The Case for a Re-Introduced Federal Land Value Taxation Regime
Maurice Fabrikant
[A paper submitted to the Republican Party
Conference, 21 May, 2011]
Most -- by far -- of the public revenue that is presently raised
emanates from taxes levied on:
- Wealth that is earned, and
- Wealth that is exchanged.
A relatively small quantity of additional revenue emanates from other
sources; for example, from registration fees that are levied on every
owner of a motor vehicle that is intended to be used on public roads.
Note that such a fee is independent of the purchase price of the motor
vehicle and is independent of the annual earnings of the owner.
Concerning wealth that is earned, there are two major taxes; namely,
- Corporate Income Tax: this is levied at the rate of 30 cents
for every $ of nett income, and
- Personal Income Tax: this is levied at four different rates
depending on the level of annual income earned; for example, the
maximum rate is 45 cents for every dollar earned above $180,000
per annum but no tax is levied on the first $6,000 of annual
income.
Payroll tax is also applied; this is a tax paid by an employer and is
based on the total wages and salaries paid to his/her employees. All
of these taxes are often termed "Direct" taxes.
Concerning wealth that is exchanged, there are two major
classifications; namely,
- Goods and Services Tax (GST): this is levied at the rate of 10%
of the selling price of most goods and services; there are -
however - several exceptions; for example, uncooked foods, and
- Excises: these are levied at different percentages of the
selling price of alcohol-containing drinks, oil-based fuels and
tobacco and tobacco-containing products.
There are also stamp-duties applied when motor vehicles and real
estate are sold and tariffs applied when goods are imported; different
rates are applied to the selling prices of the goods concerned. All of
these taxes are often termed "Indirect" taxes.
Consider the following:
If the rate at which a direct tax is levied RISES,
earners will have LESS money available to spend and/or to save. When
less money is spent, fewer goods and services are purchased thus
unemployment must rise and this will require increased present
Social Service Benefits. And when less money is saved, there will be
an increased need for future Social Service Benefits.
Conversely, if the rate at which a direct tax is levied FALLS,
earners will have MORE money available to spend or to save. When
more money is spent, more goods and services will be purchased thus
unemployment must fall and this will require reduced Social Service
Benefits. And when more money is saved, there will be a reduced need
for future Social Service Benefits.
Exactly similar arguments apply when investigating changes in the
rate of indirect taxes. As indirect taxes RISE, prices of goods and
services will RISE so there will be reduced sales and/or savings.
Unemployment will, therefore, increase thus there will be INCREASED
need for Social Service Benefits, both present and future.
Conversely, as indirect taxes FALL, prices of goods and services
will FALL so there will be increased sales and/or savings.
Unemployment will, therefore, reduce thus there will be REDUCED need
for Social Service Benefits, both present and future.
In summary, therefore, both direct and indirect taxes lead to
unemployment and, therefore, increased need for Social Service
Benefits, both present and future.
Yet earning wealth implies the production of the goods and services
that humans want thus leading directly to a higher standard of living.
And exchanging wealth implies exchanging goods and services with other
humans -- which, itself, implies co-operation - and this reduces human
conflict. However, most regrettably, present taxes discourage both of
these very desirable features of communal life.
And there appears to be no doubt that increased unemployment is the
major cause of:
- drug abuse, which leads to
- anti-social - and, sometimes, criminal - behavior, which leads
to
- increased domestic violence, which leads to
- family breakdown thus perpetuating the problem across human
generations.
It is evident, therefore, that the major present sources of public
revenue embody horrific social costs.
And -- due to the ever-increasing complexity of the legislation that
defines these multiple, ever-proliferating, direct and indirect taxes
-- they also embody wasteful financial costs. Every income earner must
-- at least annually -- send masses of information to the Australian
Taxation Office (ATO) -- this is often a very costly exercise -- and
staff at the ATO must investigate this information then initiate legal
proceedings against those who understate income and/or overstate
expenditure.
Likewise, most businesses that sell goods and/or services must --
usually at least quarterly -- send more masses of information to the
ATO -- another very costly exercise -- and staff at the ATO must
investigate this information then institute legal proceedings against
those who fail to account fully for GST and other taxes based on the
value of sales ... and fail to pass nett GST collected to the ATO.
Yet there is no doubt that public revenue is required to build then
maintain the infrastructure and the services that all members of the
community demand be provided at no direct cost to themselves; for
example, the provision of roadways and railways that facilitate the
efficient movement of goods and people and of defence and police
forces that are intended to protect citizens from all threats to
themselves and to their property, whether of domestic or of foreign
origin.
The question then is, "On what basis should this revenue be
raised?"
Proposed Future Method of Raising Public Revenue
The answer to the question posed above is simply this:
Every person -- natural or corporate -- granted exclusive occupancy
rights to a natural resource -- the title-holder -- must make periodic
rental payments to the community in exchange for that occupancy right,
the rental payments being decided upon by the community at large.
