Can we make Australians WANT a land tax?

If tax reform is boring, that’s because it’s run by boring people. Economists can spend hours sitting round teasing out the intricacies of an allocative efficiency improvement.

But when it comes to convincing others, economists tend to stroke their moustaches, repeat the word “productivity” and wave their laser pointers at a dense thicket of lines on a graph.

We need some marketing type thinking to help us economists. There is no other way the Australian public can be swiftly convinced of the merits of new taxes. And convinced they must be, because the economy needs all the productivity gains it can get to lift incomes.

Land tax is the best tax. Everyone who understands economics knows it. It’s minimally distortionary.

“Well-structured taxes on land … are a highly efficient means of raising revenue.” [Henry Tax Review]

 

“… raising the percentage of tax that falls on the unimproved value of land has few distortionary or adverse affects…” [Macrobusiness]

 

“We argue that there is a compelling case for the abolition of stamp duties and their replacement by a broad-based land tax” [Australian Housing and Urban Research Institute]

But people really hate the idea of taxing land, and whipping up a scare campaign could scarcely be easier.

“Call For Tax on Family Home.” [Headline in the West Australian]

 

“People will be paying between 20 to 40 per cent more in land tax. The bill will also diminish Queensland’s ability to attract interstate and overseas investment which will ultimately flow through to impact employment” [Property Council of Australia, cited in the Australian]

We need to change people’s beliefs about taxes. But more than that: we need to change people’s feelings about taxes.

At the moment, land tax is wildly unpopular, while the luxury car tax is wildly popular. I theorise that people like the idea of a tax they can avoid, hate the idea of a tax they can’t avoid.

So how do we change people’s feelings about unavoidable taxes? Do we lecture them about deadweight loss and distortion?

deadweight loss

I can feel the eyes glazing over already.

We need something far punchier, something that fires the emotions. Something a little bit like this…

The ad starts with the bespectacled taxman knocking on the door of a large mansion. “Tax time!” he cheerfully announces.

The door is answered by a butler, before a rotund, pinstriped individual arrives and pulls his pockets inside out. His face affects an attempt at sorrow that barely conceals a smirk.

The taxman’s brow furrows in disgust and we zoom out to see him walking back down the long gravel driveway, past an array of parked supercars.

Cut to an exterior shot of a big city accounting company. The voiceover intones: “They can hide income. They can hide capital gains. They can even hide the companies they own. But they can’t hide land. Land tax now for a fairer Australia.”

I’ve discussed this kind of idea before, with a “Trevors in Traffic” campaign to promote congestion charging. The point is that you can’t start arguing for a solution when people don’t even understand there is a problem.

“I remember reading about a behaviour change campaign to get kids to wash their hands. Rather than starting with facts about soap, they started with an ad that dramatised germ transfer. Everything the main character touched after leaving the bathroom turned green. Understanding the problem (even in a stylised way) came first.”

Teaching people about the allocative efficiency of various taxes is going to be expensive. You’d need TV ads, newspaper ads, a PR blitz. But if it greases the wheels of tax reform, it could be the best money ever spent in the Australian economy.

My HECS debt is finally gone!

In 2004, I attended my last exam at the University of Melbourne – 316-303 Industrial Economics. As the “pens down” call went out, quiet fell. The ratcheting sound of my HECS debt accruing was finally gone.

The day I graduated, that debt was around $30,000.

I went on to add a bunch of credit card debt that final summer of freedom, flitting around the northern hemisphere in the knowledge that I had a job waiting for me in Canberra when I came back.

santa 2004
Christmas 2004. I had to shave when I came back home.

But while that $6000 of credit card debt was paid off within six months of working full time, the $32,000 took 10 years of nibbling to finally destroy.

HECS is a system that allows you to buy education now and pay later. You rack up debt on every subject you study (arts costs less, medicine more). Then you only have to pay it back once your earnings go over a certain level, currently $51,309.

HECS was invented by a kindly gentleman called Bruce. I’ve met him and he seems like a good egg.

The idea is for people who get a big benefit out of their tertiary education to put some money back into the system to help keep it afloat. The genius of HECS is that it – in theory – shouldn’t deter people who come from less wealthy backgrounds, or have lower expectations of their lifetime earnings. If they never earn above the threshold, they never pay it back.

My HECS debt shrank steadily for several years, then picked up again in 2008 when I left the federal government to sample a life of leisure, etc. The knowledge that the HECS debt you worked hard to eliminate is creeping back up does tend to haunt those otherwise blissful idle hours. Perhaps that’s the point. But the good news is it only ever goes up at the rate of inflation.

So long as wage growth outstrips inflation, your HECS debt is getting smaller in practical terms.

Wage growth vs inflation

There were always deals available where you could trade cash now to eliminate your HECS debt with a small bonus. But I never took them, preferring current liquidity and betting that my future wages would make my HECS debt seem small. (After choosing to work in media, I never really reached that point.)

By the end, the impact of HECS on my paycheque was quite annoying. I would much have preferred the few hundred extra in my hand every time. But then, while I wasn’t paying attention, it was gone. Hallelujah!

