A Tax Reform that benefits the Environment

Margit Alm

[Reprinted from Progress, July-August 2005]

The greatest challenge that mankind faces in the 21st century is the reconciliation between Nature and Humans. Forget about terrorism; forget about poverty -- the real fight will be over natural resources -- all natural resources, but water may well be the frontrunner. How we. the current Earth dwellers, repair and preserve natural resources so that future generations can enjoy a rich and fulfilling life will be our biggest confrontation. If Humans master that challenge then scourges like terrorism and poverty will simply 'wither away'.

Some may be asking themselves: "But how can Henry George help here?" Well, Henry George can help a great deal. When his clear thinking mind and his social conscience led him lo the conclusion that taxing the use of land rather than the fruits of one's labour was the road to prosperity and justice for all. he also sowed the seeds for a healthy coexistence between humans and the environment.

Henry George was unaware of his deed because he was pre-occupied with land. In the 19"' century that was understandable. Life was simple then compared with the complexities we now experience every day. Population explosion, environmental destruction, globalization, relative versus absolute poverty and a poverty industry, opportunity-inhibiting social welfare, the expectations of third world countries -- these and many more issues that have become part of our daily lives, were clearly not on the horizon in those days.

So we have to broaden our thinking and act in the spirit of Henry George: to eliminate poverty and to increase prosperity we have to look past land and include all natural resources.

And we need a radical approach to Tax Reform.

Tax reform is once again on everyone's lips. Self-annointed tax experts float almost daily in the media their brilliant ideas of a single tax rate or tax cuts for the rich. That is not tax reform, that is fiddling at the peripheries.

If the representatives of the people (in form of the government) are genuine about tax reform then they should have the courage of a "world first" and abolish not only the Income Tax Act but also the very word "tax", remove it from the vocabulary.

Taxing the fruits of one's labour is almost as old as civilization itself and has been hated as a punitive measure throughout the ages. Modern societies elevated taxation to such an elaborate structure that even those who designed it no longer understand it. Every time a simplifying tax method is introduced, the structure becomes more complex and the Taxation Act and associated master tax guides experience exponential growth.

Meanwhile rich and poor flounder along on tax-free thresholds, exemptions. evasion (illegal), avoidance (legal till the loophole is closed). The less well-off turn it into a sport to keep their taxable income well below their disposable income to benefit from tax-free thresholds; the rich and especially the Ruling Rich circumvent tax in the billions through tax planning and tax havens; and charities, no matter how obscure they are. are exempted altogether.

According to a recent cover story in BRW (Business Review Weekly) Australia's $70 billion charily industry is running red-hot out of control. no transparency, no accountability.

The Ruling Rich, living outside the taxation sphere, must be chuckling on their thrones when they see governments' petty attempts trying to raise revenue by making ordinary citizens' lives to a misery; when for example the retired person who augments his meagre income with a few dollars from the provision of his labour loses his senior health benefits and faces a marginal tax rate of well over 60% whilst "they" walk free.

Such is the justice when the fruits of labour are taxed.

And then there is Steve Bracks' land tax. Land tax leaves a bitter taste and misunderstood meaning in people's minds. The Bracks land tax is not a Henry George LVT; the Bracks land tax is nothing but a wealth tax by any other name. It is a grab for money. If people were investing in antiques and paintings rather than in property, Sieve Bracks would find a tax burden for the collector.

The intrepid government would take a leaf out of Henry George's book and replace all revenue-raising tax with a Natural Resources Rent (NRR) .

The word "rent" is a benign expression and will be easily understood by people when properly explained. Rent is what you pay when you take possession of an asset that you do not own but want to use. Renting a flat, car, computer or tool is a common transaction. Even borrowing a garden gadget from a neighbour is rewarded with rent in kind, by way of a reciprocal favour offered to the lender.

The Earth's natural resources are Nature's gill to all inhabitants on this planet, whether humans or non-humans. Non-humans fortunately use these resources only as Nature intended them to be used, namely to live sustainably for the term of one's natural life. Humans who in disregard of Nature's laws use and misuse natural resources excessively, have a natural obligation to their fellow humans and non-humans to compensate them for this excessive and misuse. Understanding this human link to Nature is of utmost importance.

NRR must therefore be levied on all "unnatural" use of natural resources in accordance with their perceived community/commercial value and the intensity and frequency of usage. An example should make this clearer: a National Park would have a low value and a low level of usage. It preserves Nature in its original slate, but an NRR would still apply as the National Park offers basic recreational facilities, such as camping. On the other hand, a luxury resort in the Whitsundays has an extremely high value and very intensive usage; thus the NRR would be substantial.

