Auckland home owners are “richer” than last year by $64 billion

The average price for an  Auckland home is now just over $1 million. The media focuses, as they usually do, on how impossible it is nowadays for young people to buy a house, with a side mention of how difficult it is for nurses, service workers and teachers to buy a house, and how the Auckland problem is spilling over to the entire country. There has also been a great deal of publicity in the last six months about homelessness, with a marae in Auckland shaming the Government into action by opening its doors to the homeless for the winter.

But there is another big issue that is almost never mentioned – the lost potential public revenue from land rent. Land rent is what the occupier would pay to the public if the public owned the land. Many have explained that the rise in value of homes is really the accumulated land rent over that period. It is also called the capital gain or unearned windfall.

QV HOUSE PRICE INDEX AUG16

Recent figures from Quotable Values New Zealand allow us to work out the on-paper profit for our country's homeowners and for Auckland's homeowners. This of course is just on-paper, but because it represents their realisable assets it does allow homeowners to do other things e.g. borrow more for other purposes. This calculation acknowledges that the figures are the houses that are sold only. Houses sold in that period were more like one tenth of the housing stock. But if my neighbour's house sells for $1million and ours is similar we know ours could sell for a similar price. Our house value is what a valuer would estimate or better still what the market would pay. Valuers value by looking at what did sell in the district and making comparisons. The bank recognises this as the value of our asset.

And the fact that I had a huge mortgage didn't really make any difference. Supposing I only have $200k and buy a $900k house, selling it a year later for $1 million. I make a profit of $100k because my deposit of $200k was turned into $300k.

Let's first take Auckland where the figures are the most dramatic. 

House prices rose nearly 16% last year. The average uplift in Auckland house prices in that period was $138,781.

Since land values are created by the community around them, by the governments and communities that serve that site, the uplift belongs to the public purse. Rise in property prices are virtually all attributable to the rise in land prices. Schools, hospitals, infrastructure are built by government, central and local, and the private land owner reaps the profit. Businesses arrive, clubs start. Without a community around it, land has little value. (Even agriculture requires transport infrastructure. Land for conservation is usually publicly owned). 

The total uplift for Auckland properties was 461,669 (the number of residential properties in Auckland Council) multiplied by $138,781, or $64 billion.

Sold Home For Sale Sign and House

Now supposing this uplift was publicly captured month by month in the form of a full land rent, as it should be. What would the council do with it?

1. They could give half to the government straight away, leaving $32 billion.

2. They could put aside about $20 billion for infrastructure building and upgrading including rapid transit, and debt relief, leaving $12 billion still to be shared.

3. Sharing the rents is important. So the $12 billion could be given out as a Citizens Dividend to every man, woman and child in Auckland. The population of Auckland is about 1.58 million, making about $7,600 per person. For a family of five that would be $38,000.

That should help a few homeless families!

New Zealand homeowners are $138 billion richer than last year 

There are at least 1,771,2000 residential homes in NZ (2013 census). The average uplift in NZ house prices was the difference between the Aug 2016 price and the August 2015 price, which as $78,196.

So multiplying these two, New Zealand homeowners on paper have assets worth about $138 billion more than last year. The tax take last year was $66.6 billion. So it is more than double the tax take. All this is privately captured when it really should be going to the state. In comparison to the $138 billion uplift for NZ, the GDP last year was about $170 billion.

However there are several political obstacles stopping us from applying these solutions in our current context:

• Aucklanders pay rates. However Auckland Council was introduced by legislation when amalgamation took place. This mandated that the rates were levied on capital values, thus requiring legislation for a change to rating system on land values. There is only miniscule awareness of this as a political issue.

• The viability these days of a centrally imposed land tax is not good, given the fact there are at least three bank lobbyists for every legislator and neoclassical economics is in full bloom. Nowadays the power of the landed and moneyed elite is so much greater in relation to the 99% than it has ever been.

• It has been legally impossible to impose land tax in NZ since 1992, though the PM seems not to know this because it was he that suggested putting a land tax on property bought by foreigners earlier in 2016. The idea died within a day or two. However this law could easily be reversed.

• No politician wanting to be re-elected would advocate a measure that was going to bring down house prices and leave homebuyers with negative equity. A 5-6% land tax would actually be for politicians and doing it gradually wouldn’t work either.

• Imposing a land value tax must go hand in hand with dropping of income tax so this has to be incorporated into the solution.

But all is not lost! The obstacles are not insuperable. Think about the untenable current situation of housing prices and its destructive consequences of widening the wealth gap. We have to start on other ground breaking solutions. Let’s be pioneering here.

