A day late, and $20 million short

I wrote a piece for the Guardian, urging the Queensland government to hold the line on its plan to close a tax loophole for wealthy investors, in the face of a ferocious Murdoch media campaign, and sabotage from the Perrottet government in NSW. Sadly, just as I submitted it, the government caved in. But the critique of the Courier-Mail might get a run on Media Watch. Anyway, here it is

The Queensland government’s announcement that it is closing a loophole in the land tax system, benefiting interstate investors has produced a furious reaction from the Murdoch-owned Brisbane paper Courier-Mail. More than a dozen editorials and articles have quoted ‘experts’ who warn that the proposal will be unworkable, unconstitutional and will raise rents. These articles have been backed up by editorials and by a parallel campaign in the Courier-Mail’s Sydney counterpart, the Daily Telegraph.

Oddly enough, hardly of these “experts” is a tax economist or, indeed, any kind of economist. The Courier-Mail has managed to locate one economist willing to support its claims: Shane Oliver of AMP. But the vast majority of its sources are representatives of the property lobby.

Economists are famous for disagreeing among themselves, so it might seem surprising that hardly any have come forward to criticise the Queensland government. In reality, however, one of the few propositions on which nearly all economists, of all persuasions, agree, is that governments should raise more revenue from taxing land.

The economic reasoning is simple. Taxes change incentives. In particular, taxes on capital, while desirable as far as equity is concerned, tend to reduce investment in new capital goods. But as a saying variously attributed to Will Rogers and Mark Twain puts the case for buying land “they aren’t making any more of it”. Whether land is taxed heavily, lightly or not at all, the amount of it won’t change. And changes in the value of land aren’t driven by investment, but by the general development of a given area.

The standard analysis of land tax is based on the assumption that all privately owned land is taxed at a common rate. In fact, there are a range of exemptions, reflecting the political difficulty of taxing land. Owner-occupiers are exempt from land tax. Landowners in general are taxed on a sliding scale, with the first $600 000 of land exempt.

This is where the loophole comes in. Each state levies its own land tax independently, with its own threshold and sliding scale. So, large landowners with holdings in more than one state can gain the benefit of the threshold separately in each state. It is rather as if people who derived income in more than one state could split their income and take advantage of the tax-free threshold several times over. The effect of closing this loophole will be to reduce the incentive for interstate investors to buy land, thereby making it a little cheaper for local buyers, both owner-occupiers and investors.

Apart from interstate investors, the big losers from closing this loophole will be real estate agents who rely on their business and benefit from inflated land prices. But neither of these groups is likely to attract much political sympathy. So, to oppose the tax, it’s necessary to claim that it will lead to an increase in rents.

The simplest, not to say most simplistic version of the claim is that land tax is a cost that will be ‘passed on’ to tenants. As any competent economist will tell you, rents, like other prices, are determined by supply and demand. A land tax changes the ownership of land and houses, but has no effect on supply. So, there’s no reason for changes in land tax to affect market rents.

A more elaborate version of the claim is that closing the tax loophole will lead interstate investors to sell, and that the buyers will be owner-occupiers. The Property Investors Professional Association claims that, as a result, Queensland 162, 239 fewer rental properties – or a reduction in supply of nearly 30 per cent. https://www.realestate.com.au/news/interstate-investors-snub-qld-market-set-for-major-sell-off/?rsf=syn:news:nca:cm:spa

There is just one problem with this claim – where did the owner-occupiers come from? If they sold an existing home, there is no change in the net supply. If they were previously renters then the reduction in rental supply is matched by a reduction in demand. And if they moved from interstate or overseas, they made the same addition to demand whether they bought or rented.

The ferocity of the Courier-Mail campaign against the closure of a relatively small loophole also yields some interesting insights into the operations of the media. Most of the time, the Courier-Mail presents itself as a fiercely parochial local paper. But in this case, it is acting to defend the interests of interstate investors, at the expense of Queenslanders (at least those who don’t own land interstate).

