest costs but wants to also increase taxes on capital gains

  19. @Michael

    The only ‘capital assets’ which many people acquire consist of household items such as furniture and white goods, IT goods and vehicles. If the acquisition of these physical assets is financed via consumer loans, including credit cards, then the interest payments are NOT deductible from their wage income.

    There are more complex examples (corporate structures, particularly multinationals). But I believe the simplest example will do.

    PS: The term ‘asset’ is defined as something which provides benefits to the owner of the asset for more than 1 period.

    It is often useful to distinguish between physical assets and financial assets. The latter is just another term for financial securities.

    The term ‘capital’ is an old one. It has caused some confusions in the past. In context it is still meaningful.

  20. @hc
    @Ernestine Gross

    Thanks for your replies. OK – so the tax system is treating property the same as other forms of investment – that seems reasonable. The discount on CGT doesn’t. A fairer system would be to remove the inflation from the profit and then tax it like other income.

  21. @hc again, you’re wrong. Labor’s policy does not eliminate the deductibility of interest, it merely quarantines it against income from the asset.

    In the majority of cases for individuals, the costs of acquiring a capital asset cannot be “claimed as a tax deduction”, but included in the ‘cost base’ to reduce any capital gain. Quarantining interest expenses (beyond rental income) against future gains is essentially the same thing.

    @Ernestine Gross Costs of acquiring personal assets are not deductible because there is no nexus with an income producing purposes. That is not a helpful comparison with investments designed to produce income (e.g. rents and/or capital gains).

  22. Michael :@hc @Ernestine Gross
    Thanks for your replies. OK – so the tax system is treating property the same as other forms of investment – that seems reasonable. The discount on CGT doesn’t. A fairer system would be to remove the inflation from the profit and then tax it like other income.

    The discount also helps since the proceeds of the capital gain are taxed in a single year effectively pushing the seller way above their otherwise typical income tax bracket. ( except for those already there )

  23. #23 EconMan. I think your claims are partly confused and partly incorrect.

    “merely quarantines it against income from the asset”????

    Income from the asset is taxable. Interest costs of aquiring assets were deductible for all types of investment properties just as they will remain for equities. You pay (imputation adjusted) tax on dividends but can claim a deduction on your interest costs.

  24. @hc I’m guessing you interpreted my second paragraph elaborated on the first sentence. They are linked but distinct points.

    Labor’s stated policy is that interest costs in excess of income derived from the geared asset will not be deductible against labour income, but can be used to offset against investment income or carried forward to offset the final capital gain. See block quote below from their policy announcement.

    Colloquially – and consistent with common usage in tax literature – I described this as ‘quarantined’ against income from the asset (which includes capital gains as that is statutory income). In my previous comment, I described it as quarantining investment gains and losses from labour income, i.e. like a Dual Income Tax model.

    You also seem to assume the change is only for property. That is wrong. Labor’s stated policy would applies to assets including equities, except newly constructed properties.

    From 1 July 2017 losses from new investments in shares and existing properties can still be used to offset investment income tax liabilities. These losses can also continue to be carried forward to offset the final capital gain on the investment.

  25. Put another way, contrary to what you seem to be suggesting, the policy does not propose to eliminate tax recognition of interest costs. It merely changes the timing and ‘portability’.

    Unpacking this further (also relates to why some costs are immediately deductible and some go into the ‘cost base’, which is unrelated to whether income from the asset is taxable)…

    Australia’s income tax law is still in many ways based on the old UK trust law distinction between ‘income’ and ‘capital’, where income was taxable and capital (including capital gains) was not.

    Labor’s policy moves the taxation of geared investments closer to a Dual Income Tax model based on the economic distinction between ‘labour’ and ‘capital’ – or more fully, ‘labour income’ and ‘capital income’ (in this context, the returns to saving). Taking this conceptual approach, ‘quarantining’ capital (i.e. investment) income & losses from labour income is theoretically sound.

