The State of Decay

Victoria's Labor government have sent the state broke. Now they are risking their future prosperity repeating an ancient folly.

The State of Decay
Photo by Weyne Yew / Unsplash

If you need any further proof that government isn't your friend, then look no further than the State of Victoria.

Not only have they mismanaged the economy, they were among the worst in the world when it came to the COVID response.

The decisions the Victorian government made in response to the pandemic cost lives and destroyed businesses. They crushed civil liberties and have smashed the state's finances.

That's all exposed in the budget the Andrew's government released yesterday.

It was a testament to maladministration and a complete lack of accountability by those in elected office.

The State is essentially broke and they have introduced an ancient folly to make others pay for the problems.

As has been discussed on the Confidential website several times, the historic weakness of property is that it becomes a tempting tax grab for government during times of distress.

That's because it is immovable and it always has an owner. Placing a tax on it means it will always have to be paid by someone, or they lose it.

Other investments are more liquid and portable. They can often be transferred quickly and easily to jurisdictions with more favourable taxation regimes.

That's been the historic value of art, precious metals, equities and bonds. More recently, Bitcoin also fits that bill.

Victoria has been steadily targeting property investors for years now.

I have heard tales of holiday home land tax going from $17,000 a year to more than $70,000.

It's a modest home in a high-end suburb but after generations of family ownership, they can no longer afford to retain it.

The government has now lowered the value threshold and increased the rate to raise an additional $5 billion from those with holiday homes or commercial properties.

They've also scrapped commercial property stamp duties in favour of a land tax set at one percent of the land valuation.

While most people seem to welcome this, it's just another wealth tax which is controlled by government. They set the property value while also being able to change the applicable rate on a whim.

The genius of this scheme is that it will be cheered on by those not affected. They'll proclaim it's a 'tax on the rich' and 'only targets the fat cats'.

That's similar to what was said in ancient Rome as their government was introducing new property taxes, mostly levied against agricultural assets to keep the empire afloat.

Eventually the taxes became so onerous that many were forced to walk away from their land, essentially forfeiting them to the State. Those that didn't own land were instead linked to land they worked on and taxed accordingly.

Those decisions eventually sent almost everyone broke who then fled to avoid the taxes.

Victoria has also imposed a new levy on employers with payrolls in excess of $10 million. These enterprises already pay a $3 billion mental health levy to assist in dealing with the problems caused by the government's COVID lockdowns.

Despite the billions in new taxes, Victoria's debt is still set to rise. This suggests the extent of the targeted taxes will expand from the 4000 businesses and 380,000 additional landowners over time.

This new plan entrenches Victoria as the highest cost place to do business or invest in the country.

If they get away with this latest move without political pushback, you can expect other states to follow their lead.

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