The Land Dollar – how we came to offer this as an option

The combination of allowing banks to create money interest bearing debt, together with a land tenure system that allows people to profit from rising land values have led to growing debt, a built-in growth imperative, inequality and a never ending series of boom-busts. Both the issues of land and money need to be addressed, especially in the light of the climate emergency and the growing inequality we live with.

In our search to design an economy that isn't at war with the planet – one that doesn't write in forced economic growth or widen the gap between rich and poor – we have opted to combine basic income, monetary reform, governance reform and tax reform (the latter closely related to land tenure reform). We want a world where everyone has a fair share of our common wealth. We want to replace the extractive model that is killing our habitat with one that is life-friendly.

While addressing these reforms together is a huge challenge, we know for our climate's sake we must succeed. In reforming the system we know we can't afford to shock the economy. So we need incremental change of some sort and must look to nature for guidance about design.

We realised early on that imposing a land tax alone was politically well nigh impossible, even at half a percent. Raising it to the a full land rental level would be just as hard. That sort of incremental change would not be possible.

Objections for instance to charging a full rent for monopoly use of land include:-

a. The banks would block it. They hold the power because they issue mortgages backed by land.
b. The public wouldn’t like it because the market value of their property would decline. This is unacceptable especially to those with big mortgages.
c. Property owners would argue they already pay rates and a mortgage so why should they have to pay a third time?

We realised early on that reforming the money system by spending money into existence to build infrastructure would result in rising land values for those with properties served by that infrastructure – be it rail, schools or ports. It would be difficult to control land inflation and therefore to halt the march to further inequality. The rich would also buy up patents and any natural monopoly they could get their hands on.

Funding a full Basic Income is also a considerable challenge. An extremely large sum is needed, even when the net public expenditure is calculated.

During the summer of 2001-12 Deirdre had had a series of Skype calls with a Cambridge academic, the late Dr Adrian Wrigley. His solution was for the Treasury to pay off the mortgage and for a full land rental to be paid. The property would then have a covenant on it requiring owners to pay a full land rental to Treasury. No rates would then be payable. If the property was sold, the next owner would still have to pay that rental.

We only wanted the land to be bought/paid for, not the whole mortgage, so we changed it to that.

We soon learnt that using the preferred "covenant" idea was hard to explain to the public so we reluctantly dropped it in favour of publicly owned leasehold land. However we started with a centralised model of public ownership and remained with that for almost 2 years. All the time we were a uneasy about land being owned by any agency of central government.

Adrian never talked of a parallel currency. It was our idea to have one. We thought the current system is so badly messed up we had to start again, and believe that this was also the way not to shock the economy.

We knew a lot of land is overvalued and although we recommended buying land at market value, we know this isn't the total solution.

So we recommended designing a second parallel (and competing) national currency, and link it from the start to completely new tax laws. After all no public budget would ever stretch to paying for such a large quantity of land, no matter how slowly it was acquired. Treasury, not the Reserve Bank, would issue Treasury Notes to buy up land. We happily adopted Adrian’s excellent idea of having a Land Rental Index for each area and adjusting the rental each year accordingly. Only the land value needs assessing not the improvements, so that is easy. And you only need a sample of properties in each general area. Land rentals are valued each year and the index suitably adjusted.

Parity with the land dollar with NZ dollar became a hot topic of debate. After discussion we eventually said “issue it at par, redeem it at par and let it float in between.” The new currency would be valued by those who wanted to employ labour without tax or buy goods without sales tax.

The name of new currency changed many times – Tradeable Tax Credit, Treasury Note, Zeal and finally the Land Dollar. (We also went through a short stage of recommending Rates Vouchers for both Auckland and Christchurch.)

Then, in mid year 2014 we suddenly realised it didn’t have to be issued by Treasury at all. Eureka! It could be issued by Community Boards and the revenue could be shared by other levels of government and eventually flow to central Government. We said ‘turn the funding model upside down, replace centralisation with a model where decisions are made across the whole economy. Restore local democracy'. We gave a great deal of power to the local level of government – currency creation power, land buying power (compulsory where applicable), and revenue gathering power.

