Shut up (again)

I had hoped that with the departure of Ken Henry that Treasury would have become a tad less arrogant. But apparently not:

But Ms Mrakovcic said public debate over the proposal was mired by “rival estimates”. “No model is perfect and they do not produce facts,” Ms Mrakovcic said.

“The winner was not a genuine or helpful debate. There was just confusion. If you followed the company tax debate at the time there was a lot of modelling that was done. It seemed for a period of time that every week or second week there was yet new modelling.”

Treasury’s own modelling showed reducing the corporate tax rate from 30 to 25 per cent would have boosted economic growth by about 1 per cent over the long run.

The cost of the forgone revenue would have seen the federal budget lose about $65 billion over a decade. Ms Mrakovcic said economists had a “responsibility for the way in which we tell a narrative” about policy proposals and “recognise the power of the anecdote”.

Treasury’s wishlist of policy reforms will also be outlined at the conference today. Some of the measures include an overhaul to city planning and zoning restrictions as well as the replacement of stamp duty in favour of a land tax.

Now as it turns out I think that cutting the company tax rate is a good idea. Indeed if it were cut to zero then the problem of refunding excess franking credits would resolve itself.

The notion, however, that modelling shouldn’t be contested in simply beyond the pale and, frankly, irresponsible.

The notion that stamp duty be replaced with a land tax should be strongly resisted. It is a mechanism to make home owners pay again for the privilege of living in their own home. Stamp duty is a fee paid to government to recognise and enforce your property rights. Land tax is, well, a tax. It never ends. For years Treasury has tried to introduce an imputed rent tax – this is just another mechanism to find revenue.

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42 Responses to Shut up (again)

  1. stackja

    Could modelling show how much waste is/or has been created by Treasury? I don’t remember so much confusion before Gough.

  2. Craig Mc

    OTOH stamp duty is a barrier to mobility, which leads in turn to long commutes, congestion on roads and public transport. It also leads to retirees staying in real-estate better suited to young families who can generate wealth from its proximity to high-value employers.

    Further, renters are already indirectly paying land tax, which is a de facto property tax. That’s a third of the country right there.

    I don’t know how you fairly get from a stamp duty regime to a property tax one though. It’s one of those “You can’t get there from here” problems.

  3. egg_

    With a name like McCrakovcic, I’d be the one shutting up.

  4. RobK

    The notion that stamp duty be replaced with a land tax should be strongly resisted.
    We already pay rates based on GRV, so wouldn’t it be a double tax?

  5. Roger

    “No model is perfect and they do not produce facts,” Ms Mrakovcic said.

    That doesn’t apply only to economic modelling either.

    It’s a truth journalists in particular seem to have trouble grasping.

  6. Pyrmonter

    Surprised at your support for Stamp Duty, Sinc. You pay (exorbitant) LTO fees to get your title recognized, not stamp duty, which is a tax levied on the value of the property.

    Stamp is presently equal to or more than the other direct costs of selling; it can be inferred that it reduces liquidity in the market, and is one of the policies that locks people into housing they don’t want (though probably dwarfed by things like the CGT exemption and special treatment in retirement incomes policy). It’s the sort of thing that applies a brake to labour mobility and appropriate specialisation. It probably has an environmental impact as well, fostering long commutes (instead of moving across town to where your job is). I can’t think of a much less desirable tax. The merits of land tax are over-rated, but … by comparison to the rates of income tax on middle income personal exertion, strike me as lesser evils.

  7. Sinclair Davidson

    Pyrmonter – stamp duty is not a tax. It is fee for service. being a monopolist government overcharges for that service. But that is a separate issue.

    At a personal level stamp duty is a sunk cost.

  8. Biota

    George Box all models are approximations. Essentially, all models are wrong, but some are useful. However, the approximate nature of the model must always be borne in mind.

  9. Bruce of Newcastle

    Modelling is a fine way to ‘justify’ anything you want. All you have to do is choose a bunch of semidefensible assumptions, which are always wrong because assumptions are always shown to be wrong after fact, then put them into the model with as many variables as you can squeeze into it, and turn the handle.

    Voila! You’ve justified the trillion dollar project you planned on the back of a serviette.

    No one will take you to task because no one wants to go through the tangled spaghetti of the model.

    This is why climate scientists get away with their silly projections. Models are magic. They are just the best thing for backing project proposals.