    The Henry Review recommended moving in this direction too, albeit in a slightly different way: effectively pooling all investment gains and losses and then applying a discount to the net gain/loss before adding it to labour income.

  26. @EconoMan

    It seems to me your language is that of an accountant or tax lawyer and so is your conceptual framework. There is nothing wrong with this. Indeed, elementary knowledge of this framework may be said to be important for all members of contemporary society to survive financially.

    There is nothing wrong with your conceptual framework except it is not helpful to me. It is not helpful because I am interested in investigating to what extent taxation policy influences the observed growth in wealth inequality. So, I start with an economic conceptual framework (theoretical model of ‘an economy’) where the terms ‘capital’, ‘labour’, ‘income’ and ‘taxation’ play no role at all but the terms ‘asset’, ‘commodity’, ‘financial securities’ and ‘wealth’ are well defined. I then compare the taxation of ‘assets’, ‘commodities’, ‘financial securities’ and ‘wealth’ and I discover that taxation is not symmetric between ‘capital’ and ‘labour’ as understood in some other economic literature, including that which deals with wealth inequality.

    Wouldn’t you agree that food is a necessary input (expense item) for any worker to generate income from selling his or her services (‘commodity of type…)? What about this ‘nexus?

  27. It always seemed odd to me, as a worker, that I had no real deductions. No deductions on food I could accept but other items were harder to understand. For example;

    (1) “You can claim vehicle and other travel expenses directly connected with your work, but generally you can’t claim for normal trips between home and work – this is considered private travel.” – However state laws vary, and have been varied again recently, on whether you are or are not covered by workers’ compensation for traveling to and from work. The general recent trend, consistent with all other trends in this area, has been to further reduce workers rights and protections.

    (2) “You can claim a deduction for the cost of buying and cleaning occupation-specific clothing, protective clothing and unique, distinctive uniforms.” – This means that if you wear the generic uniform of an office worker (office clothes consistent with your position) you do not get any deduction.

    This society now has rafts of laws and financial practices which favour the rich over the poor and capital over labour. There has certainly been a big change for the worse over the last 40 years (my working lifetime). Workers were once respected. Now they are treated, quite frankly, like dirt. Social democracy and bourgeois democracy have failed. They have been defeated and routed by capitalism and corporatism. Now we are getting to see what happens when capitalists and corporatists have all the power. It merely remains to be seen how long people are willing to be treated like dirt.

  28. As Micheal Pusey writes in “The Experience of Middle Australia”.

    “Middle Australia is now itself the object of a radical experiment. In the past it was the vulnerable poor who were most exposed to the vagaries of the economy. Now, as the market is made to penetrate deeper into the lives of ordinary people, the deliberately expanded risks of a new capitalism take hold on the job security, savings, retirement incomes, and family stability of the broad middle class. As we shall see, middle Australians know that they are becoming ever more dependent on structures over which they have ever less effective control. As economic reform has come upon them from the top down, they understand that the biographies and coping strategies of ordinary people become increasingly contingent on a process of economic restructuring that has been driven by corporations.

    Society itself, along with its broad middle, is externalised for big business as nothing more or less than an environment that is treated, along with minerals and natural resources, and the capital and labour markets, as one among many resources for production and profit-making in a competitive global economy. Economic reform was always designed as a radical re-engineering of a whole nation society, which would ‘give capital a chance’ by reshaping regulatory and other institutions, to allow corporations both to harvest the benefits and externalise the costs of risk-taking. Business, and big business in particular, takes risks and produces dangers which are ‘externalised by economics, individualised by the legal system, legitimated by the sciences’ – and by the media – and ‘made to appear harmless by politics’. (7)

    [End Quote]

    I have certainly noticed the insidious manner in which the program Pusey outlines, and calls ‘economic rationalism’, uses generational change in the workplace to change worker conditions. Older workers who ‘know better’, from the experience of having living under reformed Keynesian capitalism and unionised workplaces for most of their working lives, are eased or bullied out of the workplace and into retirement. They are even ‘selectively compensated’ as the last cohort to get good retirement packages and the group which will live in ‘the last homely houses in the west’. Their children will not be so lucky. Worker rights, superannuation deals and remuneration packages are all reduced for new entrants into the work place.

