My article in the Sunday Tasmanian (22 Nov 2009) drew a response from Bob Elliston in the following issue.
I felt he deserved an answer to his critique, and post it here:
2 December 2009
Dear Mr Elliston (Bob)
I am attempting to create serious debate on the best way of raising public revenue in Tasmania, and Australia. I am interested in others’ contributions, but I have been disappointed with the quality of many of the arguments. The local seminars for the “Henry Review of Taxation” were pretty dismal, and mostly devoid of recognition of ‘good and ‘bad’ taxes. Most people there were only interested in their own circumstances. The more recent Land Tax ‘debate’ follows a similar pattern.
If I may, I’ll interpose my comments against your own letter:
BE:…“rent for the exclusive use of the land we occupy” challenges the definition of ownership.
LF: Why? We own freehold titles now, but Land Tax is payable to the government, and rates are payable to local councils. Is ‘rent’ such an intimidating term? It is my argument that rent is a far better description of the relationship we enjoy with the land. Sometimes it is called a lease, but that puts a legal construct around the relationship, and will inevitably be tested before the courts. But you can call it ownership, leasehold or whatever you like. In the end, you hold the land subject to some bureaucratically determined system that gives you a title, and therefore exclusive use.
BE: “…since when did landholders have exclusive use of their land?”
LF: By ‘exclusive use’, I mean that you can exclude me from the land you own (or lease, or rent). I can’t see where that concept is contestable. That’s what trespass laws are all about. If I can use your land, or someone else can take mine over, then titles mean nothing. Have I missed something?
BE: “Imagine Land Tax in a Third World country; the multi-millionaire banker in his suburban home is taxed negligibly compared with the subsistence farmer on a patch of barren soil.”
LF: No, he isn’t. Wealthy people occupy the best land, which has higher land values. They will pay heavily for the privilege. Subsistence farmers operate on marginal land, which has little value. Farmers will pay very little, probably zero if it is truly marginal land.
As an example, take Zimbabwe. White farmers had the best land. Mugabe stole it and redistributed it to non-farmers, ruining the economy, when all he needed to do was to charge them the full rent of their land value, and distribute that to his people. Over time, black farmers could have bought the land for themselves, with an orderly handover and proper agricultural training. Interestingly, that was exactly the policy proposed by Joshua Nkomo at the initial election after independence. The world could be a very different place if we would just learn from history.
BE: Land Tax is unfair…
LF: A flat rate land rent system, based on the value of the land we occupy, is absolutely fair. I pay my fair share for a block in Lenah Valley; you would pay only your fair share for land at Great Bay (considerably less per acre than Lenah Valley); and both of us would pay far less than residents of Battery Point or Sandy Bay. Everyone would pay for the benefits we receive. Nothing fairer exists to my knowledge.
BE: Land Tax ….. cannot force productive use.
LF: Oh yes it can. The charge is levied on the land we occupy, whether we use it or not. To pay the tax (rent), any rational owner would put the land to productive use, or, if they are not so work-inclined, would sell it to someone more industrious. Either way, the land would be put to use. Compare that to some of the land banks currently held by developer/speculators, which are deliberately held out of use until some poor prospective home owner is willing to pay the extortionate ransom demanded.
Of course, it also would bring into use those vacant allotments held within cities, that are currently sitting idle. More production; more work; more economic activity.
BE: A 0.01% assets tax would be a much fairer equaliser.
LF: I’d be happy to hear your arguments for this. At first glance, it seems to me that most assets could easily be moved off-shore to avoid the tax, or split amongst family members. But you might have ways of curbing avoidance.
But, in any case, I would always want to draw a distinction between earned income (and assets), and unearned income. If I work harder or smarter, I should benefit from that. We should reward work, and initiative. But, if the community provides services to my land, thus increasing its value, at least some of that increased value should be returned to the community. Otherwise, I profit personally from the community’s efforts. That is unfair. I can’t think of anything fairer than paying for the benefits we receive from our community, as well as providing our government a perfect incentive to provide better services.
Finally, rents on land values have the capacity to fund all public services currently provided in Australia.(1) There may even be some left over for a ‘Citizens Dividend’. Can your assets tax do that?
If you want to continue dialogue of an important subject, I would be pleased to continue the exchange.
Yours Faithfully
Leo Foley
(1) “The Taxable Capacity of Australian Land and Resources” in the journal Australian Tax Forum. Author Terry Dwyer is Visiting Fellow, National Centre for Development Studies, Asia Pacific School of Economics and Management, Australian National University.
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