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It is rent-seekers who strive for centralisation. By-and-large people in general oppose it.; Australia must shift taxes off productive effort
Topic Started: 20 Aug 2014, 11:46 PM (267 Views)
Steve
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http://www.afr.com/p/national/company_tax_uncompetitive_biotech_3BCVDV7PiVFOMItrS8qsRM

Dr Edwards said Australia needed to do more to ensure its tax system could compete…

“We always need to be concerned about the competitiveness of our taxation system”…

“In the long run we probably need to reduce the rate of company tax to one that is closer to some of our competitors. We are not that far off, but we need to go in that direction.”

Dr Edwards said Australia did not have a problem at the moment attracting foreign capital but some companies were choosing to move overseas.

CSL chief financial officer Gordon Naylor said on Monday the lower corporate rate in Switzerland of 18 per cent was part of the decision to build the new factory there instead of in Australia
The Swiss actually employ a system of generalised rent taxes.

These are imposed not using the “Allowance for Corporate Equity” approach proposed by the Henry Review, but rather through the system of generalised wealth tax.

As explained in the above link, accumulated wealth (which often comes not from work or value-adding transactions but from the exploitation of market power – i.e. rent) is taxed by the Swiss cantons at rates varying from 0.25% p.a to 0.5% p.a. This applies to all net wealth, not just to real estate.

Swiss wealth tax can be considered a form of rent tax levied at a relatively low annual rate on the present value of future rents. As such, it is much less volatile than conventional rent taxes.

The problem facing Australia (in marked contrast to Switzerland, as discussed below) is that people are prepared to tax rents provided that they are other people’s rents.

Thus in Australia one sees widespread support amongst the rent-seekers(*) of Sydney and Melbourne to tax the resource rents of Western Australia and Queensland, and use the proceeds to prop up their own chronically inefficient metropolises.

[* The term "rent-seekers" is used quite literally. These people are seeking the resource rents of the people of Western Australia and Queensland. More generally, metropolitans in all the state and territory capitals use their royalty powers to seek the rents generated largely in regional Australia.]

As the Henry Review noted (see the link above) rent taxes need not be restricted to resources. They can be applied to all rentiers. Moreover, such taxes are not distortionary because they do not come into effect until the business’s cost of capital has been covered.

And yet, generalised rent taxes were quickly removed from the agenda because they would have taxed the activities of politically powerful rentiers in Sydney and Melbourne.

The net result is that Australia taxes those regions and industries which enjoy a comparative advantage and uses the proceeds to prop up rent-seeking metropolises which by-and-large do not!

That is why Australia’s population is so inefficiently concentrated in metropolises. As long as they are able to survive on the tit of other people’s rents they have absolutely no incentive ever to reform.

This does not occur in Switzerland for two (related) reasons:

a) Switzerland – unlike Australia – is a Democracy; and

b) as a result of (a), Switzerland is highly decentralised with 23 sovereign cantons (26 cantons and half-cantons) for a population of about 8 million.

It is rent-seekers who strive for centralisation. By-and-large people in general oppose it.
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