Category Archives: Taxing the commons

All land value taxes and resource taxes and carbon taxes are under this general category if we adopt the principle that the earth is there for sharing.

Land went out of the Consumer Price Index in 1999

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Despite the fact that section prices tripled in fifteen years to 2007, land is not now included in the Consumer Price Index. This means that the official measure of inflation is unreliable as it is far lower than the actual figure.

Today I received a letter back from the Minister of Statistics, Hon Maurice Williamson. I had heard that land went out of the CPI but couldn’t remember when or why so I sent in an Official Information request. The Minister dates the letter 14 Mar 2012 and says “Dear Ms Kent

Thank you for your letter of 20 February regarding the exclusion of the price of land from the Consumers Price Index (CPI) basket of goods.

“I am advised by Statistics New Zealand that land (i.e. residential section) was included in the CPI until the June 1999 quarter. Following a review of the CPI in 1997 land was excluded, taking effect from the September 1999 quarter.

“The 1997 review by an external advisory committee confirmed the CPI’s main purpose as being informing monetary policy setting, and that the CPI should be focussed on the concept of “acquisition”. The reason given for excluding land from the CPI from 1999 was that it was considered to represent the investment component of home ownership (with dwellings representing the shelter component).

“The September 1999 quarter CPI information release explained it as follows: “A dwelling provides shelter over a long period of time. Over time land is not consumed and so can be considered to represent the investment component of home ownership. As investment expenses are outside the scope of the CPI the rebased CPI excludes expenditure on residential sections.”

“Information on the sale of land is available from QV (www.qv.co.nz) and the Real Estate Insititute of New Zealand (www.reinz.co.nz).

I trust this information meets your needs and thank you again for taking the time to write.

Yours sincerely

Hon Maurice Williamson

Minister of Statistics.

You can be assured I will write back to ask how inflation can be accurately measured when the price of residential sections is excluded. Every time a section rises in price it puts up the price of the property. So when someone buys property in the future, they will have to pay a higher prices than previous owners paid. This also means the total mortgages and the total money supply has to rise accordingly. When the money supply increases there is inflation. So it is not a small quantity we are talking about. We are neglecting a huge factor. The CPI cannot be taken as a valid measure of inflation and there is no reason to have any faith in it. The Productivity Commission said the price of residential sections tripled in the fifteen years to 2007.

Right now we are going through a period of fairly stable prices, but no doubt in the future the cycle will come around again and prices will rise.  The value of all residential properties in New Zealand was estimated by the Tax Review committee of 2007 to be $298 billion. This excluded land for commercial forestry, agriculture, industrial, commercial or mining or land owned by central or local government.

As Eisenstein says “Money is deeply and irretrievably implicated in the conversion of the land commons into private property, the final and defining stage of which is its reduction to the status of just another commodity that can be bought and sold.” After this letter, we could add to this “and used as an investment”.

 

Visitor levy Bill illustrates the commons of local authority infrastructure

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Yesterday I happened to turn on a Parliamentary debate on a Bill called the Southland District Council (Stewart Island/Rakiura Visitor Levy) Empowering Bill. The legislation would give the council, whose rating basis is very small, the right to charge visitors up to $5 to pay for the island’s growing tourist infrastructure. It would be expected to raise about $250,000 a year.

I was heartened by this debate. Not only had the Select Committee had a very collegial discussion on it, but there was little opposition in Parliament, other than worrying that other councils might follow suit. I hope they do. Far North District Council could be one.

The infrastructure of roads, sewers, community halls, water, wastewater and stormwater is part of the local commons. It was built by the people and belongs to the people so the people have the right to charge others for the rent of it, no matter how temporary.

Our national built infrastructure of our roads, dams, power stations and electricity network is similarly part of our commons and should never be sold off. The sweat of our nation’s grandfathers is in those dams. The vultures are coming to get it, including the land. Those who would sell it are guilty of treason. And they are coming to Greece right now. Imagine selling off the Parthenon, the cultural commons of the Greeks.

Our land will increase in value with this new community facility

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I am excited. We have a wonderful new gym which has been built by Te Wananga O Raukawa, the Maori university on the main road to the beach and I think, because it will attract so many top level basketball and netball games, it will be an asset to the small town of Otaki where we live. On the opening day today we had two top teams playing netball here and that will only be the start.

I am even thinking the value of our own land, less than 1km from the gym, might go up. It will over time and the land values in all the surrounding area will be affected as well, depending on how close they are to this new community amenity (and depending on how many businesses disappear as well). It is a very fine complex, described in the local paper as a world class facility. It came in under budget, on time and without debt, thanks to the great people at the Wananga.

So why should private landowners gain from the increase in land value? Most of us didn’t work to cause it. And those who don’t own property (plenty of renting in our town, plenty of poverty).That is stealing from the public purse. Land value taxes should be imposed so that the public recaptures all this privately accumulated value. That will only happen if rates are levied on land value not capital value and not with 70% of the rates being in fixed charges, as we have now. So we are far from that now and we have adopted the philosophy of user pays. This, because user pays is so convincing, is going to be hard to change.

This happens any time there is a new public facility. Everyone near the the terminal of the Waikanae Railway station benefited when the Paraparaumu line was extended to Waikanae (well it was that part of the cycle – their values didn’t go down while others did). So if a gym raises the value of our land, how much more would the railway coming to our town affect it!!

I just think of all the poor people in our town with no hope of ever owning land. It will widen the gap between rich and poor. And when land prices go up, the banks benefit,the money supply increases and we get inflation. No good for the poor!

We just have substantial challenge how to solve this politically.

Location Value Covenants – joining land tax reform to monetary reform and solving lots of problems at once.

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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

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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!)

 

Resource rentals

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b)             Resource Rentals
Untaxing the productive economy creates wealth while taxing nature conserves the planet. We would tax the use of land, metals, oil, electromagnetic waves, water, agricultural quotas, and any resource which is part of the commons. The principle is that we pay for what we hold or take, but not what we do or make (unless we make them using precious resources or the product is environmentally or socially harmful.)

All private companies which sell basic natural resources will pay an annual rental to the public purse.

If hydro electric power stations currently owned by Government were sold to private owners, then the new owners would have to pay a water tax for our public revenue.

Water tax. The worldwide demand for water is predicted to increase steeply and we have no reason to believe New Zealand will be an exception to this trend.

The irrigation tax proposed by the Greens is a good example of a resource tax. It is a tax on the use of a scarce common resource, water for personal gain. If farmers were taxed according to the resources they used, then water intensive farming would not be as profitable as dry farming. Dairy farms would give way to sheep and beef farms and horticulture, thus reversing the trend to dried up and polluted rivers. It would also mean overseas owned utilities and monoculture agribusiness would start to pay their fair share of tax.

Likewise a resource tax on scarce resources like oil would include petroleum based fertilisers and pesticides. This  would hasten the move to organics. Another effect would be to minimise taxes for sustainable farming and consumers with a low carbon footprint. Changing to resource taxes would simplify the tax system.

China has of late moved towards a rare earth tax and has adjusted its coal taxes upwards. Australia is proposing a tax on mining.