|Why do so many rich Australians pay so little income tax? Because they can bundle away cash in trusts and havens, and pretend not to own it. But what's the point of owning a Double Bay mansion if you don't show it off? The beauties of the land tax don't end there. Even compared with income taxes it has its advantages. If you increase marginal tax rates too much, people might slack off at work, refuse to do overtime and lose their ambition. That's the theory anyway. -- Adele Horin, in 'The Sydney Morning Herald,' reprinted in 'Good Government'|
An extra $20-a-week slug has huge consequences out in Fairfield -- people have given up jobs, cut back work hours, cajoled 70-year-old grandmothers into babysitting because of a change in Federal Government policy. But $35 here, $200 there, won't damage the champagne bill around the Sydney foreshore.
The fact is that land tax is a good tax, especially compared to the alternative. The business community, the welfare lobby, the Industry Commission, are united in praise of the hitherto sorely neglected land tax.
It's progressive, efficient and simple to collect. And it doesn't distort people's behaviour like other taxes can do. The well-off are unlikely to abandon harbour views for Cabramatta -- not because of a $35-a-week impost or even a $350-a-week one. They'll stay put, so you might as well tax them.
Nor are the income-poor but property-rich destined for some crisis refuge in the western suburbs as the more colourful newspaper scribes have implied. The battlers with million-dollar views will be able to defer payment of their land tax until they die or sell, a point that keeps getting overlooked in the hysteria.
When you think of it, just about every other tax has its potential problems. If governments tax corporations too much, head office might move the factory to Indonesia, where corporate taxes are low. But prime Sydney foreshore can't be shifted to Jakarta, not for all the tax breaks in the world. Land owners might come and go. But the land sits there forever, eminently assessable.
Nor can you hide land like you can hide money. Why do so many rich Australians pay so little income tax? Because they can bundle away cash in trusts and havens, and pretend not to own it. But what's the point of owning a Double Bay mansion like Fairwater if you don't show it off?
The beauties of the land tax don't end there. Even compared with income taxes it has its advantages. If you increase marginal tax rates too much, people might slack off at work, refuse to do overtime and lose their ambition. That's the theory anyway: high marginal tax rates are a tax on effort.
But you can't say that about land taxes. The value of Rene Rivkin's property, for example, has increased without much effort on his part. In general, the gains in land value are due to good fortune, the real estate boom, rezoning decisions and public amenities, not brawn or brains.
The imposition of a land tax might even make the afflicted residents work harder in order to maintain the lifestyle to which they are accustomed.
As well, land taxes are progressive, taxing the rich at a higher rate than the poor. Virtually all State taxes are regressive. The financial institutions duty on transactions is highly regressive, petrol and the old beer and cigarette taxes hit battlers hardest, and a new reliance on gaming and betting taxes is socially unwise.
In their desperate scramble for revenue to provide the hospitals, schools, aged care services and children's services that a civilised society requires, states can't overlook one of the fairest taxes available to them. It's a bit rich for the states to cry poor and berate the Commonwealth for stinginess if they are too squeamish to use the tax powers they already possess.
Only a die-hard socialist enjoys paying taxes. But someone has got to do it. Why not those who can most afford it? Holed up in salubrious suburbs, the well-to-do can lose touch with how most people live. They have no idea of the struggles in Fairfield. However hard-up they believe themselves to be , they are streets ahead of most Australians.
Two-thirds of full-time male workers earn about $35,000 and, as the Herald revealed this week, more than a third of the State's children live in working families who earn incomes of less than $24,000, or in families on even lower pensions and benefits.
The denizens of Sydney's green and pleasant suburbs live in exceptionally privileged circumstances compared to people in most other parts of the State. The land tax is a thing of beauty because, above all, it is almost impossible to avoid. The rich will have to pay up.
But there is one tax that is even finer -- a capital gains tax on luxury properties. The advantage here is that the
tax is levied when the property is sold and the increased value realised. It's a Federal matter. But the Federal
Government is unlikely to impose such a lovely tax on its blue-ribbon heartland.
* With permission by the writer and acknowledgement to SMH, December 13, 1997.