Location Value Covenants – joining land tax reform to monetary reform and solving lots of problems at once.

You will have been wondering what we are up to.

Well remember I said we were working with Adrian Wrigley and Robin Smith from a Cambridge think tank? This has continued until I understand what their proposal is and what are the possible objections to what I think is exciting new policy. I have been talking to many members of the party about my enthusiasm for this, because it overcomes all sorts of objections to introducing land tax.

Adrian is the brains behind the Location Value Covenant idea and I have adapted it for Rates Vouchers issued by a local authority. Basically the national version of it is this:

People with a mortgage go to government and bargain. They say we will covenant our property to pay a substantial sum to you if you give us a Treasury Note to the value of the current mortgage (or a lesser amount). The amount settled between them is the sum of what they were paying annually in mortgage plus what they were paying in rates, minus 10-15%. When the deal is done, the government is the recipient of a high sum linked by a covenant to that property. Their revenue increases. The property owners take this Treasury Note (or an electronic version of it) to the bank to pay off their mortgage. 60% of our total mortgage bill is in fixed interest so has no penalty.

Their property now carries a financial burden, so as a result its value drops, but the home owners equity doesn’t. Note above it is Treasury Notes not Reserve Bank notes. Why? Because the Reserve Bank, like other central banks, is too linked to Wall Street and the commercial banks of the world. Treasury is the Government department which accepts taxes. A Treasury Note is something valid for the payment of taxes.

So government is soon gathering enough revenue to pay a citizens dividend and then will be able to drop GST, income tax and company tax. Whereas before the banks had hold of our citizens through mortgages, they are left out in the cold. The Dominion Post put the value of current mortgages recently at $173 billion. This will gradually reduce.

 

Then the local authority version is this: (another paper)

Would be property purchasers are short of $200,000 for buying a house they want. Instead of going to the bank they go to the local authority and say “We would pay $x a year for mortgage and $y for rates. How about we add those two together, drop it a bit and I agree to pay you that amount regularly and this is written into a covenant on our property title? Would you then give me a note for $200,000 in Rates Vouchers?” The council says that sounds like a good deal and then the purchasers go to the vendor and say “I can pay you in Rates Vouchers for some of this property.” They answer
“What would we do with that?” “Well you could buy a house in this district and pay for it with that because they are valid for the payment of rates.”

This would work as long as the vendor wanted to buy in the area. If they bought using rates vouchers as part payment and this went down the chain till they struck a vendor who just wanted to spend the money in the council area. The Council would help by persuading some of the bigger local businesses to accept part payment in Rates Vouchers. All local tradespeople could accept part payment, and of course they could save their precious national dollars for paying GST and income tax. Perhaps there could be an incentive for circulation built in to the local currency so it would circulate fast, doing good all the way.

The payments are linked not to inflation but to an land value index worked out for the general area. For instance in Chch after earthquakes if the land value in a big area dropped by 50% the payments would drop 50%. Generally land values are less variable than interest rates.

Sooner or later the Government would see that several local authority areas are thriving economically. Unemployment is starting to drop and business confidence is rising. Then local authorities could tell them they could do it themselves you know. Use Treasury Notes to relieve current mortgage holders.

In this way if it came in at local authority level first, the regions would thrive and their economies would move towards using local materials, and local labour and its home prices would drop dramatically. The trend is towards sustainability (a word I rarely use these days but I can’t help myself here, because it isn’t just fashionable rhetoric, it is true!). When government started to reduce income tax, GST and company tax, the people’s purchasing power greatly increases. Take a person aged 40. If you capitalised the value of their future labour it would be much bigger than the capital in their home. Prices would drop without income tax or GST or interest on money (there is less bank created money in the system after it has been operating for a while).

I am inviting New Economics Party enthusiasts to view these papers. Just let me know by email or see me on Facebook or twitter or google +. There is so much to discuss. Everyone has different ideas to raise, but we are making headway.

We are working to combine our land tax policy with our monetary reform policy in a new way

During the holiday season I have been talking on email and skype and phone to various people round the world and in New Zealand. One of our challenges will be to get sufficient government revenue and introducing an adequate level of land taxes is a political challenge of immense proportions. Many are implacably opposed to land taxes, although they see the importance of the type of monetary reform we propose on this site.

It seemed to me always that those involved in the Georgist movement for land value taxes have thought they had all the answers, while those involved in monetary reform thought they had all the answers. It was in 1996 that I visited the New Economics Foundation in London and had started to understand the money issue, and during that time also spent time at the Henry George Foundation or whatever it is called in London. A few years later I noticed that Margrit Kennedy, the author of Interest and Inflation Proof Money, also had the beliefs that the two reforms should come at the same time, otherwise there are problems.

I found in 2005 when I was writing my book, that the man involved with promotion of Land Value Taxes in NZ, believed there was nothing wrong with the money system and any reform to it would be terribly damaging. So I couldn’t communicate with him. I was also aware that promoting an adequate land tax would be fraught with political trouble, so I was motivated to find fellow travellers internationally and see if they had any solutions or suggestions. Land tax has to have exemptions and there are anomalies, opposition. Scottish Greens have got it through, but only as far as local authorities And what is the use of a land tax at a local authority level when a local authority can’t remove income tax or GST?

In my search for these potential colleagues I discovered that the LibDems in UK had a subgroup called ALTER and Chairman Dr Tony Vickers had written an excellent paper on the political strategies needed to introduce land value taxes (LVT). I emailed him and he replied to me, copying in his executive in the process. So it was wonderful to discover Robin Smith in London and his colleague Adrian Wrigley in Brittany and talk with them about their proposal for what they call a Location Value Covenant.

I was also alerted just before Christmas to an email to many leading figures in the international Georgist movement. It suggested there was heresy in the ranks and people should stick to the Georgist dogma, (yes it used the words heresy and dogma.) This flushed out more people, from US particularly and from the Occupy movement who were convinced on both issues so I started an ongoing skype chat (no audio, but easier to work with than emails) with those people. We paused for breath every now and then while we had one-to-one skype chats or small audio groups as we came to understand what they were talking about.

I can’t pretend we have completely arrived at a solution, because we are still in the process of collaborating on a document with the new proposal and what it can do. But I can say it is looking at private debt, at mortgages, because it is mortgages where the two issues intersect. I can also say I am very excited and there are others round the world who are equally keyed up. It is taking a bit of time to get this to a stage where the proposal is easily understood and clear and feasible. So please be patient, and if you want to talk about it, do give me a call. (Skype callers please post a message first!)