The following list comprises the most commonly asked questions and objections to the idea of using land and resource rentals as the best source of revenue for government. As you continue this study you will see the value in giving resources the respect they deserve and the benefits of freeing up labour, production and exchange. If you have any questions not covered below, or observations you would like to put to our panel, please feel free to do so by sending an e-mail query and we will attempt to respond within five days.
The inclusion of land and resources in the economic equation is central to any solution to the matter of revenue raising.Any solution to our taxation dilemma which fails to examine the nature of taxation itself; and allows the continuation of private monopolisation of community land and resources while failing to recognise the essential part that land plays in the economic equation will not work. Land is the only element in the economic equation which is both fixed and finite, and which can be monopolised. If we were to wrest not the land itself, but its unimproved value from private monopolies and return it to the communities, whose very presence create the value, then we would have solved the problem in one stroke, with no detriment but in fact with great benefit to production, to the environment and to the cause of individual freedom and justice.
On the subject of land and resource rents, Henry George had this to say:
“The tax upon land values is the most just and equal of all taxes. It falls upon those who receive from society a peculiar and valuable benefit, and upon them in proportion to the benefit they receive. It is the taking by the community, for the use of the community, of that value which is the creation of the community. It is the application of the common property to common uses. When all rent is taken by taxation for the needs of the community, then will the equality ordained by nature be attained.”
- What’s with all the terminology?
- Won’t the site rent be passed on to the tenant?
- It sounds too simple
- What is the difference between Land Value and Land Price?
- What is meant by ‘unimproved’ value?
- Why is income from land ‘unearned’ income?
- There is no such thing as a free lunch.
- There is no unimproved land value!
- This tax, like a debits tax, ignores two of the basic principles of raising tax
- It’s incorrect to suggest that income derived from holding land or resources out of use is not a productive activity. It is, since it produces income for the owner.
- Will I be better off with Resource Rentals?
- Are resource rentals fair?
- Wouldn’t the wealthy simply find some way of evading it?
- Wouldn’t the wealthy sell up and flee with their wealth?
- Won’t the poor get caught, while the rich escape as usual?
- Would farmers be able to afford the tax?
- How will it affect multinationals (MNC’s)?
- How will it affect lenders and borrowers?
- Entrepreneurs and Manufacturers?
- Exporters and Importers?
- Won’t it fall harder on the prince in his mansion than on the pauper in his hovel?
- How would old age pensioners on valuable sites be able to pay the site rent as suggested?
- What happens to the self-funded or partly self-funded retiree?
- Unemployed adults – currently untaxed but perhaps owning their own home? Will they have to pay as well?
- The investor in a site has taken a risk, and tied up their capital – who else could possibly be entitled to their capital gain?
- How would such a system be implemented?
- What would happen to Land Prices?
- If resource rentals are such a good idea, why don’t we have them?
- Why would anyone want to own land under this system?
- How do I buy a property?
- If site values fall, won’t revenue fall too?
- How will it curb unemployment?
- Wouldn’t we run out of space?
- Who wins; who loses?
- Will pensioners and retirees – currently untaxed but living in their own property, be liable for site rents? Will they be reimbursed for past taxes paid?
- New enterprises – yet to realise any profit but paying tax on the property from which they operate? If you tax them, won’t they fail?
- Why don’t we impose reciprocal import duties?
- What about anti-pollution tax rebates?
- What about a Debits Tax?
- Site Rent for Revenue is a crackpot idea.
- Why put the entire burden of taxation on one area of economic activity?
What’s with all the terminology?
Often referred to as Georgism, Geonomics or ‘Geo-ism’, there are many terms to describe the means to achieve this. Some of the terms include: site rental, resource rentals, land value capture, rent for revenue, Land Value Taxation (LVT) and community ground rent.
They all relate to capturing the natural increases in land values created by our hardwork (ie taxes paying for new roads that benefit surrounding landowners) and recycling them into government coffers.
Won’t the site rent be passed on to the tenant?
Site rent cannot be passed onto the tennant because the landlord is already charging the market price. Additionally, it cannot be passed on because there is now an increased supply of rental properties on the market. Tennants can now threaten to move if the landlord attempts to pass it on.
When rent is collected on unimproved values, land will become much more readily and cheaply available. Many more people will have access to sites and be in a position to build their own houses and create or operate businesses. All you’d need to borrow, if at all, would be equal to about 10% of the current unimproved site value; enough to cover the first year’s site rent. Compare this to the gigantic burden of current mortgages at inflated interest rates.
Many existing tenants would move and take up sites elsewhere. The law of supply and demand will reverse the current situation by forcing landlords to compete to attract tenants by; improving terms and conditions, carrying out building and internal improvements, undertaking promotional activities in commercial centres, etc. In other words they would have to start renting buildings alone and forego the unearned income from the site itself.
In such a market, if your landlord tried to up the rent, you would simply move. You could confidently threaten your landlord that if he didn’t lift his game you would move out. In such a climate, landlords will be improving their buildings in an effort to attract clients. It will be a buyer’s market.
Landlords, especially smaller landlords, would ultimately benefit from Community Site Rent in any case, in that, although they would be foregoing the site rent as part of their income, they would be in the same position as other citizens in that the benefits from a move to Community Site Rent would offset and probably outweigh their initial loss. Larger landlords, the greater part of whose incomes currently derive from ground rents alone, would probably be more likely to lose overall, and may well take their capital offshore. The community would probably gain from such an outcome. Readership of online independent media would surge during such a period of transition!
