Legislative Council Wednesday 30 June, 2021
Ms FORREST - Madam Deputy Chair, I take this opportunity to speak on a bill that I would never let go normally in the past. You could not expect me not to in some respects. I will probably take about 10 minutes, so that would work well for the Leader.
Moving to the content of this bill, I have mixed feelings. One can certainly not assert that the Government does not keep its promises, however. On one hand there are some bits that continue policies that have already not worked. The First Home Buyers Grant was, as all independent economists have been saying for years, nothing more than a first home vendor’s grant.
Fortunately, the Government has seen the effect on prices and restricted the bill to funds for new builds only. But the effect is the same. The flood of money has simply caused prices to rise faster than they otherwise would, taking account of all of the other factors. Sure, it helps the first home builders into the market, but if it is a market where prices are inflated by the grant itself then is there anyone out there who still believes these grants do not push up prices? There may be a few but they are certainly in the minority. It is not backed by the evidence from nearly all economists.
We need to acknowledge how markets actually work. Just because the first home builder has received the grant it does not necessarily mean they are the ones who receive the economic benefit. If prices rise then the benefit is received by the builder who built the house. Some might argue that does not matter but we are trying to help people into homes, not necessarily help builders make more money.
On the matter of land tax changes, I am disappointed we do not get to see - at this stage anyway - how the revenue change will affect the Government’s fiscal position as all indications are, if the Fiscal Sustainability Report 2021 is any guide, that we will be running increasing deficits into the future. I guess we will have to wait for the budget.
It is not just our Fiscal Sustainability Report that has made projections of a possible future. The federal government this week released its own intergenerational report setting out how none of us are likely to see another federal government cash surplus in our lifetimes. That is even for some of the younger members of the Chamber I think that applies to, not just older members. It is annoying to have to address piecemeal changes without seeing a wider picture that a budget and three years of forward Estimates bring to the table.
Raising the land tax threshold is always good politics, but is it good economics? Just for a bit of history, I need to clarify my comments perhaps. Land is crucial to our very survival. The way it is dealt with by public policy is crucially important. The way land has been dealt with over time tells us a lot about ourselves and about our history. Not only did we, the new settlers to this country, steal the land belonging to the First Nations People we sold it in order to fund government operations. That is how governments funded themselves in the early days. Not completely, but land sales were an important contributor to government coffers.
I suppose you could call it Operation Fencing, the largest offloading of stolen property in our history. By the late nineteenth century, the Operation Fencing had resulted in wealthy landowners owning large tracts of land. The large tracts of under-utilised land on the fringes of growing towns and cities were a ready source of riches via capital gains for the wealthy landowners. The landowners who were well represented in various parliaments of the day were resistant to change that might interfere with their nice little earner. Land taxes were gradually introduced at a state level and also in the early twentieth century at a federal level, not only to raise revenue, but to back up large tracts of under-utilised land for public good. That principle can, and should, prevail.
Nothing much has changed. Large parcels of land have been held for speculative purposes, where self-interest cares little about the public good. This is where sensible land taxes have a role to play.
Recently, the Victorian Government has seen fit to try to claw back some of the enormous gains being made by developers where land is being rezoned and I applaud that policy. All the talk of housing shortages and house price inflation ignores the fundamental reason for it. We need to unbundle the problem into land on one hand and buildings on the other and deal with them separately from a policy perspective. The reason for our current housing problems is due to issues around land. The need for builders to erect structures is part of it, the real issue is the land. Who pays for the associated infrastructure, and how do they do so? Who receives the benefits of land price rises, and who pays? Right now, as it has been throughout history, the benefits accrue to a few. This needs to change as a prerequisite for closing an ever-widening gap between the housing haves and the housing have nots.
I have spoken to the Premier about this and hope we may see some consideration in these matters in the not too distant future. Land tax is an efficient tax, in that if it is applied uniformly across as wide base as possible, it does not distort economic activity. When applied at a higher rate across a narrower base, it distorts economic decision making and people try to avoid it. That is what we are seeing here, and it is contributing to our housing problem. They might use land unproductively - as in the classic case of overinvestment on residential housing built on land that is free from land tax. Few people deny that the tax-protected status of housing, using a principal place of residence which is not only free from land tax but also free of the CGT, means that we overspend and speculate on housing at the expense of more productive sectors in the real economy.
The Government recognises the distorting effects of its land tax policies, which tax land with rental properties when principal residents on expensive land are free of land tax. The minor relief for some rental property owners is welcome, but the overall distorting policy remains. Taxes are only one revenue raising mechanism but they can still influence behaviour, and this is why I welcome the duty initiative for electric vehicles. It nudges people in the right direction. It is important that we recognise the role of taxes in good public policy.
The last 10 years have been a mammoth disappoint for sensible public policy designed to change behaviour and nudge the economy in the right direction. That is not always possible with self-interest often trumping the public interest. The classic case was labelling the carbon tax as the great big tax on everything and claiming it was going to lead to a $100 roast, for example. I fear for our future, with the now Deputy Prime Minister back in the seat.
The so-called carbon tax was designed to change behaviour, to nudge the economy in the right direction - because sure as hell if it was left to self-interest and market forces it was not going to occur. That is why I welcome the EV changes.
As the member for Nelson said in noting the Governor's speech, we need to focus more on outcomes, not just the budget bottom line. We can spend too much time focusing on the bottom line and not the outcomes, and I am not sure this bill does either. Its focus is mainly pleasing voters. I make those comments because I believe we have missed an opportunity. However, I live in eternal hope that one day we will achieve it.