Successfull examples of land value tax reforms

Don’t tax productive activities, but land and real estate speculation:

” * The “Four Tigers”, 1940s.

Apologists for state planning and state partnership with big business point enthusiastically to Pacific Rim Asia but overlook the fact that all these success stories began on a firm footing of land reform. The city-state Singapore, founded on Georgist tax principles, reached a tax rate on land of 16%. Hong Kong existed only on crown land, funding 4/5 of their budget with 2/5 of site Rent (Yu-Hung Hong, Landlines, 1999 March, Lincoln Inst., Cambridge, MA). The city uses land rent, not subsidy, to fund their new metro and in its suburbs grows much of its own food. Hong Kong enjoys low taxes, low prices, high investment, and often the highest per capita salaries. The city is often voted the world’s best city for business and the freest for residents.

Gen. Douglas MacArthur, an admirer of Henry George, forced the Japanese provisional government to write land reform into their new democratic constitution that limited Rent paid by tenants to owners. South Korea adopted a similar Rent reform. Gen. Chiang Kai-shek likewise forced land reform on Taiwan (below). A 1980’s World Bank study credited land reform with creating the basis for their economic miracles. Secure farmers can afford to consume manufactured goods. Soon successful industries can trade with other developed nations. Another World Bank report, in 1998 by Roy Prosterman and Tiom Hanstad, Chapter 10, “Land Taxation” by Jennifer Duncan: “Land tax is an important vehicle for transferring some of the benefits of land privatization to the public sector. Revenues from land tax can fund significant and increasing portions of infrastructure and social services, fostering public and local government support for privatization.” Today, to try to control their skyrocketing location values, both Japan and Korea have tried to tax land, tho’ still minusculely.

* Taiwan, 1940s.

Old Formosa was mired in poverty and fast breeding. Hunger afflicted the majority of people who were landless peasants. Less than 20 families monopolized the entire island. Then the Nationalist Army, led by Chiang Kai-shek, retreated to Taiwan. General Chiang figured he lost mainland China in part by not reforming land-holding. Chiang did not want to risk losing his last refuge – east of that isle lay nothing but open ocean.

A follower of Sun Yat-sen, the father of modern China and an adherent of Henry George, Chiang knew of the Single Tax. Borrowing a page from George via Sun, the new Nationalist Government of Taiwan instituted its “land to the tiller program” which taxed farmland according to its value. Soon the large plantation owners found themselves paying out about as much in taxes as they were getting back as Rent. Being a middleman was no longer worth the bother, so they sold off their excess to farmers at prices the peasants could afford.

Working their own land with newly marketed fertilizers, new owners worked harder. They produced more, and after years of paying taxes to cover the onerous public debt, at last kept more and lived better. From 1950 to 1970 population growth dropped 40%, and hunger was ended. (Altho’ Taiwan did receive a billion dollars from the US, it was mostly military aid, spread out over eight years.) Taiwan began to set world records with growth rates of 10% per annum in their GDP and 20% in their industry. (Fred Harrison, Power in the Land, 1983)

* Denmark

Denmark, 1950s. The Danes built on their land tax heritage. In 1957, the tiny Georgist Justice Party won a few seats and a role in the ruling coalition. Anticipating a higher rate on land, investors switched from real estate to real enterprise. One year later, inflation had gone from 5% to under 1%; bank interest dropped from 6.25% to 5%. By 1960, 100,000 unemployed in a country of just five million had found jobs and at higher wages, the highest widespread pay raise ever in Danish history. (The New York Times editorial, “Big Lesson From A Small Nation”, 1960 October 2)

Tho’ many people were better off, next election landowners spent enough money to convince people otherwise. The Justice Party lost its seats, the land rate lost its boost, and investors again became land speculators. Quickly inflation climbed back up to 5% and by 1964 reached 8%. Land prices began to sky-rocket, from 1960 to 1981 increasing 19-fold while prices of goods and services went up merely fourfold. (Knud Tholstrup, Dansk MP, A Third Way, 1986)

Denmark, 1960s. Before 1970, the annual income tax fell upon the previous year’s income; in 1969, the government taxed 1968 income. Then parliament decided to tax income in the same year it’s earned; in 1970, they taxed 1970 income. Earners realized that 1969 income would not be taxed. Their response, from 1968 to 1969, was to double the increase in production (4% to 8%), halve the inflation rate (8% to 3.5%), quadruple investment increases (5% to 20.5%), raise savings by a quarter (from 2.9 million kroner to 3.8), and employ nearly all workers. (Knud Tholstrup, A Third Way)

* Estonia, 1990s.