Refer to explanatory note (a) below
In other words, a Federal Land-Value Tax must be applied to all
natural resources to which exclusive occupancy rights have been
granted. An explanation of the benefits of this method of raising
public revenue follows:
1. A Federal Land-Value Tax is scrupulously fair to all
and perfectly embodies "user pays" principles.
The reasons for this assertion are:
- The community receives from the title-holder - an individual
or a corporation - periodic rental payments equal to the
communitys perception of the value of the natural
resource; and
- The title-holder receives - in exchange - a guarantee from
the community that the title-holder has continuing exclusive
occupancy rights to the natural resource - which may be used in
accordance with zoning regulations decided upon by the community
- so long as the requisite periodic rental payments are made.
NOTE that ALL net income derived from the natural resource -- that
is, gross income less payments for goods and services provided by
others -- remains with the title-holder as there are NO direct and
indirect taxes payable.
Refer to explanatory note (b) below
2. The proposed system is simple and, therefore, easy to
understand.
Periodically, publicly-employed valuers would review all natural
resources to which exclusive occupancy rights had been granted and
would update those values having taken into account changes in
infrastructure in the vicinity and changes in population density.
For example, if a swimming pool had been built in a particular
locality, the value of all sites nearby would rise as living -- and
doing business -- in that locality would now be more attractive. As
another example, if a new bridge had been erected over a river, the
value of all sites in that locality would rise -- regardless of
zoning -- because all such sites would be more easily -- and,
therefore, economically -- accessed. Conversely, if a school had
been closed, values of sites would fall as that locality is now less
attractive for residential purposes thus fewer people would need the
residences and businesses in that locality.
Refer to explanatory note (c) below
3. The proposed system is extremely easy to administer; compliance
costs are negligible.
The required machinery is in existence because all local
governments already have data defining the value of natural
resources within their boundaries because local government rates are
based, at least to some extent, on site values which are, of course,
the values of natural resources. In some instances -- principally,
those sites which are exclusively occupied by those who have been
exempted from the payment of rates; for example, religious bodies -
no valuations have ever been made. There will be little difficulty
in overcoming this problem.
Rate notices are presently sent annually to title-holders; that
practice will, of course, be continued. All that will remain is to
adjust the rate which must be applied such that the collection of
public revenue from this source renders all existing taxes
superfluous. Costs of compliance will be almost non-existent, it
being necessary only to make periodic payments similar to current
rates payments thus considerable business overhead costs will
disappear. This will lead directly to lower prices for goods and
services and, therefore, a higher standard of living for all.
4. The proposed system is impossible to avoid.
Natural resources cannot be hidden nor can they be re-located. The
individual or corporation that has exclusive occupancy rights to a
natural resource is registered as the title-holder. Should the
required periodic payments not be received, the community knows
exactly who to approach and exactly the level of the debt that is
owing. The community may then take whatever steps appear most
appropriate after taking all relevant factors into account. For
example, in cases of extreme financial hardship, the debt may be
waived but at the opposite extreme, the title-holder may be evicted
from the natural resource thus making the natural resource available
to another who is prepared -- and able -- to make the required
periodic rental payments. In this latter instance, the incoming
title-holder must pay to the previous title-holder the value of the
improvements on the natural resource.
5. The proposed system offers maximum privacy to all
title-holders.
Because all taxes based on income and exchanges of wealth have
been eliminated, there will be no need for individuals or
corporations to disclose such private information as:
- salaries paid to employees,
- total income earned, and
- expenses paid in earning income.
The only information which must be made public is the definition of
each natural resource to which exclusive occupancy rights have been
granted and the periodical rental that must be paid for continuing
exclusive occupancy.
Information concerning natural resources is not private because the
community has the responsibility to maintain all natural resources
in good condition for the benefit of itself and for future
generations. This is best achieved by ensuring that those who have
exclusive occupancy rights must use those natural resources in their
most effective manner - as permitted by the community at large via
zoning regulations -- or suffer financially.
6. The proposed system completely eliminates land speculation.
With periodic payments charged to the title-holders of all natural
resources to which exclusive occupancy rights have been granted,
those natural resources must be put to effective use -- as permitted
by their zoning -- otherwise they will not generate income
sufficient to enable the periodic exclusive occupancy payments to be
made. This will, therefore, end the extremely wasteful practice of
land speculation where far too many natural resources remain unused
and are eventually sold - usually for some very large "windfall"
profit that the title-holders have done nothing to deserve -- only
when increased population has driven the prices of them way beyond
the prices that were paid to secure them many years previously.
Meanwhile, use of these natural resources has been withheld from the
community at large!
Refer to explanatory note (d) below
In summary, these benefits will encourage all adult citizens - except
for those who are mentally and/or physically handicapped ... and for
those who have no desire to earn further income because they have
already accumulated sufficient wealth - to earn income in ways
attractive to themselves and will enable those citizens to freely
exchange goods and services with others. Involuntary unemployment will
be completely eliminated and co-operation among citizens increased
such that anti-social and criminal activity is dramatically reduced.
