REDIRECTING  LAND  TAX
The Australian Commonwealth Government could provide a taxation initiative. It could arrange matters so that the revenue which businesses in a State provide in Company Tax to the Commonwealth could be collected by that State in the form of a land tax on commercial and industrial land. ... This economic rent represents the perceived value of the position to production. Small business would gain. Speculators holding such land idle waiting for residential development to make it more valuable would have to release it to increase the number of goods and services. 'Good Government,' February 1998, pp 1-2

GOOD  GOVERNMENT


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GOOD GOVERNMENT, FEBRUARY 1998 -- PAGES 1-2
VIEWPOINT
REDIRECTING LAND TAX

by Association for Good Government

This month 2692 people are paying in their first instalment of the new State land tax on $1m plus home sites; on the other, the first back-to-school allowances are being paid out by the State government to families with school-age children.

One was intended by Treasury to provide for the other but, as it turned out, school allowances will cost $55m while the new land tax will bring in only $25.5m.

Anticipating the move, the very rich were ready. Under the headline of "They will be forced out of their homes" so many poor retirees on pensions and working-class widows with children came forward (some not yet living on million-dollar properties but frightened they might!) that it seemed the only persons who lived on million-dollar land were the disadvantaged.

P.P.McGuinnes (Sydney Morning Herald Dec 11) blamed Henry George. "One man's ideas stir land-tax row." He confronted the ABC with the terrible fact that, in its Science Show, it had allowed someone to lecture on the 'single tax' "without knowing or caring that it was peddling the ideas of a 19th-century crank." (see p. 3).

While many Australians would be thrilled to have land values bursting over the million mark, and while reports seemed to indicate many 'family homes' which did not appear to be family homes at all but simply inheritances waiting to happen, it is still interesting to ask why apparently 'ordinary' people still live on our richest waterfront properties.

Many years ago the city was surrounded by working-class suburbs, a tram ride away from employment. At night the wealthy retired to larger and leafier blocks in the then outer suburbs. Now it is the poor who tend to live farther out while the middle class 'gentrify' the inner suburbs and the city itself. Thus, one Birchgrove pensioner who, 35 years before paid less than $20,000 for a house now owns land alone worth an incredible $1.6m. It is interesting to hear what he thinks about this. "I have spent thousands of dollars getting this house in pristine condition. People spend most of their lives paying off their homes then they introduce a tax taking all this money from you. It isn't fair." (SMH 12 Dec.)

The average tax payable is $9472.50, hardly a burden to the wealthy the cheapest Jaguar new costs $126,000. However, if the tax has netted some "poor" Australians just how many we do not know deferring the tax for a period will cause a large interest charge, certainly not enough to destroy a substantial inheritance but enough to cause the property to be sold. (A Hardship Board exists though it appears it may not be inclined to give very much relief.)

If it is unfortunate that the 'family home' will be sold, it is worth considering that it is the value of the land far more often than the tax upon it which causes it to be sold. The objections behind which the rich have been hiding are easy to dispel, since it is easy to means text the tax. But of course the lost revenue will have to be made up by everyone else, leaving those who stand to inherit a practically tax-free gain.

The lack of understanding about land tax is monumental. Those who own land have spent centuries shifting the tax upon it onto someone else, hence the many taxes upon production which in the end reduce the value of land. It is time to reverse this historical trend, but the place to start is not with residential land ("my" land) but industrial and commercial land, land which is income-generating.

Here the Commonwealth could provide an initiative. It could arrange matters so that the revenue which businesses in a State provide in Company Tax to the Commonwealth could be collected by that State in the form of a land tax on commercial and industrial land.

The amount of tax collected in the financial year would not change, but its incidence would shift from the income of the firm to the value (the economic rent) of the site. This economic rent represents the perceived value of the position to production. Small business would gain. Speculators holding such land idle waiting for residential development to make it more valuable would have to release it to increase the number of goods and services.


PAGE 2 -- GOOD GOVERNMENT, FEBRUARY 1998
OBJECTIONS TO THE TAX
by Association for Good Government

"It makes more sense to tax the total property value. As it is it is possible for the wealthy to build upon land of low value and escape the tax."

BASIC PREMISE: The rather misnamed 'land tax' is actually a public charge for the benefits to which occupiers of land have access.

Once this key fact is understood (that takes time) this and other questions fall into place. Land tax is a public charge for socially-produced benefits surrounding land. I t is public property. And (apart from public services specifically charged for) it is the only thing the public is entitled to take. A wealthy person who locates himself in an area with few community advantages to avoid this public charge has also 'avoided' public benefits. He has also over-capitalised this land, making his house difficult to fetch on the open market what he paid to build it.

"It is just wrong to say that all those who live on valuable land are wealthy. Many with low incomes cannot afford this tax."

Quite right, but it is time the public had the collective sense to wake up to what real estate agents have known for ages; that there are three reasons for land value, 'position, position, position,' and that position is position is relation to community or natural benefits. At the same time it is quite possible for the public to feel compassion for genuine cases of hardship in paying the 'tax' and to make humane arrangements to defer or exempt the persons affected.

"It is wrong to focus a tax on one asset-holding class."

Quite right, but at the same time we should realise that landowners do not produce land values; the public at large, including their tenants, do that. Landowners simply collect what others have produced. It is in fact the public who have paid the 'tax' to landowners.

The opposition to 'land tax' is built securely upon ignorance and self-interest. It can only be overcome by knowledge and public interest.

There appear to be four classes of objections to what we familiarly call land tax. As has been said, the basic one is from those who do not realise that land tax is essentially a charge for working or living in proximity to special social or natural advantages. One might almost say that it is a user-pays charge for using a particular area to work or live in.

There are public-spirited people who believe that the basis of taxation should be the ability to pay. This of course is the basis of the better forms of taxation such as income tax. What they do not realise is that levies on private property ought only to be collected when, temporarily, the revenue from sites and natural resources fails to provide enough for a national emergency.

Under modern capitalism, a person may spend a large part of his life paying rent or paying off various mortgages. Earnings are, more and more, geared only to providing a customary standard of living with little to spare.

The result for most people without substantial superannuation is that, at best, they reach later middle age with most of their "savings" sunk into a property. In that form their savings are not of much use. And, when a substantial tax is placed upon home sites, this fact comes home to roost.


GOOD GOVERNMENT, FEBRUARY 1998 -- PAGE 1
Contents
Viewpoint: Redirecting Land Tax/Objections to the Tax ... ... ... 1-2
WIDENING THE TAX REFORM AGENDA by Phillip Day (From Ockham's Razor on ABC, 26 October, 1997) ... ... ... 3-4
ASSOCIATION ACTIVITIES IN 1998 ... ... ... 5
SOCIAL JUSTICE IN TAXING PETERS TO PAY PAULS by Adele Horin in The Sydney Morning Herald ... ... ... 6
LETTERS ... ... ... 7-8
1. 'Why Tax Lawyers Would Favour GST'
2. 'Urban Land, Inequality and Taxation' letter from Alan Ecob
3. 'Frank Stillwell Replies'

Good Government is published in every alternate month.   Send annual SUBSCRIPTIONS plus Membership $20 (or $14 concession), or Subscriptions without Membership $18 ($12), to The Association For Good Government (Editor: Richard Giles), PO Box 443, Enfield, NSW, 2136, Australia, Tel (02) 9744 8815 and (02) 9319 3313, Fax (02) 9744 3804
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