  10. Cactus

    Selfishly I like stamp duty because it is an optional tax. If you can reduce buying a property to 2 times in a lifetime rather than the 4-5 I think is the average then you pay less tax. Bit more planning to make sure you buy the right house, but big benefit.

  11. Rob MW

    Stamp duty is a fee paid to government to recognise and enforce your property rights.

    It’s also only paid once per property transaction based on the value of the sold property and is usually paid by the purchaser. There transpires a conundrum; CGT is paid by the vendor (C’wth) and Stamp Duty is paid by the purchaser (State). The way to minimise is to move to Cuba where nobody sells anything, even those 70 year old polished up cars still with original plastic bench seat coverings – (slightly stained) – …… Oh wait ?

  12. Entropy

    Treasury’s wishlist of policy reforms will also be outlined at the conference today. Some of the measures include an overhaul to city planning and zoning restrictions as well as the replacement of stamp duty in favour of a land tax.

    Why does federal treasury care about these taxes? It’s none of the federal government’s damn business. Clean up your own nest, bureaucrat!

  13. Entropy

    Cactus
    #3108740, posted on July 16, 2019 at 12:54 pm
    Selfishly I like stamp duty because it is an optional tax. If you can reduce buying a property to 2 times in a lifetime rather than the 4-5 I think is the average then you pay less tax. Bit more planning to make sure you buy the right house, but big benefit.

    This is why it is a poorly designed tax. It discourages the proper movement of investments to the most beneficial use because of the (higher than it should be) transaction cost.
    The only worse tax of this type is payroll. It discourages employing people!

  14. Sinclair Davidson

    If the State government were worried about stamp duty inducing long travel times and illiquidity in the housing market they could always lower the fee.

  15. Bela Bartok

    Real question: H0w often do Stamp Duty percentages change?
    I have a sneaking suspicion they were at a certain ratio (Duty:House price) that reflected their value (? perhaps a threshold percentage of the median house price at a certain time, like 1990?)

    Now, with the vast increase in house prices, the Stamp Duty therefore rises way beyond its value/threshold of the 1990 price.

    I paid $187,000 Stamp Duty for the privilege of buying a house. That’s outright theft.

    I say reduce the Stamp Duty rate in proportion to the median house price increase – peg the two together inversely! Viva la revolucion!

  16. stackja

    As I remember we were told the GST was to replace all state duties.

  17. stackja

    Again as I remember the Commonwealth took over all state tax collections as a temporary measure during WW2.

  18. If the State government were worried about stamp duty inducing long travel times and illiquidity in the housing market they could always lower the fee.

    Hence taxation powers should be returned to the states to reinvigorate competitive federalism. NSW (Sydney-Newcastle-Wollongong) could levy all of them; income tax, CGT, Stamp Duty, Death duties, until the traffic dies down. SA/Adelaide would be death by Laffer Scimitar.

    The Commonwealth couldn’t force taxation on the States could it?

  19. Iva Right

    Like the Medicare, now plus NDIS Levy and the green slip levy ripoff, a land tax, once introduced, would be a great big open ended pot of money. If a government proposes something that will supposedly streamline things or save you money don’t go anywhere near it.

  20. John A

    stackja #3108865, posted on July 16, 2019, at 2:47 pm

    As I remember we were told the GST was to replace all state duties.

    Then I think your memory is at fault.

    There was a specific list of supposedly inefficient State imposts which were to be replaced by the GST, along with the Federal WST and a few other inefficient (politically speaking) taxes such as the BAD tax (and yes, I know the joke about all taxes being bad).

  21. Pyrmonter

    @ Sinc

    Ad valorem Stamp Duty applies to a range of transactions beyond the sale of land (though much narrower than when Pyrmonter first encountered it – Deeds were still stampable for $10 back then). It’s levied on mortgages, as one example, and (I think) insurance policies.

    There is an entirely different charge made for property registration: an (excessive) amount that used to be paid for some public service clerk to alter the title register; in most states it is now paid to the monopolist contractor providing e-conveyancing, in an exercise reminiscent of tax farming. Stamp is paid to whoever the state revenue commissioner is as a tax. Old System land transactions attract stamp, even though there is no register.