    The approaching new norm is unpaid internships instead of paid apprenticeships and training, workforce entrance by one year contract instead of by probationary conditions (which latter guaranteed continued employment except for misconduct or neglect of duties), and the tying of superannuation to market forces ensuring the collapse of super savings if or when the economy collapses. The point of the system is to shift as much risk as possible onto the wage worker i.e. the person with the least resources to deal with risk. The ability of the state and of ‘wealth in common’ to insure citizens against risk is rendered null and void.

    I for one cannot see how politically-economically aware people cannot see that these movements indicate the comprehensive failure of the accommodationist strategy with respect to capitalism. Capitalism cannot be accommodated. It refuses to be accommodated. It has just spent 40 years demonstrating to us how it refuses to be accommodated. One would have to be a terribly slow learner not to realise this. Either that or one has to be a sellout. Take me, I am a sellout. I benefited from being part of the West’s ‘aristocracy of labor’ and then I sold out by taking the selectively beneficial compensation super deal offered to a proportion of my generation. It’s quite bizarre when not working is made a better deal than working.

  29. @Ernestine Gross
    As the name suggestions, my main background and conceptual framework is in economics – combined with public policy. For my sins, I applied that framework in tax policy for many years, where you have to at least try to understand the legal and accounting framework because that’s where the proverbial rubber hits the road. (Lucky for me I have a law degree too.)

    I can’t speak to your economic framework, but in the ones I know from university and my professional career, capital, labour and the ‘income’ on these factors (i.e. wages, return on capital/investment) are very common concepts. In this thread, I’m applying my understanding of well-known tax policy frameworks to the issue at hand, not the much broader (and legitimate) issue of wealth inequality.

    To your comment that taxation of labour income and capital income (i.e. return on investments) is not symmetric, there is a debate in the tax policy academia about whether this is appropriate. If you’re keen (or an insomniac) you could read up about Comprehensive Income Tax base versus Expenditure Tax base. See also Optimal Tax Theory and its rebuttals.

    For me, I believe that the most important thing is to aim to tax ‘substitutable’ forms of income neutrally – e.g. tax returns on investment the same, regardless of type, form and structure. Whether to tax labour income and capital income the same is more complex as it has pros and cons (see suggested reading). Ultimately, this is a political/democratic choice.

    As for whether food should be deductible:
    1) For the majority of workers, I bet the amount of caloric intake required to fuel the direct effort expended by working would be very small, compared to basal metabolism and general activity – i.e. what you would have used anyway. Perhaps lumberjacks should get a special deduction.
    2) More importantly, while a tax system could include a much wider scope of deductions from allowing a looser ‘nexus’ – or no nexus at all – to raise the same revenue tax rates would then have to be much higher (and/or thresholds lower). For example, if you can deduct food and clothes, then why have a tax-free threshold? The broad consensus of tax policy literature is that broader tax base and lower rates is more efficient and typically much simpler.

  30. Ownership, in discriminative detail, is a complex arbitrary construct. For the individual, ownership depends on legal, historical, familial and biological accidents. What I owned or had a right to from birth and what I was permitted to or able to acquire after birth depended on all my accidents of birth and history; accidents of class, race, nation, time, place, family, genotype, phenotype and so on. These accidents or contingencies are so extensive and determining, that the notion that I or anyone owns or ought to own anything by merit or geniture (primogeniture, ultimogeniture or whatever) is absurd. The only way, morally, to apportion rights is to give absolutely equal rights and equal ownership to all.

