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Vested interests from the property industry are in favour of a land tax to replace stamp duty; Stop regurgitating what you’re told and believing what you’re told
Topic Started: 3 Nov 2014, 07:22 PM (417 Views)
Melbourne Girl
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I know for a fact (don’t ask me how) but vested interests from the property industry are in favour of a land tax (to replace stamp duty of course ). Read between the lines of HIA’s public views. It’s pretty obvious.

They know it will boost prices and help their land bankers.

You think they care about efficiency?

On the efficiency of land tax, the following proof clearly sets out why it would not be efficient to replace stamp duty with it.

It appears to be on efficient on face value and a naive (and lazy) application of the micro-economic theory. That is, a tax is distortionary if it creates a tax wedge, that means that prices (costs) effectively incurred by consumers (producers) mean that the quantity of consumption is lower than the ‘efficient’ quantity without that tax wedge. Lower consumption leads to a lower total surplus.

However, to say that this is means stamp duty will be less efficient than a land tax (because it creates a tax wedge) ignores that for the above efficiency effect to hold the condition that needs to be satisfied is that PRICES are what leads to lower consumption than the efficient quantity. In fact, we know that this isn’t true in the case of Australian housing. It is supply-side policies/constraints that lead to lower consumption (or new lower construction) in this case.

So why would a land tax lead to lower efficiency? Because it would further distort the price of housing, which is an input cost to downstream production. Higher (distorted) input costs lead to lower consumption and production across the whole economy. This effect is very strong and is already crippling Australia.

And why would it lead to higher prices? Take the following stylised example. X wants to buy a house. We know that Vendors charge as much as X can pay. Let’s say:

- X has $100,000 in cash
- The bank will loan a maximum LVR of 90%
- Stamp duty would be $40,000
- With stamp duty, X can bid up to ($100,000 – $40,000)/(1 – 90%) = $600,000
- Without stamp duty, X can bid up to $100,000/(1- 90%) = $1,000,000

It is disappointing to see vested interests being able to easily convince the naive public to inadvertently support their agenda. In the case of housing policy where we’ve got a history of unintended consequences it’s a matter of fool me twice, shame on me. It’s because everyone laps up what’s dished out .

Think for yourselves people – for the sake of the national interest. Stop regurgitating what you’re told and believing what you’re told.
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bundy
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Melbourne Girl
3 Nov 2014, 07:22 PM
I know for a fact (don’t ask me how)

LOL

Most of what you wrote is confused nonsense.

It is widely known that a properly implemented land tax would drastically reduce the cost of land (compared to the current prices) while being a much fairer system.
See Henry George's work as a starting point: Henry George - Wikipedia
Here's another useful link.
Edited by bundy, 4 Nov 2014, 01:47 AM.
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