In this model the Community Board or its elected equivalent “owned” more and more land – a more politically acceptable solution. The local committee must have on it, by right, one or two representative from the local iwi or hapu grouping, who would have veto power over any decision to buy land, thus avoiding potentially sensitive land. Land would effectively go into a Community Land Trust. In this way land could be gradually taken out of the market place and the people who decide which land to choose would be answerable to the locals. (Adrian had hoped the land buying could all be done voluntarily to avoid legislation. Some will no doubt come in voluntarily)

A whole raft of tax laws applying to transactions using the new currency (the Land Dollar) would have to be passed right at the beginning. These would include all taxes on the rights to the use of natural monopolies. Natural monopolies are the rights to land, water, airwaves, minerals, fisheries, patents, domain names, hydro-electric power generation and supply, any public utility such as a port, airport or the monopolistic rights to reticulate wires, pipes, rails, roads and the like: the right to use water, air, land or the biosphere to absorb waste.

So what does the policy say now?

Our party wants to restore the concept of sharing the values of the commons, have a money system that doesn't build in increasing debt and the need for competitive behaviour. We want to distribute the rent from use of the commons to all NZ citizens over one year old as a regular Citizens Dividend.

A new national currency the Land Dollar is to be slowly spent into existence at Community Board level to buy up land. No rates would be payable for those whose land is community owned. A local land committee would give local hapu/iwi veto power over decisions as some land may be sensitive even after Treaty settlements. The rent from the land would be shared with other levels of Government and as a Citizens Dividend – using participatory budgeting as there would be many simultaneous claims. Inflation would be controlled by a network of committees at different levels working with Treasury and Reserve Bank.

Transactions using the land dollar would attract no income tax, GST or corporate tax. But a whole set of different taxes is needed. This is because it must not be spent to plunder the earth, deplete resources, subtract from the social or cultural capital or pollute the water, air or biosphere. That means a full carbon tax for example.

For any currency to be effective as a means of exchange there has to be a circulation incentive built in. Adrian Wrigley suggested that rather than having a financial penalty built in for hoarding as recommended by Silvio Gesell, to make it easier each note should be issued with an expiry date.

The electronic version when received by Treasury would be refreshed and redated before issuing it as a Citizens Dividend. All citizens would receive it. Where there were dependents, the designated carer would receive it, thus changing the economic status of carers. In time this dividend would rise to a basic income, allowing a huge range of inventions and options for people who have been in unsatisfying jobs but have a passion or a hobby they want to pursue. Entrpreneurism would flourish – much needed in a post carbon age.

There are many unresolved issues. The property owner that has land bought with the new currency will have $100,000 plus to spend. Trades with the land dollar will not attract GST, income tax or company tax. We need actual examples, but believe a lot of it will be spent on labour to upgrade their homes or on the development of their small business.

We invite alternative solutions
This policy has been derived by discussing with a range of people at and between meetings and it has been largely driven by Deirdre, who has received feedback from meetings in Christchurch, Otaki, Wellington, Motueka, and two at huis held by the Living Economies Educational Trust hui. We are also aware there are some big issues we have not yet tackled, like the issue of Maori land. Our solution, we emphasise, is one solution. If you have another, please let us know!!
April 2015

New Paradigm economics for jobs in a post fossil fuel economy

I have uploaded a revised version of the slideshow on new paradigm economics. This is similar to the first one, yet addresses the question of how you get a financial incentive built in to an opt in scheme. It also comes after realisation that an opt in scheme will need to operate under current law. Homeowners will negotiate a land fee payable to government and agree under contract law. We no longer talk of leasehold land, though it is rather similar. This one suggests we burden the title with a covenant while the title remains with the property owner. The other change is that we are not referring to Zeals but are talking about a tradeable tax credit. We don't use the term land rental or land rent much, but talk about a land fee or land rates. These terms indicate more accurately that the fee is payable in exchange for the value provided by society in the services to the site. We have also returned to the idea we had in the first place, that of mortgage relief. If the government pays for the land and effectively takes land out of the market, then the homeowner's interest payments to the bank reduce while they have some precious new currency to spend. It naturally flows towards productive enterprise or the relief of more private debt e.g. student loans. So it is an ideal policy for first home buyers. Since posting it, I have realised only one more thing. The land fee will rise or fall depending on the zoning of the land.

