Letter to a budding politician concerned about inequality and climate change

Letter to Miriam Pierard, Miriam I listened to your radio interview with Wallace Chapman and I was very impressed.

Yes, the top issues of our time are climate change and inequality. You say you are concerned to find answers. Great news.

Gosh Miriam I have been looking to solutions to the environmental crisis for decades. I was a candidate for the Values Party in 1975. And we were saying in those days that the GDP wasn’t necessarily an indicator of progress, because we had noticed inequality then – and unemployment and deprivation. And it is still worshipped forty years later.

Late in 2012 we had a 40 year reunion of New Zealand Values Party activists. We reflected on progress and it was quite sobering. Inequality had got worse and the environment had deteriorated to the situation where our very habitat is threatened with climate change and all the storms, flood, drought and food insecurity it brings.

A year before that reunion I had helped co-found the New Economics Party. Whereas most of the Values Party seniors said they were frustrated within the Green Party, I said I wasn’t at all because I was actively engaged in finding solutions and believed I had come to understand two of the big solutions.

I know I have. The very money system we have is structured so that the money supply has to grow, debt has to grow and the economy has to grow. So when it comes to climate change talks, after all the dire warnings from increasingly alarmed scientists, we usually watch helplessly while official delegates back away, claiming that the economy mustn’t be harmed and economic growth cannot be jeopardised. “Balance” is the cry… and they come up with some puny version of what is needed.

The structural problem we have here is this. We have a monetary system where if the economy doesn’t grow, it collapses. That is how it is designed. You are damned if you do and damned if you don’t scenario. So it’s not a great choice – runaway climate change if we do nothing or economic collapse if we do something that will halt it.

So I had finally found the cause of the growth imperative. It was the money system whereby we allow banks to create money as interest bearing debt. The negative consequences would all follow. It had taken me till 2004 to realise this.

But finding the cause(s) of inequality? It has come to me in various forms over the last few years. But now it is crystal clear. The earth has a finite supply of land and natural resources – land, water, fish, electromagnetic spectrum and so on. We all can’t occupy the same piece of land. Some land is more valuable than other land. Land is given its value by the desirability of its surroundings. So those who claim monopoly use of the best land must compensate the others for the privilege. In other words pay a full rental on the land to the public purse and then let this revenue be shared with all, perhaps as a Citizens Dividend or for health and education and other government services. Add to this the rental on the monopoly use of fish stock, water, coal, oil, minerals and you get government revenue.

If we don’t charge a rent on the monopoly use of natural resources, the consequence is asset inequality and this leads to income inequality. You are always going to derive income from monopolising resources like land.

I had also realised this land issue must be solved at the same time as the money issue. When I was starting to understand the money system and advocating for money spent into existence without interest (the Reserve Bank issues its coins this way) it became clear that interest-free money would cause a rise in the price of property. That really meant a rise in the price of land. We would have a land bubble. (that is why economists wouldn’t ever agree to zero interest money; they knew the bubble consequences).

But the land bubbles only happen because freehold land originally meant land “free of rent”. Apart from a small amount as the land proportion of our rates, there is no price on the holding of land. We can see that in Auckland as speculators buy valuable sections or old houses, and sit on them while the area develops and the price rises. Without doing anything at all the land speculators get an unearned windfall gain. (And a Capital Gains Tax won’t solve it, but I won’t go into that now).

Those who have freehold land should pay the public a full rental. Any valuer will tell you they can work out the rental value of any piece of land, it’s easy. And it should be reviewed annually, otherwise there are unpleasant hikes upwards.

But is this another tax? No, it is a replacement tax. Since there is no logic in income tax because there is plenty of labour we should get rid of that. Labour and entrepreneurship are valuable and we should encourage them. GST is regressive and income tax illogical.

Now I won’t go on any more, except to say if you are seriously concerned about inequality and climate change I encourage you and your party to focus your energies on economics. Other wonderful results follow from understanding these two issues. It’s the money system. It’s the tax system.

Few economists can tell you much about how money is created and, as two economists from the IMF and three from the Bank of England have recently embarked on a campaign to teach the economics profession about bank created credit. They say the textbooks are wrong.