There must not be any exemptions, free thresholds or progressive rates based on personal wealth or income as these lend themselves to exploitation. Anyone who uses a natural resource for purposes other than basic natural living, would have lo pay the NRR to the community. The motto of any tax reform should be K.I.S.S (keep it simple and straight).

In the transition from income/labour-related taxes to NRR, fairness must not be forgotten. People who hitherto "owned" their land or other natural resource rent-free will rightly ask for some compensation when they lose this "ownership" or are asked to pay rent in addition to "ownership". Hardship cases, especially among the elderly. may need special consideration as well. Thus a lengthy phase-in period may be required in some cases to make this transition from tax to rent and from ownership to usage of a commonly owned natural resource.

Can NRR be exploited? As with any new law or regulation, not just tax laws, an army of experts will forthwith try to figure out how NRR can be circumvented. It is nigh impossible to make a natural resource go walkabout from continent to continent. But -abolition of taxation may label Australia as a tax haven where the peripatetic well-off maintain their tax administration at a low NRR whilst their business operations and private mansions blossom offshore in an environment that can be "milked". Well, that is simply not on! You either reside in full or not at all. Should ordinary Aussies really have crocodile tears running down their cheeks to mourn the departure of the super rich? Not so. The natural resources left behind and thus freed will be managed more equitably, efficiently and sustainably by the mums and dads of Australia. Of course, the most desirable aspect would be for NRR to be introduced globally, over time, and with the help of a strengthened United Nations. After all, we have to remember that we live on one plana, albeit with an abundance of regionally differing biodiversity, as dictated by climate. Unfortunately, reality is, and this applies especially to the emerging countries of Eastern Europe, that privatization of natural resources is the modus operandi for now. NRR must also not be introduced in isolation of social reform. Our current health, welfare and superannuation systems are as complex and inefficient as the taxation system. The NRR package should include social systems that provide people with opportunity, incentive and self-sufficiency and put an end to dependency. Furthermore, social systems, utility and transportation systems are infrastructure and serve basic human needs. They are built for the people by the people and arc therefore common wealth even though they are a combination of natural resources, capital and labour. Is NRR implementable? The deniers and critics will call it Utopian, but they are plain wrong. It is achievable.

Let there be no doubt in anyone's mind; NRR would step on many a toe. The loudest cries would come from those who understand the concept best; the Ruling Rich. They have more to lose than anyone else. They trot the globe with their super-sized ecological footprints, oblivious to the misery of the masses. They fill their deep pockets to the point of overflowing and occasionally throw some crumbs to the less worthy in the name of charity, lax deductions and making a name for themselves.

The poverty and charity industries would also complain bitterly being so used to "exemptions". But with NRR and social reform poverty would be wiped out rather like the plague was wiped out, charities would lose much of purpose.

Lastly, Mrs and Mr Average would need to be carefully eased into the new dawning to avoid their suffering from Future Shock.

One final and most important point remains to be discussed:

How will NRR benefit the environment? Pricing natural resources for the benefit of the community positions the natural resource in the spotlight. Natural resources would receive the respect they deserve. Human nature is very peculiar. When something is free it is treated with contempt, but when a price tag is attached to it, this hitherto contemptuous item is perceived to have a value. And the higher the price tag the higher the value.

With the abolition of taxes, disposable income would increase but some of the increase would be diverted to NRR and social insurance. People would learn very quickly how to harness the use of natural resources that right now are seemingly free, and would become more discerningspenders. Headlines, such as "Australians spent $10b on goods and services they don't use" would become a thing of the past. I would expect consumption to contract in developed countries to a point where economic growth remains almost static or may temporarily even decline, however, the quality of life would actually improve through healthier living and a cleaner environment.

Developing countries would benefit from NRR as it would end the exploitation of their natural resources for the benefit of the developed world. And in this respect and as an aside 1 have to say that humans, one of Nature's creations, are also a natural resource; thus NRR would end the exploitation of Third World labour too. The standard of living in those countries would increase but with increasing prosperity and education the population would decrease.

A recent study showed that the human population consumes natural resources at a rate 25% higher than their renewable capacity; humans are eating the future. The ultimate goal is to reduce the size of our ecological footprint. To achieve what David Suzuki calls "the sacred balance". NRR is the perfect tool for this.

If we introduce NRR and social system change now then today's children could look forward to a dignified life in retirement at peace with the environment. If we fail to harness our economic and population growth voluntarily then Nature will force us to do so in its own inimitable way; and that will not be a pleasant experience.

It is a long, arduous road ahead to achieve "the sacred balance", but the worldwide network of Henry George alliances is in an excellent position to make a start.