We were all brought up to believe the harder we work, the more we make.
But this is simply not true.
Every year the world loses highly educated people to an industry gambling on price fluctuations.
Doctors, lawyers and engineers can make more money buying and selling real estate than
doing what they were trained to do.
Speculation plays on the perception of scarcity, where there is just not enough supply to meet
the demand, forcing prices up.
Eventually the bubble bursts, the economy takes a dive, families are kicked out of their
homes, insiders are bailed out.
And so the cycle of speculation begins again.
Today's economic model allows this behaviour to sneak in the back door, while brushing
its many adverse effects under the rug.
Here's what we found out.
Land is the most precious physical resource we have.
As populations increase and communities develop, land prices rise as if by magic.
Location, location, location.
Land speculators know that demand for special places delivers easy profits in the long run.
But most economists deny there is such a thing as a free lunch.
Most of us would like to have something for nothing, but the truth is we can't have that.
What we should do is to make sure our labour and our efforts are untaxed and that the free
ride is enjoyed by us all collectively through the community, instead of making sure valuable
natural resources end up in the hands of a select few who can grow fat on the labour of others.
Over the past 60 years, the rich and powerful have changed tax laws to benefit themselves
by switching taxes away from land and onto wages, food and services.
Professor Michael Hudson is a classically trained economist.
The largest asset in every economy is land, followed by buildings, followed by public
infrastructure.
So what people imagine are industrial economies have remained basically land economies.
A property might rent for $17,000 a year, but the same property can increase in value,
properties generate capital gains of $30,000 per year.
The same house could make its owner $120,000 in a single year if sold at the peak of the
Australian property bubble.
The wealthiest investors may have hundreds of properties on their books.
If investors hold 10 or 20% of these properties vacant, it actually works to their advantage.
Less property is available to buy or rent.
Scarcity is enforced.
Rents are raised.
High rents also mean business owners have less to allocate for wages, research and business
expansion.
This in turn stifles the creative entrepreneurial spirit of capitalism.
We must recognise that it is the system, not the land speculator, at the heart of the problem.
A person who works two jobs gets taxed for their second job, but someone who owns two
properties is subsidised with negative gearing.
Negative gearing is the practice of allowing taxpayers to offset the cost of holding a
property against their other income.
It means that taxpayers overall are subsidising this small group.
This is an investment strategy versus a shelter strategy.
The desirability of owning a home from an asset perspective, I mean, we're competing
against people who already have lots of houses, who already have that kind of capital and
that wealth behind them, and we just can't compete against them in auction.
We can't compete against them in the kinds of areas that we've lived for most of our
lives and that we'd want to continue living or to bring up our daughter in.
We all have a right to a roof over our heads. Yet 2008 saw a powerful campaign by the Australian
Property Lobby to convince the public of a housing shortage.
They claimed a 0.9% vacancy rate in Melbourne's CBD.
Surprisingly, a 7% vacancy rate existed.
The appearance of scarcity makes buyers and renters desperate.
This publicity campaign not only forced rents upwards, but forced population and suburbs
outwards.
This is known as urban sprawl and is supposed to make houses more affordable.
However, sprawl has many adverse effects.
Stockland, Australia's largest property developer, stated that its highlands development would
sell just 400 properties per year over the next 18 years.
In the 50s and 60s, all 7,200 of these land sites would have been sold off in days.
In those times, land was for development, not held for ransom to maximise profit.
For example, in Croyton, New South Wales, a vendor has had his property on the market
for a thousand days. He's raised his price 10%.
He can do this because there are so few costs to him holding the property and holding it
out for the very person who overpays. There are no barriers to him doing this.
This is a clear, clear case of real estate for ransom.
Distorted supply can also be seen in the market for apartments.
During a boom, speculators can make higher capital gains from building luxury apartments
as opposed to building affordable housing.
I have been to house inspections where it's a disgusting house, where there's, you know,
you can see the outside from inside, where there's holes everywhere, where it smells.
And I can see young families or single mothers with these small children looking at these
houses and going, yes, I can live here.
Builders prefer to put up luxury apartments and houses because the profit margins are
better, even though the market is screaming for basic housing rather than luxury housing.
Currently, over 4,000 luxury penthouses lie vacant in six New York City neighbourhoods.
Have you ever dreamed about owning your own property?
Trade in that wall for this modest one bedroom studio, perfect for a fixed income.
And look at the convenience.
In the United States, 15 million Americans are unemployed, homelessness has increased
by 50% in many cities, and 43 million people receive food stamps.
In May 2010, there were still 9,000 vacant homes in Las Vegas, yet thousands were left
living in tent cities.
Local banks crashed because homeowners couldn't afford to pay their mortgages.
Market prices and their mortgage repayments simply became too high for the reality of
their wages.
Today, one quarter of US real estate is in negative equity.