It sounds too simple.
So does the law of gravity.
Will I be better off with Resource Rentals?
If you work for a living you will be better off – much better off – under a resource rentals based system. If you live off other people by collecting rents you will be worse off. It’s that simple!
Are Resource Rentals fair?
Our proposal is a change in the taxation system from taxes being levied on what you produce to being levied on the value of resources you consume. You simply pay to the community for the benefits the community provides for you. Isn’t that fairer than being penalised for working?
If Resource Rentals are such a good idea, why don’t we have them?
We do to a very limited extent. Local government rates are a form of Resource Rental. But… The wealthiest 20% of Australians own around 80% of this nation’s resources. Naturally this makes a very powerful lobby group. The current taxation system allows the wealthy to escape paying tax (through the use of “Managed Investment Schemes and/ or tax havens for eg.) while collecting rents from the rest of us.
Wouldn’t the wealthy simply find some way of evading it?
You can’t move a nation’s natural resources off shore. You can’t evade a Resource Rentals charge, just as you can’t evade paying your rates or mortgage, whether you’re Joe Bloh or James Packer. In our current system if you don’t pay your rates or your mortgage your site is reclaimed by the owner or by the local authority. That wouldn’t, and shouldn’t change. If you want to own shares or property overseas that should be no skin off anyone’s nose, good luck to you. If you’re using wealth generated in this country to do it, that’s fine too because you would also be spending some of the profits here anyway.
Wouldn’t the wealthy sell up and flee with their wealth?
Few would flee; they would stick around and utilise their wealth in productive enterprises which would allow them to utilise their managerial or entrepreneurial skills to generate more wealth for themselves and, through resource rentals, for the community at large. People could shift cash, gold jewelry, antiques, paintings or any other moveable assets offshore to their heart’s content. They could use all the modern electronic means at their disposal to move funds, and do whatever they like with their money. Anyone who’s willing to work for a living rather than be supported by the labour of others will be grateful. If there is a flight of non-productive capital, the only function of which was to hold land and resources out of use in expectation of some future unearned profit, then their departure would not be missed in the long run. As these non-producers fought to get rid of their unused sites, the prices would drop, and Mr. and Mrs. Joe Bloh would be able to realise the Aussie dream of owning their own house. Joe and his partner might also be able to start up a little business and produce for themselves a passably good life. In fact the whole population would have a much better chance of enjoying the fruits of their own labour.
Isn’t this simply the economics of envy?
It is not the economics of envy. It is the economics of justice. We shouldn’t envy anyone whose rewards are commensurate with their efforts. Who wouldn’t be extremely happy to receive what we earn? Trouble is, with direct and indirect taxes the average worker receives about 40% of what we earn, but someone like …. we don’t want to name names – say James Packer, probably actually earn about 10% of their incomes. Speculation should not be encouraged or rewarded.
What is the difference between Land Value and Land Price?
Land Price is the accumulated capitalisation of economic rent. It’s what the market pays in a marketplace where land speculation is encouraged and title is bought in a one-off transaction (as per at auction). Land value is the actual rental value of a site ie what can be physically earnt from that location.
McDonald’s is the world’s 2nd biggest landowner. They are renowned for ‘doing the sums’ before committing to a future store and buying a piece of land. They hire statisticians to count the number of cars that pass by the location. Using their statistical models, they calculate for example, that if 10,000 cars pass each day with a likelihood of 200 potential customers spending $8 each, the site is worth $11,648,000 ($1600 x 7 days x 52 weeks x 20 years). They will refuse to pay above that market price because they know they can’t earn enough to pay the mortgage. Under our system, they would refuse to pay more than $582,400 (1600 x 7 x 52 weeks) for a yearly site rental because they know the actual Land Value. To pay anything above this is uneconomical as they wont be able to earn the extra revenue to cover this. A similar situation is the astute small business investor who sits in for a month on a prospective business , recording all transactions (in say a Milk Bar) to see how much the business is actually worth, before committing to the asking price.
Often under our present system, speculation forces Land Prices above what can realistically be earned by its occupants. Under a Site Rental system, when there are 70,000 cars passing by and 300 people entering the store, the company will naturally pay more back to the community, keeping in time with the growth of society. In time Land Price should equal zero, but Site Rental will replace that, growing as society does, ensuring the people get a share of the improvements.
What would happen to Land Prices?
The speculative component of land prices would be removed as the increased supply of property (huge tracts are withheld from supply by speculators) leads prospective buyers to pay only what the property is worth in terms of location, infrastructure and amenities.
It’s probable that land prices would drop to zero within the first couple of years. Remember, there is a big difference between land price and land value.On the introduction of the system, anyone holding land speculatively would either have to put it to productive use or get rid of it. If they hung onto it, they would be out of pocket by the annual rental value. Putting it to productive use would result in a dramatic increase in demand for labour and therefore an increase in trade and thus in the general welfare. Getting rid of it would result in the asking price for land dropping substantially to the point where supply exceeded demand, with the seller getting progressively more desperate to sell and thus avoid the site rent.