After the break up of the Soviet Union, each newly separate republic had to find its own way of raising revenue. Estonia, across the gulf from Finland, found the tax for farmland. Because neither land nor its value can be hidden, it was the most feasible way for the new government to raise funds. Collecting from farmowners was vastly more successful than trying to collect from others, succeeding over 95% of the time. The low rate of 2%, which even governmental owners of public land had to pay, was still enough to spur efficient use of land. (The Economist, 1998 Feb 28)”

The hubpages summarize the advantages of a land tax:

“1. Eliminates the need for Income and Sales Taxes. Income and Sales Taxes take money out of circulation in the economy. By taxing only the rental value of the land and natural resources a person monopolizes governments would be more than able to fund their legitimate functions without. The Land Value Tax or Single Tax system only taxes what no one person may claim an exclusive right to – land, water, minerals, air, etc. and does not presume to seize what people create for themselves.

The Land Value or Single tax would be the ONLY tax because everything you earn would be yours to keep as the function of your labor. You would only be “taxed” on the annual rental value of what is not yours or anyone person’s but which you monopolize and deprive others the use of. Overall, this would be a lower tax than they sum of all the taxes you currently pay.

2. Eliminates “Property” Taxes. The Land Value Tax or Single Tax is a tax on what no man can own, i.e. what God has created and left us stewards of in nature. “Property” taxes are taxes not on Land Value for the most part, but taxes on structures and improvements which were created by land users and – in George’s system – rightfully belongs to them!

3. Eliminates The Tax Collection Bureaucracy. Government is already set up to collect local taxes on property. This would eliminate most Federal and State revenue offices and officers.

4. Puts People To Work. This tax levels the playing field. There is no incentive to artificially boost the rental value of land because that is what is taxed! This gives more individuals and businesss more access to land and the opportunity to do business. In turn more people go to work and are able to escape poverty.

5. Reduces Tax Evasion. People can’t wire land overseas to a secret bank account. Landowners (even “slum lords”) either pay their “fair share” or the use of the land is made available to others who will.

6. Eliminates Land Speculation. Under this system there is no incentive to speculate on land values. The market rental value of the land is paid as “tax” annually whether the land is sitting idle or in productive use. Under this system the land will be used in a productive fashion if only to pay the taxes or otherwise made available for others to use productively

7. Reduces The Federal Bureaucracy and Encourages Local Government Control. The Federal Bureaucracy is so strong because it “has the money”. In this system, local governments collect the money and then (may) distribute it upwwards. This restores a balance of power to Local and State Governments.”

The Irish FEASTA proposes this as a way out to the Irish crisis and as a recipe for sustainability:

“The equal right of all men and women to the use of land is as clear as their equal right to breathe the air. It is a right proclaimed by the fact of their existence. For we cannot suppose that some men and women have a right to be in this world and others do not.

This common right of each human being to benefit from the Earth’s natural capital should be protected and respected by legitimate governments at the appropriate level. Service infrastructures created by the state out of taxation receipts are also part of a common inheritance and are inputs into economic activities. From this basic premise comes the legitimacy for common resource taxes/rents and charges. Equity is achieved by pro-rata taxation/rents/charges (that recognize environmental limits) for the benefits derived from common resources, which are then allocated universally on an equal per capita basis.

This is NOT a Marxist prescription of ‘from each according to their ability, to each according to their needs’ but ‘from each according to their use of common resources, to each their equal share’. This individual right to common resources and/or economic inputs is not mediated by government or society.

…the idea that an individual has “property” in land only to the extent that there is, in the words of John Locke, “enough, and as good left in common for others.” In that sense, the right to land is not a collective right, but an individual right that exists independently of the collective (i.e. “society”). The equality of this right is merely a limitation that arises from the presence of others with like rights. By contrast, a collective right to land dictates that an individual does not have a right to use any land unless society – either explicitly or by omission – has granted him the right to do so.

This concept appears to be a very difficult distinction for many media and political pundits to understand. It marks the boundary between the old ‘red’ economic analysis and the new ‘green’ economics of sustainability. James Robertson, a seminal economist within the movement describes this new fiscal paradigm as follows ;

This will involve a shift from redistribution to the idea of predistribution. Whereas redistributive taxes aim to correct the outcomes of economic activity, predistributive taxes and charges will share the value of essential inputs to economic activity. Whereas redistribution is dependency reinforcing, predistribution will be empowering. It will correct any underlying cause of economic injustice, inequality exclusion and injustice.

Redistribution takes the form of a guaranteed income to every citizen that replaces existing subsidized state benefits and services . It has been called variously a citizen’s Income or basic income and has a long history of discussion by politicians but has never been achieved in practice.

It makes such good economic and social sense, that some neo-liberal economists have re-named it and claimed it as their own, without acknowledging its provenance. The following is an excerpt by UCD economist Constantin Gurdgiev in a recent critique of CORI’s input into social partnership wherein he outlines his recommendation for a Personal Purchase Account (PPA) to counter the proposals of – as he puts it – ‘our semi-professional equality pundits’.