    There are only two times I ever recall literally falling of my sofa from laughing at something on TV. The first occasion was an incident in Fawlty Towers. The second time was when a huge, white, male American swimmer complained in an interview about “an unfair start” after a 100 m (or 50 m?) Olympic final. After my paroxysm of laughter, I pondered the “unfair start” the poor fellow had had. Born white, born with genes clearly suited for swimming, born in the richest nation in the world, born in a milieu where he got a sports scholarship and world standard pools, gyms, sports medicine and coaching, born into a large social surplus which allows pure sports specialisation as a career … and the list went on and on. Clearly, he did not understand that the start comes a long way before the starting block.

    Merit is real and capacity to demonstrate merit is real. What is not at all certain is that merit and merit capacity arise in the manner attributed by voluntarism; the theory that free will is a fundamental or dominant factor in the fate of individuals. Indeed, there is plenty of evidence to suggest that individual free will is either non-existent or highly curtailed by capacity and contingency. [1]. Thus the notion that rights, including rights of ownership, derive from capacities like merit, virtue or effort… this notion, I say, has no moral philosophy basis whatsoever. Human rights properly derive solely from being human. There is no firm basis for any further discrimination.

    Property rights (“ownership” of inanimate objects and forces) as one form of rights have no real moral philosophy basis other than in the assessment that they too belong equally to all humans. This does not extend to absurdities such as “everyone should be able to use Ikonoclast’s toothbrush”. It indicates of course that everyone should get access to equal and full dental care and to personal dental hygiene self-care training, materials and implements.

    The current social policy necessity, under this system, for fine tuned “scholastic” arguments about taxation (and remuneration from “ownership”), indicates the profoundly false and immoral construction of ownership under this system.

    fn 1: Try to prove the existence of free will under macro-determinism. Try to prove the existence of free will under assumptions of quantum indeterminism breaking into the macro world. Try to prove free will without supernatural assumptions. Try to prove free will without inductions like “I feel I have it therefore I do have it.”

  31. And here is a clearer picture of the situation

    The next idiot who starts union bashing should get a thick ear.

  32. @EconoMan
    Thank you for your lengthy reply. It seems my guess as to your background wasn’t completely wrong.

    I acknowledged the ‘legitimacy’ (not my natural choice of words) of your approach in my first paragraph and you acknowledged the ‘legitimacy’ of the question of interest to me.

    Thank you for the reference. I won’t read it because I have spent already too much of my life time reading this type of literature, although in other than your applied area of economics. I’ve come to file this type of literature in my mental filing cabinet under the heading dissemination of information and as such I don’t regret having spent some time on it. However, I have come to the conclusion that this literature does not contribute to independent thinking and problem solving, which in my field of economics (analytical and finance) starts with clarifying what the problem is. (Credentialism is not favoured on this blog-site but I shall provide a few references in footnote [1] to indicate what I mean by ‘analytical economics’).

    For the sake of interdisciplinary communication, I’d like to now illustrate what I mean with my last long sentence (excluding the term in brackets) by returning to the one item which looks to me suitable, namely your:

    “As for whether food should be deductible:
    1) For the majority of workers, I bet the amount of caloric intake required to fuel the direct effort expended by working would be very small, compared to basal metabolism and general activity – i.e. what you would have used anyway. Perhaps lumberjacks should get a special deduction.”

    * betting on the value of something that is empirically measurable is ruled out. A ‘legitimate’ language would be to say: I assume….., subject to empirical verification.
    *Your distinction between ‘basal metabolism and general activity’ vs ‘lumberjacks is meaningless, because the taxation system is based on the premise that there is a nexus with income producing purposes [see EconoMan #23], and enough is known about the physiology of humans to know that a human can sell his or her labour services (includes accountants, lawyers, economists, medical practitioners……) only if the so-called ‘basal metabolism’ is maintained at all times and general activity is part of this. Hence, for the purpose of discussing taxation, all people who are not ‘gainfully’ employed (eg the old, the sick, ‘excess labour supply’) can be taken out, because they don’t pay ‘income tax’.