In the end, land price is replaced by land value, as represented by the Site Rental. The Site Rental is representative of only what can be earned by occupying that piece of the planet.
How would such a system be implemented?
Whether a political party were elected on a site rent platform, or a government were persuaded to change over in mid term as the result of a referendum, then there would obviously need to be a period of transition in which legal matters were sorted out, legislative changes made, procedures established etc.. This could possibly take a year or so. At the point where the system becomes law, then the current unimproved site values at that time (as is already available for scrutiny wherever rates are collected) would be used as the basis on which the first annual rental is struck at a rate of say 10%, or whatever was determined as required for government expenditure (using the same methodology to set rates).
Although initially set at ten percent on the unimproved value of all sites, the asking price for land would obviously fall dramatically on the introduction of the site rent system, and would drop in many areas to zero as the supply of sites outstripped demand. Site Rental, representing Land Value, replaces the inflated Land Price that is possible at present with wasteful land usage. At this point, within a year or so of the implementation of the scheme, the government would simply collect the annual site rent as its sole source of revenue. In other words, the occupier would enjoy exclusive use of the site for as long as they continue to reimburse the community for the benefits which their exclusive access gives them. In that way, the value created by the community’s presence – the economic rent – is returned to the community as revenue for its government.
There would no doubt be a bit of panic, especially among all those whose whole or partial income derives from rent in one form or another, but even these people would see, once they’d calmed down, that the benefits to the whole economy of such a radical change would massively outweigh any losses. Those whose income though is largely gained from community generated rent through monopolistic holdings of land and resources, licenses, etc. would be violently opposed, obviously, as their livelihood would be threatened and they would be reduced to relying on their own skill and efforts to produce income. They would be forced to live on their earnings and not their incomes.
On the positive side for these people would be the fact that they would still retain their mansions and their yachts; the legitimate part of their income from shares in productive enterprises like BHP, CRA etc., would still be coming in – in fact it may increase, as these enterprises would be taking part in a massive resurgence of industrial and corporate activity fueled by higher wages in the pockets of the consumers and cheaper manufacturing costs for the exporters. So even they would not necessarily be any worse off in the end, and would enjoy living in a happier, less fear-ridden and corrupt society. The best salve to their fears would be to give them all a years supply of valium, and a government-subsidised short course along the lines of “Only work generates wealth”.
Regarding the immediate redundancy of the very large numbers of taxation and related department functionaries, including Ministers and Ministerial departments ; even if the government undertook to continue employing them to twiddle their thumbs rather than paying out large packages, I think most of these people, within months of the start of the new system would be eager to get into it, seeing that they could employ their talents in a totally free market and generate as much wealth as they wanted to.
How do I buy a property?
There are now two parts to a purchase. The purchaser must agree to pay a Site Rental for as long as they occupy the site, to the Government (not the bank). This represents the cost of the land component, the amount that today typically consumes 70% of a mortgage price. The second part to an auction is the purchasing of the improvements – the building. This is what the past owner receives from the auction. This is also the amount that the purchaser may need to borrow from the bank. This may mean we are borrowing $70,000 – $150,000, rather than the full $350,000 plus amounts of today. As long as we pay the Site Rental and keep the bank happy, we maintain possession of the site.
What is meant by ‘unimproved’ value?
The “unimproved value” of a site is simply its worth discounting any improvements – the land value itself. It is the current market price less the current value of all improvements. As happens now, it is the market which determines the value of a site and anything on it. The desirability of a site for residential, commercial or industrial development, for the establishment of a mine, or for exploitation as a fishing-ground, is what creates its value. A derelict site fronting a shopping mall will be worth by and large what its neighbouring sites are worth. This fact is demonstrated when a vacant site goes to public auction. The amount of the successful bid determines the value of the site. The unimproved value of farmland in a marginal rainfall area is likewise determined by public bidding.
Any work carried out on a site, be it a multi-story exclusive store or a wheat crop, are improvements. The full value of these improvements should rightfully belong to whoever produced them. Our present system of local Council rates incorrectly rates on improvements, under the Capital Improved Value system (CIV). This penalises landowners for developing and improving their property. It also means that households pay a higher share of the tax burden than the wealthy property speculator who owns vacant land. No wonder our suburbs are sprawling for miles.
Won’t the poor get caught, while the rich escape as usual?
You can’t escape a site rent. You can’t hide land in an offshore tax haven. If you don’t pay up you lose the site. People on poorer sites, say the outer suburbs pay a lot less compared to the posher suburbs due to that famous modern day fable “location, location, location”. So by and large this is a progressive tax system.
Those renting only pay a rent on the improvements (the building) of the site they occupy, typically 30 – 40% of the cost of today’s rent. The landowner pays the site rental, the remaining 60 – 70%. This helps the poor save money for the Great Australian Dream.
It’s worth bearing in mind that those who wanted to work would have no difficulty finding work. Work would be looking for them. Those who didn’t want to work would be no worse off than they are now. This system would end involuntary poverty and unemployment with the access to cheaper land breeding small business incentive.
Why would anyone want to own land under this system?
