Tax and the family home:

Gavin R. Putland, director of the Land Values Research Group, writes: Re. “A hard, tough and brutal tax debate is brewing” (yesterday, item 2). “There is no incentive for Canberra to modify the GST”, says Sinclair Davidson , because “the states get all the benefit, the Commonwealth all the pain from any increase.”

Not necessarily. What if the GST is turned into a retail tax (so that different rates in different states become administratively feasible), and what if the rate in each state (or territory) is set annually by the Commonwealth at the “request and consent” of the state parliament, and the revenue raised in each state is refunded to the state? That makes the states responsible for their own revenue and relieves Canberra of blame for underfunding of state services. Moreover, the refund can be made contingent on abolition of payroll tax. That should please Davidson.

Is the modified GST an unconstitutional state excise tax? No, because it’s imposed under Federal legislation. Does the variation in the rate amount to unconstitutional discrimination between the states? No. The Commonwealth makes the same offer to each state. The states respond as they see fit and the Commonwealth accepts the responses.

Where’s the discrimination?

Davidson mocks the notion that “owner-occupied housing is some sort of tax rort,” as if it were based on the premise that “not being taxed to live in your own house is a concession”. In fact it is based on the pretence that the family home gets more favourable tax treatment than other assets, including investment properties. That pretence is false; the average investment property pays negative income tax because of negative gearing, whereas the family home isn’t “taxed” and therefore can’t claim the negative gearing deduction even if, as is usually the case in early years, the interest exceeds the imputed rent.

Remember Paul Clitheroe’s “house swapping”, in which you buy the home that your friend wants and vice versa, and each rents from the other?

This is simply a ruse whereby you and your friend conspire to get your homes taxed as investment properties! Why would you do that if owner-occupied homes are treated so much more generously?

Actually there’s no need to implicate a friend. You can get the same tax advantage on the open market by buying the home you want to invest in and renting the one you want to live in, as I explained in an article in Online Opinion. The aim of that article, as the title suggests, was to sabotage stamp duty — which, of course, is a tax on the family home.

Prof. John Freebairn also proposes to get rid of stamp duty — by trading it off against a broad, flat “land tax” whose base includes owner-occupied residential sites, and/or an extension of capital gains tax. So Davidson attacks Freebairn for proposing a “tax on owner-occupied housing” while conveniently ignoring the “tax on owner-occupied housing” that Freebairn wants to abolish. Davidson prefaces this attack by accusing Freebairn of relying on a “folk theorem” that it is better to have “a variety of taxes rather than a small number”, when Freebairn’s proposal would actually REDUCE the number of taxes.

Davidson has form on condemning the non-distorting “land tax” while ignoring the highly distorting stamp duty, and on using spurious arguments for the purpose. But, as I explain on the LVRG Blog, those arguments didn’t start with Davidson. They go right back to the beginning of “neoclassical” economics, whose defining feature is to deny the classical distinction between land and capital in order to undercut the case for raising public revenue from land values.

The coming tax debate, if Davidson’s contributions are any guide, will be not only “hard, tough and brutal”, but also ignorant and intellectually dishonest. It was ever thus.

Richard Davoren writes: Contributors like Sinclair Davidson who do not support taxing the family home should declare if they have a conflict of interest. How much is his home worth? Yes, the family home for some is their humble abode and their hedge against paying rent in their old age. But for many if not most, the family home is a tax-free investment.

Consider this. I live in Tasmania and if I live in a rented flat in Hobart and have a modest cottage on the coast, then I pay a substantial amount of land tax, possibly not qualify for the pension and pay capital gains tax on my cottage if I sell it. If on the other hand, I own a house in an expensive suburb and as reported in the media as occurring in Toorak, acquire additional property and amalgamate it with mine I could expect to own a house of a value of $3m without too much effort.

In Sydney or Melbourne the figure could be 10 times this. So it is conceivable that if all of one’s assets are consolidated into the “family home” with a value of, say, $20m, wealthy by any standards and yet at age 65, they could claim the pension. Living on the pension and maintaining a $20m house is a challenge but remember, pensioners have reduced rates and taxes. Over time, in most parts of Australia, real estate value growth has doubled inflation. Sydney’s North shore has done better I suspect.

Our notional $20m home is increasing in value by $600,00 per annum sometimes more, seldom less. With free handouts to pensioners and reverse mortgages, most of us could live quite well on $600,000 capital growth per annum, tax free. Of course most would sell their “home”, capital gains tax free, buy a cottage on the sea and invest their capital gains into an income stream and tell Kevin where to put his pension.

