When I was much, much, much younger than I am now, and actively used to read books on Libertarianism and the like, I remember one libertarian writer observing that if everyone lived in mobile homes and could move wherever and whenever they liked, they could hold governments accountable simply by voting with their feet (or wheels). So, if for example, a government were to impose extortionate taxes and conscription on its citizens, overnight they would lose all their citizens as they would have driven across the border.
Much as I dislike the term ‘Libertarian’, I still think that the philosophy is great in theory. The mobile home example is just one paragraph in a much more nuanced political philosophy, although I think that most American trailer park rednecks might consider themselves Libertarians without knowing what it means or how to spell it (or wanting to move their mobile homes at all).
One of the problems with the mobile home example in practice is that most of us don’t own mobile homes, nor do we want to live in them except as a matter of last resort. We like living in real stand alone homes, on land that we own, and where we celebrate when we end our bonded servitude to the banks by paying off our mortgages.
Upping stumps and moving to an entirely new jurisdiction is an expensive proposition, even for those who do not have the binding links of having family, friends, jobs, community ties and other bonds in our home cities.
And for most people, their home is one of their greatest and most valuable assets.
Which is something which policy makers in state governments know very well.
A few days ago I promised to explain how the Victorian state government can repay the giant debt the state currently owes after a decade of profligate spending.
As a crash course in the scale of Victoria’s debt, there are approximately seven million people in Victoria right now and a debt of approximately $188 billion. This equates to $27,000 for every man, woman and child in Victoria.
Has your jaw dropped yet?
Back in 1992, when the Cain-Kirner government was thrown out of office after a decade of what, in comparison to the Andrews-Allan government, looks like fiscal restraint and high integrity, there was a significant degree of debt. Premier Kirner, in the last days of her government, legalised poker machines, hoping for a river of gold in taxes from those in order to save her from a humiliating election defeat. Her government had already sold the beloved State Bank of Victoria off after its dodgy merchant banking arm had incurred gigantic losses.
The incoming Kennett government had to be very careful with money. They privatised utilities in order to retire debt, and had little choice but to raise taxes where they could – petrol taxes and financial institution duties on bank accounts. One way or the other, they got rid of the debt.
Taxes on bank accounts, aside from bank interest being taxable as part of your income tax, appear unthinkable 30 years later. I’m not sure, due to the doctrine of rational ignorance (ie I didn’t care enough to read the fine print), whether FID was eliminated in perpetuity when the Federal-State deal on GST and related tax reform was agreed upon in 1999.
As it is, there are several taxes which state governments seem totally uninhibited about levying currently.
First, we have gambling taxes. A major cut of the money which the casinos and pokies venues make goes into state government taxes. After all, Joan Kirner did not legalise poker machines and lay the groundwork for a casino in Melbourne because she wanted, as a committed socialist, to increase the liberty of the common people. She simply was clutching at straws for an alternative source of venue to save her pathetic government from defeat.
Then we have payroll taxes. These are politically unpopular, as they are a tax on employment. All the same, just as when a drug user talks about needing to get clean but the reality is that they cannot go without their drug of choice, our elected leaders love to talk about cutting or getting rid of payroll taxes, but the budget realities do not permit that.
Motor vehicle taxes are the next sort. There are all sorts of ways to justify motor vehicle taxes, mostly in the form of car registration fees each year – for the upkeep of roads mostly. Fuel excise used to be taxed by state governments until a High Court case in 1997. Since then, the federal government imposes a fuel excise (separate to GST) and shares it with state governments. [Personally, I think we should impose a registration fee on bicycle ownership, but that has more to do with my monomaniacal hatred of cyclists, rather than any real desire to fix the bottom line of the state budget.]
Finally we have land taxes of various forms.
The indirect and most obvious one inflicted on home owners is the municipal one – our much hated council rates. A lot of ill is hidden in those. Over the past 20 years, much cost shifting on services which should be provided by the state government has gone into getting local governments to undertake services which should be done at the state level, and where the local ratepayer is now footing the bill.