At present, wages gain about 3% p.a, the sharemarket 7-10% and now land, instead of the 15% plus gains of recent (on a huge lump sum amount), would be left with about 10% of a much smaller increased land value ie a 10% share of whatever gain on a $45,000 Site Rental versus the old 15% on $450,000. Owning land would thus still see competitive returns to what can be earnt in banks or the sharemarket, just not as large a capital gain as the lump sum would be greatly reduced in size and growth. For more see Land Price versus Land Value.If the person is a renovator, they are entitled to all of the gains from the improved building.
Also, with the speculative component removed, the land market would be less volatile, reducing the risk of land ownership. Cheaper land values would give our youth hope.
If site values fall, won’t revenue fall too?
Some locations will drop but others, particularly those in central locations, may infact rise due to the immense productivity gains from our more streamlined taxation system.
Whilst the land price would fall to zero, the site rental would takeover as a yearly lease-type arrangement. The actual site revenue base will broaden with a vast increase in the take-up and utilisation of sites. There would be an initial decline in asking prices, which, in a static economy, would result in less revenue, but the point is that under a site rental system, much of the land which is now held out of use for speculative gain would be taken up and put into productive use either as residential land or in commercial or agricultural ventures. This would increase the amount of wealth generated by an unfettered, wealthier workforce. Since the wealth generated by the community would be so much higher than at present, and would largely remain in the hands of those who produced it, the community’s reliance on government-provided welfare and other resources would be reduced markedly, with a resulting decline in government expenditure.
How will it curb unemployment?
Under this proposed reform, land and resources would no longer be kidnapped and held out of productive use by private monopolies. Access would be within the reach of anyone who was willing to reimburse the community for the community-created value of the site. Wage levels, uninhibited by fear of unemployment, would flourish as demand for labour surged. People given a free hand to produce and to prosper, and knowing that they would get as much income as they wanted to work for – or as little as they needed to comfortably survive – would begin to do the sorts of work that pleased them. The quality and range of goods and services would increase dramatically, thereby improving their attractiveness to our trading partners.
How will it affect multinationals (MNC’s)?
If Community Site Rent were introduced, then, wages would rise, and the following would result:
1. MNC’s and large businesses typically rely on large sites with big carparks. As large land users they will have to pay higher site rents than your average small hardware store, helping to restore the balance, moving us towards re-localisation.
2. Consumers, having more disposable income, would not be forced any longer to opt for the cheapest product, and would be in a position to take ethical decisions on what they do and do not buy.
3. The result of this would be that any MNC’s which were using unethical practices would lose sales against more ethical competitors
4. If MNC’s had production sites in this country they would have to offer higher wages to hold their workforce, which they could may struggle to do whilst remaining competitive. This may lead them to close down operations here and move the production offshore to a cheaper labour source.
5. If the MNC derived a significant part of their income from ground rents, either directly or indirectly, (i.e., through cheaper labour or raw materials), then they would probably be forced to cease operations in this country anyway if they wished to maintain the same levels of profitability for their international shareholders.
How will it affect lenders and borrowers?
The vast bulk of unproductive sites, including those held for speculative gain or in anticipation of upzoning, would come onto the market. Unimproved land values therefore would initially fall which would in turn make them more accessible to all, whether first home buyers or commercial enterprises. The site rent, being based initially on a percentage value therefore would probably produce less revenue from existing occupied or utilised sites, but since there would be a large increase in the number of utilised sites, the total revenue would remain or more likely increase.
The cost of mortgages would drop because the land component would cost less – and in a very short space of time, it’s sale price would drop to zero and all you would be paying would be its annual rental value. In this scenario, you would only be borrowing to the value of a year’s site rent at the most for the land component, after which time you would more than likely earned enough to easily afford the next years rental. You would still be paying off the money borrowed on the building. As well as this, because everyone would retain a much larger portion of their earnings, they will be able to come up with a larger deposit, and also to pay off any loan much more rapidly. The demand for money will drop, resulting in interest rate falls.
How will it effect new and long-term mortgagors/owners?
Those who have, not long prior to the changeover, taken on a mortgage over a residential or commercial property may feel ill-served by such a site rent for revenue system as they will be obliged to pay both the mortgage repayments, and at the same time be liable for the community site rent. They are no worse off though and in fact are probably better off, because;
1. Employment conditions & wages will greatly improve due to the increase in small business. Other spin offs include a safer society, better public transport and reduced overall household debt pressures.
2. The long-standing mortgage payer has been liable for a comparatively similar amount, but over a longer period, but will never the less still be liable for the same site rent.
3. For the newer mortgagor, in all likelihood interest rates in the new system would decline dramatically, due to both a decline in site values and therefore demand for finance, making the mortgage effectively cheaper. On top of this, both the above mortgagees will from the date of changeover be able to retain a much larger portion of their income, since all taxes will have been abolished.
Wouldn’t we run out of space?
No, we wouldn’t necessarily be occupying more space, we may even be occupying less but doing it much more efficiently, productively and not environmentally damaging or resource indulgent (i.e., requiring road networks and separate infrastructures out to geographically isolated satellite suburbs.)
Lack of land supply is the property sector’s latest diversion plan to real analysis of housing un-affordability. take a cycle around your community and you will soon see a large number of vacant blocks of land and empty houses. This is where the real land supply problem is. We don’t need any more public land supply (and endless urban sprawl), we need this private land supply, currently locked up to enhance capital gains, encouraged onto the market. Site Rental is the most efficient way to do this.
