According to an article in The Age titled State could be big loser in tax plan, the Commonwealth government is thinking of forcing states to get rid of inefficient taxes such as car registration and land transfer duty. It will achieve this by tying GST payments to the states' progress on tax reform. The launch of the GST was supposed to remove inefficient taxes, but what eventually happened was the states simply kept these taxes. By linking GST payments to progress on tax reform, the Commonwealth can effectively force the states to reform their tax systems or suffer the consequences.
Most taxes on transactions are inefficient because they distort economic action. For example, land transfer duty prevents a company from moving its business to better location because of the costs. For an employee who works full time, land transfer duty puts a huge cost on relocation, which means that if he has to travel for two hours everyday to get to work he may choose not to move closer to work due to land transfer duties.
A tax like car registration is completely unfair because you pay approximately $600 regardless of whether you do a lot of driving or do very little driving. The amount you pay should be based on how much damage you do to the road, which is why I think getting rid of car registration and making up for the lost revenue with an increase in fuel tax would be great. The problem is that the states cannot tax fuel, only the Commonwealth can.
Showing posts with label victoria. Show all posts
Showing posts with label victoria. Show all posts
11 June 2012
30 April 2011
Baillieu Cutting Stamp Duty by 50%
The average house in Melbourne is around A$500,000, which is among the most expensive in the world. In a bid to help first home buyers, the Baillieu government plans cut stamp duty by 50 per cent (according to First Time Buyers Struggling to Keep Up). This is clearly a bad move as it will only increase the demand for houses which will in turn increase prices even more. Those buying houses at a time like this may think they are better off with a stamp duty discount, but with house prices and mortgage interest rates at record highs, it will likely put a lot of stress on home owners. Expect banks to make more money out of this.
My advice to first home buyers is to live with your parents for longer and to pay them rent. Usually parents are willing to charge lower rent to their children because they have been living with you for decades and know that you are trustworthy tenants. With the money you save from living with parents you could take advantage of the high Australian dollar and invest in overseas companies or you could buy shares in Australian banks.
If Australians continue to want to buy houses, this will only result in more bank profits as perpetual demand for housing will result in perpetually rising house prices, which will mean home buyers will need to go into more debt to fund their purchases. Greater demand for debt will mean that banks are able to charge higher prices for mortgages. They can increase interest rates or charge higher fees. This should lead to greater profits, all else equal, will lead to greater shareholder return.
If you want to invest in an Australian bank, I recommend one of the big four: Commonwealth Bank, Westpac, ANZ, or NAB.
My advice to first home buyers is to live with your parents for longer and to pay them rent. Usually parents are willing to charge lower rent to their children because they have been living with you for decades and know that you are trustworthy tenants. With the money you save from living with parents you could take advantage of the high Australian dollar and invest in overseas companies or you could buy shares in Australian banks.
If Australians continue to want to buy houses, this will only result in more bank profits as perpetual demand for housing will result in perpetually rising house prices, which will mean home buyers will need to go into more debt to fund their purchases. Greater demand for debt will mean that banks are able to charge higher prices for mortgages. They can increase interest rates or charge higher fees. This should lead to greater profits, all else equal, will lead to greater shareholder return.
If you want to invest in an Australian bank, I recommend one of the big four: Commonwealth Bank, Westpac, ANZ, or NAB.
25 April 2011
Baillieu, We Don't Want Debt
In an article in the Age today titled State Told Not to Fear Debt with Big Projects, an Australian Industry Group spokesman urges Victorian premier Ted Baillieu to bring the government into debt in order to finance big infrastructure projects like roads and freeways. A member of the Property Council also said the following: "'Governments seem to be averse to borrowing to fund infrastructure, but the community can and would accept that."
An argument can be made for a country to go into debt to build infrastructure like roads and freeways. Infrastructure can attract business into the state, which increases economic growth and tax revenue. But the problem with funding infrastructure with debt rather than with surplus cash is you need to pay interest, and would it make much of a difference if we waited until the financial position of the state is healthier rather than spend now?
The Baillieu government has promised $100 million in surplus per year. It will be interesting to see if he is able to keep that promise.
An argument can be made for a country to go into debt to build infrastructure like roads and freeways. Infrastructure can attract business into the state, which increases economic growth and tax revenue. But the problem with funding infrastructure with debt rather than with surplus cash is you need to pay interest, and would it make much of a difference if we waited until the financial position of the state is healthier rather than spend now?
The Baillieu government has promised $100 million in surplus per year. It will be interesting to see if he is able to keep that promise.
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