Hold on to the Ground Duty:
A Message to Fellow Danes

Ib Christensen and Karsten Larsen

[Reprinted from Grunskyld, November 1999; translated by Ole Lefmann]

(1) The Danish Government is preparing a frontal unheard-of attack on the fundamental principles of property taxation, which in Denmark first of all consists of Ground Duty. The Ground Duty is a duty levied on the value of land without buildings. Any objective economic analysis tells that the value of land should be taxed most heavily, whereas income and property both created by labour should be taxed most lightly.

(2) Since 1922 the Danish Taxation on Real Property has been based on the principle that the community has a superior right to tax on, plan for, and regulate land. In principle the Governmental assessment institution has distinguished between the by nature provided and public created values of land on the one hand, and the labour created values of buildings on the other hand.

(3) That principle has built up a common understanding and acceptance of the Real Estate Taxation, and it has become a model for other countries. However, this understanding has been blurred through the recent decades because of populist politicians and political parties, who made an effort to please the interest of private homeowners' acquisitiveness and agricultural special interests. This led to partial destruction of the Ground Duty, which, however, doesn't alter the fact that it basically has been the American economist Henry George's philosophy and economic theory on public collection of the rent of land that has been underlain the local authorities' collection of Ground Duty. George published his principal work Progress and Poverty in 1879. The book has been translated into Danish under the title Fremskridt og fattigdom.

(4) George's ideas have especially been promoted by Danmarks Retsforbund (English: The Danish Justice Party), but also, though more plainly, by other parties such as Det Radikale Venstre (English: The Left Wing Radicals) and Socialdemokratiet (English: The Social Democrats).

(5) Unfortunately the two latter parties have for years contributed to watering down the Ground Duty. At the end of the 1960'ies the Tax on Incremental Land values was abolished, and in the middle of the 1980'ies was put on the Municipal Ground Duty an upper limit of 2.4 per cent of the public assessed land values. Today, as the Counties have to collect 1 per cent Ground Duty, the maximum Ground Duty will amount to 3.4 per cent, whereas, as the Municipalities have to collect no less than 0.6 per cent, the minimum Ground Duty will amount to 1.6 per cent.

(6) The Ground Duty collects today approx. 2 per cent of all taxes in Denmark, compared to approx. 5 per cent in 1960. In spite of the fact that it is not a rather big amount, one should think that even the greatest opponent of Ground Duty could feel satisfied. But that is far from reality, which appears >from the following.

The Government Scheme

(7) The base of the Real Estate Taxation is periodic public assessments of almost all real estate properties in Denmark. For each property is made a separate assessment of the value of land and of the value of the building(s), and put together these values make the total value of the property. The value of the entire property has until recently been the base of the so-called Income Tax on Imputed Rentals of the estate, on which the taxpayer resides. That tax will disappear next year and be released by a 1 per cent tax on the total value of the properties. The separately assessed value of land makes, however, the base of the Ground Duty.

(8) This distinction between the values of buildings and of land is far more important than generally believed. The fact is that a tax on land values can never have the same negative effects on enterprise and production as can any of the other taxes. Land values are certainly not created by individual persons. Land was given to mankind by nature and it obtains economic value with the development of society. The value of land makes an excellent source of taxation which is self-evident to economists.

(9) When speaking about Real Estate Taxation, it is evident also, that there is a great difference between taxes on land and taxes on buildings. If values of buildings have to be taxed, the tax should be kept on a very reasonable level - probably no more than the 1 per cent to which the new property tax is sat, corresponding to the level of the previous Income Tax on Imputed Rentals of the property in which the taxpayer resides. A high tax on the value of buildings will hamper improvements of buildings and lead to decline of the standard of dwellings - an effect that Ground Duty doesn't have and can never get.

(10) The important principle - the distinction between land and buildings - is the Government now ready to abolish. This contrasts with the noble traditions of the two parties in the Government, but worst of all it conflicts with common sense and justice. It all appears from the report of the Committee sat up by the Minister of Taxation, and published by the Minister. The report is titled 'Modernising and Simplifying of the Assessment of Real Estates'.

(11) Certainly it has to be added that the Minister of Taxation, Mr. Ole Stavad, in his answer to the Member of the Parliament, Mrs. Lise Bo Nielsen, on September 6th, 1999, has dissociated himself from the proposal of the Committee, but that is definitely not sufficient to rely on for feeling safe. Unfortunately the answer of the Minister was far from being a categorical refusal.