    “2) More importantly, while a tax system could include a much wider scope of deductions from allowing a looser ‘nexus’ – or no nexus at all – to raise the same revenue tax rates would then have to be much higher (and/or thresholds lower). For example, if you can deduct food and clothes, then why have a tax-free threshold? The broad consensus of tax policy literature is that broader tax base and lower rates is more efficient and typically much simpler.”

    *I ignore the first sentence because there are too many unknowns.
    *Tax free threshold. Yes, this is the relevant applied term. If one were to treat a ‘worker’ akin to a business [2], then the relevant expenditure items would be food, housing, clothes, transport, utilities, – everything to keep the ‘machine human capital’, call it ‘worker’ going to supply its services. Assuming NO GST, a back of the envelope calculation for a worker in Sydney, single, no dependents is about $38,000 at present. For a couple, one worker only, no children it would be about $45,000. The back of the envelope estimation method is, I believe, overstretched when we consider 2 workers in a household and a range of children. If GST is considered, then the estimation becomes even more complicated. One needs data and an econometric model.

    While the increase in the tax free threshold from about $6000 to about $18500 was a step in the right direction, it is quite clear that it is not enough. Moreover, other measures such as family benefits and this and that, which, in some way go toward the same goal as I indicated, are criticised (and rightly so to at least some extent) that the system is too complex and expensive to run.

    * The statement about the ‘consensus of tax policy literature’ includes terms which are too vague (no criticism of your statement; I appreciate it is not easy to find the right words). Setting aside my difficulty in interpreting your statement, it seems to me there is a problem with the consensus of the tax policy literature because there is a public outcry about lack of fairness, the complexity of the system, and serious problems with cost of living of workers, including housing affordability, the topic of this thread.

    [1] Handbooks of Mathematical Economics, several volumes, Handbooks of Game Theory.
    [2] I say ‘akin to business’ because the tax allowable deductions are not necessarily the minimum amounts to earn the income.

  33. @BilB

    Yep, and if people keep telling me we can come to another accommodation with capitalism after viewing a graph like that… all I can say is “You’re dreaming.”

    Capitalism has used up all its credibility, all its goodwill and all its chances. The owner to worker relationship is an abusive relationship. You know what they say about abusive relationships. Stop making excuses for the abuser and leave.

  34. @Ernestine Gross
    No problem, and thanks for yours. There’s a lot there and I’m going to try to be quick so apologies if this is blunt or assumes clarity or knowledge it shouldn’t.

    1) IMHO, your guess as to my conceptual framework was completely wrong… but right enough on the language I guess. As an aside, I have studied Micro, Macro, Game Theory and a bit of Mathematical Economics.
    2) Some of the literature I pointed to is a direct application of independent thinking, problem solving and maths to the questions of ‘what should we tax’, ‘how much’, and ‘what are the effects’, including from some very well-known, respected and, I guess, ‘credentialed’ economists. One person I always found interesting, Alan Auerbach
    3) ‘I bet’ is a fairly common colloquialism for basically what you said: I’m confident that this is pretty much true, even though I don’t know it to be true for certain – so happy to be proven wrong.
    4) More importantly, my point was that I would still need to eat pretty much the same amount even if I choose not to work – i.e. most food for most people is needed to sustain life, not replace energy specifically expended to earn income. Lumberjacks, on the other hand, work their asses off and have to eat much more food than ‘normal’ to fuel their labors. I would be genuinely surprised if if you don’t understand the point I’m making here.
    5) You seem to want to make a different point – that all expenses associated with living should be deductible, because if you’re dead you can’t work.
    6) If you want to advocate for a re-designed tax system where all expenses related to living are deductible, feel free to do so. You will find very little support from policy makers or academics, for the reasons I pointed to previously, e.g. ‘broad base, low rate’. By ‘ignoring the first sentence’ about the implications for required bases/rates to achieve same revenue, you ignore away the core problem with your argument.
    7) Your focus on the tax-free threshold is over-reading what was a short-hand and therefore, it appears, misleading example. The tax-free threshold is not currently set to approximate the ‘cost of living’.
    8) No one is saying the tax system is perfect, or that our current system matches what I would consider – or what better tax economists than me would argue – the system should be.