For the sake of our successors -- our children and their children --
we must work towards the attainment of this goal!
Explanatory Notes
- (a) Rental payments decided upon by the community at large.
Presently, local governments employ valuers who maintain
up-to-date valuations of all natural resources -- generally sites
-- on which annual rates are payable. There are two components;
namely,
Site Value (SV); that is, the value of the natural resource, any
improvements -- such as a building -- being ignored, and
Capital Improved Value (CIV); that is, the value of the natural
resource including existing improvements.
Of course, the value of the improvements on a site is equal to
CIV - SV.
Presently, SV is expressed as an outright purchase price and the
local government sets a rate -- or a number of different rates --
such that some desired annual total will be raised. If this method
of raising public revenue were implemented, SV would be expressed,
instead, as an annual rental and, initially, would be set at 5% of
the outright purchase price.
As natural resources pass from one title-holder to another,
valuers update the valuations of these natural resources -- and
the improvements, if any, on them - and that of others in the near
vicinity. A detailed description of this process is beyond the
scope of this paper but it should be sufficient to state that the
valuers are simply summarising the market-prices that are set by
the community at large when transfers occur.
Refer to note (c) below
- (b) Zoning regulations decided by the community.
Members of the community -- via their elected representatives --
decide how certain natural resources may be utilised. For example,
much land is zoned "Agricultural"; that is, it may be
used only for farming. Such land cannot generate large quantities
of annual income per hectare thus its outright purchase price --
or annual rental -- would be relatively low.
As population rises, the zoning of such land may be changed to "Residential";
that is, it may be used for housing people in self-contained homes
or in collections of self-contained apartments. If the zoning
regulations permitted only ground-floor buildings, that land would
not be so valuable as identical land zoned to permit multi-level
buildings, the reason being that more people can be housed -- per
hectare -- in multi-level buildings than in ground-floor-only
buildings.
And if land were to be zoned as "Commercial" or "Industrial",
its value -- per hectare -- would be still higher because such
land may be used for business operations that would generate far
more annual income than identical land used for ground-floor-only
residences.
- (c) Rental payments updated by valuers
Naturally, some title-holders will want to move from one natural
resource to another as their life-style or their business changes.
When they choose to do so, they will want to sell to the incoming
title-holder any improvements on the natural resource that they do
not wish to - or cannot - take to another natural resource.
If the improvements are sold to the incoming title-holder at a
price higher than the present valuation of them, this implies that
the natural resource is more attractive than it was previously so
a somewhat higher rental is justified for that natural resource
and for others in the vicinity.
Conversely, if the improvements are sold to the incoming
title-holder at a price lower than the present valuation of them,
this implies that the natural resource is not as attractive as it
was previously so only a somewhat lower rental is justified for
that natural resource and for others in the vicinity.
If no incoming title-holder can be found, the community must pay
to the outgoing title-holder the value of the improvements that
remain and this natural resource reverts to "communal
ownership".
- (d) An example of land speculation
Less than half a kilometre from my home in Noble Park -- an outer
south-eastern Melbourne suburb -- there is an unused block of land
of about one acre. Since Ive lived in Noble Park the only
occupant has been a very large bull, an effective "lawn mower".
In 1962 -- when I purchased the "quarter acre" block on
which my wife and I still reside -- residential land in Noble Park
cost about 5,000 pounds per acre; that is, about $10,000. In 2009
-- less than a kilometre from the vacant one-acre block, a
half-acre block -- with an apparently dilapidated, small,
timber-clad house -- was sold for $720,000, equivalent to over
$1,400,000 per acre ... assuming that the house was worthless. (In
fact, the house was almost immediately demolished and several
brick-clad, single-level home-units now occupy that site.) So -
during the 47-year period from 1962 to 2009, residential land
price in Noble Park has escalated by a factor of 140 to 1! That
represents a compounded rate of increase of 11.1 % annually, a
rate that very greatly exceeds the average rate of inflation over
that 47-year period.
Another measure of the price increase is to investigate the
movement of wages over that same period. In 1962, I was a
recently-graduated engineer and was paid about 1,250 pounds --
$2,500 -- annually thus the cost of one acre of land in Noble Park
was equivalent to the wages of a recently-graduated engineer for
48 months. But in 2009, a recently-graduated engineer was paid
about $50,000 annually thus the cost of one acre of land in Noble
Park had escalated to the wages of a recently-graduated engineer
for 336 months! That represents an increase of seven (7) times in
terms of labour costs! That explains why it is now so difficult- -
in fact, almost impossible! - for young adults to purchase their
own residence in a capital city!
The owner of that one-acre site has been partly responsible for
that escalation in price. People -- by their desire to live in
that locality -- have competed to buy residential -- and other -
land, hence the increase in land price. But the speculator has
withheld usable land from the market thus causing an artificial
scarcity of it! The speculator is, therefore, a parasite, becoming
richer at others expense!
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