A little history might give hope. New Zealand had a Liberal Government in the 1890s that imposed a land tax to break up big land holdings. Then it extended, but unfortunately it was at a higher rate per acre for large landholdings than for smaller ones, which was essentially unfair. This resulted in a new political party dominated by larger farmers. But land tax never reached more than 20% of the tax take, and income tax was gradually increased and extended. The same Liberal Government did however enact legislation to empower local government to hold a referendum where ratepayers could choose between land value rating systems and capital value. This was in place for 80 years and always resulted in the more equitable the public choosing land value rating systems. Cities like Wellington and Napier built on this rating system are compact.

If money buys lobbying power, then we have to be more strategic and try different tactics. This might point to governance reform giving much more power to local authorities and to even smaller governance units. Given that the banks have a vested interest in profiting from the buying and selling of land and from the private ownership of natural resources and infrastructure, a host of local innovative actions may be the surprise option. And this would require huge resistance from local communities that are determined to share land values and preserve natural resource values.

Maybe the old system should be left alone to collapse and die, and the new paradigm system reinvented at local level. We need to ask how land trusts can connect with localised governance units whose revenue is derived land and resource rents. But where would the money come from to buy the land? Maybe we need to create a local currency designed to circulate at an optimal speed. Maybe when there is surplus locally it can be steered from the periphery to the centre of government.

Certainly clever, innovative thinking is called for and it should be all hands on deck for that task!

Modernising the Georgist ‘doctrine’ without using the words “land value tax”

41bQo1jRHqL._BO2,204,203,200_PIsitb-sticker-v3-big,TopRight,0,-55_SX278_SY278_PIkin4,BottomRight,1,22_AA300_SH20_OU01_In Land a New Paradigm for a Thriving World, Martin Adams has spelled out his philosophy that no one should make a profit from owning land. He has carefully and thoughtfully reframed the Georgist ‘doctrine’ for a modern era and developed a clear new language. For example here is a classic sentence: ‘What most people don’t yet realise is that the value of land is best shared, and that whenever we profit from land we profit from society.”

Martin is no slave to doctrine and clearly thinks out the issues for himself. He sees the vision. “Once we being to share this value with one another, we have the opportunity to unleash a cultural, technological, ecological, and even spiritual renaissance that will liberate us in ways we can’t imagine.”

And – great news – Martin is no centralist. He understands that revenue must flow from the periphery to the centre, not the other way round. So he talks of land moving into a Community Land Trust and people then paying a Community Land Contribution. Some of the revenue stays local and the rest is passed upwards to other levels of government.

From his description of how to prevent urban sprawl to his chapter on using farmland efficiently, Martin challenges us to think in a fresh way.

Thoughout this valuable little book Martin has steadfastly refused to use the word ‘tax’ , arguing it implies that the people being taxed have to part with something that belongs to them. “Land value taxes”, he says, “are still rooted in the paradigm of private land ownership.”

The questions arising from this book regarding the practicalities of some of his suggested solution remain to be tackled. Martin, being so honest and so curious, will no doubt ask more questions, talk to more people and develop more politically realistic solutions. It's monumental task. I have no doubt he will make an even bigger contribution in the future. Watch this space!

Charles Eisenstein, Thom Hartman and Peter Barnes don’t just recommend any book or call a book a ‘brilliant contribution’ or a ‘modern breakthrough’. Their reputations would be at stake if they did.

Available here

Why not do monetary reform then land tax reform?

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What is your solution?

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.

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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.

George Monbiot advocates land tax in Guardian article

George Monbiot argues for land tax It came as a bolt from the blue. Monbiot wrote an article for the Guardian in which he explains why land tax must be implemented. http://www.monbiot.com/2013/01/21/a-telling-silence/. But for those UK Georgists who have been trying to persuade Monbiot for years it is due reward, since high profile advocacy moves debate along. Monbiot says the loudest silence is about property taxes, that the Sultan of Brunei pays only £32 a month more for his pleasure dome in Kensington Palace Gardens than some of the poorest people in the same borough. He also quotes from Winston Churchill  “Roads are made, streets are made, services are improved, electric light turns night into day, water is brought from reservoirs a hundred miles off in the mountains – and all the while the landlord sits still. Every one of those improvements is effected by the labor and cost of other people and the taxpayers. To not one of those improvements does the land monopolist, as a land monopolist, contribute, and yet by every one of them the value of his land is enhanced. He renders no service to the community, he contributes nothing to the general welfare, he contributes nothing to the process from which his own enrichment is derived. … the unearned increment on the land is reaped by the land monopolist in exact proportion, not to the service, but to the disservice done.”

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.

 

 

 

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!)