Bollier on Monopoly Profits to Finance Government

Karl FitzgeraldEndorsements, Hot IssuesLeave a Comment

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As the Federal Government leads the deficit scaremongering on the road to lining up the firesale of our public assets to insiders (whilst slugging the consumer with a higher and thus regressive GST), we are reminded of the approach they could be taking if genuinely interested in a productive market.

Leading Commons advocate David Bollier writes in Why Not Tax Monopoly Rents?

Some interesting material coming out of Prosper Australia, a Melbourne-based organization and its partners, Earthsharing Australia and the Land Values Research Group. A new report entitled “Total Resource Rents: Harnessing the Power of Monopoly” finds that nearly one-quarter of Australia’s GDP comes from unearned income, not the 2% that neoclassical economists claim.

This means that ten times greater revenue could be raised through taxing unearned income from monopolies than previously thought. It also means that nearly half of Australia’s government revenues could be raised through channeling revenues from the real estate boom to more productive purposes. In the process, income, company and sales taxes – along with 122 other current taxes – could be eliminated.

Report author Karl Fitzgerald, “the Renegade Economist,” describes the implications of the findings of the report:

“Unearned incomes equate to 23.6% of GDP and could be taxed without pushing up pricing structures. Most economists dismiss economic rents at just 2% of GDP. This report finds the free lunch driving the wealth gap is ten times greater than mainstream economists acknowledge.

“Prices could fall by some 20% by reducing the number of taxes from 126 to 24” stated Fitzgerald. “The compliance and deadweight losses are a huge cost that fall disproportionately on small business.” This reform offers a more efficient and equitable economic system, valuing productive over speculative activities.

Australia taxes productive work while averting its eyes from the incredible windfall gains handed to those who own monopoly rights. Victorian abalone licenses were sold outright for just $6 in the late 1960′s. Each license can now be leased out yearly for a reported $100,000. This unearned income can be taxed without affecting productive outcomes.

The largest component of monopoly rents is land. Land rents rose by some $154 billion, amounting to 14.2% of GDP in 2011-12. If desired, the inevitable property bubble could be channelled into funding over half of all Australian government revenue. Less debt and more flexibility are worthy objectives for government and citizens alike.

The Federal government is enticing state governments to sell off public assets with a share of company tax. The majority of recent Public Private Partnerships have been unabashed economic failures, delivering few if any profits. ‘Value capture’ is a more effective model for financing infrastructure. Land values rise in areas where the public finances a new train station. By capturing one third of this uplift, all the infrastructure needed could be financed.”

Here’s a brief overview of the different types of monopoly rents that could be taxed, along with calculations of the amount of revenues that could be raised. The categories include land, oil and gas, water rights, airports, forests, satellite orbit rights, patents, among many other sources of unearned income.

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