Yes, “family homes” over a certain value should be taxed.

Community-funded reporting:

Michael McKinnon, FOI Editor, Channel Seven, writes: Re. “Community-funded reporting: bringing a new transparency to journalism” (yesterday, item 6). Further to the article which notes that “If it is journalism for the public interest, don’t prescribe that, find out what the public is interested in”. This advice is flawed as there is a clear and legal distinction between the public interest and what the public is interested in … the Sunday Telegraph learned that harsh lesson in the Hanson photo scam.

So, a matter that is of interest to the public does not necessarily equate with the public interest. As noted the Full Court of the Supreme Court of Victoria in Director of Public Prosecutions v Smith [1991] 1 VR 63 (at pp.73- 75):

There are many areas of national and community activities which may be the subject of the public interest. The statute does not contain any definition of the public interest. Nevertheless, used in the context of this statute, it does not mean that which gratifies curiosity or merely provides information or amusement: cf R v the Inhabitants of the County of Bedfordshire (1855) 24 L.J:Q.B. 81, at p.84, per Lord Campbell Ll.

Similarly it is necessary to distinguish between “what is in the public interest and what is of interest to know”: Lion Laboratories Limited v Evans [1985] QB 526, at p.553, per Griffiths LJ…

The test is not that information is newsworthy but whether its disclosure is in the public interest (see Herald and Weekly Times and Department of Finance and Administration).

Joe Boswell writes: David Cohn, the founder of Spot.Us, wrote about his scheme for funding journalism, “Be transparent. If it is journalism for the public interest, don’t prescribe that, find out what the public is interested in.” It’s disturbing to see someone in Mr Cohen’s position does not understand that “the public interest” is distinct from “what the public is interested in.” The former is an interest in the sense of having a stake or investment; something to lose. The latter is just curiosity.

Equal pay for women:

Andrew Lewis writes: Re. “Much work to do to close the gap on women’s pay” (yesterday, item 4). A few comments about Eva Cox’s story on equal pay for women. It seems like a big story of inequity and deliberate underpaying of females but it is more likely to be a case of poor statistical analysis. Some points to muddy the waters about the apparent underpayment of women;

  • Full-time men are working about 8-10% more hours than full-time women (NES submission: Drs van Wanrooy, John Buchanan, Iain Campbell).
  • Almost all lower paid workers are paid according to award wages, which are regulated as equal pay, so it isn’t really in that area. Same applies to govt workers below Senior levels, pretty much the entire hospitality and retail industry etc;
  • It may be partly explained by men taking the weekend, holiday and night shifts, which isn’t about inequality of pay at all really;
  • The peak of earnings is in the years 50 – 55, which just happens to coincide with the last of the baby boomers, where the last of the worst discrimination in the workforce resides;
  • Management and Executive levels are populated by 50+ males, where we know the greatest gender inequality resides;

The executive remuneration is so out of whack with what everyone else is paid this could explain the bulk of the difference apart from hours worked. If women are earning less at the management and executive level, I have to say that I can’t get excited or concerned about the fact that a woman is earning $250k while a man is earning $350k. Once your salary gets above $150k, you’re on your own.

This may not be a gender issue at all, and there is insufficient data to say one way or another. There is so much more to these figures and to blithely accept the statement that women are paid less than men is to have been duped by statistics.

Malcolm Turnbull:

Mark Westfield, Media advisor to Malcolm Turnbull, writes: Re.”So sue me: Turnbull’s media strategy writ large” (yesterday, item 10). Your correspondent Bernard Keane says I haven’t worked in the Canberra press gallery. This is incorrect.

I spent three years in Canberra in the early to mid-1980s, (last year of Fraser, first two years of Hawke) as bureau reporter for the fortnightly Australian Business magazine (now defunct) and won the Ford National Press Club award for federal political journalism for 1982 (awarded in 1983).

Peter Rosier writes: Methinks Martin Gordon (yesterday, comments) doth protest too much … as for going overboard on poor Malcolm, let’s be candid, the Libs are pretty good at killing the goose: they managed to dine out for 11 years on Labor’s supposed debt: now, that was a good lunch!


John Taylor writes: Re. “Comitatus: Turnbull rallies the undecided” (yesterday, item 3). Yes. Ask 1151 people out of 21 million and you’re bound to come up with the right answer. Try graphing this: yesterday 58.26% of statistics were made up on the spot. Two days ago it was 44.19%, today it was 72.43% and tomorrow it could conceivably be 68.27% if my fingers hit the correct keys ,or not, as the case may be.