The lessons of HECS are this:

  • When the government adds a few percent to your fortnightly tax bill, you mostly don’t notice.
  • Income contingent loans seem like a very fair kind of user-pays. We should use them for other things. For example, sports.
  • The zero real interest loans are really nice. If it weren’t for them, I’d be up to my eyeballs in debt still, like some New Zealanders I know. Education Minister Christopher Pyne wants to introduce positive real interest rates. I think that could be justified only if you ignore (or don’t care about) the deterrent effect. Students with less access to economic resources are already far less able to attend university, and the prospect of enormous mounting debts will only make the challenges worse.

Grattan SES uni

A fact you never guessed about our 21st century, hyper-speed labour market.

We live in a new era. A time unprecedented. An age where the economy shifts as fast as you can send ones and noughts along optical fibre, and the job you’ll have in five years time hasn’t even been invented yet. Right?

Not right.

My favourite labour economist is Jeff Borland, and he specialises in truth bombs, which he distributes in his monthly labour market snapshots. I’ve written them up before, for example, here.

He crunched the numbers and found that despite the decline of unions, the march of neo-conservatism, the lingering influence of Peter Reith and the legacy of workchoices, job durations are as long as – or longer than – they were in 1982.

Screen Shot 2014-09-08 at 11.55.04 am Screen Shot 2014-09-08 at 11.54.57 am

Borland:

“If I had a dollar for every time I have heard that: ‘Young people entering the labour market today are going to have many more jobs during the course of their working lives than older generations’, I might not be rich, but I reckon I would be owed about a thousand dollars.”

For the last dozen years (at least), he’s been a professor of Economics at Melbourne University, so he knows tenure. In that time I’ve had probably ten jobs, so this news is very surprising to me.

What else is interesting is that people feel (and are) relatively safe in their jobs.

Screen Shot 2014-09-08 at 11.59.47 am

I suspect they feel even safer since the Abbott government started polling about as well as the Gillard goverment. The chances of frightening workplace reform coming out before the next election would have to be slim to nil given the reputation of the government right now.

Who thinks the ice-bucket challenge is over?

Is the ice-bucket challenge over? Done and dusted? Even boring?

Geometric progression – each soaked individual challenging three others – meant it spread from celebrities like Bill Gates, to people like me within just days.

I strongly recommend opening this map to look at how fast something can spread when it goes viral. That explains why every man and his dog is doing the challenge in your facebook feed.

The history of the ice-bucket challenge is surprisingly deep.[source] Over a year ago a “cold water challenge” was getting limited traction on social media in America, related to charitable donation in general. It was low-visibility for a long time.

Then in June 2014, at the start of US summer, it somehow morphed into an “ice-bucket challenge” and first got into mainstream media via a golf channel.

In mid-July, golfer Greg Norman challenged an NBC TV anchor who completed the challenge. At around the same time, another golfer tied the ice-bucket challenge to ALS, a disease which kills nerves in charge of movement in the brain and spine. The rest is history.

There is a lot of dispute about the “rules” of the challenge. Do you tip the water on your head AND donate? Or are they alternatives?

This ambiguity seems to actually help. Some can afford to donate a lot, others only a little, but everyone can to play the game. That helps it move forward.

But this is more than just another viral trend, like cat batmans.cat batman

The gold at the heart of the ice-bucket challenge is making middle-class philanthropy public.

Australians gave on average $64 last year, according to research by NAB. But mostly, you don’t hear about it.

giving per capita

Perhaps if you dig into someone’s Movember page you can see who is generous. If you do a charity fun run you know who digs deep. But mainly, giving by average middle-class people is anonymous. 

This is despite that fact it is established that social pressure encourages donations. Is it a coincidence that the very wealthy give a lot and they give in public? The Shane Warne Foundation. The Sidney Myer Fund. That gets them kudos on top of tax deductions. And it stands to reason that the bigger the benefit, the bigger the donation. That’s basic incentive theory.

The ice-bucket challenge’s charm is this: you no longer need to provide enough funds to build a new library at your alma mater to be able to be recognised for your philanthropy. If you’re especially high-minded this might seem tacky, but you can’t deny it. People want something in return when they give. Social media stardom and recognition, it turns out, is enough.

This is actually a really good thing.

Even if you have begun to find the ice-bucket challenge boring, and think “donating for likes” is crass, you can’t deny that seeking likes for donating is better than seeking likes for a tropical poolside recline, or for a photo of some toast that looks like David Beckham.

Young people (25-34) donate least to charity, averaging just over half as much as the 65+ bracket each year. Things like the ice-bucket challenge can change this. And activating the great mass of people to donate makes more sense than chasing a few rich donors. Average middle class people give the most as a proportion of their income:

giving by postcode
Mosman, Balmain and Vaucluse top the list in dollar terms, but not percentage terms.

Right now, in the board rooms of charities world-wide, they are trying to figure out ways to replicate the success of ALS, with a similarly viral campaign. (If I was advising a charity, I’d suggest something involving cats. The internet loves cats.)

The charity sector will have failed if they do not capture the current public enthusiasm for low-level philanthropy. Expect to be challenged to donate to something else very soon!