A PPA system will see the government allocating a single annual payment to the individual or a family. The recipient of these funds will be free to spend on purchasing public and private services according to their choice. …Ultimately, the government’s role in managing PPAs should be reduced to ensuring the minimum quality of service provisions, allowing private providers to compete on price and quality options, while encouraging consumers to shop around. Jobs created in the process will benefit those willing to move out of dependency.

Any reader who can spot the essential difference of the PPA to a citizen income (see footnote ) has more critical discernment than I have.

Other economists or political scientists might respond to a CI in alarm and cite the impoverishing effects of the Speerhamland Poor Law in Britain, repealed to no one’s regret in 1834. The economic lessons of Speerhamland were so powerfully engrained in the minds of many British politicians as to have delayed the desperately needed humanitarian aid for the famine in Ireland . The main lesson from this misguided benefit system has been, wrongly drawn, as the absolute need to distinguish the ‘deserving poor’ from the merely poor when allocating the proceeds from land taxes. The true lesson should have been that all, not only the deserving and merely poor, should share in the commonwealth.

What does all this say to us about land ownership and its benefits in Ireland? Firstly it makes the question of who has possession of the land far less important than whether they are using it wisely and efficiently. With a significant part of the economic rent from the land remitted back to each citizen equally, freehold ownership loses much of its monopoly power. Secondly, the benefits of new fairer land and resource taxes should be passed as directly and as universally as possible to citizens. Transition to the new fiscal system of course, must take account of existing structures and leave time for adaptation. But a start should be made immediately to take advantage of the current review of local government finance.

The principle for the spending of the revenues raised by the various LVT measures should be to return that portion of the value-added back to the authorities that created it as far as possible, and that what is left, being the pure economic rent derived from the natural or locational quality of land, should be shared out equally as the beginnings of a Citizens Income (or Basic income) to be used to purchase public and private and third sector goods and services.

Value-added by national investment such as national roads, airports, railways, hospitals, third level colleges, decentralised government offices etc. could form the basis of a revised local authority block grant to be used to equalise revenues across local authorities. Apportioning this value is a political decision to be negotiated at national and local level. Value-added by the local business and social community investment should, by the same token, be assessed and spent by a representative partnership local body such as the City and County Development Boards (CDBs) through a ‘participative budgetary’ process. An independent source of funds for local sustainable development investment might prove just the thing to rescue these partnership structures from total irrelevancy.”

1 Comment Successfull examples of land value tax reforms

  1. Dr. Adrian Wrigley

    You’re absolutely right that LVT is economically sound, and has proven its potential value in places like Denmark.

    Unfortunately the examples given are not examples of successful, sustained LVT reforms being introduced by their nation’s government.

    Singapore, Taiwan and Hong Kong had their systems imposed from outside. The Danish system seemed to be so successful that plans were scrapped – they now have hefty Income Tax and VAT, and a highly controlled property market. Estonia’s system was very limited in scope and scale, and the nation never recovered its GDP of communist times. It has been “taken out” by the international financial capitalists, and its prospects are bleak.

    Singapore’s system taxes buildings and land improvements equally to the land itself, at a rate of 0.5% of property values for non-residential properties. Singapore has just (Jan 2011) abolished its property tax for home owners of homes under $$6m (US$4.7m), and the rate is only 0.2% up to $$29.5m (US$23m).

    The Singapore experience is interesting, but it is not Land Value Tax, and abolishing it for home owners confirms that property taxes are not politically stable. Singapore has VAT (GST), Income Taxes, Stamp Duty, and all the tax paraphernalia of “modern” bureaucratic production tax systems.

    Hong Kong’s system is market-based using government leases, not tax-based. While not perfect, it confirms that the economic rent of land can be collected successfully without Land Value Taxation.

    Denmark’s experience shows how powerful and fast-acting the economic effects of LVT are. But also confirmed that LVT is politically not stable as opposition swiftly shut down government ambitions for the system.

    Perhaps Taiwan is the best example of LVT success in action, and that was imposed on the nation’s constitution from outside as the article points out.

    One key insight is that the economic rent of land is now collected by the banks which exchange financial bookkeeping entries for the economic flow from property owners. This must be recognised as at the core of any credible LVT proposals.

    Summary: There are no successful examples of LVT being introduced by a national government. Where LVT has been used, pressures to abolish or stunt it are irresistible. Local governments habitually shrink, distort or abolish LVT under political pressure. The good news is that market-based methods of collecting land rent (such as in Hong Kong) are economically efficient and politically stable. One way of achieving this is through Location Value Covenants (LVCs) advocated by the Systemic Fiscal Reform Group (SFR Group

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