Who are the real winners and losers under the Howard government’s industrial relations reforms? We think you can work it out for yourselves. Here are some hints:

1. If workers in firms with less than 100 employees have lost their protection against unfair dismissal (not to be confused with unlawful dismissal), and if all other workers have lost their protection against unfair dismissal as long as their employers can claim “operational requirements”, how will this effect workers’ ability to get home loans? And how will that affect the value of your home?

2. If workers’ wages become more dependent on the workers’ own bargaining power, which workers will lose more: those with more bargaining power, or those with less? In the past, have these workers been comparatively well-paid or poorly-paid? Are they more likely to be home owners or renters? How will this affect the rents received by mum-and-dad property investors, and the values of their investments?

3. If small employers initially become more profitable, how will this affect their ability to pay rent for commercial premises? And how will that affect commercial rents, and prices of commercial property?

4. Will commercial landlord be winners or losers? What about residential landlords? So will the winners tend to be bigger or smaller than the losers?

There — that wasn’t hard, was it?

SPIN: The First Home Owners’ Grant (FHOG) helps first-time home buyers enter the market.

FACT: More precisely, the FHOG helps first-time buyers to compete with other buyers who can use the equity in their old homes to bid up prices. But by increasing bids from first-time buyers, the FHOG also raises prices, especially at the bottom of the market where first-time buyers are concentrated. Thus the FHOG partly defeats its own purpose. Moreover, the FHOG only helps people who are rich enough to be contemplating home ownership; it does nothing for life-long renters.

SOLUTION: Make the grant available only for new homes in order to encourage construction, so that the increase in demand is offset by the greatest possible increase in supply. Then make the grant available to investors as well as intending owner-occupants, so that the increase in supply extends to rental accommodation. But keep the grant in the form of a fixed sum per dwelling, so that investors have an incentive to build a larger number of cheaper dwellings rather than a smaller number of more expensive ones; that maximizes the supply at the affordable end of the market. In short, turn the FHOG into a New Home Builder’s Grant.

Because new homes and “first homes” historically account for similar fractions of turnover in the housing market, this reform would be roughly budget-neutral. But more of the outlay would be spent on increasing the supply of housing for the benefit of renters and first-time buyers, not pumping up prices for the benefit of established investors.

In this age of internationally mobile capital, we are repeatedly told that if we want to attract and retain investment, we must make our tax system more “competitive”. Very conveniently for the investors, competitive taxes are taken to mean low taxes, in which case governments must engage in a “race to the bottom” — competitively cutting taxes and public expenditure, sacrificing their schools, hospitals, transport systems and other essential services on the altar of global finance.

Fortunately this is bunk. In fact the attractiveness of the tax system to investors has more to do with the type of tax than with the amount of tax collected. “Taxes ain’t taxes!”

Consider land tax — that is, a holding tax of a certain percentage per annum on the value of land, excluding buildings. Clearly the land can’t flee overseas to escape the tax. As land is a limited natural resource and has no cost of production, its price is determined simply by what people are willing to pay for it. A holding tax on land reduces what buyers are willing to pay and encourages selling, and therefore reduces land prices. More importantly, it drives speculators out of the market, further reducing prices for the benefit of productive investors. So productive investors actually find it easier to acquire land. Similarly, land tax does not discourage investors from renting land for productive purposes; on the contrary, it forces landlords to offer their properties at affordable rents in order to attract tenants and cover the tax liability. Neither does it discourage building on the land, because that is another way to earn income to cover the tax, and because the tax does not apply to the buildings themselves.

So land tax can raise revenue without discouraging productive investment. To replace existing taxes by land tax is to go straight to the bottom as far as investors are concerned, but requires no sacrifice of revenue or essential services.

SPIN: The Family Home is exempt from land tax. (And all the people shall say: Amen.)

FACT: If home buyers don’t have to pay land tax, they can afford higher mortgage repayments, hence higher prices. While the price of a house is limited by the cost of construction and by competition among builders, a home is not just a house; it also includes land, which is a limited natural resource, and whose price is therefore determined by what people are willing and able to pay for it. So there is nothing to stop higher land prices from absorbing the entire benefit of the tax “exemption”, in which case the buyer still pays the tax — to the seller instead of the government!

SPIN: The Family Home is exempt from capital gains tax. (And all the people shall say: Amen.)

FACT: If you don’t have to pay capital gains tax on your old home, you can afford to pay more for the new one. So you do!

SPIN: The Family Home gets concessional treatment in assets tests on welfare payments. (And all the people shall say: Amen.)

FACT: The “concessional” treatment of the home increases the attractiveness of investing in the home and therefore increases its price. The benefit to incumbent owners comes at the expense of first-time buyers.

SPIN THIS IF YOU CAN: When you go bankrupt, why are your creditors allowed to take your home but not your superannuation? Because the tax and welfare systems treat your home more “generously” than your super! If your creditors could take your super, they’d be taking some of it from the government through the effect on your tax liabilities and welfare entitlements; but when they take your home, they’re taking nearly all of it from you. If your home were less “protected” from the government, the government would be more inclined to protect it from your creditors!

Since the Howard government gained control of the Senate, we have been hearing numerous proposals for reducing the top marginal rate of income tax. The excuse is that high marginal rates reduce the incentive for wealth creation and encourage tax minimization. Let’s put this excuse to the test.

A holding tax is a tax of so many percent of the value of an asset per year, payable by the owner of the asset. If income tax were replaced by holding taxes, the top marginal rate of income tax would be zero. Beat that! And if those holding taxes were confined to assets that taxpayers can neither create nor destroy nor move out of the taxing jurisdiction — assets such as land and monopolies — the taxes would cause zero reduction in the stock of assets and zero discouragement to the production of new assets. That takes care of wealth creation.

What about tax minimization? With holding taxes on assets that can’t be destroyed or moved, the only way to reduce your tax is to sell assets to other taxpayers who are more willing to pay the taxes, or to the government, which can then charge rent for use of the assets (“rent” in lieu of “tax”). So your desire to minimize your individual tax bill does not cause an overall loss of revenue, but reallocates resources to those who can most easily pay the taxes or rents on them — in other words, to those who would use the resources most productively, leading to even more wealth creation.

(As for tax evasion — that is, outright fraud — you can’t hide land from the government that has sovereignty over it, and you can’t hide a monopoly from the government that grants it or regulates it.)

So, if the politicians are really concerned about wealth creation and tax minimization, why are they fiddling with income tax rates instead of replacing income taxes with holding taxes? Could it be that they’re not telling us their true motives?