Wealth and Want
... because democracy alone is not enough to produce widely shared prosperity.
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An Open Letter to Wayne Swan, Federal Labor Spokesman, on Family and Community Services
by Maurie Fabrikant
Proz Oz Prez
[Prosper Australia President]

Dear Mr. Swan,

I write to you concerning the article published under your name in today's issue of "The Age". It deals with the difference in wealth possessed by Australians and the reluctance of intelligent, well-to-do Australians to address - even publicly speak about - this matter. Even when somebody does raise it, only the problem is described. I've yet to see a solution proposed other than to resort to charity; that is, give something to those in dire need. I believe I can do somewhat better than that! Please read on:-

The "Great Australian Dream" now - as in preceding years - has been to own your own home. From their earliest years of adulthood, most citizens have attempted to purchase "a roof over their head." It used to be - no more than two human generations ago - "a three-bedroom weatherboard - or brick veneer, if you could afford it! - on a quarter-acre block in the suburbs." Most citizens - then - succeeded in realising that dream; at least they started repaying a loan that was large compared with their earnings. Nowadays, it's quite impossible for most. Why? Simply because land-price has escalated out of the reach of most. Allow me to give you a specific instance:-

In 1962, my wife-to-be and I signed a contract to purchase a block of land in Noble Park, a suburb 27 km south east from Melbourne's CBD. It was a bit less than a quarter acre, quite large even by the standards of the time. (Nowadays, it's considered enormous!) It cost us 1,200 pounds; that is, $2,400. At that time, I was employed as a Class 1 Engineer; the lowest level of engineer having a tertiary-level qualification. My wife was a full-time housewife and mother earning a little from some hairdressing work at home. My wife and I still occupy the home that was built on that block in 1965 then extended in 1974 and again in 1980. There are almost no vacant blocks left in Noble Park now but I have been informed - by local real-estate agents - that our block would bring at least $160,000 if unimproved because it is large enough for four single-level home-units! A comparison in $ terms conveys very little information due to inflation and changes in taxation but the following should overcome that difficulty:-

The price we paid for the block back in 1962 was exactly equal to my gross pay during that year; in other words, the block of land cost the same as the services of a Class 1 Engineer for one year. (The income tax I paid that year - I still have a copy of the income tax return! - was almost exactly 150 pounds; that is, 12.5% of my gross pay. It's interesting to note that the highest rate of income tax that applied then was 13/4 - thirteen shillings and fourpence - in the pound; that is, 66.67% of gross pay.) Nowadays, a Class 1 Engineer receives a starting salary of about $40,000 per year. Given that the same block of land would now cost $160,000 - that is, four years' gross pay! - it's not surprising that most couples are finding it increasingly difficult to own their own residence.  Even the cheapest blocks in "suburbs" like Pakenham - about 60 km south east of Melbourne's CBD - cost around $60,000. (Please note that the income tax payable nowadays on $40,000 is about $9,460; that is, 23.65% of gross pay yet the maximum rate at which income tax is now levied is only 48.5%. Additionally, way back in 1962, sales tax was applied to a very narrow range of goods and to no services. Nowadays, GST applies to a very wide range of both goods and services. Clearly, citizens are far more taxed now than they were.)

As you can very clearly see, it now costs couples - or singles - a great deal more to own a residence. Naturally, if they don't own their own residence, they must
  • pay rent to somebody else ... or
  • live in a caravan park or
  • share a home with relatives or friends or
  • have no place to call "home". 
None of these alternatives lead to a high quality lifestyle and undoubtedly are potent factors in separation and divorce and reliance on drug abuse which, itself, leads to anti-social - even criminal - behaviour. We also know to our great regret that these aberrations are becoming increasingly prevalent. So is there a solution? And if so, what is it?

In my opinion, there certainly is a solution ... but, seemingly, very few want to know it. Judging by your article, I think you do. Here it is:-

As I've shown, land prices - in Australia's cities - have escalated enormously because there are more people competing to secure access to the land there. Here's why:-

