Reforming Public Revenue Systems

Brenda Mason

[This paper represents an attempt to summarize a new system of public revenue based upon the philosophy of Henry George. January 2003]


At the present time in Australia, we have a tax system which penalises enterprise, work, production, savings, self-reliance and sustainability - all the things which a sane society would encourage. Our present tax system is also expensive to maintain, grows increasingly complex, and is easy for the well-off to minimise and/or avoid.

This has resulted in the growth of greed, corruption, hoarding, alienation, and fear. The gap between rich and poor is rapidly growing, and communities have almost disappeared as burgeoning urban sprawl destroys greater areas of land. Foreign companies are taking over more of our resources and assets and we are becoming increasingly dependent upon conditions and decisions made outside Australia over which we have no control.

So, why is this happening, where is our money going and what are the solutions?

1. Have you ever wondered why we tax the things we want to encourage (work, production, skill, enterprise, self-reliance, savings, goods, services, sustainability, etc.)?

2. Have you ever wondered why so much 'development' is taking place, while the numbers of empty buildings, homeless people and areas of urban sprawl increase?

3. Have you ever wondered why 'real' estate, i.e. land prices, get higher and higher?

4. Have you ever wondered why real estate has 'boom and bust' cycles? 5. Have you ever wondered why communities are getting poorer and poorer?

6. Have you ever wondered why many property developers seem to get wealthy so quickly and seemingly effortlessly - sometimes overnight?

7. Have you ever wondered why tax & ratepayers (i.e. the local community) unknowingly fund the windfall profits of property developers?

8. Have you ever wondered why a piece of low-value land can suddenly become very valuable overnight because of a simple change of zoning by the local authority? The lucky owner gains much unearned income but has done no work nor produced anything.

9. Have you ever wondered about the "right" to make private profits out of land and natural resources which belong to the community?

10. Have you ever wondered why almost everyone accepts without question the above bizarre occurrences and why the reasons for these events have been virtually banished from economic studies, discussions and analysis?

11. Has it ever occurred to you that there may be one main reason which often causes people to behave in ways which are fear-based, greedy, insecure, corrupt, alienated, self-interested and lacking in communitarian values?

THE SOLUTION is to gradually shift away from our present tax system towards charges upon the use of land and natural resource - Community Ground Rent. That is, you pay a rent to the community for the piece of land that you choose to occupy. You pay according the benefit/s you receive from the community. At the same time, present forms of taxation are reduced. Eventually, most of the present taxes we pay - directly or indirectly - can be abolished.

Let me explain more.

In 1890, a famous American called Henry George visited Australia. As a result of his visit, we have what is regarded as one of the best land-rating/valuation systems in the world. At that time, most people knew about Henry and the ideas from his book "Progress and Poverty" - an international best seller - were widely discussed.

Henry disagreed that land should be seen as a commodity to be bought and sold. He saw land as the source of all sustenance and believed that all land should belong to the community which lived on it. Any products of the land, and any goods produced from the land through the use of labour, were free to be bought and sold. However, if you chose to privately occupy and use a piece of land, then a rent for the use of that site (called community ground rental, community charge, site rental, or land value tax) should be paid to your Local Council.

Thanks to Henry's visit to Australia we already have a (watered down) system of Community Ground Rent charges in place. A landowner pays a relatively small amount to her/his Local Council based upon their valuation of the 'improved' or 'unimproved' property. These annual charges are called "rates", and they partly pay for all the infrastructure and services we need - e.g., roads, drainage, power, water, police, gas, telephone, libraries, rubbish collection, parks, and so on. Inner city properties which have more local amenities usually have a higher rated value than those properties which are rural, and have less surrounding infrastructure and services available. (At present, all Local Government rates collected in Australia amount to less than 5% of total tax revenue.)

Henry claimed that no other taxes would be necessary and the income from fairly valued site rental charges (based upon the value of the land site only, or 'unimproved' value) would be more than enough to pay for all of the services and infrastructure a community/nation needed. The price of land would fall to zero with windfall profits going back to communities rather than to property speculators. The price of 'improvements' upon that land would remain. Rents would be reduced as landlords would need to attract tenants. They would have to pay the community charge for any land they owned, whether it were occupied or empty.

Australia's most comprehensive review of how to raise public revenue took place here in Brisbane in 1989. Using the Brisbane City Council as the focus of their study, The Lord Mayor's Committee of Inquiry into Valuation and Rating came to the unanimous conclusion that charging an annual rental on the unimproved value of a piece of land (a site), was the most efficient and equitable general revenue base for all levels of government.

Their recommendation has never been acted upon.

However, if each piece of land were valued by Local Councils, and the owner paid the annual 'rent', the income would be more than sufficient to provide all Australian communities with quality public services and amenities. Excess revenue could be directed to state and national levels of government. The only other taxes necessary would be levied on unsustainable, wasteful or polluting activities. Land and the use of natural resources would carry an annual rent to be returned to the community. You pay according to what land you choose to use, and according to the benefit you receive from the community. (The Benefit Principle).

Enormous savings would take place; people would become far more enterprising and creative when punishing taxes were removed from enterprise, investment, savings, production and sustainability. Employment would flourish (no more payroll tax), and money would be available for useful investment instead of being wasted in more (often unnecessary) property developments Urban sprawl would be reduced; less environmental damage would occur; home purchase and rental would be far lower in cost than it is now; mortgages for home owners would be either unnecessary or very small. Remember, the cost of land would be reduced to zero and most of our present taxes could, in time, be abolished.

Can you begin to imagine the growth of enterprise, creativity, employment and production when such desirable activities were no longer punished by high taxation!