Monday, May 24, 2010

Update: Tax me, please

Last year I wrote about the important social benefits of land taxes compared to other forms of taxation. My headline was Tax me, please (also cross-posted at Online Opinion).

Maybe it is just a coincidence, but Mark Carnegie’s outstanding piece on the best recommendations from the Henry Tax Review, including the land tax as a substitute for transactions taxes such as stamp duties, is entitled Tax me!

Carnegie’s article sums up my thoughts on the Henry review and is worth reading in its entirety, but here is a taste.

“… economic growth would be higher if governments raised more revenue from land and less revenue from other tax bases.”

“When a government builds a new railway line and the value of the surrounding property soars, surely it is right that this wealth be taxed.” The same is true of people who get dairy farms on the edge of cities rezoned as residential land in quarter acre blocks. As Churchill said, “To not one of these improvements does the land monopolist, as a land monopolist contribute, and yet by every one of them the value of his land is enhanced...”

We all hate paying more tax than we have to but Ken Henry has written a document that is a compelling argument for how to build a better country given that someone has to pay to run the country.

If I had my way, I would abolish the states and cut billions from the cost of running the country. But I know that will never happen because Australians would never vote for a referendum to do that and so we are pretty much stuck with the bill as it is. Can’t we at least come together for the good of the country and put aside our personal interests for long enough to capture this powerful vision of a better, fairer, more productive tax system?


  1. “When a government builds a new railway line and the value of the surrounding property soars, surely it is right that this wealth be taxed.”

    I will have to remember that line of argument. Instead of "given A, here is my argument for B", I can just say "given A, surely B is true". We won't need economists, because we can accept as true anything that is "obvious" in any shallow way, without considering other formulations or any limits. We don't need anyone to look below the surface at the hard-to-see things.

    When the Government builds a project, I don't see that it deserves to collect all of the increased value in society because of that project. Such a view sees government as a uniquely gifted entity demanding the highest of fees.

    The landowners should be able to combine to select a railroad-builder who would charge a more reasonable price, way below a percentage of (or all of) the increased societal value demanded by the government. Actually, risk-investment does this naturally. People invest to build a railroad, and they charge for freight and passage what they think is optimal to make money. They don't get the automatic right to tax everyone who benefits from the railroad.

    If 30 people open businesses in a newly formed town, these amenities increse the value of the land around these businesses. Do they get to tax the surrounding lots for the increased value they have supported?

    The justification for taxes even may be the reason that the government provides services. The government has taken over the provision of schools, police and fire protection, water, and garbage collection, among other services. Is this because government is uniquely able to provide these services at lowest cost? It is certainly a convenient way to employ cronies and justify taxes, even if the services are lousy and/or expensive. The government bars competition, so that its income stream remains high and seemingly justified.

    Land taxes are a wealth tax. If you choose to enjoy your wealth as a structure in town, then the town taxes you more. If you have nice interior walls and a fine lawn, then the town taxes you more. There is no direct justification except that the wealth is there and the tax is levied by force. It doesn't matter who built the structure itself and the surrounding amenities that support the value of the property.


  2. I think the point about the railroad is more about the fact that land taxes do not distort investment decisions, since increased land value is the result of the actions of others, rather than the landholder themselves (assuming land taxes are levied on unimproved values).

    Also, those words are being quoted by Henry to describe opinions surrounding land taxes, not as his sole justification.


    Finally, I think your point about government taking over the provision of services such as schools, rubbish collection and fire services is more a product of societies determination to provide equal access to all people, rather than as a measure to ensure efficient provision. The is clearly as sacrifice of efficiency for equity.

  3. Well, to Carnegie, and his no states, if I had my way, I'd create a counrty out of Queensland a bugger the rest. I put a fence around it and stabilise the population ensuring that metered growth allowed an understanding of where we are and who we are. The fact is that creating roads creates congestion, we've seen that and read on it on posts. The same can be said for money, the more everyone has the more everyone can afford to pay more and so on with yet another upward spiral. And yet what is the value of another pair of shoes if all they do cover our feet? What is the value of an ipad when all it does is connect us to facebook? What is the value of excessive populations when all they do is create higher prices and road congestion? What a stupid system!