From the BBC:
Australia's Prime Minister Julia Gillard has announced a new tax to help pay for devastating floods that she says will cost A$5.6bn ($5.6bn; £3.5bn) in reconstruction.
Ms Gillard said the 12-month tax, starting from 1 July, would be levied on those earning A$50,000 or more, and those affected by floods would not pay.
"We should not put off to tomorrow what we are able to do today," she said.
Oh dear oh dear oh dear. Any sort of logic or justice or matching costs with benefits has gone out of the window here.
Seeing as it as very easy to identify who will benefit from the reconstruction works (land owners in affected areas), wouldn't it be fairer (let alone make more economic sense) to ask exactly those landowners to contribute - maybe in proportion to the amount of benefit that each individual landowner will get? We could call it 'land value tax' or something.
If anybody can explain to me why it is better to pay for this reconstruction by clobbering a random selection of individuals who won't particularly benefit (in this case, above average earners in the rest of Australia), then I would be delighted to hear.
Thursday, 27 January 2011
"Australia floods: PM Julia Gillard unveils new tax"
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21 comments:
Quite
Fred Harrison calls this the predator culture.
Julia Gillard is a Welsh bird from Barry, did you expect more?
(anti-welsh, sexist, anti-leftist comment in memory of Andy Gray)
What I find interesting is that if state intervention for reconstruction is assumed, the Australian government could perfectly well borrow the money and recoup it once the economy recovers. But the attitude in Australia seems to be completely against the government having a debt. I believe the Australian government has no debt at all, and rarely runs a deficit.
RS, Fred is spot on.
Sean, yeah, but would you invite her to tuck a microphone down your Y-fronts?
BE, the Australian govt has a healthy attitude towards deficits, that's not the point. The point is, let's assume that insurance companies increase the premiums for buildings in the flood zones - would it be sensible to expect other Australian taxpayers to pay an extra 1% income tax in order to subsidise them?
No Mark I would not be so vulgar, she is a red head, it just would not be funny
I'm not arguing with your main point. Call my comment a tangent or an aside, if you will. Sorry for being interested in a different aspect of the story!
BE, no apology necessary, and it is an interesting point.
Quite clearly this work needs to be done sharpish, so this is a case where borrowing-to-spend would be perfectly justifiable.
But that still leaves the question whether the borrowing ought to be repaid out of income tax or local LVT receipts, and/or over how many years the tax is collected.
They could for example have a one-off levy on each plot of land and have done with it in Year One. In turn, it is then up to each landowner to decide whether to pay this levy out of spare cash or whether they'll have to take out a loan secured on their land (which is also 'borrowing-to-spend' but on a private and not public level).
If I were about to be hit with a special tax to bail out other people I might well wonder about those cases where people declined to take flood damage extensions on their property insurance because they were "in a drought" and they thought it was too expensive.
Don't want to seem mean-spirited, an' all, but first responsibility is to oneself and one's family.
I accept that uninsured homes will be a tiny part of rebuilding costs (even if they qualify for assistance) and principally it's infrastructure replacement costs, but nonetheless........
I can see the logic behind this: the government doesn't have insurance, so it has to put up taxes to pay for rebuilding bridges, roads and the like, as it sensibly doesn't want to borrow money (although I am sure there is a lot of useless expenditure that could be cut instead, but hey, here's a chance to get some extra tax revenue, let's not pass it up). Many of those that live in the flood-affected areas will be poorer as a result of the floods - insurance doesn't cover everything. They won't be better off than before as a result of the gov't expenditure - it's not like building a new road, or railway, it's just putting back what was there before. If Mark's suggestion was followed, it would be the same as the government preventing these people from insuring their houses and then telling them they have to pay to rebuild them after the floods out of their own pockets.
B: "They won't be better off than before as a result of the gov't expenditure - it's not like building a new road, or railway, it's just putting back what was there before."
That's sloppy use of the word 'before'. If reconstruction work is done, they will clearly be better off than before it was done. Whether they are better off than before the flood happened is irrelevant - what's happened has happened.