The Palaszczuk government has shown unusual courage recently, defying the mining lobby by raising royalty rates, and announcing a radical expansion of renewable energy. Closing the land tax loophole isn’t on this scale, but it’s an important and progressive reform. Let’s hope that it succeeds.


Status quo ante bellum: what does it mean for the war in Ukraine

Back in 2011, I wrote a post arguing that

self-defense (including collective self-defense) is justified only to the extent of restoring the status quo ante bellum. That is, having defeated an aggressor, a country is not justified in seizing territory, unilaterally exacting reparations or imposing a new government on its opponent. Conversely, and regardless of the alleged starting point, countries not directly involved should never recognise a forcibly imposed transfer of territory or similar attempt to achieve advantages through war.

What does this claim mean in the context of the war in Ukraine? In my view, it means that the Ukrainian government and its international supporters should seek a ceasefire in which Russia withdraws its forces to their positions of 23 February, without conceding any Russian claims regarding annexations or (if they still operate after the sham referendums) the Luhansk and Donetsk separatist republics.

It is already evident that the Russian army can’t hope to secure a better outcome than this. Judging by hostile leaks and popular opposition, lots of Russians, including in the military have recognised this, even if Putin hasn’t. But, on current indications, it will take a long time before the Ukrainians can recover all the territory currently occupied since the invasion. An early Russian withdrawal would liberate tens of thousands of people from a brutal occupation, as well as preventing vast loss of life on both sides (bearing in mind that the Russian army will increasingly be made up of conscripts, including Ukrainians). And more of the aid flowing to Ukraine could be used for rebuilding, rather than expended in fighting.

A ceasefire wouldn’t imply that Zelensky was going back on the pledge to recover all the territory of Ukraine, including Crimea. The Ukrainian position would be the same as it was before the invasion. But it was clear then that the areas under occupation couldn’t be recovered by force and that is probably still true, particularly as regards Crimea.

An obvious question is whether a ceasefire would give the Russians the chance to rebuild for another attack. In my view, the opposite is more likely. By next year, Russian energy exports to the EU will have ceased, and Russia’s technical capacity will have degraded further through the effects of sanctions and the flight of skilled workers. Meanwhile, Ukraine will have the chance to train its enlarged army, and reorient its economy towards the EU.

Of course, wars change things and an exact return to the status quo ante bellum is impossible. The dead are still dead, the crimes committed during the war will not be absolved, the aggressor can rarely be made to pay full reparation, and so on. Both sides will be worse off than if the war never happened.

I’d be interested in thoughts. However, anyone thinking putting forward a pro-Putin, or anti-anti-Putin position should stay quiet. No comment of this kind will be published, and the commenter will be permanently banned. If you’re in doubt, that probably means you shouldn’t comment.

A bit of this, a bit of that: Stage 3 tax cuts, the Australian welfare state and Republican identity

I’ve been on holidays on the Sunshine Coast this week with my wife Nancy. I’d normally be racing in the SC 70.3 Ironman, but breaking my wrist a month ago put paid to any training (I’m recovering well, but slowly). We still had the accommodation booked, so we’re enjoying a relaxing time by the sea.

Before we took off, I submitted a bunch of articles that have now come out. I already posted my piece on the Ethereum merge so, rather than bombard you with emails, I thought I would wrap up the rest in one post. Here they are

Scrapping Stage 3 tax cuts is essential, but won’t be an easy ride, Independent Australia, 6 September.

“Republican” as an identity a Crooked Timber posts asking why supposed moderates like Susan Collins and Ross Douthat continue to support a Republican Party dominated by Trumpism.

Income redistribution or social insurance? A federal MP considers the future of the welfare state A review of Daniel Mulino’s new book Safety Net, and also my 100th article in The Conversation 8 September.


A new sandpit for long side discussions, conspiracy theories, idees fixes and so on.

To be clear, the sandpit is for regular commenters to pursue points that distract from regular discussion, including conspiracy-theoretic takes on the issues at hand. It’s not meant as a forum for visiting conspiracy theorists, or trolls posing as such.