About 50% of Latvian real estate is in negative equity.
That means that the mortgage is higher than the market price.
Many say that the global financial crisis was caused by Wall Street.
It was fun kicking banks, but there was a deeper issue at play.
Derivatives were developed to transfer the risks in the property bubble away from Wall
Street and onto the people.
Those of us who have looked to the self-interest of lending institutions to protect shareholders'
equity, myself especially, are in a state of shock disbelief.
Investors essentially worthless pieces of paper were an insurance policy for the finance
industry's lending.
Banks willingly threw money at anybody who could sign their name.
Unsuspecting investors around the world were sold the derivatives to get Wall Street off
the hook.
The property bubble would not have occurred if there was an automatic stabilizer.
Bad tax laws were the catalyst for the global financial crisis.
A free market to Adam Smith and the physiocrats and John Stuart Mill was a market free of
rentier income, and today's neoliberals say a free market is free for predators.
Free for monopolists, free for land speculators, free for bankers to extract as much income
from wages and industry as possible.
Today, a free market means an extractive economy in which wealth flows from the bottom of the
pyramid to the top of the economic pyramid.
As a result of the breaking of the bubble economy, the wealthiest 1 percent of Americans
own an estimated two-thirds of all of the returns to wealth.
This is more unequal than at any point ever since statistics had begun to be calculated.
There is a massive hole in our tax system.
Huge tax-free profits can be made by land speculators at minimal risk.
Meanwhile, governments use ordinary workers' taxes to build the infrastructure that makes
the speculators' land more valuable.
We've been distracted from the economic principles that affect our daily lives.
Taxation policy is very, very important because taxation is the ability to create or destroy.
And right now, the tax system we have should pretty much be thrown out and scrapped because
it's destroying more than it's creating.
In 1978, California voters approved Proposition 13.
This legislation shifted taxes off property and onto consumption, income and small business
earnings.
Although they had good intentions, this tax switch caused serious problems.
Let's fast forward to 2010.
California is in dire straits.
Budgetary meltdowns forced politicians to consider selling off 70% of California's
state parks.
They just don't have enough money to fund all of the problems the bad tax system caused.
Land prices are bound to rise.
Instead of paying a little in property taxes, California voters were convinced that it was
fairer to give thousands to wealthy property interests.
If we were to believe what we read, land tax makes housing more expensive.
Land taxes are supposed to be passed on from landowner to tenant.
Tax on food pushes food prices up.
Tax on land has a unique effect.
Poorly used land becomes costly to the owner.
Landowners must use it or lose it.
If set at a significant rate, land tax drives property back onto the market, pushing land
prices down.
This additional supply provides much needed competition in the rental market.
If a landowner tries to pass on the land tax, the tenant will move to a cheaper option.
A significant amount of revenue could be collected through land tax.
This would allow for the removal of many other taxes, including income tax, sales tax and
payroll tax.
The Treasury has at last woken up in the Henry Review and said, look, land is different
to capital, land is different to labour, land is a pure rent and we can tax that without
any adverse effects.
Classical economist Fred Harrison discovered a regular 18-year cycle dominated by booms
and busts in the UK land market over the last 200 years.
Harrison's pattern consists of a seven-year rise, then a 12-month fall, a further seven-year
rise followed by a severe downturn.
His research shows that land speculation causes recessions.
When land prices exceed a rational level for wage earners to repay, the bubble bursts.
Then the share market drops and the real economy starts to crumble.
In 1997, Harrison predicted that land prices in most advanced countries would peak around
2007 and then collapse, leading to global recession.
The big question on many people's minds is why wages struggle to keep up with rising
land prices.
It seems impossible for the average wage earner to afford a house unless they buy at just the
right part of the cycle.
The probably values just seem to be escalating so fast that we just couldn't catch up and
our incomes didn't rise proportionately.
It does seem amazing that, you know, two people on a reasonable income, we don't make a lot
of money but we're not poor, we're probably average, that two people like us can't afford
to buy a house.
The big issue I see is speculation, is the speculation of investment in the housing
market that's driving the price off.
When it really came to the crunch, there was no way I could borrow $300,000.
It was too much, it was over our heads.
Brian Kavanaugh is a world-leading researcher of land values.
Although Australia's land rent was $325 billion in 2007, we chose to fine Labor and Capital
$285 billion for daring to work.
This allowed 88% of our land rent to be capitalised into the current bubble, setting us up for
an enormous financial collapse.
As societies progress and populations rise, land values increase.
This increase is called economic rent.
Unless these price increases are collected by the government through land tax, land speculation
will always have an unfair advantage over all other forms of business.
This income from land is essentially effortless income and it's important that that income
go to the Treasury, to the government, so that it doesn't have to tax our efforts.
At present, Australia collects barely 5% of its economic rent through tax revenue.