Slideshow on the Post Fossil Fuel Economy – Jobs, leisure and innovation

The new slideshow is at http://www.slideshare.net/deirdrekent/steady-state-economy-jobs-for-a-postgrowth-economy. It addresses many of the questions our members have been asking and hopefully makes it easier to understand. There are presenter notes with most slides.

A thriving, vibrant economy is possible after fossil fuels – tax reform, currency reform and welfare reform

http://www.slideshare.net/deirdrekent/sustainable-economics-without-fossil-fuels-21 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.

Purchasing power, poverty and tax systems

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Who would have thought New Zealand children go hungry?

With child poverty a major political embarrassment it is time to examine causes and propose solutions. Not only are there 146,000 people out of work in New Zealand but the working poor are really feeling the pinch. Many part-time workers want full time work.

So it isn’t any surprise that even the National Government has realised that it is important to make some effort to feed hungry school children. Schools are the perfect indicator of the state of household wellbeing in this country. No measure proposed so far will get at the root cause.  Nurses in schools won't give families sufficient purchasing power to feed and clothe their children. Raising tax rates of those on high incomes won’t do it either. Nor will legislating for a minimum income.
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The problem is there is not enough money to buy essentials

So let's look at the family budget spelt out in the Dominion Post Sat 1 June. The family was a real Porirua family with three school aged children. The income was two benefits plus accommodation supplement plus family tax credit, which brought in a total of $685.29. The itemised expenditure tallied $752.69, leaving a weekly shortfall of $67.40.  There was no tobacco, alcohol or gambling listed in their expenses. Expenditure was $180 for food, $300 for rent. There was also a weekly payment of $80 for a car loan, and presumably this was for both capital and interest repayment.
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GST, income tax are reducing purchasing power.

Now let's analyse the family’s expenditure in terms of taxes and interest.  For decades we have lived with income tax and assumed it is fair and normal to tax income. Since Roger Douglas introduced it we have also taxed spending in the form of GST, now at 15%. I don’t know how long we have taxed enterprise but our company tax is projected to bring in $10 billion in the 2014 year. So income tax, GST and company tax now comprise over 79% of our Government revenue. Yet we completely fail to tax the use of the commons for private purposes – “the commons” being defined as that which is given to us by Nature.  Such resource rentals should include all private land and all commercial operations requiring the use of part of a natural resource e.g. aquifers, forests, fisheries. It includes minerals, oil, coal, gas, waveband spectrums and of course the 49% of Mighty River Power which is now in private hands and the proportion of any port or airport which has been sold off. The potential for gathering resource rent is significant. images-3This means taxing us for the use of residential land, valued by various reports at approximately $300 billion. Numerous tax reviews have recommended taxing land, but no government has adopted their recommendations, largely because the banks have sewn up all possible security on land. Since land will always be there (give or take an earthquake and a subsidence or two), banks want it as their security on their loans. And so government has to have the second best security – the labour of the people. Banks oppose any proposal to tax land. 98% of our money supply is created when banks issue loans. With most of the population blithely unaware, we allow private banks to create our money as interest bearing debt. When a farmer or a manufacturer has to borrow from a bank at interest, that interest is inevitably built into the cost of every item they sell. Secondly when a bank creates a loan, it creates the principal but not the interest. So everyone has to compete to earn enough interest to pay the bank. Because there is never enough money in the system to pay back all the loans with interest at the same time, someone has to go back for further loans. The Porirua family is a case in point. If their budget remains the same, they will have to borrow $67 every week to keep afloat, and pay interest on that. Unless WINZ issues them with another loan, the loans sharks with their exhorbitant interest rates will be circling. So where is this all coming through in prices? Well the landlord is paying interest on his or her mortgage and paying tax on income derived from rent, as well as GST on all landlord related expenses. If he or she buys a heat pump, carpet or curtains, GST is in the price. When the landlord employs a painter the wages have to be large enough to allow for income tax. imagesThe Porirua family’s meagre food bill includes 15% GST. The electricity, petrol, vehicle maintenance, vehicle registration and clothing bills all contain GST. Each of these items also contain a labour input. The mechanic had to pay income tax so calculates the charge-out rate to allow for this. Each of the items listed also contains an interest input. For example, the clothing factory may have borrowed from a bank for capital and the selling price of clothes allows for the interest the firm has to pay the bank. We are talking here about purchasing power. My granddaughter says she can easily live on $90 a week in Mexico because prices are low. It is wages relative to prices that is important for purchasing power. According to Matt McCarten (on Q&A 2 June), real wages in the last 20 years have gone down 30%.  It doesn’t matter how cheap an item is if you have only a few cents to use as payment. Purchasing power is a better indicator of wellbeing than inflation What this means is that until we change our tax system and return the money-creating privilege back to the people where it belongs we will continue to scratch our heads about hungry children and the growing number of people who can’t make ends meet no matter how hard they try. As you can see, both reforms will have to go together, because no government is going to tax land while the banks have this monopoly on land. While we live with the private creation of money, we won’t be able to tax land rather than labour, sales and enterprise. I am not suggesting the sum of resource rentals should raise all government revenue required. We would still need excise taxes and a Financial Transaction Tax. It’s just that once we face the money issue we can then face the tax issue and liberate purchasing power of the nation so that all may have enough to feed their children while labour is encouraged and enterprise is unleashed.  

