The world according to GRP — Tuesday, January 22, 2008:
Flesh on the anti-inflation bones
G'day, Prime Minister. The first thing I noticed about your 5-point anti-inflation plan is that you need to turn off the autocue and leave it off. The second thing I noticed is that the plan is light on detail. Perhaps I can flesh it out a bit.
(1) Compliance costs feed into prices. To reduce compliance costs, you could (a) turn the GST into a retail tax, and (b) replace the 9% employer-funded superannuation contribution with a Federal contribution funded by a Federal "superannuation levy" on the same base as some existing tax.
(2) If you make the first home owners' grant (FHOG) available for new homes only, you will not only reduce outlays but also stimulate construction. For the same reason, if you must proceed with that complicated saving scheme for first home buyers, please limit it to new homes.
(3) Step (2) would also address the so-called "skills shortage", which is largely a shortage of affordable housing within commuting distance of jobs. But you can do more, If, for tax purposes, you deem every investment property to be earning a minimum of (say) 3.5% of the site value per annum, the owners will need to generate real income to pay their taxes. Hence land approved for development will be developed, vacant lots will be built upon, and empty buildings will be offered to tenants and buyers. All this improves affordability (and swells the budget surplus).
(4) If the States reform their tax systems so as to claw back uplifts in land values, they will then have an incentive to do things that raise land values — such as providing infrastructure. This does not damage affordability, because the increase in value is quality-driven, not demand-driven. You can prescribe such reforms as a condition of receiving GST revenue.
(5) To encourage people to join the workforce, you need to reduce the absurdly high effective marginal tax rates (EMTRs) causes by income tax plus income testing of welfare. One way to do this is to subject the sum of benefits to a Single Means Test based on land values, not income.
— Letter submitted to the Australian.
Copyright © Gavin R. Putland except as otherwise attributed. Posted at The world according to GRP under the title Flesh on the anti-inflation bones. You may republish this item verbatim on your website or blog provided that you include this notice (with hyperlinks).
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