Economic rent is created by the community.
It is the ideal source of revenue to further stimulate progress and development.
Skill not privilege should determine a lot in life.
The fight against slavery was based on justice.
Today, instead of whips and chains, we have high rents and low wages.
Okay fine, so be it, I can't buy a house but I don't want to live in a hole and pay terrible
rent for it, so rapidly rising rent is something that worries me a lot.
Land speculation is a major cause of high rents and low wages.
The wealth pie is only so big.
It must be distributed between rent, wages and interest.
Many workers carry the burden of a large mortgage for most of their lives.
Some speculators can dodge paying tax, while workers' taxes fund the infrastructure that
makes the speculators' land more valuable.
As soon as you have a highway or a bypass coming along, you see the real estate just
virtually doubling or tripling very quickly, very quickly.
London's Jubilee train line was constructed at a cost of £3.5 billion.
The result?
A £13 billion increase in the value of privately owned land.
Homeowners within 300 metres of each station enjoyed a windfall gain in the value of their
property.
Each house went up by an average of £200,000.
The benefits gained from the nation's taxes went to a fortunate few.
If 6% of this increased land value was collected from each landowner over 20 years, the Jubilee
train line would have been completely paid for by those who benefited.
Over time there has been a corruption in economics.
The taxation system has been filled with exemptions and advantages and loopholes that have all
been embraced, re-put there by the property lobby.
These advantages are not available to wage and salary earners, but are available in droves
to the wealthy, to people who specialise in this area, it is an outrage.
Wealthy interests have watered down our economic knowledge and renamed it Neoclassical Economics.
All economics stopped being taught, especially after 1980.
They dropped economic history from the academic curriculum.
World War I saw England and the United States win and essentially imposed the Anglo-American
tax system and financial system on the world.
They replaced the history of thought with mathematics, which were essentially trivialised
using junk statistics to create a junk economics to create the bubble economy.
From an early age we are indoctrinated to pay income, sales and payroll tax.
But nobody dares teach the advantages of land tax.
We're all familiar with the term property bubble.
The reality is that land appreciates while buildings depreciate.
The correct term should be land bubble.
Why has our language and our tax system become so distorted?
Quite simply because land cannot be moved to a tax haven.
This is why the true value of the earth has been hidden.
The adverse effects of distorted taxation can be seen on a global scale.
China and India have staggering economic growth rates.
Their consumption of mineral resources has ramped up, delivering massive profits to mining
companies.
These nations supplying the resources often come off second best.
Nigeria is the world's sixth largest oil exporter, yet its people are now poorer than
in 1980.
Environmental destruction reduces the ability of local communities to even care for themselves.
This is neocolonisation.
Consequently, nations struggle to pay for health and education.
For over 50 years, the International Monetary Fund has been established to rescue such nations.
But the IMF has strict conditions.
Compound interest rates and demands for privatisation of public utilities quickly follow.
No taxation of mining profits is a transfer of wealth from the common good to those that
simply dig minerals up.
This leads directly to the failure of nations.
World economies are where they are now because we've allowed companies and individuals to
privatise our publicly generated land and resource rentals.
We need to pose the question, how can we possibly share the earth equitably?
For that, we need a market mechanism, we need an economic mechanism of earth sharing, so
that the people who use and abuse nature compensate the rest of us.
At the same time, this will make sure that our planet is preserved for future generations
and for other species.
What's called true cost economics, where the cost of producing wealth, the cost to our
rivers, our air, our water is all captured back in the price of what's produced.
Once a resource is exploited, it is gone forever.
The logical thing for Australia to do would be to tax this mineral wealth, which actually
should be looked at as the wealth of the entire nation.
The less that Rio Tinto or BHP pay for Australian resources, the more ordinary Australians will
have to pay and tax, because if other people aren't paying the rent, someone else will
be asked to pick up the bill.
The same economic principles that give landowners a distinct advantage also apply to the infrastructure
we all need to live day to day.
Most of our once public utilities are now privatised into powerful monopolies.
Water and electricity supplies, private toll roads, television and phone networks are all
forms of government-granted monopoly.
These are all unique assets of permanent and rising value, and should directly benefit
the public.
Should corporations own these unique assets, these natural monopolies?
Governments tend to auction off these resources at low one-off prices in exchange for campaign
funds.
Those lobbying to create private monopolies are able to undermine community interests
at every turn.
The power of monopoly has even stretched as far as the fundamental building blocks of
life, the science of the human body.
Gene BRCA-1 has been locked up by myriad technologies, forcing women to pay $3,000 for
a breast cancer screening that should cost $400.
Even our DNA can be held for ransom.
Successful economies are mixed economies.
Every society since Sumer and Babylonia in antiquity have been a mixed economy, and
the alternative to Russian communism is not the free market economy and debt P&H, it's
a mixed economy where the tax system basically does not fall on labor and industry, but minimizes
prices by being levied on what John Stuart Mill called the unearned increment, the rise
in land value.