Would farmers be able to afford the tax?
The critical point is that the Site Rent is levied on unimproved (no structures, fences or other improvements) values. In marginal country this would be very little indeed. In high rainfall fertile country it would be more since the unimproved land itself is more productive. However, it would still be minuscule compared to current mortgage levels. It is ultimately the market which decides the value anyway. Once you’ve paid the site rental, you keep what your earn, and pay no tax, direct or indirect, hidden or not, on anything else. You keep the fruits of your labour, and you earn more or less as much or as little as your desires demand.
Productive farms pay less under a proper Site Rental system than under CIV (Capital Improved Value), as they generally have developed their farms with more buildings and machinery. Farmers lobbying for CIV have generally been hoodwinked by the real estate lobby, who prefer CIV as then households and business subsidise vacant lots.
How will it meet the needs/demands of:
Entrepreneurs and Manufacturers?
Opportunities would abound. Large corporations which now rely on making maximum profit from cheap, shonky and second rate goods would face serious competition from smaller operators with lower overheads ( due to site rents), so would have to improve their game or disappear. People would have much more money to spend, and would therefore create many more new markets for the enterprising entrepreneur. It should be remembered that if, prior to the change, the entrepreneur was getting the bulk of their income from productive work, not from site rents, then they would be bound to gain from the proposed change.
Those with capital already at their disposal could if they wished put it to use establishing new enterprises or improving existing ones, and so benefit from the new system which allows them to retain a much larger portion of the wealth they generate, while at the same time returning to the community its rightful share of the community generated site value.
Exporters and Importers?
All tariffs and duties would disappear. Local product would be cheaper to produce, of better quality, broader ranging, and more abundant than ever before. Our products would fetch a premium on the world markets.
Imports would be cheaper. We could economically import the very best capital equipment and use it to produce even better products for home consumption and re-export. Consumers would have ready access to the best the world had to offer in the way of manufactured goods and other products
Pollution, toxic wastes, erosion, salination, land degradation, over extraction, decimation of tropical forests, diminishing fish stocks, threatened wild life; Private monopolisation of land and resources is the direct cause of all these environmental problems. Leases and royalties charged to the extractive industries do not reflect the true value of the minerals and other resources extracted. The true cost of these items must include the cost of ensuring the absolute control and minimisation of any resultant environmental degradation. If this resulted in the prices of some of these resources increasing, then that is what we must be prepared to pay.
In the manufacturing industries it is cut-throat competition among producers which leads to much of the current pollution and environmental degradation, and tempts those involved to cheat and to side-step regulations etc. in order to survive. With a site rent for revenue system they could afford to comply with the strictest environmental controls.
Who wins; who loses?
Broadly, anyone who gains part of their income from site rent will lose that part of their income through the Community Site Rent . Whatever part of their income derives from their own earnings will not be taxed any longer and will remain entirely in their hands. They will keep what they earn and no more.
The biggest losers therefore will be those who rely entirely for their income from site rents, and who do not earn their living by contributing to the production of wealth. The further down the scale one goes in the ratio of income from site rents compared to that from productive work, the better off the individual will be. At the very lowest end of this scale, where the individuals income is made up entirely of what they earn, then the maximum benefits of the system will apply. In other words the people at the bottom lose least, those at the top lose most. You could not have a more progressive revenue system than that! Thus we have a total inversion of the age old pattern of the community’s wealth aggregating towards the top at the expense of all at the bottom.
It should be remembered that those with large fortunes at the time of changeover would not necessarily be disadvantaged. Certainly they would lose whatever part of their incomes which were derived from the monopolising of community resources, but they would still retain all their existing capital, which they would be free to invest in productive, wealth-generating enterprises, and could utilise their managerial and entrepreneurial skills. They would not lose their yachts, island hide-aways, mansions and penthouses, rural acres. Nor would they need their battalions of accountants and tax minimisation experts.
Won’t it fall harder on the prince in his mansion than on the pauper in his hovel?
Don’t forget that the proposed Community Site Rent is struck initially on unimproved values. So the value of the building, be it hovel or mansion, is irrelevant. But to answer the point regarding equity;
1. the owner of a site of unimproved value $1m will pay $100,000 nominal site rent in the first year, and in subsequent years whatever the annual assessed rental value is – in fact probably around 10% of the site’s notional capital value, even though “capital value” or “price” will no longer exist.
2. The owner of a farm on marginal land out in the west of South Australia, whose 2000 hectares, excluding any improvements is worth $100,000 will pay $10,000 nominal site rent in the first year, and in subsequent years whatever the annual assessed rental value is. This farmer will pay no tax on his income from the crops, no tax on the farm machinery, new car, furniture, fencing materials, food, clothes, beer, books, new computer, TV set, home entertainment centre, RM Williams boots.
3. The owner/occupant of the fibro hovel would be unlikely to be living next door to the mansion, and more likely be in an outer suburb sitting on land worth maybe $40,000 at current values. He/she will pay $4000 nominal site rent in the first year, and in subsequent years whatever the annual assessed rental value is.
