Aston byelection

[stui magpie]

I'd want to see details, that's a throwaway line. How can you tax an assett? Logic says you can't until you sell it, then it becomes income. We already have Capital Gains tax don't we?

Most of the rest of the arcticle sounds way too sensible for the frothy mouths to accept.

[David]

Don't we already have asset taxes of various kinds? Perhaps not the best examples, but if you pay car rego or rates on your house, that's kind of like an asset tax, no?

If so, I guess the idea would be to tinker with those percentages (including CGT) and reduce income tax in other areas so people on lower incomes don't lose out. Might be a crazy idea, but I'm curious to see further details.

[stui magpie]

I'd definitely want to see details. The easist way to fix equality is to make everyone equally poor, but I don't think we want to live in 1960's Soviet Russia.

Rego isn't a tax on assets as you pay the same rego whether you drive a clapped out Corolla or a Lamborgini. Council rates sort of is because you pay more depending on the valuation on your property.

One possibility of what he's talking about is to make the family home an asset when it's usually not considered in Asset tests. The ironic part of that is that if you help aspirational low income earners to buy a house by higher taxes on assets, once they have it they've just shifted from aspirational to the asset class.

[Pies4shaw]

David, that would be a political disaster.

The value of housing doubles in Australia approximately every 10 years - and has done right throughout the country's history. Most people actually want to own a house as a means of keeping the wolf from the door. But if you tax the capital gain in asset value while a person is still living in the house, you're going to force many (perhaps even most) people to sell up. That's going to fuel greater inequality - because the genuinely well-off are just going to buy all those newly-avaiable assets and negative-gear them to rent back to the people who've just had to sell up and been forced back into the rental market. That would have its own obvious knock-on effects for the people who are currently in the rental market - they won't be able to compete for rental properties with the people who've just had to sell-up, either.

For eg, the (well-below) ordinary suburban house I bought (and long since sold) in Coburg in 1988 has increased in "value" about 15-fold - that's not unusual, it's just how markets have moved in that time. Do the maths - it simply can't work. That sounds like a shitful way to ruin almost everyone's health and happiness.

Another thing people will need to do the maths on is the potential for speculative investment on housing fuelled by tax deductibility of the cost of purchasing and owning the "asset". People already pay massive amounts of interest on mortgage repayments. Those are presently not tax-deductible on owner-occupied housing because it's a tax-free asset. You don't want to let the actually wealthy loose to buy bigger and better housing on the basis that the interest cost on their owner-occupied housing mortgage suddenly becomes tax-deductible (and it would scarcely be appropriate not to allow costs genuinely incurred to be deductible - where they certainly are on any other asset class).

I see some very, very limited prospect, politically, for taxing the notional capital gain on properties owned by the ultra-wealthy - the problem, though, is that governments tend to start with a figure that is too low and then never index it. If, eg, you started with a property value of, say, $5 million, within the next few years you're going to be taxing the capital gain on almost everybody's house (think about what modest houses will be worth in 10 or 15 years' time, not their present value).

You can see how that works with the present land tax arrangements. The land tax on my coastal property tripled between last year and this because of market forces that had nothing to do with me. It's suddenly become more desirable to be my coastal neighbour than it ever was. That's ok (in a very limited sense of ok) if you're applying land tax to someone's second (or fifth) home - but if you start racking up the capital gains tax on someone's principal place of residence because a whole lot of wealthy people decide to buy into their street, how does that smooth inequality? The answer, of course, is that it doesn't - it will make inequality worse.

At the core of the issue is that owner-occupied housing is (and as a deliberate matter of government policy has been) the thing that allows most Australian people (eventually) to become economically independent.

So, in short, beware the politics of envy. Any sensible plan needs to be about lifting people up from the bottom - not about letting the people who have got out of the slime slide back into it.

[stui magpie]

^

Well said and I agree with all of it, particularly the last paragraph.

[watt price tully]

In the letters section of Crikey a contributor noted that the Aston by-election was conducted on the same weekend as the Gran-Prix; there were wreckages in both locations.