  22. Pyrmonter

    @ Iva

    But we’ve had Land Taxes since the wave of ‘progressive’ taxation was introduced in the 1890s. After federation, as with income, there were both federal and state land taxes, both of which were, at least nominally, progressive. Curiously, federal land tax has been abolished (I think finally in the 1970s, though possibly earlier) after collecting little; and the scope of state land taxes has been narrowed so that is payable by (a) residential property investors, (b) industrial owners and (c) commercial owners: generally primaty production and owner-occupied housing is exempt.

    (Where’s Tim Neilson – I’m sure he knows more of this than I do)

  23. Pyrmonter

    @ Sinc

    I’d much prefer states to repeal stamp duty and impose low, general land tax: that strikes me as the way to see a liquid property market and, subject perhaps to liquidity constraints on the elderly, a way to overcome the tendency of the burden of tax to be concentrated on small minorities (of whom buyers, in any given year, are one). Why am I wrong? (Note, I’ve not yet managed to track down a copy of the Power to Tax, so could be taking a quite naieve view of this)

  24. max

    Jean-Baptiste Say
    “The best scheme of [public] finance is, to spend as little as possible; and the best tax is always the lightest.”

    The tithe is built into man’s affairs. Either we pay it to the church or else we will pay it to the state. The church limits its lawful demands to 10%; the state extracts all it can get. The modern welfare state demands far more than the tithe. The combined level of taxation of all branches of government in the United States exceeds 40% of all national income. This is sinful. It is also the judgment of God on rebels. It happens every time men rebel against the tithe. The taxes of Egypt in Joseph’s day were only half of this, or 20% (Genesis 47:24).

    Christians live in a country that extracts four times the tithe from them, and they vote for politicians who promise even more government spending. They are in bondage, but they fail to recognize it. They are in Egypt, but they fail to recognize it.

    https://www.garynorth.com/public/16610.cfm

  25. Tim Neilson

    Pyrmonter
    #3108891, posted on July 16, 2019 at 3:28 pm

    I’m no kind of expert on state taxes but as best I know you’re pretty well right.

    Re your subsequent comment, the only constitutional limit on state taxing powers that I’m aware of is that they can’t impose customs or excise taxes. (Maybe they can’t impose taxes on the Commonwealth – vice versa generally applies.) They got squeezed out of income tax by the Feds in WW2, not by law but by brute economic force.

  26. Pyrmonter

    @ Tim – thanks. And I agree with your comments on the constitutional position, despite the efforts of my lecturers to insist the states ‘didn’t exist’ (well, that was what Michael Detmold tried to argue).

  27. Sinclair Davidson

    Zero-price and legal online copy of The Power to tax available here.

  28. Pyrmonter

    @ sinc – thanks.

  29. Boambee John

    Can someone please explain the subtle difference, if such there be, between rates and land tax.

  30. Pyrmonter

    @ Boambee

    Essentially, the party to whom they are paid – local government v’s state. In the past, some ‘rates’ were paid to state governments when they undertook improvement programs, eg irrigation or drainage and within my lifetime payments for water supply and sewerage were colloquially referred to as rates, and where I came from, were levied on the unimproved value of the property on which they were levied. In the latter case, I guess the usage relates to the hypothecation (appropriation to a particular purpose) of the charge.

  31. Squirrel

    “Treasury’s wishlist of policy reforms will also be outlined at the conference today. Some of the measures include an overhaul to city planning and zoning restrictions as well as the replacement of stamp duty in favour of a land tax.”

    Symptomatic of an organisation which (along with many other elements of the federal and state bureaucracies) is obsessed and consumed with the ponzification of Australia – which is so much easier (for nicely paid individuals comfily located in Canberra) than dreaming up viable, sustainable policies which will allow us to survive and compete in a cut-throat globalised world.

    Re stamp duty, will Treasury be recommending a PC inquiry into real estate agent fees and other such costs associated with moving home?

  32. Miltonf

    Poisonous Canberra parasites

  33. John Constantine

    Their fire services levy is a land tax, placed in the hands of the fire teamsters union and uncapped.

    Overtime bill for the yarragrad fire teamsters doubled last year, fires didn’t.

    Robot firetrucks, air support contractors and mass diversity hirings to watch the robots and contractors actually put the fires out.

    All funded by uncapped land tax.

    Comrades.

  34. Tel

    The notion that stamp duty be replaced with a land tax should be strongly resisted. It is a mechanism to make home owners pay again for the privilege of living in their own home. Stamp duty is a fee paid to government to recognise and enforce your property rights. Land tax is, well, a tax. It never ends.