4. But what would all these people be paying now in direct and indirect tax? The millionaire; probably 5 or 10% of his/her true income in income tax, but the same indirect taxes as everyone else. The average wage or salary earner, between 30 and 50% of their income on income tax and then the same as the millionaire in indirect taxes on everything else. A minimum of 50% of average incomes disappear in direct and indirect taxes, an increasing proportion of which goes to support an ever more unwieldy and expensive administration. You don’t start earning a clear wage until more than half way through the year.
How would old age pensioners on valuable sites be able to pay the site rent as suggested?
Pensioners would be better off, but will be faced with some difficult questions in the beginning. At present day inflated land prices, the $330,000 house would see the unimproved price at $230,000. Ten percent of this is $23,000 in site rental. This would be a shock to most retirees. However, it must be remembered that we are presently at record highs for housing, and a site rental would return property prices back to more realistic levels within a few years. Thus in a year’s time 30% of the speculative price has probably been brought out of the price. Site rent then falls to $14,000. It should fall back again to about $10,000.
It is likely that a sole pensioner on $15,000 will initially not be able to cover their site rental. They should sell and move to a smaller premises. Alternatively, they could do a reverse mortgage and pay their site rental from their estate. That is a negative but look at the positives:
– their grandkids can now afford a house, reducing future generation’s reliance on any inheritance
– they can walk the streets in comfort as crime drops due to increasing small business, employment opportunities and wages.
– their pension’s purchasing power will be much higher, giving them more dignity, as the removal of direct and indirect taxes will boost pensions by 40%.
These are just some of the gains, making this small sacrifice well worth any short term transitional issues.
A couple on a pension will be able to continue as per normal, though they may have to tighten their belts for the first year. The added purchasing power of 40% will more than make up for the short term pain of the transition.
Since governments would be in surplus they would happily, with no pressure from the community, increase pensions to a level which provided a comfortable retirement to those who had through their working life contributed by their very presence to the wealth of the nation.
It’s worth bearing in mind that this reform is not simply another slightly more novel form of tax. This proposed Community Site Rent recaptures and returns to the community at large what was previously being diverted into private hands. It allows what was previously paid out, with considerable pain, through a complex and massively inefficient array of taxes to remain in the hands of the people who produced it. For this reason alone, and for the justice of the principle on which it stands, the Community Site Rent demands serious consideration.
It the worst came to the worst, and the occupier was too ill or incapable, then the site rent debt could simply be deferred until the death of the occupier, and then retrieved from the estate, as are mortgagee debts and rate arrears now.
After spending a lifetime seeing some people work blood, sweat and tears for little return and others greasing the system through property speculation, many retirees would be able to look back in satisfaction as being the ones who made a small sacrifice for the greater good.
What happens to the self-funded or partly self-funded retiree?
These deserving retirees would be overjoyed with such a scheme. Although they would indeed have to continue repaying the community for the value which the existence of the community itself gives to the site, this would be truly small beer compared to what they’re currently being stung. When you consider that on top of their income and capital gains taxes, they are paying up to 32% of every dollar on a truly biblical multitude of taxes including income tax for the producers and providers of goods and services plus all the other indirect and hidden taxes we all endure.
If the unimproved value of the site that these retirees occupied was worth say $100,000 (excluding the value of the house), then they would be paying a maximum $10,000 nominal site rent in the first year, and in subsequent years whatever the annual assessed rental value is. The buying power of what’s left grows by at least a third since they’re paying no income tax or capital gains tax, nor are they paying any of the other multitude of hidden taxes and imposts. They’d be rapt.
Will pensioners and retirees – currently untaxed but living in their own property, be liable for site rents as well? Will they be reimbursed for past taxes paid?
They will pay site rent and they wont be reimbursed for past taxes. We must look forward. We hope they will see the benefits to society, in particular their grandchildren, worth the change in thinking.
However, as we have just seen (above), pensioners will gain plenty from this new perspective. They are already being taxed even if they are paying no income tax. They are still paying rates, possibly a mortgage or rent, possibly for the slightly better-off ones, capital gains tax. Crucially, the many indirect taxes and hidden imposts hit the hip pocket to the tune of about 40 cents in the dollar. Now if all of these charges are removed, they would come out and march for this scheme if the current taxation system only left them a few spare cents for the bus fare to the march assembly point.
Unemployed adults – currently untaxed but perhaps owning their own home? Will they have to pay as well?
Yes, but again, as in the case of the pensioners mentioned above, they would be markedly better off. Bear in mind too that such a scheme would very quickly eradicate involuntary unemployment, as there would be a large increase of buying power in the community at large which would naturally lead to a demand for workers. Small business would boom, giving the unemployed other options outside of telemarketing.
New enterprises – yet to realise any profit but paying tax on the property from which they operate? If you tax them, won’t they fail?
Don’t forget, ALL other taxes and imposts would be abolished. No provisional tax, no taxes at all! It would be a golden day for anyone wanting to set up a business, or expand an existing one. As things stand now for small business, and for bigger business for that matter, not only do they have to cover such things as payroll taxes, all of the import taxes and other subtle add-ons, sales taxes and other rubbish, but if their business does look like its beginning to finally make a profit, lo and behold, the landlords not only up the rent, buts stick their hooks in for a percentage of the turnover to boot. Many more businesses under this proposed system could afford to be their own landlord. Any entrepreneur worth his sea-salt would join those old pensioners on the march. In fact he or she might even subsidise their bus fare.
Why don’t we impose reciprocal import duties?
