Why land value taxes?

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Land value taxes.Who advocated them? What is the logic? The history of land taxes in New Zealand. The history of rating systems in New Zealand.

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Why land value taxes?

  1. 1. Why tax land and the use of natural resources? And who has recommended it over the ages?
  2. 2. Biblical Quote • The earth is the LORD’s and the fullness thereof, the world and those who dwell therein – Psalm 24
  3. 3. Thomas Paine • "The earth, in its natural uncultivated state... is the common property of the human race"
  4. 4. Adam Smith • The annual produce of the land and labour of the society, the real wealth and revenue of the great body of the people, might be the same after such a tax as before. Ground-rents and the ordinary rent of land are, therefore, perhaps, the species of revenue which can best bear to have a peculiar tax imposed upon them. • Adam Smith - Wealth of Nations (1776), Book V, Chap. 2, Art.1
  5. 5. John Stuart Mill • Landlords grow rich in their sleep without working, risking or economising. The increase in the value of land, arising as it does from the efforts of an entire community, should belong to the community and not to the individual who might hold title. • John Stuart Mill - Political Economy (1848), Book V, Chap. 2, Sec. 5
  6. 6. Henry George • The tax upon land values is, therefore, the most just and equal of all taxes. It is the taking by the community, for the use of the community, of that value which is the creation of the community. • Henry George - Progress and Poverty (1879)
  7. 7. Leo Tolstoy • Solving the land question means solving of all social questions. Possession of land by people who do not use it is immoral – just like the possession of slaves.
  8. 8. Winston Churchill • Roads are made, streets are made, railway services are improved, ...water is brought from reservoirs a hundred miles off in the mountains - and all the while the landlord sits still… To not one of these improvements does the land monopolist contribute, and yet by every one of them the value of his land is sensibly enhanced. • Winston Churchill - Speaking in 1909 for the People's budget. He called land the “mother of all monopolies”
  9. 9. Rolland O’Regan • “Maori society could have survived land confiscations but it could not survive the evils a fundamental change of land tenure were to bring…Freehold land tenure caused the death of Maori society as it had been.” -Te Ara Tika 1973 • (Rolland O’Regan was a Wellington surgeon, son of Mr Justice O’Regan and father of Sir Tipene O’Regan)
  10. 10. Milton Friedman • So the question is, which are the least bad taxes? In my opinion the least bad tax is the property tax on the unimproved value of land, the Henry George argument of many, many years ago. • Milton Friedman - Professor of Economics, University of Chicago, speaking in 1978
  11. 11. Martin Wolf • Land value taxation is a "no-brainer"…It is both fair and efficient. It should be adopted. • Martin Wolf - Chief economics commentator at the Financial Times
  12. 12. George Monbiot • “The term land value tax is a misnomer. It’s not really a tax. It’s a return to the public of the benefits we have donated to the landlords. When land rises in value, the government and the people deliver a great unearned gift to those who happen to own it.” • Guardian Jan 21, 2013
  13. 13. Joseph Stiglitz • “One way to share Earth is to share her worth. Seems to work OK in Alaska where every resident receives an oil dividend. That state also has the narrowest income gap in the US.” • Land does not disappear when it is taxed. Henry George, a great progressive of the late nineteenth century, argued, partly on this basis, for a land tax. It is ironic that rather than following this dictum, the United States has been doing just the opposite through its preferential treatment of capital gains. • Joseph Stiglitz
  14. 14. Long term history of land tax in England • In 1216 100% of the government revenue was from land tax • By1483 it was 90% • By 1653 it was 50% • By 1760 it was 17% • By 1842 it was 4%
  15. 15. History of Land Tax in New Zealand • Sir George Grey met Henry George (also John Stuart Mill) and in 1878 introduced a tax on what you owned with improvements exempt. • Liberal Party 1891 The ordinary land tax and their graduated land tax for large estates were aimed at breaking up the great land estates, and capturing at least part of the increase in land value. • Conservative governments usually cut land tax. By 1988 land tax was only 0.4% tax take, down from 10%. Made illegal in 1991. • Nowadays tax system is complex, even messy. 80% of tax revenue comes from income tax, GST and company tax.
  16. 16. Local Authorities in New Zealand • Wellington, Christchurch, Dunedin were all built on site value (unimproved only) rates • From 1896 a poll of ratepayers allowed a choice between capital and unimproved value. It would always result in the latter. Poll choice stopped in 1988. • By 1982 80% of all municipalities used land value rating. • Auckland City Council supercity set up in 2010 by legislation mandating capital value rating.
  17. 17. Relationship with local government • Now almost all local authorities levy on the capital value (Auckland City Council by law is capital value) • Over the last decades Fixed Annual Charges for sewerage, storm water, water, community facilities have been introduced. Regressive. • One almighty hotchpotch now with dubious philosophy
  18. 18. Advantages of land value rating • Progressive tax – as central suburbs have highest land value. • Therefore most ratepayers pay less • Stops urban sprawl • Encourages building, (doesn’t penalise improvements). • Encourages urban renewal • Stops land speculation
  19. 19. Objections to land value tax • “An attack on the institution of private property.” • “Those who can afford more should pay more.” • “We need a broad base for tax.”
  20. 20. Other taxes on monopoly use of the commons • Ocean and freshwater resources • Fish • Oil and gas • Minerals • Electromagnetic spectrum • Use of air, water, soil, biosphere for pollution
  21. 21. Advantages • Unusually stable source of public revenue • The tax base doesn’t shrink • Land can’t be hidden offshore • Administration is simple, transparent • Not a burden on production as it doesn’t penalise work or entrepreneurship
  22. 22. When rates are on capital value • Disincentive to build because capital value would rise and then rates would rise. • Rising rents. If a landlord improves a building she/he bears the cost of building, plus the extra cost of rates. Rents go up higher than they need.
  23. 23. Different Philosophies • Land belongs to all • First in first served • Local government is a government • Local government is a business
  24. 24. San Francisco, rebuilding after 1907 quake, bounced back due to taxing land but not buildings. Population grew but not city area
  25. 25. Los Angeles doesn’t base its local tax on land but on capital, leading to urban sprawl
  26. 26. Detroit • Had two early Georgist mayors in a row, attracting industry and people. • Next mayors changed local tax system, beginning of decline.GST, income tax etc. • One even subsidised the holding of land leading to huge decline in population. This continued.

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