(12) One might wish for the plan of the Committee that it should widen the base of taxation by imposing property tax with the same percentage on the values of land and buildings. In a time where unlimited mobility of goods, services, capital and personnel undermine the base of taxes on income, wealth, companies, VAT and excise duties, the tax on real estates remains untouched and must therefore be harnessed.

(13) However, that idea is unrealistic. The private homeowners' acquisitiveness is still there, and with around 1.2 million homeowners (of around 3.5 million voters [inserted by the translator]) its political power is considerable. If the plan becomes reality it will undoubtedly lead to the same consequence as in USA, Germany and other places: The political pressure for freezing the public assessments of and/or the taxes on real estate at an unrealistic and laughable low level, will become irresistible. And then one will definitely not get greater revenue in the long term, far from that. The structure of taxes will be strikingly deteriorated and taxes on income and consume will have to be increased.

(14) As being a part of this picture it has to be mentioned that the ministerial Committee proposes the assessment system changed in such a way that the property owners get an effective possibility to hamper a reasonable assessment. The burden of proof will be turned round so to say, which means that the assessment authorities will have to document the correctness of their assessment versus the owner's more or less fictitious estimate determined by the owner's wish to get off paying as little a property tax as possible.

(15) Further comes to that, that it is societal inappropriate to tax improvements of buildings. It will influence the distribution of wealth in the society, as the proposal will favour the owners of comparatively high values of land, and opposite it will disfavour owners of comparatively high values of buildings. That is a matter of fact. Members of Housing Co-operatives and owner-occupiers of flats and also shop-owners have to pay up. The same is due to tenants in general, whereas farmers on the largest farms take advantage at the expense of the small farmers, and owners of attractive detached houses and holiday cottages will be gilded. The anti-social character of the proposal is more than obvious.

(16) Finally is to be added that "the reform" deprives the political decision-makers of an especially important instrument for governing of the economic policy. The existing system with the separate assessment of land values makes it relatively easy for the political majority to aim for a tax policy with increased Ground Duty and decreased taxes on income (at least as looked upon from a technical point of view, as the apparatus is at their disposal). For instance a kind of Ground Duty not taxing the present land values more heavily than today, but in the future taxing the incremental values more heavily. Such a policy has not been accepted until now, but why destroy this instrument of the economic policy - an instrument that may be the only one left over to a small, open economy like the Danish? The political decision-makers are shooting themselves in the foot if they pass the proposal of the Committee.

Political attitudes to the right of ownership.

(17) To the non-socialistic parties the idea of the rights of ownership is especially connected with real estate. They do not at all acknowledge the idea of public created values. Taxes on land and on buildings are for them the same thing. But those having a liberal outlook on life ought to be aware of the fact that a tax on production has to be kept as low as possible, which will be possible with the highest possible tax on income not occurring from productive efforts.

(18) When assuming that a "reform" like the one proposed by the Committee will evoke a drastic hatred towards tax on property, which will gradually undermine it completely, one should have no objection against the reform. And one will find support to this attitude in the course of events in other countries.

(19) To the Socialists it's also as broad as it is long. They will even find it being a progress that not only the values of land are taxed but now also - on equal terms - the values of buildings, not bothering whether or not they are created by efforts of production or not. The socialistic idea of the rights of ownership doesn't distinguish between public created values of land and productive created values of buildings. In the classic Marxism it was exactly private ownership of the means of production that was brought out as being the source of exploitation. Land was not looked upon as being of special interest.

(20) The socialistic parties ought to realise, however, that their wish to tax "immovable property" as one thing may cause that the tax on property suffers the same fate as did the tax on fortune: it became abolished. If the Socialistic People's Party and the Unity List Party accept the new proposal this will be a unique political naivety, almost a criminal offence. Unfortunately this case is not attracting much of the awareness of the electorate. That, however, does not diminish its importance.

(21) As to the distribution of wealth there has during the latest generation by the undermining of the tax of property (the Ground Duty) come about a massive transferring of wealth to the advantage of the owners of real estates and to the disadvantage of the non-owners of real estates. However, the major part of the owners of real estates have their main income from wages, transferred income, pensions or self-employment. Therefore, in reality the advantage of the development has fallen to those owners who own considerable values of properties, i.e. those who most of all are affluent citizens having huge income >from speculation in the values of land and real estates.

(22) Economically the development has favoured passive investment in land and real estates, to the detriment of active production in enterprises. That has damaged employment and the economy in general.

A politically inspired work.

