GOOD  GOVERNMENT
"Good Government" journal of political, social justice, and economic comment, working for *A democratically-controlled and just government revenue to governments by the proposed collection of all 'economic rents' as their proper revenue, at the same time abolishing all taxes, tariffs, and unjust privileges; *The maintenance of peace and justice without undue interference in national or international trade or commerce, or in the private transactions of its electors; *Proportional representation in multi-seat electorates, and referendum, initiative, and recall; *Continuous education of the electors in the economic facts of life. Articles: "The Asian Currency Crash;" "Henry George's Teaching;" "Paying a Fair Share;" "What are capital gains?" Richard Giles.
A JOURNAL OF POLITICAL, SOCIAL, AND ECONOMIC COMMENT
THE PROPER REVENUE OF A NATION IS THE SITE RENT OF ITS LAND
Published in every alternate month by
The Association For Good Government
122 Little Eveleigh Street, REDFERN, NSW 2016, Australia. Telephone (02) 9319 3313. Editor: Richard Giles
PO Box 443, Enfield, NSW, 2136, Australia, Tel (02) 9744 8815, Fax (02) 9744 3804
66 Contents 
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PRINCIPLES OF
GOOD GOVERNMENT

GOOD GOVERNMENT RESTS
ON THESE FOUNDATIONS

TORCH of Freedom, flaming; animated; 8kb
  1. A democratically-controlled and just government revenue is available to governments by the proposed collection of all 'economic rents' as their proper revenue, at the same time abolishing all taxes, tariffs, and unjust privileges.
  2. The maintenance of peace and justice without undue interference in national or international trade or commerce, or in the private transactions of its electors.
  3. A democratic system of representation by the adoption of proportional representation in multi-seat electorates, and simplified provision for the referendum, initiative, and recall.
  4. A continuous programme of education in the economic facts of life to enlighten the electorate.
Print Post Publication Number: PP233007/00004                   $2.00                   ISSN 0017-2065

GOOD GOVERNMENT, DECEMBER 1997 -- PAGE 1
VIEWPOINT

THE ASIAN CURRENCY CRASH
   For some months now the world has been reverberating to the sound of falling bahts, ringgits, and rupiahs. The trouble was attributed to the currency speculator, George Soros. The tables below [to be put on WWW if and when we can do so] tell a different story.

   These tables show immense property speculation in Asia. It is only reasonable to assume that this property speculation has so inflated Asian currencies that, in turn, those currencies which were tied by government to the American dollar became susceptible to speculations.
   The exception, as the graph illustrates, was Japan.
   However, appalled at the collapse of property prices and the subsequent collapse of banks which had lent to speculators, the Japanese government is taking steps at taxpayers' expense to restart the growth of property prices.
   Let us hope that the billions being poured into Asian economies by the World Bank will not fall into the hands of property speculators.

  Table 2 Japanese residential land prices for family homes
(Graph might be inserted later)
 
 
 
 
 
 
 
Table 3 Japanese commercial land prices
(Graph might be inserted later)
 
 
 
 
 
 
 
 
 
  These Tables are listed on
pp. 31 and 32 of "The
Coming 'Housing' Crash:
The Dreamers and the
Deceived' by Fred Harrison
in "The Chaos Makers.'
Frederic Jones and Fred
Harrison; Vindex; 1997. --
our emphasis.  
 
Source: The World Land Survey
1995, Values of Land, Homes and
Rentals, Land Bureau, National
Land Agency, Japanese
Association of Real Estate
Appraisal, p.8.

PAYING A FAIR SHARE
   A recent Catholic leaflet has appealed to the wealthiest Australians to pay more tax. Whatever way tax is reformed it says there will be "those who will always be able to pay little or no tax, despite their high incomes and great wealth." So: according to this writer, the tax law is incapable of getting a fair share of tax from the very wealthy. The only hope we have is to plead paying tax as a moral virtue.
   Property, the leaflet says, is something "held in trust, to be used for the good of all." That may well be so but, before we appeal to goodness, how about appealing to justice?
   And what is the vision of the Church? Poor people being supported by rich people. Is that as good as it is going to get? Some of us tend to think that justice will be better for the poor than this. Maybe, if the government cannot collect taxes it could collect land and resource rents instead.

