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220 YEARS LATER,
WE'RE STILL AVOIDING THE REAL ISSUE ON
HOUSING AFFORDABILITY
Alexander Small knew that a block of land with an annual charge
on it will sell more cheaply than an identical one with no such
charge. He knew that taxes on productive activity add to costs and
are counter-productive. So, as all taxes ultimately fall on
land anyway, why not put them there in the first place? It
was therefore with a sense of frustration that he had written to
his friend, Benjamin Franklin, whom he knew had an excellent
understanding of the matter, whether he still believed in the
principle. Ben Franklin prevaricated. In a letter dated
28 September 1787 he replied to Small:
"... I have not lost any of the Principles of Public Oeconomy
you once knew me possess'd of; but to get the bad Customs of a
Country chang'd, and new ones, though better, introduc'd, it is
necessary first to remove the Prejudices of the People, enlighten
their Ignorance, and convince them that their Interest will be
promoted by the propos'd Changes; and this is not the Work of a
Day. Our Legislators are all Landholders; and they are not yet
persuaded that all Taxes are finally paid by the Land..."
Nothing has changed. Two hundred and twenty years later,
as Australia wrestles with impossibly soaring house prices, there
remains inaction on this most fundamental point. The one
thing that politicians have ruled out of the debate is the
only thing that can keep the lid on escalating land values:
increased levels of rates and land taxes.
It is too cynical to believe that Australia’s politicians, being
landowners themselves, don’t want rates and land taxes
increased. A more reasonable explanation is that they believe
supporting higher rates and land taxes won’t impress their voters,
particularly those with highly-valued properties not acquainted
with the fact that all taxes come home to roost against land values
anyway, and that opponents of the idea will resort to the politics
of scare, rather than of education. However, if the increases
were made revenue-neutral, and payroll taxes and stamp duties
abolished, perhaps along with the GST, the case could be more
easily made. All the moreso, if payment of rates and land
taxes were allowed to be deducted in regular installments from
incomes if companies or individuals chose the option.
Unfortunately, the suggestions that came out of the Labor
Party’s housing affordability inquiry in Canberra on 26 July 2007,
and from Aussie Home Loans’ John Simonds more recently amount to
quite ineffectual palliatives which do not solve the
problem of cheaper access to housing for all Australians, current
and future.
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