Hi Mark. A couple of questions about land tax. Why is ‘land in its natural state’ exempt? Does this mean that we exempt privately owned, pristine wilderness to reward the land owner for conserving its environmental qualities? This sounds fine to me, but I would not want to see land banks on the outskirts of our cities exempt.
I take it that the policy ends the land tax exemption for owner-occupied housing; this should be spelt out explicitly. Also, I take it that the new land tax replaces the existing land tax, as well as stamp duty.
If I read the ABS stats correctly, then in 2012 the states raised about 6b in land tax and 13b in stamp duty, with another couple of billion in ‘other land taxes’, so the new land tax needs to raise about 20b/year. The market value of all privately owned land in 2012 was about 3,700 b, so a flat land tax of 0.055% would suffice. In practice, exemptions for low-value farmland and nonprofit organizations mean the rate would need to be a bit higher. When you consider that in the 10 years to 2012, total land values rose from 2,038 b to 3,684 b, or around 165b/year on average, you would be taxing only about 20/165=12% of the growth in land values. To me, this is too low if you are imposing a tax rate of 35% on income, or rather, the income tax rate is too high by comparison. I guess some of the 170b/year is collected by the capital gains tax, but not the part accounted for by owner occupiers.
Personally, I would like to see land tax rates increase over time to pay for lower tax rates on incomes over the tax-free threshhold.
If people have to pay for land in its natural state the imperative will be to develop it to make the money back. It would amount to yet another incentive to demolish urban green-space and pristine land.
Exemption for owner-occ housing would cease. it should absorb existing land tax and replace stamp duty and fill most of the revenue gap created by the income tax cut. The 0.055 would probably have to average around 0.08 but on a progressive scale (ie at 0 for low-value land creeping up to 1 or 1.2% for luxury/valuable land). It should add a progressive tail to the tax system.
Although income tax is 35% there’s a 40K threshold so someone earning 80K is actually paying only 17.5% tax on their total income.
If I retire and then I think about how to combine these two concepts:
Tax treatment will be ‘neutral’ among forms of income including
fringe benefits, share transfers and dividends, company cars,
earnings through interest, rental or private company income, real
capital gains, bequeathments (excepting family-owned agricultural
land), superannuation withdrawals and termination payments.
and
The basic income for aged and disabled persons and full-time carers
will be ‘topped up’ (made equivalent to the current age pension).
then if I simply never withdraw anything from my superannuation, I get a full pension and can pass the superannuation monies on to my family in my will.
Is that right then? Just thinking how to rort this ahead of time.
http://www.deloitte.com/assets/Dcom-Australia/Local%20Assets/Documents/Industries/Financial%20services/Deloitte_Dynamics_of_Superannuation_2013_report.pdf, page 27, suggests that the average 64-65yo Australian has about a quarter of the retirement funds required to live a “modest lifestyle” in retirement or about one 8th of that required for a “comfortable lifestyle”.
Curiously, the “comfortable lifestyle” equates to an annual income of $41,197.
On that basis, taxing superannuation withdrawals at the full rate given the $40,000 threshold means they pay 35% on $1197 == $418.95 tax, which is SFA. Probably worth pointing that out.
BTW: Did anybody notice that the Pension system is anti-marriage?
As two singles on full pension, you get $21913 each, but tie the knot and you only get $33036 between you, for a net old people marriage tax of just over $10000 per annum.
Clearly, the government wants all old people to get divorced.
Regarding point 1: note the inclusion of bequeathments. if you bequeath your super to someone else it would be counted as part of their taxable income for that year and they would pay 35% on the entire sum in one go.
A better option tax-wise is to do what you mention in the second post: withdraw the super at comfortable (but non-extravagant) levels. In other words you can “dodge tax” through a self funded and sensible retirement which saves the state a lifetime of pension costs. That’s fine.
The whole welfare system is anti-marriage at the moment. It’s nutso… One of the best long-term antidotes to poverty is partnerships and resource sharing. in a saner world anti-poverty programs would encourage that kind of thing.
Yes and no. There are two separate means tests now, one on income, one on assets. Income means testing is automatic under a NIT, but the assets test would be dropped. That could mean some pensioners who own expensive property and have no income would get a payment where they weren’t getting one before. In those cases though, the NIT would be offset by the higher tax on land ownership. Presumably pensioners would choose to defer land tax until the property was sold, at which point the NIT costs would be recouped. So interaction between components would produce an assets test by proxy. Hopefully that makes sense…
I was speaking to @piecritic the other day and promised that I would express my opinion here.
One issue I see is if you have the company tax rate this low (20%) and the personal income tax at 35% for wealthier individuals then there is going to be a lot of shifting of funds through companies to avoid 15%. I realise there can be fringe benefits tax but it’s not highly effective once people allocate their business expenses.
I think the volunteer work clause is pretty good however I think it has to be defined as to what volunteer work is. Would it be organisation’s with a tax exempt status?
If you want to abolish negative gearing it has to be phased over more than 5 years. Maybe 10 or so as some people are gearing up to huge percentages and you don’t want a lot of bankruptcies to happen over it.
Overall some great policy in there and this forum is very well made so props to whoever coded/designed it.
The tax rate differential between personal and company tax rates is hard to resolve. It’s awesome to have a single harmonised rate of personal and corporate income tax but that fails to recognise the different elasticities that apply to each. Capital in today’s world is highly elastic, so higher company tax just sends the capital offshore and the jobs with it. Labour can be taxed without that effect. So the goal of having a tax system with the least negative effect on societal well-being clashes with the goal of harmonising tax rates.
The societal wellbeing argument won out in the 80s and that was when the gap opened up between company and personal tax. We’re probably stuck with that gap but the policy would close many other loopholes around housing, superannuation, private trusts, golden handshakes, inherited wealth (etc) while also defining very closely what can be shifted through a company.
The volunteer clause is vague on purpose. It probably would have to work in the way you say, though it would be nice to recognise/encourage things like open-source coding as well.
Negative gearing should indeed phase-out rather than go in one chunk. I’ll put something in.
The policy sets 22% as an upper bound for the tax to GDP ratio, which I take it refers only to the federal government. This graph shows that level as the long term average. When you add in state and local governments the level varies from around 25 to 30%.
Since our policy refers to several state taxes I think it would be more natural to give a combined figure for all levels of government, say “less than 30% of GDP”. This is probably reasonable in the near term. Longer term, demographic aging means that keeping to that figure might be challenging but by improving the efficiency of the tax system we should be able to raise more revenue with a lower real cost to taxpayers.
As Brendan suggested, if you can upload the source files, I can hopefully sort out SVGs (Assuming that I can find something for my OS that’ll work with whatever format your source files are in)
Hi MarkG,
The present system basically taxes you as an individual but means tests benefits based on household income. I guess the negative income tax (NIT) is assessed solely on an individual basis, and therefore a non-working spouse of a high income earner could still receive a payment. Is that correct? I don’t really have a problem with this approach philosophically, but presumably it raises the cost of the scheme. What about the various top-up payments for retirees, dependent children and disabled people. Would these be assessed on household income?
It seems that the NIT approach is inherently less tightly targeted than the present system but perhaps this is a feature rather than a bug. Maybe the policy ought to highlight this aspect of the NIT.