Land and Money, the Conjoined Twins

Land and Money, the Conjoined Twins

When there are two separate movements each claiming that they have the solutions to the world’s economic problems, we have an intellectual challenge. Rational beings might conclude each group of reformers has a key part of the truth. The two groups I refer to are the monetary reform movement and the Georgist movement.

The monetary reformers come in several varieties, but in common they believe the creation of money should be without interest and should be a public function. Privatising the right to create and control our means of exchange is the ultimate privatisation. The list of evils resulting from creating money as a monoculture with interest is long: it forces compulsory growth, concentrates wealth, causes rising debt and instability, and is generally incompatible with life on a finite planet.

So what do Georgists want? Named after Henry George, Georgists want to ensure we all have an equal right to the fruits of the earth. They seek economic justice. Since we can't all occupy the one spot, land value taxation is the means by which those with exclusive use of the best sites or resources compensate the rest of us (who are excluded). The method of doing that is to tax land. They want to untax labour and enterprise and tax the monopoly use of land. This reduces paperwork and stimulates productivity. Business will boom. A land tax would prevent housing bubbles, arrest suburban sprawl, stop the transfer of wealth from the landless to the landowners, increase everyone’s purchasing power as incomes rise relative to prices, share the bounties of the earth and our accumulated wealth more equitably.

Both arguments seem reasonable. Neither movement is popular with any current political party. Very few have ever heard of Henry George or read John Stuart Mill on land. Politicians have fought the banks since 1694 when the Bank of England was formed and banks were given the right to create the nation’s money supply and charge interest.  While indigenous people have owned land communally and can understand why land should not be monetised and treated like other assets, they are wary because of historical injustices, and are very suspicious of local government when it comes to rating.

Some, like me, find themselves in both camps. And there are some in each movement who vaguely understand the other. Some monetary reformers realise that if interest rates fall, there will be another housing boom and those who own houses will reap an unearned windfall when they eventually sell.  They understand there must be some built-in disincentive against land speculation but when it comes to solutions they only get as far as capital gains tax.  Capital gains tax is limited because its effect is just to prevent property from coming on the market while owners wait for a law change to avoid paying it. To be effective it has to be imposed on all property at 100%. Unfortunately, current proposals by New Zealand political parties appear not to aspire to this ideal. Those in the Georgist movement have seen housing booms and watched banks charge interest on mortgages. They claim the banks are reaping what they call the ‘economic rent,’ an in-house term for the phenomenon where landowners reap the rise in land values over the years. Since these have actually been caused by the efforts of the community around them with the arrival of new businesses, government services and organisations, the windfalls should all be going to people in the form of the government, local and central.