This solution and any other which makes goods more expensive to the local consumer simply reduces the market for the imported product, and increases the price of the home grown substitute. The only winner there is the producer of the protected product, who, with less competition can boost his price without having to worry so much about service or quality. He has a captive market. Tariffs and duties punish the consumer by inflating prices and reducing choice and quality.
What about anti-pollution tax rebates?
To determine how much is actually spent on the environment in Australia, the government should allow a tax rebate similar to that previously allowed for R&D (under Hawke & Keating). The same amount can then be levied against competitive importers. Result? Improved employment, good for the environment, save the manufacturing sector, improve competitiveness of industry in a globalised economy. Is this workable?
The fundamental flaw in this proposal as with many others, whether environmentally sensitive or not, is that the gains made will be converted into higher rents and land prices, thus higher operating costs for all producers including those involved in or reliant on the extractive industries. It’s good in the short term, but in the long run, without a Resource Rental system to back it up, we will have the same urban sprawl, struggle to pay for transport and higher property prices, giving us less time and flexibility to deal with climate change.
What about a Debits Tax?
Some sources claim that according to the Australian Bureau of Statistics and the Reserve Bank, a debit tax of 1% to be levied upon withdrawal of funds from a financial institution and remitted to the Reserve Bank would provide a tax revenue of 360 billion dollars per annum at current withdrawal levels (1997).
This proposed reform contains several minor flaws, not least of which the questionable arithmetic! Some of these could conceivably be overcome by legislative and other means. The fundamental flaw, however, which it suffers in common with many similar proposals, is the assumption that the gains made will remain in the pockets of the community at large. We suggest they would not. The extra spending power will be converted into higher rents and land prices, thus higher operating costs for all producers and then on to the consumer.
If the system were implemented, and all of a sudden everyone had twice the spending power that they had last week, then rents and land prices would simply increase to soak up the extra money. Any benefits would immediately be negated by an equivalent rise in property prices and rents. For proof of this look at what happens during speculative property booms. What happened in the eighties when surplus Asian wealth suddenly started chasing Australian properties? The prices skyrocketed. If you were a property owner at that time, would you have passed up the opportunity of making a killing? The more money there is to spend, the higher will be the privately monopolised economic rent.
Consider this scenario: As prospective first home buyers, we suddenly have available extra money to spend on our first home (sound like the First Home Owners Grant?). If all our fellow Australians are in the same boat, in other words if everyone’s got more money, the asking price for the blocks in the new subdivision suddenly go up by exactly that amount. This is the reason why the often-trundled-out “first home buyers assistance schemes” never benefit the first home buyer; they benefit the landowner and the speculator – the land price miraculously rises by just that amount, be it $2000 or $10000. Yes, First Home Owners Grants really subsidise wealthy landowners! If you put yourself in the shoes of the seller of the land you will see what we mean. The seller holds out for the maximum that the market will spend. The price demanded for land or for rental of domestic and commercial properties will rise to soak up the available cash. So all the benefits of this scheme end up in the pockets of those who monopolise land and resources.
Site Rent for Revenue is a crackpot idea.
We would be happy to acknowledge this claim if you could logically and rationally refute the basic premises behind it, which are that;
* Before the community arrived there was no intrinsic value in land or resources.
* The advent of communities created demand and competition for sites which then gave them value.
* Since it is the presence of the community itself which created the value, then this value must by right belong to the community and not to an individual or group which throws up a fence around it.
* This community created value therefore would seem to be the logical and by far the most equitable source of revenue for its government, and the community therefore has not merely a right but a duty, through its elected representatives to reclaim this community created wealth as the only fair and just source of public revenue.
* This fund would be adequate to enable the government to carry out all of its proper functions in the service of the community, and so would enable them to abolish all other taxes, tariffs and imposts. For evidence, please see this Ground Breaking work by Tony O’Brien
“Why put the entire burden of taxation on one area of economic activity? This distorts people’s spending decisions and reduces GDP. It’s just as foolish to do this by taxing only the use of land as it would be to tax only income generated from labour!”
Answer: Income derived from holding land or resources out of use is not productive activity. Bear in mind that this proposed site rent is on unimproved values. If you owned a site and put up a house, shopping centre or industrial complex, then you have every right to the rent or sale prices which those improvements generated, but you have no right to take the increase in site value which resulted from the very presence of the community and the infrastructure which was built with their wealth. It is incorrect to equate land with labour. Land is a finite resource in whose production we had no hand. Labour and its resourcefulness and potential is limitless. The adoption of this system, far from reducing GDP, would see it skyrocket.
Why is income from land ‘unearned’ income?
Some say it’s an investment, and the investors deserve a return, just like someone who has bought shares or has money in the bank.
A return of a certain percentage from investments in productive activities is fine. After all the investor has provided risk capital to some enterprise which is going to produce some product for public consumption, and the returns to the investor simply reflect the level of risk and an inflation factor. We have no problems with that. But if you buy a site this year, be it in the CBD or the outer suburbs, and hang on to it for ten years waiting for community funded infrastructure and pressure of artificially created land shortage, or rezoning to push up the price, then such profits as may arise in excess of those due to inflation, belong to the community. How could anyone dispute this?
There is no such thing as a free lunch.