"If Mark's suggestion was followed, it would be the same as the government preventing these people from insuring their houses and then telling them they have to pay to rebuild them after the floods out of their own pockets."
I can't follow the logic of that at all. Consider - what would happen if the government said "Not our problem, we are not going to raise or pay you any taxes, you sort it out locally"?
Surely, market forces would dictate that land owners end up paying for the reconstruction (and probably getting much better value for money than the government would)?
Where on earth did I say that land owners should be "prevented" from taking responsibility for themselves? If that involves them self-insuring or paying insurance or chipping in to a common fund, then so be it.
The locals will be better off than before the flood. What's the money, drawn from taxpayers elsewhere, going to be spent on? Much of it will be on the on the wages/profit of the people/buinesses doing the rebuilding. And which people/buinesses are going to be doing most of the rebuilding? To a significant extent those in the affected areas. Boom time! And while inconvenient now, eventually lots of shiny new infrastructure and buildings. All paid by someone else.
Bruce, that's a good point re 'boom time'.
I'm pleasantly surprised that you aren't dissing me as being anti-Home-Owner-Ist in this context (query: how much of such a land levy would be paid by mining companies? I do not know).
I'm sure that the mining companies will be capable of saying "The reason our mines are flooded is because you pols have cocked up the flood prevention measures."
"Where on earth did I say that land owners should be "prevented" from taking responsibility for themselves?"
Where on earth did I say that you said that land owners should be "prevented" from taking responsibility for themselves?
A responsible landowner insures himself against floods and the like, so that if his property is damaged, he gets the bulk of the repairs paid for by the insurance. The government doesn't insure its property, so it has to get the taxpayers to pay for the repairs. Under your suggested system, our Queensland landowner is in the position where he knows he's going to have to pay to repair the roads and bridges if they are damaged by a flood, but he can't insure against it, because they are not his roads and bridges. Why should he pay for repairs to uninsured government property any more than he should pay for repairs to uninsured private property that he doesn't own.
"I can't follow the logic of that at all. Consider - what would happen if the government said "Not our problem, we are not going to raise or pay you any taxes, you sort it out locally"?"
Well, if it was me, I'd get together with other landowners, pay for the new bridges and roads, then charge a toll on then and bloody well insure them too.
Bruce, what makes you think that the construction industry is any more than a tiny proportion of the total "GDP" of a rural state like Queensland? The vast majority of Queenslanders are not going to get any benefit from your so-called "boom time".
B: "Why should [a landowner] pay for repairs to uninsured government property any more than he should pay for repairs to uninsured private property that he doesn't own?"
He 'should' pay for it because in the absence of roads, bridges, flood defences etc his land and buildings are worth much less, maybe nothing. These things are not 'government property', they are public property for the express benefit of surrounding landowners.
Conversely, nobody (whether land owner or income taxpayer elsewhere in Australia) 'should' be asked to pay for repairs to land and buildings to which somebody else has exclusive access - but this is what the Australian government is imposing and what I am opposing.
He 'should' pay for it because in the absence of roads, bridges, flood defences etc his land and buildings are worth much less, maybe nothing.
Yes, but he's paying for structures that he can't insure and may have to pay for many times, whereas if he owned the structures, he could insure them, or not replace them as he sees fit.
"Conversely, nobody (whether land owner or income taxpayer elsewhere in Australia) 'should' be asked to pay for repairs to land and buildings to which somebody else has exclusive access."
I never knew that only Queenslanders were allowed to use the roads and bridges in Queensland. What on earth do people from the other states do, drive through the bush?
B, you are over complicating matters:
"Yes, but he's paying for structures that he can't insure and may have to pay for many times, whereas if he owned the structures, he could insure them, or not replace them as he sees fit."
In the long run, it is always cheaper to pay for repairs and as you go along; not to insure; and just to pay for replacements as and when (the insurance company's profit is your loss). And what's to stop people taking out insurance against a "land levy' to cover their share of the cost of rebuilding?