PAGES 2-3 -- GOOD GOVERNMENT, DECEMBER 1997

HENRY  GEORGE'S  TEACHING
   Sometimes our readers complain that they do not get enough basic Georgist teaching. Here is a start. Readers may like to add something of their own.

   George applied economic theory to resolve the social problem of poverty. In Progress and Poverty (1879) he uses the concept of economic rent to show that when all land is enclosed and its rent privately appropriated, the fruits of progress are taken by land and resource owners in the form of economic rent. Producers only earn enough to go on producing. What more employers can earn than their workers comes from unpaid wages or unpaid rent.
   In the special conditions of capitalism -- the enclosure of land and the rapid increase of a materially progressive population -- this rent grows more rapidly than earnings, making society more and more unequal and unstable. At the same time the pursuit of rent by land monopolisation brings about an unstable economy by artificially high land prices, depressed earnings,and periodic business cycles (as land speculation waxes and wanes).
   Since George's time the welfare state has mitigated those conditions somewhat by a `social wage'. At the same time an immense welfare state for the rich has grown up by countless awards of economic privilege to the wealthy. George considered that the only true way to overcome this instability was by the collection of the economic rent of land and resources as public revenue.


THE  ASSOCIATION  AT  AN  IMPASSE
SECRETARY'S REPORT, JUNE-DECEMBER, 1997
   Introduction: Although all staple activities of the Association have by now been restored, the lack of adequate funding has meant that there is no opportunity to expand those activities, for example, by employing any office staff.
   This step is desperately needed if the Association is to obtain useful mailing lists for its promotional activities, meet its increasing obligations to keep meaningful contact with its members, and to bring the Association' s office and library into a state where their usefulness to students, members, and the public meet the expectations of our benefactors. We have suitable persons to carry out this work in several students who have graduated from our courses. What we need is funding.
   Membership: Members will appreciate that one way to get adequate funding is for us to impress funding bodies with the size of our membership. At present it is 93. Our thanks to those who quickly renewed and an especial thanks to those who gave donations. Your membership is appreciated and helps to keep us working. Please renew your membership for 1998. If you have considered membership there is no better time than now to fill in the membership form and return it. By this time we are almost entirely dependent upon subscriptions to continue.
   Our activities: In the last five months we have held three courses with over 20 students, several of whom became members. We have produced four issues of Good Government and two issues of the Georgist Quarterly; we have conducted two Seminars upon development levies and housing attracting in all 35 participants. By the good offices of the WA branch we presented our courses and journal issues over the Internet.
   I have spoken to university students and Rotary Clubs, and presented papers to two conferences. Members of our committee have lobbied at conferences and in three organisations, and our members have had about half a dozen letters printed in suburban or metropolitan newspapers. We have maintained accurate and complete records of our meetings and a careful record of our finances. We have consistently provided members of committee with timely agendas and Minutes.

Conclusion: The Association is at an impasse for two reasons. First, after an hiatus of twelve months in 1994-95 we have restored staple activities, but we cannot now go forward to more intensive promotional work without office staff, the return of our main office and equipment, and adequate and `no-strings' funding. Second, we are at an impasse because we may have to leave Henry George House, the building bought to be the home of our movement.
   We cannot make more intensive use of this building because we lack the funding to employ office staff to help expand our activities. We appeal to those who are confident that we can expand our activities to do what they can to remove these impediments.

PAGE 6 -- GOOD GOVERNMENT, DECEMBER 1997

POLICY
WHAT ARE CAPITAL GAINS?
by Richard Giles
Since September, 1985, Australia has had a capital gains tax. It is an adjunct to the Income Tax Assessment Act of 1936 in that it collects income which stems from the sale of certain assets.