The costs of Community Site Rent would be carried by every home owner, everyone who rents, and everyone who consumes goods or services which have land as an input.
There shouldn’t be such a thing as a free lunch, but there certainly is. The wealth which is generated by the very presence of the community, and which ends up in private hands pays for many a free lunch, in fact many a free banquet with all the trimmings and has done for hundreds of years. These people would be the big losers, in that whatever part of their income derived from the community-created or common wealth would be absent from their incomes. This is not to say that J.Packer and his mob may still not generate a very respectable income from the legitimate employment of their undoubted directorial and entrepreneurial skills. All they would be foregoing would be their former share of the earnings of their fellow human beings. All of those among the wealthy elites in this lovely country of ours and elsewhere, whose incomes exceed their earnings are in effect stealing the bread from the tables of the millions whose earnings vastly exceed their income.
There is NO unimproved land value!The only income generated from land is from the application of labour and capital to the land.
No, there is an unimproved value. It is the value put on land by the community before its even touched by the hand of man or woman. It’s the amount you would pay for virgin farmland, or an empty city site. It is this value, the unimproved value, which is the common wealth and which belongs to all in the community. Your improvements on the other hand belong to you. Every single drop of sweat, or byte of brain power you apply to the increase in value of the asset, be it a new building, a hotel, or a thousand hectares of wheat should be yours. Not John Howard’s. You make it, you keep it. But return the community created rent to the community.
“This tax, like a debits tax, ignores two of the basic principles of raising tax:
a)A good tax should take into account the capacity to pay. This tax doesn’t — the unimproved value of land someone owns has no direct relationship to their income.
b)A good tax should not distort saving and investment decisions. This tax does — only the land input into an economic activity is taxed, so people will substitute land for labour and capital. For instance it would encourage intensive farming of small areas of land, when it would actually be better to spread the labour and capital used more thinly over a larger area of land.”
On a):the classic cry of the ‘widower’ is a cunning tool by the real estate lobby to pull the heart strings on this entire issue. It is very effective. However, key central locations are very important to the community. Whilst change is not everyone’s cup of tea, anyone who has helped a lonely grandma with the garden or cleaning of her big old house will know that change can be as good as a holiday. The worst bit is thinking about it. Once the change is made to a smaller, more compact villa, the widow is re-invigorated and a new young family can move in and make good use of the property (rather than commmuting 40mins plus to work as is becoming the norm for so many today).
On b)Site Rental is charged to encourage an optimal level, not a maximum level of output. The lower taxation burden and greater purchasing power on present incomes reduce the pressures to over-farm one’s resources. Yes, greater efficiency is encouraged in land usage, but rational decision making has room to breathe, such that spare padddocks are still financial to rejuvenate, giving them time to naturally regenerate for the next season’s livestock fodder. Balance is the key, not wastage.
There is no such thing as a good tax, just as there is no such thing as an acceptable way of being robbed. Any revenue system which takes the bulk of your earnings in taxes, while allowing ‘in-the-know’ citizens to pocket the cream of community created wealth for themselves is simply condoning and abetting the constant and repeated committing of a crime.
These are the tenets of a good revenue system:
1. It must be totally equitable. It must apply to all in accordance to the benefit received from the community. (with this system, a desirable block in Toorak might at a ten percent site rental, set you back $75,000 nominal site rent in the first year, and in subsequent years whatever the annual assessed rental value is. A block out the back of beyond for your caravan might cost you $20 nominal site rent in the first year, and in subsequent years whatever the annual assessed rental value is.)You pay in accordance to the benefit which the existence of the community gives it. Inbuilt in this is a natural ability to pay.
2. It must be easy and cheap to collect.
3. It must be unavoidable.
Adam Smith, the godfather of economics, said a taxation system must reflect one’s ability to pay, have a certainty to it, be convenient and be efficient. Site and Resource Rents fulfill each of these criteria. No other method of taxation does.
It’s incorrect to suggest that income derived from holding land or resources out of use is not a productive activity. It is, since it produces income for the owner.
Any income the speculator gets in excess of a fair wage to cover his efforts can not rightly belong to him. If he gets a windfall from the holding which he didn’t produce himself, then who produced it? The presence and activity of the community did, and it is from them that the speculator is taking the windfall and it is to them that it should be returned to in the form of a site rent. Any arrangement which does not do this is inherently unjust. Bear in mind this proposed site rent is on unimproved values.
If you owned a site and bankrolled a house, shopping centre or industrial complex, then a return of a certain percentage from investments in productive activities is fine. After all the investor has provided risk capital to some enterprise which is going to produce some product for public consumption, and the returns to the investor simply reflect the level of risk and an inflation factor.
The investor in a site has taken a risk, and tied up their capital – who else could possibly be entitled to their capital gain?
The investor is entitled to any gains made by the improvements they made to the site ie renovations, new buildings etc. However, the major gains we see in property prices are due to the actual increase in land prices, the unimproved value. Our taxes finance improved services. Our community development adds value to a neighbourhood. Baby-bonus type pressures contribute to demand for the limited places on the earth. So whilst the investor deserves about 10% of this capital gain, it doesn’t deserve the full 100% of the capital gain that the community as a whole contributes to. Our current system has masterfully managed a subtle system of subsidy for those already wealthy enough to own a piece of the planet.
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