"Cynical politics of land tax"

Smh.com.au, 24 February 2005

The Carr Government is in a dreadful political muddle. That is why discussion of land tax changes has abandoned all reference to equity, economic efficiency and the squaring of government finances.

The Premier, Bob Carr, knows where he does not want to go, but not where he must venture. Mr Carr's dithering is emphasised in his response to this week's mini caucus revolt over the imposition of land tax on all owners of second properties. The change has been with us since the mini-budget last April but is starting to bite because hundreds of thousands of landholders are getting, or are about to get, land tax bills for the first time.

A caucus already restless from internal factional strife, and nervous at the Government's electoral standing, told Mr Carr on Tuesday that land tax was costing Labor votes, as if other measures and shortcomings were not. "Everything you are saying about the politics of this is right," Mr Carr replied, assuring Government MPs that the broadened land tax would be reviewed before the May budget.

Does this mean property tax changes, which smoothed the way for tax breaks for first home buyers as well as contributed to general revenue, will now be shredded at the altar of political expediency? Mr Carr leaves little room for anything less. In a sense, however, the economic justification for the changes - the broader the land tax, for instance, the less it distorts economic behaviour - has been rendered politically irrelevant.

That is not because it is somehow more iniquitous to lessen the overall land tax rate by abolishing the old $317,000 land value threshold. Nor does it explain why land investments for retirement should be quarantined from tax, provided they fall under an arbitrary value, while other investment savings such as cash and shares should not.

In the maelstrom of desperation politics, principles have little role. Sixty thousand bills have been sent to land tax virgins and 340,000 questionnaires have been sent to other owners of second properties to test their tax liabilities. The threshold abolition, naturally, accounts for most of the new catch, but the property price boom would have snared many had the threshold been maintained.

But the overriding debate within government is not about land tax, but a commentary on government in crisis. While the Government tries to rearrange its landscape to hide the past two years, it finds itself caught more than ever between dwindling revenue and rising costs, some attributable to worthy pay rises for teachers and nurses but too often the result of timidity in dealing with the burgeoning costs of an unproductive public service.

This Government has never been a sound cost manager. It is in its deepest strife because it has no windfalls to rescue it, and too many nervous nellies who think political salvation flows from the dumping of unpopular revenue streams alone. Mr Carr's survival depends on whether he has the perspicacity to identify the sprawling waste and the nerve to prune it ruthlessly.

Further Information

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