Sunday, Dec 09, 2012

Follow the money

Mirror: Prime Minister David Cameron vetoes plans for new property tax after fund-raisers' threat

DAVID Cameron personally vetoed plans for a new property tax after donors threatened to ban Tory party fund-raising events from their mansions.
Super-rich donors warned the Prime Minister that if he taxed their London townhouses and sprawling country estates they would refuse to host dinners to boost the Conservative Party's coffers.
A senior insider revealed: "The message went out - tax our mansions and you can forget us ever holding another black tie event for you at our homes ever again.
Lib Dem peer Lord Oakeshott accused Cameron and Osborne of "performing a hand-brake turn on donor orders".
He told the Sunday Mirror: "The Tories are too scared to make their backers pay more than a £26-a-week council tax on their multi-million pound Mayfair mansions."

Posted by drewster @ 11:56 PM (1393 views) Add Comment

7 Comments

1. libertas said...

Like I said, the only benefit of a mansion tax would be to get the well heeled campaigning against property taxes so, Ironically, Cameron has rejected higher property taxes because he doesn't want lower property taxes. That is why they treat the upper class with kid gloves. As soon as the Middle class reject Marxism and unite against taxes, understanding that they are deleterious to peace and prosperity, then we will be onto something.

And for those who believe higher taxes will make houses affordable, think again. Higher house prices were caused by artificially low interest rates and, higher mortgage multiples facilitated by the government allowing mortgage backed derivatives to be treated as assets when they are infact liabilities. Once futures contracts on mortgages are treated as assets, banks will lend to all and sundry to pepper up their balance sheets.

Thus, whilst a land value tax will make houses cheaper, they will not become more affordable, since the lending multiples will remain intact, only that some of your mortgage spend will be diverted to taxes thus, you will borrow cash to pay tax instead of gaining equity, therefore reducing overall prosperity without any improvement to housing affordability.

Thus, allowing a market rate of interest (end the Bank of England, let the Houses of Commons issue a gold backed currency which is allowed to compete with private and foreign currencies), and reform banking to ensure that all mortgage backed derivatives are treated as liabilities on the balance sheet, and all of a sudden, housing is cheaper.

Also, end the tax on interest earned on savings to encourage people to put their money in banks rather than land banking. Remember that banks already bay corporation tax, so, if ending tax on interest caused more corporate tax, it could actually increase the tax take. Just ending that tax would make houses far more affordable for two reasons:
a) it would be easier to save a deposit, with more interest earned
b) people would be less inclined to land bank, with deposit accounts being more attractive. Those with excess property portfolios would have more incentive to liquidate properties.

In addition, with more cash in banks, there would be more liquidity in the economy, more economic activity and also, banks would have more to lend.

If that happened, banks would be forced to use said deposits to invest in productive industries rather than a housing ponzi scheme and jobs would return to our shores. We do not have a shortage of houses, we have a shortage of factories. More factories will resolve our excess of office space, since more factories will increase demand for services.

Of course, we would also need to leave the EU to further cut taxes and, more importantly, end the stranglehold EU regulations have on us competing with the rest of the world. To become like Swizerland or Norway in terms of having a trading relationship only with Europe.

Monday, December 10, 2012 07:33AM Report Comment
 

2. alan said...

Cameron is reacting to a small but powerful pressure group. That's how government works these days. Rushing through "Gay marriage" is another response to a very small, but vociferous, minority.

As Dr Tim Morgan of Tullet Prebon said recently:
"With a minority of honourable exceptions (few of whom have reached cabinet rank), Britain has suffered from two decades of leadership (if such it can be called) which has been delusional, short-sighted, vainglorious, obsessive and spineless".

Monday, December 10, 2012 09:34AM Report Comment
 

3. mark wadsworth said...

Drewster, it might be in The Mirror but it does have the ring of truth about it, good find.

Piddly Riddly reminds us of yet another good argument in favour of LVT:

"Thus, whilst a land value tax will make houses cheaper, they will not become more affordable, since the lending multiples will remain intact, only that some of your mortgage spend will be diverted to taxes thus, you will borrow cash to pay tax instead of gaining equity, therefore reducing overall prosperity without any improvement to housing affordability."