The council rates notice is also where the fire services levy (now recently renamed the emergency services levy) is collected. I noticed that recently, as one of his final acts, the miscreant former state treasurer Tim Pallas quietly renamed and doubled this levy. Obviously this is not done in order to double the services available to protect Victorians from fire (eg buying those giant water bombing helicopters useful for bushfires), but simply because the government needs to find money from somewhere to address the gaping wound of the state debt.
Then there is the stamp duty on property purchases. I saw this as annoying when I last upgraded my home, but I do think it is probably a necessary user pays tax to protect the land titles system and put something towards the upkeep of infrastructure.
Land Taxes have been imposed in one form or other for many years. They usually are taxes which are imposed on any real estate aside from your principal place of residence. The land tax threshold was lowered last year to any non-principal residence holdings of a value of $100,000 or above ($100,000 does not get you very much in Melbourne these days – a Brighton Beach Box goes for about $400,000). Any holdings valued at above $1,000,000 now get taxed at 0.9%.
Then there are those windfall taxes on rezoned land. I am not sure how they work, whether it is immediate (unfair) or when land is sold, but they are there supposedly to pay for more infrastructure to support the population Ponzi scheme which the Victorian (and Australian to be honest) economy increasingly bases itself upon.
And if we go back in time, there are Death Duties. These were abolished in the late 1970s. The only Death Duty which exists now is the indirect one of Capital Gains Tax on a deceased estate. However, the recent introduction of tiered probate fees in Victoria for estates, where estates above $7 million will incur a fee of $2318.90, represents an increase of up to 625% – a death duty by stealth. [And if you think that is only going to affect very few people, just remember that quite a lot of elderly home owners will have accumulated a lot of house and share and superannuation by the time they are in their mid 80s – a house in working class Footscray can easily go for $1.3 million right now.]
So… how do I see the Allen Labor Government moving to cover the $188 Billion debt it has created?
There will be some squeezing around the edges with more taxes on gambling and on car registration.
Most of the tax burden is going to fall on land owners, increasingly on home owners.
Council rates first. The Emergency Services Levy will continue to be increased. Cost shifting of services to local government will continue, and with it, increases in rates. This will affect home owners and investors equally (unless councils start to discriminate against investors, as is policy in some areas), except that investors can claim income tax deductions and home owners cannot.
How about stamp duty? This is erroneously linked to the cost of buying your first home, and there is a myth that abolishing stamp duty (or converting it into an ongoing annual payment) will make home ownership more affordable. My feeling is that converting it into an annual payment will be a politically expedient way of introducing a new land tax on residential home owners – a tax which can then be regularly increased according to when it is necessary or expedient to do so by the state government.
Land taxes next. Property values tend to increase, unless you happen to own an apartment as an investment in Docklands or something similar. There is probably very little need to lower the threshold for the value of a non-principal residence below $100,000, nor to raise the amount payable in tax for those valued under $1,000,000. After all, capital growth will eventually see many more properties nudge over the $1,000,000 mark and into the 0.9% bracket. There may not be a need to even increase the tax paid in that bracket, but I would not rule it out.
There even could be a push to introduce a land tax threshold for principal residences, where any value above a threshold of, say, $2 million would be taxable. As property prices rise, most homes in Melbourne would probably creep into such a threshold within the next decade. Do I think that this government is capable of doing such an appalling thing to home owners? Of course I do – there is very little else in the course of their abuses of power over the past decade which they have not done.
And of course there are death duties. I do not think that a direct or overt death duty is necessary. I think that the very clever and cynical idea of tiered probate fees, as recently introduced by the state government, is sufficient. Capital growth, both in land and shares, will push more and more deceased estates into the higher fee tiers. Whenever more money is needed, then there can be the expedient of increasing the fees on those higher tiers.
This is an appalling state government, where the opposition has just become that much more ineffective with today’s change in leadership. What we will now see, particularly if we have the calamity of their reelection in two years’ time, is an effort to repay the debt they have created through irresponsibility by imposing the costs on home owners.
Lost For Words! 