Income tax cuts paid for by a Commonwealth Land Tax beats raising the GST

Cutting personal income taxes is definitely a good idea – especially at the lower end – as anything that encourages people to get up and earn a buck has merit.

Lift the tax free threshold to $30K – $40K

Index all the thresholds to CPI to stop bracket creep.

But how to fund income tax cuts is always a challenge (especially at the end of a massive historic mining boom).

A good start would certainly be to trim a few lazy, pork barreling, entitlement deductions as while it is always better to let people keep more of their wages rather than have pollies collect and recycle them, there is no reason to give out deductions and freebies to those who don’t need them.

However, a better alternative to waging an endless war on entitlements (Joe Hockey lacks the ticker to prune entitlements up the income scale) and jacking up the GST, which seems to be the trade-off that Joe has in mind, is a Commonwealth Land Tax just like we had from 1910 to 1953.

A Commonwealth Land Tax is simple to administer, hard to avoid, does not need the states to agree and is equitable.

The politics should not be too difficult either providing that the trade-off is made clear – less tax for working paid for by a little tax on a key economic asset – land.  Keep in mind that the ALP and the Greens are likely to support a modest impost on ‘wealth’ (though they would be wise to call it an “asset tax”) as an alternative to high rates of tax on working.

Pensioners and other ‘income poor asset rich’ types can be accommodated by allowing the tax levied, to accrue with CPI against the title of the land, and to be recovered on disposal or from the estate.  Plus as with the original Commonwealth Land Tax there could easily be a ‘threshold’ land value before land tax applies which would allow all the low income people with very humble land holdings (i.e modest family homes) to avoid paying some or all of it.

The ALP and the Greens need to start thinking about how to respond otherwise they may find themselves wedged when JoHo starts running the campaign to cut income taxes on ‘workers’ by cranking up the GST or broadening its base.

What better response to that attempted wedge then to return with a “flying double wedge”.   Propose in response large cuts in income tax on workers funded by a modest tax on land that will ensure that there is an incentive to use land in the most efficient valuable manner possible.

A modest tax on higher value land is an exercise in economic efficiency and furthermore creates a clear incentive for government to work with land owners to increase the value of land with infrastructure etc as they both get to share the increased value or wealth created.

Getting the nation’s land working more efficiently is critical and a modest Commonwealth Land Tax is the way to do it.

Broadening the base of the GST has some appeal to economists (but mostly ideologues who like the burden of taxation falling on income and consumption) but as it involves herding the states and senators and there is a much simpler alternative – so why go there.

Plus once a Commonwealth Land Tax is up and running the states might get the message to do their own State Land Tax or perhaps (better still) do a deal with the Commonwealth whereby the Commonwealth collects the land tax and splits the revenue with the States in exchange for the States removing their stamp duties and perhaps some of the other dumb taxes and charges they gouge from first home buyers.

Nothing a state pollie likes more is having someone else raises their spending money for them so their agreement is probably already in the bag.

The only barrier to the plan is the traditional LNP devotion to dumping the burden of taxation on wages and consumption.   Surely, running the argument that a better balance between taxes on wages, consumption and assets is not beyond the ALP and the Greens.

Time to get cracking and show that when it comes to long overdue economic reform the government are well behind the wave.

To read the original version of this comment in the original context at Macrobusiness.com.au click this link. (link maybe locked – but there is a free trial available).

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