However politicians worth their salt will also be aware that it is political suicide to favour a third tax on land. People will protest they pay their rates and they pay their mortgage so why should they pay another? Quite right. Actually the bank is getting the money that rightfully belongs to government. It’s a challenge.

Look I don’t know how this could all be implemented without shocking the economy. I have worked out one solution. I am not sure it is right. But I do know that somehow, someone must be politically creative, politically determined and wise enough to win the public over and finally address climate change and inequality at the root. Nothing else will suffice. Artificial bandaid solutions can’t work because they don’t get to the root of the problem.

As a woman in her seventies addressing a clever young budding politician I wish you the very best and hope that you can help make a better world for my grandchildren. Meanwhile I will keep doing what I do.

2 thoughts on “Letter to a budding politician concerned about inequality and climate change

  1. Good morning Deidre

    I began writing: Why do you say that a Capital Gains Tax wouldn’t solve the problem? Wouldn’t a 100% rate of tax on any capital gain (less the value of any improvements) have the same result as a land rent? A rent can be charged daily, weekly, monthly, annually, etc. – or just when a property changes “owner”. Prospective new owners compete in the market and the top price buys the property, but instead of the seller getting the capital gain it goes to the Government. This would be much simpler than having annual valuations. (And what happens when there’s a dip in land values, as can happen over the short term, from year to year? Is there a “negative” rent? That is, does the Government pay the landholder?)

    I can see that capturing 100% of the community-created capital gain is not all pro’s. One “con” is that this would discourage current landholders from selling. Another is that there would be no annual income flow from each property but irregular large chunks – but this should average out to be the same as the annual flow. Unless the annual rent is at a higher level, also charging a “crown rental” in addition to the price inflation-neutralizing effect of recovering just the unearned increase in value.

    The annual rent does have the effect of imposing a cost on the holding of land, which would might be a good thing but sometimes is not. If there’s a cost to holding land then
    1. That is a problem for the cash/income poor (e.g. an elderly person living on a very valuable piece of land), and
    2. A pressure for the land to be used for its highest return (“economic efficiency”), thus an incentive for a landholder to attempt to earn as much as they can from the land – including from land that the community might want to be cared for, such as a wetland or native forest.
    Recovery of the community-created increase in value at the time of sale does not have these problems.

    … and in the process of writing I’ve answered some of my own questions and realized that an annual rental can have two components (the price inflation-neutralizing effect of recovering the unearned increase in value, and a Crown rental on the monompoly-use of a resource – a piece of land). I think these should be addressed separately. Neutralizing land price inflation (deflation) by recovering the community-created increase (decrease) in the value of land can, I suggest, be done best at the time of change of landholder. Crown resource rentals can be charged annually and set at whatever level is necessary to fund the community’s needs.

    I’m interested in feedback.

    Warm regards
    Rex

    • Hi Rex

      The trouble with Capital Gains tax is that is just applied when the property is sold. That means property owners will delay selling. It just ties up the market. And as you point out there has to be 100% capital gains tax. Neither Labour nor the Greens are proposing anything like that. With a potential of $37b a year, Labour reaps $1b and Greens reap $4.5billion – ‘in time’. So neither policy would do much to change the market, only to send a message. So actually neither of them is proposing a regular rent on land, just a one off when a property is sold.

      The effect is to get owners to develop the property to potential and if they can’t do that to sell. Speculators, slum landlords all get hit.

      In California where Proposition 13 is in place, properties are being transferred to companies. Then if one shareholder changes, it is not the same owners as it was the day before. All sorts of ways to evade the tax then.

      In the case of elderly with low income occupying a valuable site, the land rent can come out of their estate.

      The pressure for the land to be used for its highest return issue. This is dealt with this way. If there is conservation land, it already serves a public purpose so the public doesn’t have to extract rent. If sections of land are used this way then the rent should be proportional. Landowners can only be charged for land they use privately.

      Where there is a historic building it serves part public part private purpose. The owner’s rent should be lower than if it were only private in proportion.

      Hope I have answered all the good questions. I knew it was too big to deal with in one blog.

      As for how regularly the rent should be paid, yearly or six monthly seems best.

      Of course all this is set against a background of taking the tax off labour and sales, part of the deal. It is too often thought of as an extra tax. That is why I have changed my hashtags on twitter from #landtax to #taxlandnotlabour

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