No heroics over tax reform

Cartoon: Pat Campbell.

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If the people of the ACT - whom one might expect would include many of the most educated, sophisticated and politically minded voters in Australia - can't be trusted to make intelligent decisions in their own long-term interests, who can be?

In a fairly lacklustre local election campaign, the challenging party has proposed land rates as the most important issue but has been less than forthright, or forward-thinking, in dealing with it.

At the same time, the incumbent party has found itself on the right side of the future, but shows every sign either of wanting to be elsewhere, of pretending to be lost or to be a long way from home.

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In each case, it is because neither Labor nor Liberal campaigns trust the voters. Indeed, they seem to despise the intelligence of voters. They think voters will act only on their immediate short-term interest, and that they can be stampeded by slogans that massively oversimplify - even misrepresent - the choices. Each party is damaging its own interest - not to mention its reputation - in doing so.

It is not entirely clear whether the Liberals are flatly opposed to any increased land taxation. But they are scaremongering in warning of a tax-grab focused at ''tripling your rates''. This seriously misrepresents a conscious plan to change the structure of ACT revenue-raising over time, so we can drop some uneconomic anti-job taxes such as stamp duties and payroll taxes. Removal of such taxes is, or ought to be, an agenda item for economically conservative parties. There has been nothing in the Labor program, such as it has been, that has indicated any intention to increase the net tax take. Nor has there been any effort to show that the real economic burden of changing the structure would fall on average taxpayers or householders. Many of the projections used to raise the ''triple your rates'' scenario are anyway snapshots of a bigger economy and population down the track.

But Labor is little better. Perhaps it believes (and if so, the polls may agree with it) that rates is not really the issue with voters. Or perhaps it simply fears that voters will not understand. In any event, it has been less than straightforward about the need to develop and transform the ACT's tax base, and about the advantages which will flow from it. It should confide in voters.

It was John Howard's boast that neither he nor the Liberals resisted the economic, financial and accountability reforms of the Hawke-Keating era, even when they might have been able to take short-term advantage of it. Not everyone remembers the history as exactly like that, but it is true that the economy was transformed without significant parliamentary opposition, by politicians, on either side, reasonably honest with voters about what was happening. At Hawke-era elections, the Liberals typically promised immediate tax cuts (betting, in effect, on the ''hip pocket nerve''), while Labor, in effect, was offering more immediate pain in a search for long-term gain. Voters preferred Labor.

After self-government, ACT leaders set about reforming state finances and public expenditure. If parties differed about priorities, each saw the same problem, not least the difficulty of creating a revenue base in a ''state'' that lacked a mining or industrial base. That our main industry - public administration - waxed and waned by external political mood increased the need for reliable sources of revenue, able, if needs be, to operate counter-cyclically. Kate Carnell's spending in 1996-97 dulled the local pain of Howard's ''black hole'' cuts to spending, as, to an extent, Katy Gallagher's is doing now.

The ACT was not left without resources when the Commonwealth floated us into the sea in 1988. We were, in effect, given control over nearly all the land of the territory. A great deal of the urban, or potentially urban, land had already been alienated, but it was all leasehold land. With most new land, when available for housing, a sum was paid for a full 99-year lease. That this was ''effectively'' freehold has led some to argue that it should be freehold, or that the Georgist principle of a community share of increased land value should be dropped.

For more than 30 years, successive governments have been poor managers of their land inheritance. They have manipulated the supply of new residential land to prop up budgets, in the process helping to drive the cost of housing in the ACT almost to Sydney levels. The ACT Treasury's interest in maximising land revenue has run directly against the political and public interest in affordable housing, particularly for young couples. It is now politically impossible to do anything to drive down general land prices: existing landholders will suffer and scream. Even concessional entry for poorer groups is often neutralised by swingeing stamp duties.

In the meantime, politicians have flirted with the idea of automatic lease extensions, for little or no payment, as these begin to expire from 14 years hence (although the overwhelming majority will not begin to expire for 50 years yet).

Any such plan is a swindle on future generations of Canberrans. Unless that is, there is a system of taxing the value of the land in question. Call it rates - although rates, typically, were cast only at about the cost of providing municipal services - or rent, or land tax. The title doesn't matter anything like as much as the principle of using a proportion of the value as a primary way of meeting the cost of providing hospitals, schools, police forces and all of the other incidents of a working community.

One does not have to be a doctrinaire single taxer to point to the ease of collection and the difficulty of evasion, and the scope (given that rents can be attached to the title of land) for allowing the poor and the old to defer payments. Since richer people tend to own more expensive land, the tax is progressive; it also promotes economic efficiency and sensible planning, given that unimproved value will naturally promote the most efficient use possible. A universal land tax system can, of course, also drop any need for betterment taxes when there is a change of purpose in the use of land, since that change of purpose will be reflected in value for tax purposes.

There are some who call such a system of stewardship of public land socialism. The Duke of Westminster, who owns most of central London freehold, and leases it, would laugh; he is probably the world's richest landholder. So would Hong Kong, where low personal taxation is sustained by fair land taxes.

So far, Labor has gone no great distance down this path, and there is little evidence of a secret agenda to speed its stately progress. I wish there was. I would not mind if rates were tripled, if the effect was the earlier abolition of a host of silly taxes and levies which impede good planning and economic progress. This might hit me - I expect more prosperous than most - harder than most others, but then again it is of the essence of the argument that I also benefit rather more than most from what organised action achieves in the community. And all the better if doing that actually increased the investment being made in health, education and better planning.

Alas, I fear, Labor is too timorous. It prefers to move so slowly that no horses are frightened, and no pocket is picked.

Perhaps the scare campaign shows this to be wise. A bolder government might be arguing that the very nature of that campaign suggests the Liberals lack the drive or the will to properly organise the ACT's finances.

Jack Waterford is The Canberra Times' Editor-at-large.

Source: http://www.canberratimes.com.au/opinion/no-heroics-over-tax-reform-20121016-27pdv.html

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