Sun Yat-sen was the godfather of modern China.
He was a strong advocate for the use of land value tax to help deliver equality.
In the 1970s, Hong Kong powered its way forward by raising nearly 30% of tax revenue through
land rents.
The reason Hong Kong can afford a 15% or 16% tax rate on labor and capital, which made
it super competitive as a place for business and brought in lots of people, was because
a third of its revenue was coming from land revenues from leases and rates.
These taxes were needed overall, and this delivered greater spending power directly
to its citizens.
We could go further than Hong Kong and remove more of the taxes that are choking us.
You tax the free lunch, you tax land rent, subsoil mineral rent, monopoly rent, and all
returns to privilege including the banking privilege of creating credit and loading the
economy down with credit card fees and financial fees and late fees.
Billions are made in industries where scarcity is the prime driver of profit.
These huge profits should be shared with the community, helping to maximise our opportunities
and unleash our full potential.
When Australia captured one half its land rent since 1972, our GDP would now be $2 trillion,
not $1 trillion.
Every single Australian man, woman and child would be $35,000 per head better off.
There is no possible way to divvy up the earth equitably without a system of tax shifting.
The first to go should be payroll tax, why penalise business for employing people.
Next would be income tax.
When you have a job, you shouldn't be paying taxes.
You shouldn't be paying taxes to be having a successful business.
As the managing director, instead of spending time on business, he spends lots of time on
collecting tax, collecting, he's actually a collector on behalf of the government.
In Hong Kong, minimum wage earners pay only 2% income tax.
The country's top tax rate is only 17%.
This is made possible by a significant property tax.
This switch from taxes to rent would allow us to abolish 125 taxes.
These are the taxes that choke off production, tending to build up property bubbles that
burst with regularity about every 18 years or so.
Sales tax on goods and services could also be removed.
A 10% sales tax on a $1 ice cream is $0.10.
We all pay the same $0.10, whether we earn $20,000 or $20 million.
Under a land tax system, when you've paid your rent, you've paid your tax.
It's that simple.
The repeated booms and busts in land prices show us how sorely we need a systems stabiliser.
To be effective, land tax needs to be set at 6% paid yearly.
Private ownership still applies.
However, vacant or badly used locations become a cost burden to their owners.
Real estate would soon be sold, wented or used for a productive purpose.
And finally, land valuations must occur every year.
Sharing the rising value of land with the community who helped create that value is
the most effective way for governments to ensure fairness.
With a simpler tax system, entrepreneurs and creatives have a better chance to start their
own business and succeed.
My husband works five days a week and then as a small business owner, he has to do all
of the paperwork, the data entry, all of that stuff.
And that probably takes up at least one of his two days off.
Genuine property developers would also flourish, where they have easier access to land and
no income tax, payroll, company or sales tax.
Land rents would move to reflect the earning capacity of the property, not what the speculator
can extort from the market.
The resulting lower housing costs means less stress on families and more stable home environments.
This is the recipe for a golden age, an era of innovation, of prosperity, lifting millions
of people from the mire of poverty and dependence.
This generation emerges from the rubble of collapsed streams and crippling debt.
The big question is, how do we stop this from happening again?
All sorts of excuses will be offered to try and derail this urgently needed economic reform.
Surely we won't wait for the next 18-year boom and bust cycle, or the one after that.
Harnessing land, not labour or business, is a clear path to prosperity and freedom.
The harnessing of economic rent for the common good is as essential to economics as gravity
is to physics.
Our system has been rigged so that real estate can be held for ransom.
We can change our thinking.
We can change the way we are taxed.
We can free the land.
This land is your land, this land is my land, from California to the New York Island, from
the Redwood Forest to the Coldstream Water.
This land was made for you and me.
As I was walking down a ribbon of highway, I saw above me an endless skyway, and I saw
below me a golden valley, this land was made for you and me.
This land is your land, this land is my land, from California to the New York Island, from
the Redwood Forest to the Coldstream Water.
This land was made for you and me, and I roamed up rainbow, followed my footsteps from the
bright white sands of her diamond desert, and all around me, her voice was sounding.
This land was made for you and me, this land is your land, this land is my land, from
California to the New York Island, from the Redwood Forest to the Coldstream Water.
This land was made for you and me, and the sun had come shining, as I went strolling,
and the wheat fields waving, I see the dust clouds rolling, and the fog was lifting, and
the voice comes chanting.
This land was made for you and me, this land is your land, this land is my land, from
California to the New York Island, from the Redwood Forest to the Coldstream Water.
This land was made for you and me, this land is your land, this land is my land, from
California to the New York Island, from the Redwood Forest to the Coldstream Water.
This land was made for you and me.
