Sunday, July 27, 2003

Calls to scrap negative gearing to slow property boom: "While a switch in investment priorities in the wake of the 1990s sharemarket collapse has played a part in the residential boom, there is little doubt that it has been lubricated by negative gearing, the first-home owner's grant, interest rates at 30-year lows, new banking products tailored to investors, such as the split loan, and, since mid-2001, the Howard Government's reduction of capital gains tax on year-old investments."

The "property boom" is in reality a "land boom", ie an escalation in the capitalized value of privately retained site rent. Calls to end negative gearing and other tax concessions undoubtedly have merit, but the only real long term solution to increasing land prices and social inequality is to redirect site rent into the public treasury. For home sites, this can be achieved in a practical way by reducing state and federal grants to local governments and requiring them to finance themselves through reliance on land value rating. This will have incidental benefits of making local government self funding and self reliant, and thus furthering the necessary steps towards devolution of power and genuine grassroots democracy.

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