1) As mechanisation has eliminated most of the need for labour in primary production, there has been a mass migration of people into Australia's cities from rural areas. Further, all recent governments have encouraged considerable migration from overseas and most of these migrants want to live in cities so that they can be near large groups of their fellow-countrymen ... and get work. (A friend of mine recently purchased a liveable, weatherboard house on a quarter-acre block in St Arnaud - a small town with a population of about 2,500 in the middle 1980s about 300 km north west of Melbourne - for less than $14,000! How so? Not many people want to remain there because most of the businesses there are owner-operated so there are very limited employment opportunities. More residence sellers than buyers guarantees that residence prices collapse.)
2) It costs very little to hold vacant land in Australia. Even in those municipalities where rates are based on unimproved value, annual rates are relatively small compared with unimproved value so, therefore, don't force the owner to put the land to good use. The effect of this is to increase the scarcity of land still further causing potential buyers to bid up prices. Land taxes in most states are relatively low and become onerous only when land of extremely high value is owned by an individual.
Modern conventional wisdom is that increasing land price signifies a healthy economy. Exactly the reverse is true! Increasing land price demonstrates that much money is being invested in real estate and that necessarily means that less money is being invested in productive ventures. Increasing land price causes increasing rents ... because the land owner must derive sufficient income to pay the interest charged on the loan needed to buy the land and its improvements. This makes it increasingly difficult for businesses to trade profitably ... especially when there is a plethora of complicated taxes that cause extremely high compliance costs. It's no wonder that more and more goods are now imported as local manufacturers choose to close their operations. In many places in Australia, land lies relatively idle. For example, in Melbourne's CBD, several large blocks have been idle for years and in the suburbs, shops remain empty for months, even years. Yet government-released figures on unemployment - the reality may well be much worse! - admit that unemployment exceeds 6%. The old adage, "Idle lands cause idle hands" is clearly demonstrated in Australia ... and elsewhere.

The only possible "winners" in this "game" are those who presently own land; the more they own, the more they have the potential to "win". Land owners enjoy enormous increase in the price of land they own simply because they were able to purchase it when its price was comparatively low. They do not - in their role as owners - contribute in any way to the prosperity of the nation. Indeed, because they grow wealthier without producing, they are, in fact, parasites! That sounds incredible but it is true nonetheless. How so? Simply because those owners receive part of the wealth earned by all citizens; at least some of that wealth is used to push up land prices but only owners enjoy those increased prices. Tenants certainly do not! All who labour - and this includes land owners who perform labour! - are thereby effectively robbed of some of their earnings. (Please note that I do not blame landowners personally; most would - I'm certain - be horrified to think that they are parasites. The fault lies in the parliamentary enactments that permit such a situation to prevail.)

Difficult as the situation is now, it will be worse still in another two human generations' time. How so? Because the same forces that have been exerted in the past continue unabated. In fact, these forces appear to be intensifying! Taxation is continuing to escalate as pressure groups clamour ever louder for financial assistance. The average rate at which personal income tax is levied is increasing - even though the maximum rate levied is falling - and sales taxes and the like are being applied to a widening range of goods and services. The wealthy continue to derive benefit from the tax-minimisation experts they employ - because they save more tax than they pay to those experts - leaving the relatively poorly-paid employees to carry most of the burden. Unless, of course, steps are taken to change these tendencies, Australia will become an increasingly unpleasant country in which to live. That's definitely not the future I want for my 3 children and 7 grandchildren. And I'm sure you don't, either!

The solution to this conundrum is, perhaps amazingly, incredibly simple; namely, require all owners of land - in fact, all natural resources, including intangibles such as broadcast bands, to pay to all Australians, via the government, an annual rental in exchange for exclusive ownership rights to those natural resources. What could be fairer? If a citizen has exclusive ownership rights to a natural resource, that obviously means that all others have no rights to it whatsoever. Therefore, that citizen must pay compensation - in the form of a periodic rent - to all others. Now that's a perfect manifestation of "user pays." How big is this periodic rent? That's simply answered, too. It's what the citizens, generally, think that natural resource is worth! And that's easily - and accurately - determined by valuers, individuals who have great experience because they simply note the prices at which similar natural resources in the vicinity - both in space and in time - are sold then use those prices to predict that of a similar resource.

This would constitute real tax reform and - when implemented - would obviate the need for income taxes and sales taxes. How is this? When a continuing rent is charged for ownership rights to a natural resource, that natural resource will have little or no purchase price. Setting up a business or residence will be much cheaper first up as only the improvements must be paid for initially. Money that presently must be borrowed to pay for access to natural resources will become available for productive purposes. Because rents will be payable on all natural resources that are privately owned - whether or not they are in use - those natural resources will become used or will return to the nation as public land. Speculation in natural resources will be immediately terminated thus eliminating a major factor in escalating price. The converse of the old adage quoted earlier is apposite:- Far less idle land will translate into far fewer idle hands! That will translate into a reduced need for social security expenditure. Additionally, lower levels of unemployment will cause reduced anti-social and criminal activity with consequent savings in law enforcement, punishment and rehabilitation. And elimination of most of our taxation regulations will cause compliance costs to all but disappear. The brakes that presently retard Australia's productivity will not merely be released; they will be discarded!

I regret that this has become a far lengthier message than I initially intended. My apologies. Should you want any matter explained, you have only to ask. Thank you for reading this.

Maurie Fabrikant,
Noble Park

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Wealth and Want
... because democracy alone hasn't yet led to a society in which all can prosper