When is a tax not a tax? A response to Bruce Felmingham, columnist in the Sunday Tasmanian, who could not quite bring himself to promote a land tax as a remedy for the State’s mangled tax system – even though he was drawn to it.
Published in The Sunday Tasmanian, 22 November 2009
An efficient tax system provides incentives for positive, productive behaviour. None of our existing taxes, State or Federal, do that.
The Henry Review of Taxation faces an enormous task in its quest to simplify the system. But it will be helped considerably by the submission from the Tasmanian government’s Business Tax Reference Group. The submission recommends broadening the land tax to all property.
In last week’s column, Bruce Felmingham grudgingly describes land tax as the “best of the worst among all…the forms of taxation we have invented”. Faint praise, indeed. But the economics profession is all at sea on land. The profession got it wrong 100 years ago, when it excluded land as a factor of production. They have struggled to explain the real world ever since, culminating in this year’s 2009 Nobel Prize in Economics being awarded to a political scientist instead![i]
However, previous Nobel winners have supported land tax for the incentives it provides in an economy. Four Nobel winners were amongst dozens of economists who lobbied Mr Gorbachev to initiate a land tax at the fall of the Soviet Union. He didn’t, and the country has suffered economically ever since. How different it could have been had they followed this advice:
“There is a danger that you will adopt features of our economies that keep us from being as prosperous as we might be. It is important that the rent of land be retained as a source of government revenue. While the governments of developed nations with market economies collect some of the rent of land in taxes, they do not collect nearly as much as they could, and they therefore make unnecessarily great use of taxes that impede their economies – taxes on such things as incomes, sales and the value of capital”.[ii]
Private ownership of land is the foundation of all western societies. However, people realise there is something special about land. It is recognised as the birthright of all people, yet we allow a few people to claim monopoly profits when they rent or sell. A fair system would allow newcomers, whether immigrants, refugees, or home-grown, an equal opportunity to obtain land on which to live and work. They would not have to drown in debt just to get a foothold.
Originally, Land Tax sought to create an equal society, so land could transfer easily between users, but exemptions and privileges for special interests narrowed the tax to what is now just a wealth tax, satisfying no-one. But it is still possible for land tax to achieve its potential, not as the ‘best of the worst’, but as an engine of growth for the economy.
In fact, a real land tax is not a tax at all. It is more accurately described as a rent for the exclusive use of the land we occupy. A tax, whether on income, sales or a transaction, is a levy on the productive process. Taxes hurt the economy, and the taxpayer. Land rent is different. It encourages owners to put land to its most productive use, to the benefit of all.
The increased production will kick-start the economy, allowing businesses to prosper, while the rent collected will pay for the public projects we all desire, but say we cannot afford. Improved infrastructure and services will generate higher land rents, allowing even better services. An upward spiral of economic and social benefit would be unleashed.
For a productive economy, equity, environmental protection, and improved public services, we should be supporting reform of land tax, not allowing it to be scrapped.
Leo Foley
President, Prosper Australia (Tas)
Leo holds an Economics degree, and promotes ‘Geonomics’ - a branch of economics that recognises the worth of mother earth.
The Mission of Prosper Australia is to create prosperity by collecting the rent from land and natural resources, instead of levying destructive taxes.
[i] http://www.progress.org/2009/nobel.htm
[ii] http://www.taxreform.com.au/gorbachev.php