Within the monetary reform movement there are two main camps. There are those (Type A) who believe fervently in central government action to control the banks and create the money supply for the country. These include the American Monetary Institute, Social Credit, and the more recent Positive Money movement.  The second type arises from the complementary currency movement (Type B) who argue that centrally issued national money is still a monoculture, can still cause monetary crises, can still cause inflation, is very disruptive to the economy and is politically impossible to achieve anyway because there are so many bank lobbyists for every legislator.

Let's reflect for a moment on the historical connections between land and money and go back to the Italian goldsmiths. A decree of the year 1423 forbade all Jews of Venice to hold real estate ("pro Dei reverentia et pro utilitate et commodo loco rum"). So they became goldsmiths. People brought in their gold and the goldsmiths issued a receipt for that gold. Soon they found people using the notes for trading weren't coming back for their gold very often. They discovered  a trick: they could issue more receipts than there was gold to back it with. They lent out the notes and charged interest. And we have had that banking system ever since.

Now Jews couldn't lend to Jews at interest, Gentiles were forbidden from lending out money at interest. Christians couldn't lend to anyone with interest because the Christian church banned usury. But Jews could lend to Gentiles at interest. That was essentially their retaliation for not being able to own land. The Rothschild family of course comes from a line of goldsmiths. Leymann Bros, Goldman Sachs and many others join them.

In Fiji Indians can't own land. Indians have now been in Fiji for many generations so they have become the traders. A Fijian dominated military government has been in power for many years. The moral of the story is that unless the earth is shared fairly we cannot hope to have peace or justice. Repeating an earlier sentence, since we can't all occupy the one spot, land value taxation is the means by which those with exclusive use of the best sites or resources compensate the rest of us (who are excluded).

Now let us go back to the type of monetary reform Type B. Unfortunately so far in New Zealand complementary currencies we have known e.g. LETS (Local Exchange and Trading Systems, for trading goods without dollars) and Timebanks (for trading time without dollars) make scarcely a scratch on the national economy. Perhaps Bartercard and other trade exchanges do. If we want to reduce unemployment it is time to upscale complementary currencies by creating a currency at local authority level, together with a range of currencies operating at national level. The argument is that monetary reform of this type will create a permaculture of currencies and the consequence will be a more stable and resilient national economy. Leave the national currency alone meanwhile and introduce a range of complementary currencies until we get enough liquidity to create jobs and restore hope.


If we undertake monetary reform alone with interest rates dropping to zero or below and money being publicly issued, then the extra money in the economy goes towards land speculation and landowners grow rich at the expense of the many. Low interest rates cause excess money to go into property rather than the productive sector. To prevent this happening there needs to be a price on the holding of land. In the tsunami of dollars that hit America during 2001-2006, 40% of homes were either investment homes or second properties. Most of any country’s land is owned by corporates in central cities. But if we carry out the land tax reform alone, the money goes towards banks and the banking industry gets rich.

So both reforms must be undertaken together. Money and land are conjoined twins that can’t be separated. We need a solution which reforms money and puts a price on the ownership and holding of land while simultaneously taking it off income tax, sales and company tax. This is a tall order.

 

A word about the current world situation

Financial analysts like Nicole Foss and economists like Steve Keen now claim we have entered into a long depression where purchasing power will keep declining. Even as prices decline, wages decline further and faster.

 

We have witnessed the largest asset bubble the world has ever seen and the bubble is bursting. House prices have fallen in Ireland and the US and this trend is coming, though unevenly, to Australia and New Zealand. Our house prices are rising in Auckland, Christchurch and Queenstown but dropping elsewhere.

