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.

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