Why Site Revenue Best Describes
That Portion of Wealth
Belonging to the Community

David Spain

[Reprinted from a Land-Cafe discussion, 6 October, 2008]

Whilst Henry George used the terms rent and land value taxation, it is important that modern Georgists NOT do so and adopt a more precise terminology. Henry George's terminological errors are one reason why his message is not getting through. We need international co-operation on this lest we be (or remain) a Babel of in-fighters.

The term rent has a specific meaning in the vernacular. It is the amount a tenant pays a landlord or land owner. Its use, in connection with the Georgist reform, implies nationalization of land and so is inappropriate & confusing. HG himself said nationalization of land is unnecessary, so it is a pity he contributed to this vernacular confusion.

The term site revenue is best. This is defined as the collection, monthly in advance, of the rental-value of sites privately occupied as the sole source of public revenue. Note that (a) only the value of the site (not its improvements) is relevant and (b) the rental-value is ascertained by professional trained valuers (not set by politicians). Sites at the margin (eg in a desert) have no rental-value. The rental-value of sites inside the margin is in no way due to activity by their owners. It is due entirely to (a) gifts of Creation (their mineralization, fertility, water, vista etc) and (b) the presence & proximity of human community with its demands, zoning potentials, services & infrastructure.

Hence, collection of that rental-value is collection of a value bestowed by the community when granting monopoly over a site, for instance by granting freehold title or a Crown lease. Consequently, (pace Henry George's unfortunate terminology) site revenue is not a tax. Taking this view enables Georgists to roundly condemn all taxes.

The traditional definitions of taxation for constitutional purposes have included "a compulsory payment of moneys raised for government purposes, where the exactions do not constitute payment for services rendered, are not penalties that are arbitrary and the exaction is not incontestable": MacCormick v Cmr of Taxation (Cth) (1984) 158 CLR 622 at 638-641; 52 ALR 53 per Gibbs CJ, Wilson, Deane and Dawson JJ. For constitutional law purposes, a tax is an imposition of a pecuniary penalty and its very nature prevents it from constituting an acquisition of property on unjust terms: ibid.

The rental-value of each site can be discerned by maintaining cadastral maps (which are available on internet), showing the factors informing site value such as those above supplied by Creation and those supplied by the community (accessibility, utilities, proximity to schools & amenities etc). Trained valuers, continuously observing transfer prices on sites (which is data that has been collected compulsorily in Australia for over a century), can ascertain whether or not the transfer was at or below the improvements to that site. The value of improvements can be acsertained using construction & depreciation schedules. Whilst it may take a period of trial & error to fine-tune and reach stability, soomer rather than later sites would transfer for value of improvements only i.e. "land price" is destroyed. Any transfer for a price above the value of improvements indicates insufficient SR is being collected. Any transfer below the value of improvements indicates too much SR is being collected. The SR of any specific site, thus ascertained, can be extrapolated to equivalent sites in the neighbourhood.

The above paragraph, based on the analysys of Douglas Herps a professional registered valuer & Sydney Georgist, probably states the general view in Australia. At least, I am not aware of any pressing alternative view. Nor have I seen any clear, firm alternative view as taxing land price itself in inappropriate. Note that the resultant nil site price is not so much the aim of SR as the test by which the accuracy of the SR set can be evaluated. Note also that, in my analysis, the resultant nil site price is a desirable outcome and has nothing to do with the Rothbard fallacy that taxing land price will reduce it and ultimately destroy its own tax base. SR is not a tax, and even if it were to be descibed as such, its quantum is not fixed as a proportion of land price but rather as that regular payment which ensures sites (as distinct from their improvements) transfer without price. It does not ascertain & tax land price upfront, but rather views the absence of land price in rear vision.

SR payable for monopoly over sites not held under freehold (Crown land in Australia) can usually be determined, not by observing transfer prices but rather by public auction of occupancy or extraction rights over a term, often geared to a royalty-rate or a fixed proportion of an available resource (eg of fish-stocks).

Note that the price of land does not equate to its value. In an SR economy, land will have no price (i.e. exchange value), however it will have income-earning value and it is this which is reflected in the SR. It is a big mistake to focus on land price (which is largely future rental-capitalization) rather than its annual value, or income-producing potential. IMHO, Australian theory here is way ahead of US & UK theory. When the correct amount of SR is being collected, the site will have no price. Its owner will, however, bear the SR burden. SR in no way involves collecting rent as a proportion of land price. How could it and why should it? This would be an impost at an arbitrary figure set by politicians, and so evil. In an SP economy, the very test that SR is in correct amount is that land price is nil, or at least a healthy few hundred dollars above nil.

Also, SR is collected in respect of sites other that land. For instance, it is collected in respect of oyster leases, yacht moorings, sealanes, flight-paths, satellite orbits and broadcast frequencies. This makes the term LVT doubly inappropriate.

In an SR economy, landowners will be responsible to pay the SR and will still collect rent from their tenants. The quantum of that rent will be a price representing usage of the improvements (say 10% annually of their value) plus the SR (after all, the tenant is getting the advantage of the site's attributes). However, speculation in land price and windfall profits from capital gain will be impossible. However, high rents ad rack-rents will become impossible as SR (a) is a steep financial burden which imposes a severe disincentive to owning holding or using more land than is essential (b) makes sites readily available to all willing to work with hand or brain, so tenants have options and (c) would make landlords keen to retain reliable tenants lest they end up paying SR on a vacant site.

SR (and the absence of site speculation), probably assisted by fuel costs, will encourage in-filling of vacant urban sites and constrain ribbon-development & urban sprawl, but zoning controls may remain necessary.

So let us jettison all talk of collecting the rent and of LVT or single tax, let us condemn all taxes absolutely, let us speak only of Site Revenue (as defined above).