 

In depressions thinkers seek solutions. Henry George, a San Francisco printer, did his thinking during the 1870s depression.  Silvio Gesell, a German businessman in Argentina, did his in the 1880s depression and wrote The Natural Economy. The great economist John Maynard Keynes wrote during the Great Depression of the 1930s. While a long depression will cause unending pain and disruption and may buy us time to mitigate climate change, we do need a lasting solution. This century there is a lot more at stake because global warming is proceeding at an alarming rate and our current political leaders are mindlessly locked into a monetary system requiring growth. Because of peak oil and climate change the so-called ‘developed world’ is challenged to transform in a short time period to a very low carbon economy.  This time we can’t wait and must work together (fortunately with the help of the internet) for solutions.

Three Golden Ages
So let’s have a look at history. To my knowledge there have been at least three periods when there has been both great prosperity and great egalitarianism. In their book New Money for a New Society Bernard Lietaer and Stephen Belgin describe a golden age in Dynastic Egypt for sixteen centuries up to about 30BC. Food was plentiful, there were many holidays and education was common among ordinary housekeepers and servants.  They had a dual currency system with gold and silver being used for long distance trades, as well as a currency linked to the storage of food. Farmers brought ten bags of corn to the warehouse and were given a pottery receipt (an ostraka) with a date on it. When they came in a year’s time to get their corn, they were only given nine bags back. This accounted for the storage and protection against vermin. The longer the food was in storage the higher the cost. So people would not hoard the currency but spend it. Taxes were payable in ostraka and some in kind like wheat. One researcher said, “A landlord would request to have the renter of a farm pay for him the taxes in wheat owed by the landlord to that location, and that amount would be deducted from the renter’s dues.” So there was a dual currency system and a tax system based on a full land rent.

A second economy they described which was both prosperous and stable was in the Central Middle Ages in Europe from 1040 to 1290, “the Age of Cathedrals” when there was a building phenomenon. The general populace ate well, grew tall and only worked six hours a day. Some regions had 170 holidays a year.

 

There were two different types of currencies operating. One was a centralised royal coinage for long distance trading. The second consisted of an extensive network of different local currencies. There was a rather subtle hoarding charge for keeping the currency for too long without spending it. They changed the coins every time a lord died in a process called “renovatio monetae” As a rule four old coins were handed in when a lord died and exchanged for three new ones. As each coin had the same value of the coins they replaced and no one knew when the lord was going to die, it acted as a 25% tax and an incentive to spend or invest the currency quickly. The result was a great deal of building, land improvements, high quality maintenance of water wheels and windmills and enduring investments such as cathedral building. During this period the land would have been owned by a local lord and rented out to families. In other words probably the only tax they paid was on land and it was a full rental.

The third period was very much shorter – in Austria during the Great Depression in Austria from 1932-1933 for fourteen months. While the national taxation system of Austria at that time needs to be researched, the local taxes would probably have only been on the value of land. Faced with 25% unemployment and declining funds, the Mayor of the small town of Wørgl thought he would put Silvio Gesell’s ideas into practice. So he put 20,000 Austrian schillings aside and spent a new currency into existence. They paid their workers in Work Certificates rather than Austrian schillings and on the back were 12 spaces. Every month the holder would need to stick a one penny Austrian stamp on the back to validate the note. This monthly stamp requirement was sufficient to act as an incentive to spend the note or invest it. Back taxes were paid and there was growing council spending on infrastructure like bridges. People came from miles around to witness what they called the “Miracle of Wörgl”. However, soon the banks put enough pressure on the Austrian government to make the whole scheme illegal, and Wörgl went back to unemployment.

Although caution would have to be exercised in describing these three scenarios as idyllic and there undoubtedly have been other periods in history where a measure of prosperity and happiness has been achieved, these three periods all have the following features:

  1. There are two currencies in operation and the local currency has a built–in penalty for hoarding money. It is a spending currency.
  2.  A full rental is paid on land occupied and there are probably very few or no other taxes applied.

The first two eras were before the extraction of fossil fuels, while the second was in a period where there was growing oil and gas use.