Robyn Cairns writes: Andrew Dalzell (yesterday, comments), you spoke right to me with your comment published today. I happened to notice two Australian athletes did rather well at some track and field event this weekend. An Australian woman took the discus world title with a truly massive throw, it was spectacular. Why do I not know her name? I only saw the story reported once. Next time I caught a story about this event, an Australian man had taken the world title for the high jump. He was injured, they told me, and fluffed his second to last jump. So he put the bar up 5cm, cleared it — and took the world title. Why don’t I know his name? Only heard the story once, again.

I pondered this strange oddity, on a day when my local radio could only moan about losing rugger matches and cricket urns, and heaven help us all, but the Miss World pageant too. And it slowly dawned on me that all these stories are about competitions that are only practiced by the Alpha People. You know, the big boofy blokes and lovely young women, that most of us aren’t? We are allowed to watch them and cheer them on, but they are all playing at something most of us can’t do too.

I am currently struggling with my geeky 8 year old son, who has not very good hand-eye co-ordination. He can run and swim, but isn’t very good at kicking balls. He’s easily distracted, so he’s not good at cricket, especially in the outfield. He no longer wants to try because he thinks he’s beyond hope. He can run though, and he’s got very long legs and arms. He can hurl a shot-put at this young age, and would be well suited to the high jump. But he has no enthusiasm for these past times that almost all Australian school children are forced to perform at their annual athletics carnivals. Why not?

Could it be because he has never been exposed to the media endlessly ranting on about high achievements in sports other than football, rugby and cricket, in or out of season, year in and year out, Olympic year or not?

Windows and ATMS:

Edward Thompson writes: Re. “Tips and rumours” (yesterday, item 8). Regarding the tip about Windows XP running on the Commbank ATMs. Things like ATMs tend to be running Windows XP embedded, which is a very different beast to the average version you’ll find installed on a home or office PC. It’s slimmed down, more robust and more secure and is running on an awful lot more things than you may realise.

The ATMs aren’t running over “the internet” either. The transaction backend is all still run on Mainframe and Unix systems, so it’s not really an issue. The security problems with ATMs come from people sticking physical card skimmers to the front of the slot, nothing to do with the OS.

TomKat and Flint:

Steven McKiernan writes: Re. Brian Mitchell (yesterday, comments) who wrote: “Stop it. Bring back David Flint if you have to. But stop writing about Tom F-cking Cruise. Crikey isn’t New Idea so stop it. Please, just stop.”

Bring back David Flint? NOOOOOOOOOO!!!!!!!!!!!!!!! No more TomKat. No more Flint. That is all.


Michael O’Hara writes: Re Michael Delaney (yesterday, comments) on my figures for the MTAA super fund… “Ouch”. Again, let’s see if robust argument can get a say amongst ideological tripe. Firstly, if Michael believes I have belittled the MTAA super fund in restating the fund returns then I wholeheartedly and unreservedly apologise. I totally support the MTAA Super Fund use of the alternative asset model for superannuation funds. It provides stable pricing for members and with strong cash inflows should enable the more recent “once-in-a-generation” events to be little more than a blip in long term plans. I also support the Industry Funds push for lower fees for super funds, and their work towards being able to provide cost-effective financial planning services to fund members.

If my comments are seen as a “cynical attack” on APRA’s performance tables then I apologise for that as well. It was not my intent to do either. Yes, I am cynical but I see the APRA performance figures as being a very good first step.

Can we get back to the whole point now? The original article by Bernard Keane suggested that the APRA charts proved something about Industry Funds and Financial Planners. I suggested that, while a good start, the APRA figures should be used with care. I used the example of the MTAA Super Fund simply to show that a person investing on the basis of a quick look at the figures (and mainstream comment on them) risks making an uninformed decision.

Michael Delaney gave me the courtesy of looking at our business website, and points to the clarification on the legislative use of the term “independent” as somehow proving my bias. Maybe he was constrained for time, as that website includes a link to my blog — which has a link to the Industry Funds own Financial Planning service, as well as very detailed discussion on these issues.

I would challenge Michael Delaney to find a more transparently public discussion on issues surrounding financial planning. Everyone has a bias. The trick is knowing just where it is.

To restate my point (without reference to the MTAA Super Fund)… The APRA tables are a good start to open and honest reporting of super fund returns. However, before using them as a tool for decision-making there should be a good deal more interpretation. Otherwise we are treating super fund returns on such a superficial level that the consumer ends up with very little understanding — just lots of ideological points of view.

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