    I agree but for different reasons. Stamp duty obeys Willie Sutton’s Law and taxing grannies who can’t pay does not. Thatcher learned this lesson the hard way with he poll tax.

    What’s more, if Stamp Duty is set to a reasonable and decent level then people will trade their houses and shrug and pay the duty, but if Stamp Duty gets cranked up too high, everyone sits and refuses to sell and the government learns there are limits to banditry. Land tax is dangerous in principle because it isn’t self limiting.

    Also, if it ain’t broke, don’t keep tinkering with it. Any change in any law contains a massive hidden compliance cost, so the hands off rule should always apply.

    In theory I would be interested in a total wealth tax (i.e. all property, not just land) but that would have to be in exchange for government giving up all other tax options. There would need to be a cast iron mechanism to prevent it growing and I’m not sure anyone could build such a mechanism, given how much government has gotten away with already. Since there’s no trust left in the system, no one believes that a new tax will honestly involve removing the old taxes. Therefore back to the hands off rule.

  35. Tel, that’s pretty much right. ” Since there’s no trust left in the system, no one believes that a new tax will honestly involve removing the old taxes.”
    We are taxed too much – way too much.
    Even if we don’t do a Taxation Revolt scenario, the demands of the government will crash the entire economy. I think that there is too much of the cream being skimmed off already and the $971 Billion of Federal, State, and Local Council debt is unsupportable.
    I’ll bet on the trillion dollar mark being reached February 1, 2020.
    It’s going to be nasty.

  36. Boambee John

    Prymonter at 1739

    Thanks, so double taxation is the plan, while increasing the rate csn be used to drive elderly asset rich, cash poor people ftom their homes. Sounds great – not!!

    On a related subject, you wrote:

    I’d much prefer states to repeal stamp duty and impose low, general land tax:

    Seriously, how long do you think the tax would remain low? Between the local government Sline wanting money for the ‘vironment, and the state governnent for anything they can think of, it would rapidly become a wealth tax by another name.

  37. Boambee John

    Slime, not sline!

  38. Penguinite

    Have emailed this to Angus Taylor “With today’s technology, $1 million worth of utility-scale solar panels will produce about 40 million kilowatt-hours (kWh) over a 30-year operating period. A similar metric is true for wind: $1 million worth of a modern wind turbine produces 55 million kWh over the same 30 years. Meanwhile, $1 million worth of hardware for a shale rig will produce enough natural gas over 30 years to generate over 300 million kWh. That constitutes about 600% more electricity for the same capital spent on primary energy producing hardware. ” Hope he reads and digests it!

  39. Pyrmonter

    @ Boambee

    Well, what matters as much as the subject of the tax is the rate. Double taxation at low rates might be less offensive than an ‘efficient’ tax with a high rate. It’s one reason I think there’s some merit in, say, environmental taxes (eg congestion pricing, carbon tax etc) if they could fund a reduction in what remain still quite high levels of taxation on personal exertion earnings between roughly 70k (when the middle class/’family’ welfare starts to taper off) and 400k (after which what you’re earning is probably a return to risk/enterprise, not strictly personal exertion; and can be structured tax efficiently)

  40. Pyrmonter:
    A politician will take any excuse to raise taxes – even if they have to fabricate one out of thin air.
    Don’t be so naive. 🙂
    The parasite is killing the host.

  41. Pyrmonter

    @ Winston – we’ve seen the tax take fall, occasionally, and have certainly seen rates fall (though the Doomlord, among others, will remind us that high rates are unlikely to be revenue maximising)

  42. Anthony

    I have some sympathy for stamp duty – it is a tax that people are pretty willing to pay, and no-on is forcing you to buy a house (not that you have lots of options). On the other hand, the amount you pay per sale is quite high, often tens of thousands of dollars. Sure if you are only buying one house per lifetime, ok, its high but whatever. But… it seems to me that having people move to ever more suitable housing is preferable for society and the economy, and if you move 1o times at $20,000 tax, that is a lot of money.

    As for the land tax, we already pay it as council rates and in Victoria, if you are an investor and have more than $250,000 in property, I’m fairly sure you pay land tax to the State Government as well. So, yeah if the Feds were to knock off a bunch of useless taxes and duties or cut income tax and instead raise money via land tax – then sure why not.

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