Land tax, a political landmine

To invent a similar system these days provides a bigger challenge. When land taxes were an accepted feature of societies with local ‘lords of the land’ there was no income tax, company tax or sales tax. Now we are dependent on those taxes and, apart from a tiny fraction at local level, have no land tax. There may have been excise taxes imposed in Austria but it wouldn’t have significantly affected the outcome. Thus there may have been effectively only one tax operating during the Egyptian period or the Age of Cathedrals. Since all unique economies need an appropriate currency for trading, these societies each designed theirs to be a currency with an incentive to spend or invest rather than hoard.

When the idea of land tax is raised these days, there is often an immediate reaction. “I pay my mortgage on my property, I pay rates and now you want me to pay a third one? No way! The mortgage is paid to the bank, the rates to the council and now you want a tax to central government?” This is a political landmine.

These days in New Zealand we have a situation where land taxes have historically been imposed in some form at local authority level through the rating system. Local authorities used to gather in 12% of the country’s tax revenue, but now this has dropped to around 6%. At national level land taxes reached a peak of 9% of tax revenue in 1919 but these stopped in 1962. A law prohibiting land tax came into force in 1992.

The two world wars, together with a worldwide trend towards income tax, saw a great change in the tax systems. Income tax comprised 9% of tax revenue in 1909 but by 1944 it had risen to 54%. The change is probably due to the increasing power of the banks. Banks prefer income tax and hate land taxes. Income tax means banks can lend against the full value and security of land. Land tax means banks would have to lend against the security of people's earnings power - less reliable, especially with the abolition of slavery. 2500 years ago, when borrowers defaulted, they could simply be enslaved. Now we have strong land tenure and weak "person tenure", the land is the security to lend against. (You can get full rights over the tenure of land but you can’t get full rights over the tenure of people). Banks are higher up the "food chain" than governments. So banks get mortgage payments, governments get income tax. Our modern slavery is to the banks.

To impose a land tax and at the same time dramatically lower income tax, company tax and sales tax, would require significant cooperation between local and national government. To seriously propose this sudden change over could be political suicide, and it would cause a huge shock for the economy. A history of the New Zealand tax system certainly doesn’t include such big jumps.

So we are faced with the challenge of not shocking the economy while moving away from taxing labour and enterprise and towards taxing what we hold or take. This includes land, including the land of the family home.

There is another reason why land tax is important. It stops the monetising of the commons (the land) and so halts the expanding of the money supply. It is this expansion of the money supply without expanding the supply of goods and services which causes inflation. Inflation robs from everyone.

We now need to reform a system where local authorities have power to tax the unimproved value of land, but increasingly opt for regressive fixed annual charges and to rate on capital value rather than unimproved value. Fixed annual charges are really regressive according to a study done by Internal Affairs in 2007. While all councils have a different mix, in the case of the Auckland supercity they are forced by statute to tax on capital value.

Various people have advocated a land tax including the commentator Bernard Hickey of interest.co.nz, while in an article by economists Andrew Coleman and Arthur Grimes in October 2011 they explore and evaluate land tax as an option. They say a central government tax could be added as an adjunct to the current system with little additional administrative cost. The authors conclude a land tax has favourable efficiency properties relative to other taxes and that a 1% land tax on all non-government land could raise approximately $4.6 billion.

The authors of The Big Kahuna, Gareth Morgan and Susan Guthrie, propose a Comprehensive Capital Tax (CCT). Capital is defined as land, buildings, structure, plant, equipment and intellectual property. There is no exemption for homeowners. Capital that consistently earns less than the required minimum rate (6% in the proposal) would face an increased tax burden. They also tax income at a flat tax on the remainder of earnings (the total earnings less required amount of earnings). The lender (the bank), having an interest in the property, also pays CCT. The authors make an excellent case for a Universal Basic Income. They argue their changes will ensure incentives to use capital productively, to use our housing stock efficiently and redistribute wealth fairly. They spread a wider net. They say they would tax anyone who owns capital in New Zealand, anyone who earns an income in New Zealand and anyone who lives here, thus encompassing any person or any corporate who owns land here or who operates a company here.