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You said:
"Why should he pay for repairs to uninsured government property any more than he should pay for repairs to uninsured private property that he doesn't own?"
I replied that it is not 'government property' it is 'public property' that is maintained for his benefit.
Conversely, I said, I would not expect people to pay for things to which they have no access and which are not for their benefit (i.e. other people's buildings).
You then twist it all round again with this:
"I never knew that only Queenslanders were allowed to use the roads and bridges in Queensland. What on earth do people from the other states do, drive through the bush?"
I was referring to 'privately owned land' not 'public property' like roads and bridges. Do you think the government builds roads for its own private amusement?
If you mean to ask whether I think it reasonable for only Queenslanders to pay for roads in Queensland, then very much yes I do. Those roads are for their benefit. For sure, people from neighbouring states use them occasionally, but only 1% as much.
If you think it is OK for Western Australians to be forced to pay for them, why stop there? Why not ask the New Guineans and New Zealanders to chip in?
"I was referring to 'privately owned land' not 'public property' like roads and bridges"
Nowhere in the bit of the article that you published does it say that the government is going to spend any money on private property. I agree that would be totally unfair. Private property owners should take out insurance and, if they don't, tough luck. I assumed that "to help pay for ....reconstruction" meant the government rebuilding the bits that they were responsible for (it doesn't matter if you call it public or government property, the main thing is that it's not yours). OTOH I would agree that if all the roads and bridges etc in Queensland belong (as defined above) to the State of Queensland, then, yes, it's right for the State to pay for their reconstruction, not the federal Government, but I don't know that.
B: "Nowhere in the bit of the article that you published does it say that the government is going to spend any money on private property."
No it doesn't. Let's agree (for the sake of this discussion) that they'll spend it on stuff like roads, bridges, drainage, dredging rivers, flood defences etc.
Now, let's assume further that this stuff is 'of benefit', well clearly 'the government' as an abstract concept does not build this for its own benefit, so next we ask "For whose?"
The answer must be "it is for the benefit of people who 'own' land and buildings in the area". Superficially it is for the benefit of e.g. tenants as well, but as without these things the landlord's rental income would be zero, so in economic terms it is for the benefit of landlords, landowners, miners, homeowners etc.
Ergo, on the basis of matching costs and benefits, they ought to pay for it. Whether, on an administrative level, it is neighbours sharing costs, or a town council splitting the costs, or a county or a state or the federal government is a separate issue.
Compare: I live in London. I have nothing against paying higher ticket prices or higher council tax if it goes towards improving the Tube*; I baulk at paying for the Newcastle Metro out of my income tax. Similarly, I wouldn't expect people in Newcastle to pay for Crossrail out of their income tax.
* I'm a tenant of course so for me it is a no-risk exercise. If TFL simply waste the extra money, then rents in my area fall accordingly. If TFL really do take that money and improve the service, then my total 'rent' goes up, but as the higher ticket prices and higher Council Tax take the first chunk of that extra 'rent', the rent that I pay my landlord is merely a balancing figure.
This doesn't alter the point I am making that this is not normal capital expenditure, nor is it maintenance. It is the repair of property after a natural disaster. All the example you have given are of improvements to public property. Here we are talking about putting things back to how they were before the floods. To say that an it's an improvement over the current post-flood situation is just silly.
Yes, LVT would be a better system, but under LVT, there would be no increase in revenue for the government to pay for the flood repairs; Value of property assessed before the flood = A$100,000 say. Value of property after reconstruction = A$100,000, if everything is put back as it was. Increase in tax revenue = nil. Alternatively, if the government does nothing: Value of property assessed before the flood = A$100,000 say. Value of property after the flood = A$10,000. Increase in tax revenue = -90%.
B, yes, that second paragraph makes sense, but I was saying seeing as a) they don't have LVT and b) the flood has happened that c) the least bad way of raising the money to pay for it (short of entirely private initiatives) is LVT.
How we would finance this in a purely LVT/CI world is a separate topic (the answer it quite simple but irrelevant to this debate).
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