In a forum on Land Value Tax on Facebook one member says "Full LVT and CD of the surplus will fix almost all monetary problems".
No so. While money continues to be created as interest bearing debt by private banks, there will be more debt in the system than there is money. Banks create the principal but not the interest, so everyone has to compete to earn the interest they must pay. This leads to competitive behaviour, and some will lose out and go further into debt, widening the gap between rich and poor. No, banks can no longer be permitted by society to create our means of exchange as interest bearing debt. Money should be created by the people who use it, by society itself and it should never, never be created as interest bearing debt. Besides if you leave money creation to banks, they will continue to create the bulk of it as mortgages on property. They will continue to have land as their security. Society at large should have this land as security backing their currency.
And just as you can't just solve the land problem by imposing a full rental on the site value, you can't solve the money problem without addressing the land problem. Most pressure groups and political parties who advocate monetary reform alone will recommend spending money into existence by government for the building of infrastructure. But when roads and railways are built without a full location fee on land, the price of land will rise. This increased land value is privately captured by the property owner and also by the banks who earn interest on higher and higher mortgage loans.
Land tenure and monetary reform must be implemented together. Tweak one of them only and all you have done is skew the system.
Here is a 42 minute radio interview of Deirdre Kent with Karl Fitzgerald of Earthsharing Australia for the website Renegade Economist. When asked by Karl at one stage of the interview why they should go together, I missed answering one part. http://www.3cr.org.au/economists/podcast/renegade-economists-09102013
This slideshare show is now updated and made clearer. It is the first time it has been published on this site and represents a lot of feedback from our members. If others have a method of reforming the tax and money system in a way that is politically possible and in a way that doesn't shock the economy, we would love to know. Meanwhile this is a serious proposal. Feedback is welcomed.
One of the questions we often get asked is why not do monetary reform first and then do other things later.
Positive Money NZ and its parent in UK have done wonderful work in teaching about the dysfunctional money system. There is no doubting that. They are reaching a wide range of people and describing what is wrong with the money system, how it leads to growing debt, wealth disparity and the growth imperative. We really recommend going to their website and seeing all the wonderful youtube videos and articles and links there. It is a great website.
But when we are in a political party we need to aim to get a thriving economy and that means jobs.
Untaxing labour and sales is like unblocking a currency river
And when we think of where the money flows and why it doesn't flow into job creation if you fix the money system, we also need to think about the tax system. Our party says it is time to untax labour and sales and to tax land and its resources. When we do this, all sorts of miracles occur.
Imagine having a currency where completely new rules apply. When using this new currency there is no tax on labour, sales or enterprise. No income tax, no GST and no company tax when using this money. Wow! What happens? Well employers realise that workers get 100% of their salary so they have a happy workforce. But that is not the end. When the workers spend their money they won't have to pay GST. This is that they have more purchasing power. Their wages are higher now in relation to the prices of goods. And that is what unions have been crying out for for ages.
So it is like having the river bed carved out for a new currency. The new money flows in the riverbed unimpeded by taxes. So it flows into productive investment and creates jobs.
We have proposed the slow introduction of a parallel national currency created by a new agency (the Treasury) which adheres to these rules. The slideshow for this is now at http://www.slideshare.net/deirdrekent/sustainable-economics-without-fossil-fuels-21
Of course having argued that it is important to treat the global economic system as a living system and that we need to intervene where the effect is greatest, and having argued that the global economy is what Cantabrians would call 'mega-munted' and that you need to start again, people still come back saying Couldn't we just have monetary reform for a start.
Yes I know a lot of people just want us to do the monetary reform and do the rest later. But what happens? Yes money is spent into existence rather than lent into existence so it doesn't bear a debt and it has no interest due either. All good. But where does it go? With GST and income tax and company tax, it will of course go into buying up yet more property and naturally occurring assets, putting pressure on the limited resource of land and raising its price. And as before, the wealth concentrates with land owners.