(23) Administratively the proposal of the Committee will not imply any savings as the assessment system will be changed to a control system. And further the abolition of the separate land value assessment makes it difficult to calculate the important factor of valuation: the value of neighbourhood, environment and public service. For instance, a recent much discussed case in which a large, older but well kept residential house including site was acquired at a price of Million Dkr 4.1, immediately after which the owner demolished the old house and erected a new. The assessment authorities followed up this fact increasing all sites in the area considerably as they, in accordance with the spirit and wording of the law, found that the price was paid solely for the land. Corrections of this type will be impossible in the future.

(24) The report is a political inspired work, which emerges clearly from the fact that the Committee is dominated by civil servants who are all in concord. Only the representative of the Association of Duty Councils (Danish: Skyldr=E5ds-foreningen) has taken reservations, may be because he is familiar with the point of the matter. However, also the representative of the National Union of Site Owners has taken reservations; he represents among others the entrepreneurs who will be hit directly and the tenants of private owned buildings of flats who will be hit indirectly. From the report's 6th chapter is quoted his very relevant objection:

"The transition to tax of values of properties will reduce the incitement of carrying out improvements and renovations of real estates, because the increased value of the property immediately will increase taxation."

But that kind of common sense is obviously in minority in the Committee.

(25) It is sensational that the representative of the interest of the homeowners' acquisitiveness (the National Union of One-family-house-owners) had no reservations against the conclusion of the report. That might, however, be taken as a cynical calculation of the proposal provoking so much hatred against the tax on real estates that it will share the fatality of the tax on fortune. It is also thought provoking that not a single member of the Committee is representing the Non-profit-making Housing Estates, the Tenants' Associations, the Non-profit-making Housing Co-operatives or Owner-occupiers of flats. But they are of course all among those being hit by the proposal.

(26) Finally is to be mentioned that none of factual economic knowledge are represented, neither the Economic Forecasters nor for instance the Labour Movement's Vocational Council. Is that due to the government's fear of confronting the proposal with economic expert knowledge and professionalism?

(27) It also characterises the very quality of the report that the argumentation is catastrophic thin and affected. The arguments (or what to call it) supporting the abolition of the separate assessment and taxation of the value of land is, that people in general find it difficult to understand Ground Duty, and then incidentally a wish of simplification.

(28) Simplification is not prescribed in the report, and taxes are never abolished only because they are unpopular or difficult to understand. This argument has simply no proper or factual relevance. Even if it had so, also the Income Tax should be abolished, as very few people are able to calculate their own personal tax! Taxes like general income tax, and by the way also company taxes, are far more complicated than is Ground Duty. An assertion in the report, that many taxpayers complain especially about the assessment of land values, while the complainants agree in the value of the entire property, is not at all documented. In return this assertion is repeated several times!

(29) The report mention, however, some remarks about certain technical problems with assessment of the value of the sites in areas where just a few empty sites have been sold. But here again is not consulted any expert knowledge of assessment of properties for supporting the point of view. And even if such problems might have some relevance, why is not written a single line about the possibility of introducing better techniques or methods of the valuation of land? Undoubtedly because the conclusion was almost written in advance.

(30) The report was published in August this year (1999), but has been almost unnoticed by the public media in spite of its far reaching character. Where are the observance of the political parties and the economical commentators of the press?

(31) It should not wonder if the course of this matter becomes the same as the abolition of the Tax on Fortune or the reform of the Job Release Scheme. Suddenly over night, in a deal about the Financial Budget, the matter appears as an already decided reality, without any warning or preceding democratic debate.

(32) The Socialistic People's Party and the Unity List Party are probably appointed by the Government as being those going to deal the Danish Ground Duty its deathblow, and thereby in the long run abolishing all taxation on real property. Hopefully it will turn out otherwise. Is there after all in the Left Wing Radical Party as much as a microscopic left over of Georgism, that may induce that party to kill the crazy plans as soon as possible?

Ib Christensen was the chairman of the Danish Justice Party from 1967-74, 1975-78 and 1982-84 was a Member of the Danish Parliament from 1973-75 and 1977-81 was a Member of the European Parliament from 1978-79 and 1984-94 is a member of the Danish Henry George Society and has been so for a generation.

Karsten Larsen is Master of Political Science. is a member of the Danish Henry George Society. is a member of the board of the Danish Henry George Society. is a member of the International Union for Land Value Taxation & Free Tra= de. is the editor of GRUNDSKYLD, Danish magazine for Politics and Economics since 1996.

Ole Lefmann is the Deputy President of the International Union for Land Value Taxation and Free Trade.