  35. Listening to parliament yesterday on Labor’s proposal to cut back negative gearing of investment property. The right were full of confected outrage about how such a change would destroy the chance for all those nurses, teachers and firies (obviously all reading from the same talking points) to ‘create wealth’ for their families.

    Tomorrow they’ll be full of confected outrage about the poor state of housing affordability and low home ownership rates. So it goes. Or maybe not – they were pretty explicit about how high house prices (cue nurses and teachers etc) are the greatest thing since sliced bread. Obviously they’ve done their polling on the number of voters who are on the merrygoround compared with those who are trying to get on.

  36. John :
    Listening to parliament yesterday on Labor’s proposal to cut back negative gearing of investment property. The right were full of confected outrage about how such a change would destroy the chance for all those nurses, teachers and firies (obviously all reading from the same talking points) to ‘create wealth’ for their families.

    It’s amazing what passes as legitimate argument in politics sometimes. I would put the legitimacy of those arguments down there with Trump’s great wall. Hats off to the ALP for showing some strength here.

  37. With his backbench up in arms about any change to snouts in troughs, Turnbull deftly switches the conversation to war toys and threatening China. Magically there is now $60 billion dollars available. My prediction is that these “great economic managers” tm will next just make a huge pile of money on the parliament house lawn and set it on fire. Talk about efficient!

  38. I can’t resist a couple of oblique comments and metaphors. The first is essentially plagiarised. The second is a quote.

    1. The buyosphere is a sub-system of the biosphere.

    2. “… the elementary consumption economy exclusive of profit distribution is a zero-sum game with time as the nth player. It is neither productive nature nor human effort nor greed which brings profit into existence. It is temporal asymmetry that creates this optical illusion.”

    – from Mathematical Proof of the Breakdown of Capitalism, Egmont Kakarot-Handtke, University of Stuttgart, Institute of Economics and Law.

    Note: From my point of view a “mathematical proof of the breakdown of capitalism” could only exist at the monetary circuit or financial circuit level. It would be a proof of the (inevitable) breakdown of financial capitalism but not of capitalism in total. The financial breakdown need not be final in and of itself. A crisis of capital destruction (wars, depression etc.) could reset the financial circuits of capitalism. On the other hand, a proof of the inevitable biophysical breakdown of capitalism might be possible. I suspect it might proceed from considerations of;

    (a) capitalist production systems demonstrably have the power to destroy the livable environment if misused;
    (b) capitalism, as a self-guiding system does not have enough “look-ahead” (think with a maze-searching metaphor) to determine if it has chosen a dead-end path;
    (c) path reversal upon discovery of an unambiguous dead-end depends on not having passed the point of no return to go back to a viable path;
    (d) capitalist apologetics denies the existence of dead-ends and points of no return.

  39. Bill Shorten has at last brought out Neville Wran’s infamous blowtorch and applied it to the P.M belly. Poor old Malcolm (in the middle) Turnbull doesn’t like it one little bit and screams that property prices will be smashed! Simple demand & supply analysis (ceteris paribus) tells us that the housing supply curve would shift left and result in fewer new dwellings and higher prices in the short-run. Does Turnbull seriously know what he is talking about? Perhaps Labor has a secret weapon and wishes to increase house prices higher in order to attract the votes of negative gearing investors? It’s about time that negative-gearing housing investment activity and the generous superannuation tax concession were labelled as tax minimisation schemes for wealthy Australians.

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