Are High Land Prices in the Interest of the Community?

Colin Clark

[Reprinted from Progress, July, 1972]

Economist Colin Clark has the very great characteristic of not only knowing what is economically sound but being willing to speak out forcefully in its advocacy. In the process he often treads on the corns of people with illusions or vested interests in pursuing harmful policies. In the Brisbane "Courier-Mail of 19 April 1972 he attacks some of the dangerous misconceptions that high land prices are good for landholders and the community. Some of his comments are cited below with due acknowledgement and commendation to that paper for printing them.

From the point of view of the farmer or pastorilist it is certainly desirable that rural property values should go up, not down. But is it in the interest of Australia?

Rural land values do not constitute national wealth, which consists of buildings, equipment and stock, plus the real productive capacity of the land. How many or how few dollar signs we hang on the land makes no difference to real national wealth.

Buyers of land pay the prices which they do pay because of the net revenue which they expect to get out of it, either directly, or by letting it to tenants, or by reselling it 10 others later. (In Britain, they may be willing to pay more in view of the sporting rights and social distinction of land ownership, but such considerations have little weight in Australia).

It is true that in Australia, unlike some other countries, the land-owner and the farmer are usually the same person. But we can see how the proceeds are divided when we look at the share farmer, who, in spite of all the skill, effort and enterprise which he puts into the job, is remunerated at not much above the basic wage level -- the owner of the land gets the rest.

In the 1950's farmers and pastoralists were given the very valuable tax concession of being able to charge capital expenditure, practically, to current account. This gave an exceptionally strong incentive to investment in primary industry, and played" an important part in raising Australia's primary production and exports.

But like other good things this can be carried too far. Such tax concessions are of greatest value to the richest taxpayers.

Wealthy business and professional men soon realised that they could put away a substantial part of their savings almost untaxed, by buying farms and pastoral properties, and improving them. So we have had a proliferation of "Collins Street cockies" and similar types.

If they had all engaged in genuine agricultural and pastoral investment it would have been another matter. But many of them paid unduly high prices for small properties-near the cities, which they could use for week-end farming; and were tax-subsidised to clear bush, just in those areas near the cities where it was most desirable to preserve the native bushland for recreation purposes.

Withdrawn

This concession ought now to be withdrawn. The Commonwealth Government is aware of this. ...But it has decided not to act for the thoroughly bad reason that the withdrawal of the concession would lead to a fall in land values. It places the interests of land-owners before the interests of Australia.

Tax policy can both raise and lower the price of land. Local rates assessed on land, not on structures, as in New South Wales, Queensland, Western Australia, and some areas is Victoria, and high state land taxes, have the effect of keeping land prices lower than they would otherwise have been.

There would be positive national advantages in lower rural land prices. It would be much easier for new men to enter farming or grazing. One does not wish to be too hard on the older men -- but primary industry certainly seeds new blood.

Secondly, it is only when the price of land is lower that it will be possible to re-organise holdings into more economic units. It is hopeless to expect the government to do this, which is our present policy. Re-organisation of holdings can only be undertaken by voluntary agreements between farmers and graziers themselves.

Farmers and pastoralists have been buying land at too high prices -- but it was the bankers and stock and station agents who lent them the money to buy -- and they should have been better informed.

And it is they who have put the real political muscle behind the demand for the wool subsidy. The subsidy* is paid on wool sales out of which the stock and station agent recoups his debts first, then the money is paid into the bank account and recoups bank debts - and grazier gets what is left.

There is no case for a wool subsidy -- certainly not for one that helps rich and poor alike. If there is to be any help for graziers, they should be helped to get out of wool, not to get more deeply involved in it.

The banks made serious misjudgments about the value of land. They should write off part of the graziers' debts and bear the losses themselves. They certainly should not expect the whole body of taxpayers to pay for the consequences of their mistakes.