“It also makes the economy very brittle because when your house prices are seven to eight to nine times earnings, house prices can fall a lot further.
“American economist Henry George said we should be taxing the unimproved capital of land and it’s a powerful insight.
“At least in principle, such a tax raises revenue without imposing costs a holy grail in tax policy.”
While unemployment was a relatively low 5.1 per cent before COVID-19 struck early last year, the economy’s productivity and wage growth had been struggling for much of the previous decade.
IFM Investors chief economist Alex Joiner said the limits of effective monetary policy were now being tested and the RBA was looking to governments to support economic growth.
“Fiscal policy both in the form of direct stimulus, which is relatively easy spending taxpayer money and highly visible. And more importantly an aggressive reform agenda to bolster much-needed productivity growth this, while more necessary for the economy, is more politically difficult and less visible to the electorate,” Dr Joiner said.
Industry Superannuation Australia chief economist Stephen Anthony said the RBA expecting a significant flow through for asset prices was a “one-card trick”.
Mr Anthony has advocated the introduction of a corporate cash flow tax, reforms to energy markets and infrastructure investment to boost the economic recovery.
The government is pursuing industrial relations changes to increase flexibility in the labour market, but unions have opposed key elements of the package.
The October federal budget also included some short-term incentives for business investment and acceleration of personal income tax cuts.
The latter had injected an extra $7 billion into people’s pockets in the last six months, Treasurer Josh Frydenberg said on Monday.
At the state level, NSW Treasurer Dominic Perrottet is pursuing arguably the biggest reform, by flagging plans to phase out stamp duty on property transactions and gradually replace it with an annual land tax.
RBA governor Philip Lowe has repeatedly urged the federal and state governments to embark on productivity-boosting reforms to lift the economy’s growth potential.
He had nominated reforms to tax, competition, industrial relations, innovation, education and skills as areas that are ripe for reform.
The International Monetary Fund has repeatedly recommended that Australia reduce taxes on companies and workers, and shift to greater taxation of consumption and land.

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