Tax doesn’t help build a solid future for Australia

LAST Sunday I called an acquaintance who lives in a house offering exquisite Swan River views.

Nearby are some of WA’s best-situated residences, including Rose Hancock-Porteous’ Prix d’Amour.

I asked what neighbours would pay Treasury after January 1 2002 for owning such nicely situated freehold blocks.

“I don’t think anyone knows their amount yet, but all know they’ll be sending truckloads and truckloads of cash,” he said.

Budgets invariably contain surprises and Treasurer Eric Ripper’s so-called Premier Land Tax – set to slug 900 river and ocean view landowners – was 2001’s bunny in the hat.

And this despite Premier Gallop’s pre-election undertaking there would be no new taxes.

News leaked out before budget day that a tax on posh homes was coming, so many assumed it would be value of house and land that would be slugged.

But Dr Gallop and his advisers were shrewder than that.

If that happened, well-heeled Labor backers, especially those in marginal seats, would have felt the new sting and changed their vote.

So the tax was carefully tailored to only affect owners of land valued at more than one million dollars.

Six hundred of the 900 premier blocks are in Peppermint Grove, Mosman Park, Applecross and Dalkeith, a government document says.

Voters in seats held by Liberals for Forests MLA Janet Woollard; former Premier Richard Court’s successor, Sue Walker; and Liberal leader Colin Barnett were thus deliberately targeted.

People like former Liberal Finance Minister Max Evans, living next to Prix d’Amour, will undoubtedly be slugged.

Doctors, lawyers, self-made business people, descendents of once wealthy pastoralists, companies, trusts, and those simply prescient enough to have bought river view blocks, will be paying.

Little wonder this “soak the rich” tax has been dubbed “Ripper’s slug”.

But make no mistake, the professionals it hits will soon be upping fees to relieve pressure on their hip pocket nerve.

Equally concerning to those living in these suburbs is the fact that the 900 figure will rise. Just where it will be at the end of a second Labor term is anyone’s guess.

Almost certainly exquisite Eagle Bay, near Dunsborough, will soon be bringing Treasury truckloads.

All sorts of anomalies quickly surfaced, including that the slug was inequitable within the so-called rich class in that it hits only owners of highly valued land, but deliberately avoids those with high priced homes on land valued below $1 million.

So those with $2 million blocks and a $500,000 home are slugged, whereas those with a $500,000 block and $2 million home are untouched.

Hardly equitable. Downright unjust, in fact.

But an even more serious issue has not been highlighted.

As you drive through many Perth suburbs – not only those with river views – you notice that it’s not just homes that are steadily rising but huge mansions, some larger than many European ducal residences.

The reason for this costly, to the community, trend towards over-building is that family homes are the only item not attracting capital gains tax. Many people, under-standably, overbuild, seeing their home as an untaxed nest egg.

Overbuilding means Australia’s capital stock for investment in employment generating projects – mines, downstream processing, infrastructure and R&D – remains smaller than it could/should be.

Canberra highly taxes incomes, superannuation payments, yields on savings and investments, and nearly all goods and services, while the State Government has its array of hefty taxes and charges.

Now, in young, developing, capital starved Australia, this is simply shortsighted and retards economic growth.

Putting so much scare capital into overbuilt mansions – with or without river views – simply limits growth of Australia’s already miniscule capital market, making us ever more reliant on overseas capital markets.

If anything ought to be favoured through taxation policy, surely it’s the superannuation and savings sectors.

Such taxation redirection would see aggregate savings markedly boosted, thereby increasing the national capital investable stock as well as serving to boost numbers of future self-funded retirees, thus reducing later calls on welfare outlays.

Instead, governments of all persuasions have allowed the trend towards erection of huge, overbuilt mansions by making the family residence a tax haven.

The general level of taxation on income, investment yields, savings, and superannuation could be markedly lowered following imposition of a capital gains tax on family homes.

Such a remedy would mean that owners of more expensive homes would pay more on selling and owners of moderate and smaller dwellings would pay markedly less. This would – at long last – be a disincentive to wasteful overbuilding. Those opting to overbuild would eventually pay.

The “Ripper slug” does nothing to address the issue of home over-building and thus contributes nothing to combating continued starvation of Australia’s capital base.

Paying the new tax after January 1 means soaking the land asset wealthy, helping big government get bigger, and continuing to limit growth of Australia’s capital and savings base. So disaster all round.