How does it work?
Under this tax certain assets acquired and sold after September, 1985, are taxed at marginal tax rates, after adjusting the prices for inflation. These assets consist of collectibles such as rare books, stamps and coins, antiques and jewellery , items of personal consumption which the Australian Tax Office (ATO) describes as items acquired for `personal use and enjoyment'. The list also includes household items which one would not classify as collectibles such as household furniture, electrical goods and boats -- but not motor cars.

The list of items liable to the tax go further than this. It includes items which under no stretch of imagination are items possessed for "personal use and enjoyment". There is land and buildings for example, and there are shares and units, and even licences.

What is a capital gain?
Now such a motley list must make one ask the question, what is a capital gain? It most certainly is not an item held for profit; this would make the stock held by any merchant liable to capital gains tax -- and, incidentally, make wholesale sales tax into a capital gains tax. Neither can a capital gain be a profit made from disposing of an item owned for "personal use and enjoyment". We have already seen that. So, when is a gain a capital gain?

GOOD GOVERNMENT, DECEMBER 1997 -- PAGE 7

Capital gains as rents

Thankfully, the mention of the sale of licences provides us with the clue that a capital gain is a`rent' as that term is often understood in economics. A rent is an excess return available to labour and capital expended in a restricted market. In other words, it is a monopoly profit.

A rent is something other than a return to labour and capital. It represents a return due to a condition underlying this expenditure of labour and capital. This may be an artificial or man-made condition, such as prevails in the case of a licence -- a shortfall in supply due to restrictions upon access of supply to a market -- or it may be a natural condition where something of rare quantity and quality is sold, such as a master painting.

The rent to land qualifies under both these conditions. First it is a natural occurrence governed by the fact that nature and society does not make the most desirable sites in quantities which may satisfy everyone. And, second, land is made artificially scarce and expensive by the withholding of land from its full use.

Capital gains taxes
No doubt many welcomed the capital gains tax. But they forgot that there were already many capital gains taxes. Even income tax could be thought of as a capital gains tax. But there was already betterment tax, land tax and local rates. What were these but attempts to capture capital gains? And, since 1979, there had been s.94 contributions. This captured some of the capital gain which came to developers when they obtained rezoning or other approvals to develop land.

Weaknesses of capital gains tax
For all that too, the capital gains tax was not a very efficient form of capital gains tax -- if that makes sense. For one thing it exempted the principal place of residence; it exempted assets bought before 1985 and it included a mostly fictitious capital gain on buildings.

For the most part capital gains do not exist on buildings. Buildings make capital losses. They depreciate. Even the ATO acknowledges this when it sets out depreciation rates for owners of investment properties. This anomaly becomes plain if we think that, were we to buy an investment property for $150,000 and sell it for $205,000 four years later the building would be considered to have made a capital gain. But, all the while the owner would have been claiming a depreciation allowance on the property!

Capital gains tax only captures rent at the point where an asset is sold -- surely a weakness in a tax that is setting out to capture capital gains. There are the records to keep. There are also enormously difficult special cases. There are the assets disposed of in a deceased estate, by a divorced couple; and there is such a thing as net capital gain made after offsetting capital losses, for example, on shares.

A single capital gains tax?
Clearly there has always been a capital gains tax in land tax and rates, forms of revenue which capture excess returns to land as they occur -- a much better way to capture capital gains. Why do we need so many capital gains taxes?

Really all we need to do is to extend this co-called land tax to include capital gains from the sale of natural resources (including air waves), and to invent (if we need to) a way of capturing capital gains which flow from the publicly-conferred profits from licences, quotas, tariffs and other forms of privilege. When this is done, and speculation discouraged, we might ask why we need to place a capital gains tax upon furniture, electrical goods, rare books, or indeed on any item of private property.


* EDITORIAL NOTE: The short biography of Mr W.A. Dowe is still in preparation and must be postponed.
Merry Christmas to all our readers

Magazine CONTINUED


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