Q. I thought you wanted to close the gap between rich and poor?
A. Oh yes we will do that now, we will impose a land tax.
Q. Well how are you going to do that?
A. Well we will start at 0.5% land tax and lower income tax a little across the board at the same time. That way we won't shock the economy.
Q. But I am still paying my rates and my mortgage. Why should I pay a third land tax?
A. Oh I don't know.
And there is stops. If there is another way, please would someone tell us about it! In all the time we have had this initiative up and running, nobody has come out with an alternative solution other than by starting again with a second national currency differently designed.
If you can come up with a suggestion which is better than the dual currency, we would be pleased to hear from you.
Over the last two years I have been increasingly puzzled about my own response to others. Let me explain. I have a huge respect for several people who know a lot about the faulty money system and how its flaws cause so much pain, misery and environmental devastation. I also have a huge respect for those who have led the movement for tax reform so we tax what we hold or take rather than what we do or make. Nowadays in New Zealand income tax, sales tax and company tax comprise more than 80% of our government revenue and our local authority’s funding system is more and more regressive.
There are a growing number who know about both the shortcomings of the privately created money system AND the flaws of the tax system.
To save myself pain, I have focused my attention on only those who see the shortcomings of both systems. Yet when I broached the topic of tackling both issues together I received the reply “Of once we have done monetary reform we can get into land tax issues” or “Land tax will deal also to the faulty money system” or “Monetary reform will stop housing bubbles”. And these answers from people I respect. Why did my hunch say NO?
So it was a relief the other day when researching systems thinking to watch a 20 minute interview of the brilliant Frijtof Capra by Hazel Henderson. Capra was talking about living systems. He talked of the need to educate people eco-literacy and said there are multiple reasons why we are destroying our natural environment. A major one is that we are thinking linearly and not holistically. It is all too mechanical and Cartesian. He asked why do we want to save the spotted owl? The answer is because of the relationship of the spotted owl to humans. It is actually the relationships that we want to preserve.
Ecosystems are communities that have organised themselves over billions of years. There is true wisdom in them. Capra says we are thinking in fragments and we need to connect the fragments. We need to think in terms of relationships not objects. And in Nature each living system is self-organising. We need to move from thinking about content to thinking about patterns, from content to context, says Capra. He says we can't divide up a living system because it breaks those relationships and destroys the patterns.
So I have been thinking about the relationships between the various BIG PROBLEMS we face in the global economic system and the global environmental system. Though there are points of difference or scale, on the whole the big problems we in New Zealand face as a nation are similar to those faced by other nations.
If we focus on just one issue, say affordable housing, and forget about its relationship to bank created credit and a tax system which favours real estate investment, we will miss the target. Spain built more houses and it didn’t solve their affordable housing problem. If we think about the big problem of low wages for the working poor and just ignore its relationship to the tax system, the lack of investment capital for jobs and growing debt, we can come up with a temporary solution of a higher minimum wage. But it won’t solve the problem of the declining affordability of food and housing. You see if you ignore the living system in which the problem is embedded, the problem persists. If we focus on climate change only and forget the flawed money system which demands economic growth, we won’t get very far at all. The next international conference will deliver exactly the same result where politicians favour economic growth over habitat protection. If you focus on getting a Universal Basic Income and forget about the fundamental reasons for tax havens (a faulty tax system) and the growing private debt issue, you won't get very far.
So I believe my instinctual response to those monetary reformers who insist we tackle one problem at at time is actually well founded. It is time we all looked at the system as a whole and then worked out where to change it, where to tweak it. Family therapists do this every day. They don't just focus on the difficult adolescent, they look at the family as a whole. Systems thinking works!
I have done a rough sketch of the what I see as the BIG PROBLEMS and the relationships between them. It gets really complicated and someone may do a better sketch. But here goes. Let’s look at this picture of a broken economic system and ask what small changes we can make that have the biggest effect on the whole system to restore it to health. The answers may be surprisingly simple. Here is my sketch:-
How everything is connected. Fix one thing and then attend to the knock on effects? No treat it as a whole system