By and large, your mortgage repayments will be reduced by a more than £1 for every £1 of LVT liability, that's just the way the maths works (or how people respond to certain vs uncertain or easy-to-ignore liabilities). So nobody will be "borrowing cash to pay tax", that is arrant faux lib nonsense, for every £1 LVT due, the selling price and hence your mortgage will be reduced by about £150. And seeing as people do save up deposits of (say) 20%, a 10% reduction in the price of the house is a 12.5% reduction in the size of your mortgage. Lending as a multiple of income will quite simply go down, so to blithely assume that "multiples will stay the same" is typical Socialist thinking.

So everybody wins apart from boomers and bankers! What's not to like?

I went to the bother of comparing and contrasting house prices, average incomes and foreclosure rates in all the counties of the state of New York (which have very different property tax rates) and rather unsurprisingly the end result was exactly as you think - with the added bonus that foreclosure rates were lowest in the counties with the highest property tax rates (which is also what you'd expect if you thought it through properly).

Monday, December 10, 2012 10:26AM Report Comment
 

4. mark wadsworth said...

That last paragraph should read:

I went to the bother of comparing and contrasting house prices, average incomes, property tax rates and foreclosure rates in all the counties of the state of New York (which have very different property tax rates) and rather unsurprisingly the end result was exactly as you think - with the added bonus that foreclosure rates were lowest in the counties with the highest property tax rates (which is also what you'd expect if you thought it through properly).

Monday, December 10, 2012 10:27AM Report Comment
 

5. mark wadsworth said...

Whoops another typo:

"for every £1 LVT due, the selling price and hence your mortgage will be reduced by about £150"

Should read

"for every £1 LVT due, the selling price and hence your mortgage will be reduced by about £15"

Monday, December 10, 2012 10:53AM Report Comment
 

6. libertas said...

Incidentally, the issue with Gay marriage is that they are holding back tax breaks for married couples until they have this gay marriage thing. Thus, a tax break designed for children will go to childless gay couples who already have less outgoings than straight couples with kids. Now that is what they aren't talking about, but that is the agenda. Equality will mean that children get inequality, just so that we can have political correctness. Watch this space, this is what is planned and, as in Animal Farm, under equality, some are more equal than others.

And Marx, what you forget is, that if house prices collapse due to a land value tax, the cost of building them will not. Thus, construction rates will plummet, there will be less homes available and, as a result, homes will still become less affordable. Like a true Socialist, you believe your re-distribution of wealth occurs in isolation, with no consequences, like a perpetual motion device it is hyperbole.

Monday, December 10, 2012 09:38PM Report Comment
 

7. mark wadsworth said...

Piddly, there aren't any tax breaks for marriage! What on earth are you talking about?

Piddly reminds us of yet another argument in favour of LVT:

"if house prices collapse due to a land value tax, the cost of building them will not. Thus, construction rates will plummet, there will be less homes available and, as a result, homes will still become less affordable"

Under full-on LVT, the purchase price of land will fall to pennies; the cost of building houses (with a lot of embedded tax) will fall; the tax paid by actual homebuilders will be negligible (the quicker they finish stuff, the less they pay, and the LVT merely replaces the interest cost of buying land in the first place). Land bankers will be discouraged from holding sites with planning out of use, so they will sell them to actual builders who will happily build stuff on them, so construction rates will GO UP.

Further, there is no real need to build so much new stuff - LVT most efficient use of existing land and buildings, including bringing derelict sites into use and tarting up existing buildings (renovation will be cheaper and the marginal rental income will be tax free, of course). And if a Widow in a Mansion swaps places with a young family in a flat, I consider that to be A Good Thing.

As a simple matter of fact, for the working/wealth creating population, housing will become a lot cheaper, that's basic maths, let alone logic. And if the typical worker/wealth creator ends up paying as much tax as before, then that will only because they have traded up into a much nicer house - so at least you (as an individual) get something in return for your tax payments, unlike income tax where you (as an individual) get absolutely nothing in return.

Piddly, thanks as ever for reminding me of all these arguments in favour of LVT. Do you never get embarrassed about being such a moron?

Tuesday, December 11, 2012 12:34PM Report Comment
 

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