A different type of economic growth will result

For forty years since the Values Party started, green politicians have been railing against economic growth. All Budgets have been full of the phrase and many listeners have been  flinching with pain for forty years. That is because what is being advocated by politicians economic growth of the type you get when you use only one currency, the national currency, a monoculture. This sort of economic growth stuffs our houses, shopping malls and landfills with electronic junk, plastic, polystyrene and nylon, clothing made using exploited labour, etc etc.  When we have a land tax together with a scaled up local currency based only on what we can produce locally from the land, the type of economic growth we are going to get is quite different. It is the type we all want – growth in affordability of the basics. This includes labour to produce food from the land, revival of the local textile industry (factories in Levin lie idle as all these jobs were exported to Asia). The house maintenance industry will thrive, the biopaint industry will expand, the insulation industry using natural materials will develop and expand. With an abundant local currency designed to circulate faster than the national currency our house building will move towards using local materials. The prospects become quite exciting as we start to see a future for our semi employed friends and family and all the teenagers and young people without hope. This is a qualitatively different type of economic growth from the one we have known. The type of land tax system I am proposing is one which creates this new type of growth but not the old sick type.

And you say wouldn't we cut down all our trees, burn all our wood for fuel or take all the fish from our waters? Wouldn't we dam all the rivers, mine all our metal or cover our whole area with wind turbines and change our climate? The answer that in some communities this could happen if there isn't enough awareness. Maori eliminated moa, Easter Islanders deforested their land and couldn't build boats and Indian communities burn the dung nutrients that should be returned to the soil. Turning all your trees into charcoal (as in parts of Africa) is a disaster on many fronts.

But on the whole most communities would observe and monitor their environment and wise heads will prevent this happening. When we rely on trade for goods made with exploited labour and exploited forests we don't notice the environmental effects because it is too far away. It is someone else's problem. The closer a problem is to home, the more responsibility you will take.

How big should a land tax be?

It is generally understood from Georgists’ knowledge that a full rental on land is around 5% of the value of the land. In 1924 a Royal Commission named this figure as the correct percentage to impose on idle land for speculation. Only a land tax at this level can in anyway hope to replace income and company tax, let alone GST. Only a land tax at this level will discourage property speculation.

Earlier it was mentioned that we already pay mortgages and rates on land and that a third payment would be totally unacceptable. It would be politically impossible to persuade the public. The proposal that follows collapses all the payments into one. The ideas outlined in the next section address three challenges. We need to introduce a land tax without shocking the economy, to introduce a full land rental not a token one ­– and all the while be mindful it must be politically achievable. Land tax is not about adding another tax. It is about paying to the government rather than the bank while keeping the fruits of your own labour. The land levy proposed is payable to the local authority, it keeps banks out of the loop and uses the council income to distribute a local citizens’ dividend, thereby immediately making the system relevant to the wider public and winning their support. It designs a local currency with a built-in circulation incentive. Moreover, it provides considerable hope for a transition to a very low carbon economy in a short time period.

 

 

 

Business encouragement and investment

Business encouragement
With a transformation of the tax system and banking system entrepreneurialism would flourish
The New Economics Party believes that we must be an enterprising nation and that pragmatic and creative business thinking must be encouraged at every level of our society. Our policies are the most business friendly possible. Little will stand in the way of entrepreneurship for those who create a labour intensive business with fair employment policies, good environmental practices and a low carbon footprint. Clean tech innovation can finally occur at full speed. Cooperatives will be encouraged, both workers and consumers cooperatives. The NZ Cooperatives Association would be funded adequately for the purpose.
Farming would  thrive
Farming and other export businesses will thrive because the NZ dollar will drop when the interest rates drop. EECA's (Energy Efficiency and Conservation Authority) funding will be dramatically increased to assist all businesses to be future proofed against energy shocks. Because we will be decentralising banks, it will be possible for them to invest in local businesses, just as the Bank of North Dakota has been able to over many years. Nurturing and mentoring of small and medium sized businesses will be encouraged. Thus local investors will be able with confidence to invest in local enterprises just as in the 1940s and 1950s when Christchurch people invested in firms like Lane Walker Rudkin.