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F.A.Q.
The following list comprises the most commonly asked questions about the concept of making land and resource rentals the source of revenue for government. As you continue this study, you will see the value from giving resources the respect they deserve and the benefits resulting from the freeing of labour, production and exchange from taxation. If you have any questions which are not covered here, or observations you would like to put to our panel, please feel free to do so by sending your question as
an e-mail query and we will attempt to respond.
The inclusion of land and resources in the economic equation is central to any solution for revenue raising. A taxation solution which does not consider the nature of taxation itself and allows the continuing private monopolisation of community land and resources fails to recognise the essential role land plays in the economic equation and will not work. Land is the only element in the economic equation which is both fixed and finite. It can be monopolised. It is a unique class of asset which must be treated accordingly. If we were to wrest not the land itself, but its unimproved value from private monopolies and return the value to the community—whose very presence creates it—then we would have reduced many problems in one stroke with great benefit to production, to the environment and to the cause of individual freedom and justice.
On the subject of land and resource rents, Henry George said this:
The tax upon land values is the most just and equal of all taxes. It falls upon those who receive from society a peculiar and valuable benefit, and upon them in proportion to the benefit they receive. It is the taking by the community, for the use of the community, of that value which is the creation of the community. It is the application of the common property to common uses. When all rent is taken by taxation for the needs of the community, then will the equality ordained by nature be attained.
Often referred to as Georgism, Geonomics or ‘Geo-ism’, there are
many terms to describe the means to acheive this. Here are some of the
options: site rental, Land Value Taxation (LVT), land value capture,
rent for revenue, resource rentals and community ground rent.
They all relate to capturing the natural increases in land values
created by our hardwork (ie taxes paying for new roads that benefit
surrounding landowners) and recycling them into government coffers.
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Site rent cannot be passed onto the tennant because the landlord is
already charging the market price. Additionally, it cannot be passed on
because there is now an increased supply of rental properties on the
market. Tennants can now threaten to move if the landlord attempts to
pass it on.
When rent is collected on unimproved values, land will become much
more readily and cheaply available. Many more people will have access
to sites and be in a position to build their own houses and create or
operate businesses. All you’d need to borrow, if at all, would be equal
to about 10% of the current unimproved site value; enough to cover the
first year’s site rent. Compare this to the gigantic burden of current
mortgages at inflated interest rates.
Many existing tenants would move and take up sites elsewhere. The
law of supply and demand will reverse the current situation by forcing
landlords to compete to attract tenants by; improving terms and
conditions, carrying out building and internal improvements,
undertaking promotional activities in commercial centres, etc. In other
words they would have to start renting buildings alone and forego the
unearned income from the site itself.
In such a market, if your landlord tried to up the rent, you would
simply move. You could confidently threaten your landlord that if he
didn’t lift his game you would move out. In such a climate, landlords
will be improving their buildings in an effort to attract clients. It
will be a buyer’s market.
Landlords, especially smaller landlords, would ultimately benefit
from Community Site Rent in any case, in that, although they would be
foregoing the site rent as part of their income, they would be in the
same position as other citizens in that the benefits from a move to
Community Site Rent would offset and probably outweigh their initial
loss. Larger landlords, the greater part of whose incomes currently
derive from ground rents alone, would probably be more likely to lose
overall, and may well take their capital offshore. The community would
probably gain from such an outcome. Readership of online independent
media would surge during such a period of transition!
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So does the law of gravity.
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If you work for a living you will be better off - much better off -
under a resource rentals based system. If you live off other people by
collecting rents you will be worse off. It’s that simple!
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Our proposal is a change in the taxation system from taxes being
levied on what you produce to being levied on the value of resources
you consume. You simply pay to the community for the benefits the
community provides for you. Isn’t that fairer than being penalised for
working?
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We do to a very limited extent. Local government rates are a form of
Resource Rental. But… The wealthiest 20% of Australians own around 80%
of this nation’s resources. Naturally this makes a very powerful lobby
group. The current taxation system allows the wealthy to escape paying
tax (through the use of “Managed Investment Schemes and/ or tax havens
for eg.) while collecting rents from the rest of us.
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You can’t move a nation’s natural resources off shore. You can’t
evade a Resource Rentals charge, just as you can’t evade paying your
rates or mortgage, whether you’re Joe Bloh or James Packer. In our
current system if you don’t pay your rates or your mortgage your site
is reclaimed by the owner or by the local authority. That wouldn’t, and
shouldn’t change. If you want to own shares or property overseas that
should be no skin off anyone’s nose, good luck to you. If you’re using
wealth generated in this country to do it, that’s fine too because you
would also be spending some of the profits here anyway.
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Few would flee; they would stick around and utilise their wealth in
productive enterprises which would allow them to utilise their
managerial or entrepreneurial skills to generate more wealth for
themselves and, through resource rentals, for the community at large.
People could shift cash, gold jewelry, antiques, paintings or any other
moveable assets offshore to their heart’s content. They could use all
the modern electronic means at their disposal to move funds, and do
whatever they like with their money. Anyone who’s willing to work for a
living rather than be supported by the labour of others will be
grateful. If there is a flight of non-productive capital, the only
function of which was to hold land and resources out of use in
expectation of some future unearned profit, then their departure would
not be missed in the long run. As these non-producers fought to get rid
of their unused sites, the prices would drop, and Mr. and Mrs. Joe Bloh
would be able to realise the Aussie dream of owning their own house.
Joe and his partner might also be able to start up a little business
and produce for themselves a passably good life. In fact the whole
population would have a much better chance of enjoying the fruits of
their own labour.
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It is not the economics of envy. It is the economics of justice. We
shouldn’t envy anyone whose rewards are commensurate with their
efforts. Who wouldn’t be extremely happy to receive what we earn?
Trouble is, with direct and indirect taxes the average worker receives
about 40% of what we earn, but someone like …. we don’t want to name
names - say James Packer, probably actually earn about 10% of their
incomes. Speculation should not be encouraged or rewarded.
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Land Price is the accumulated capitalisation of economic rent. It’s
what the market pays in a marketplace where land speculation is
encouraged and title is bought in a one-off transaction (as per at
auction). Land value is the actual rental value of a site ie what can
be physically earnt from that location.
McDonald’s is the world’s 2nd biggest landowner. They are renowned
for ‘doing the sums’ before committing to a future store and buying a
piece of land. They hire statisticians to count the number of cars that
pass by the location. Using their statistical models, they calculate
for example, that if 10,000 cars pass each day with a likelihood of 200
potential customers spending $8 each, the site is worth $11,648,000
($1600 x 7 days x 52 weeks x 20 years). They will refuse to pay above
that market price because they know they can’t earn enough to pay the
mortgage. Under our system, they would refuse to pay more than $582,400
(1600 x 7 x 52 weeks) for a yearly site rental because they know the
actual Land Value. To pay anything above this is uneconomical as they
wont be able to earn the extra revenue to cover this. A similar
situation is the astute small business investor who sits in for a month
on a prospective business , recording all transactions (in say a Milk
Bar) to see how much the business is actually worth, before committing
to the asking price.
Often under our present system, speculation forces Land Prices above
what can realistically be earned by its occupants. Under a Site Rental
system, when there are 70,000 cars passing by and 300 people entering
the store, the company will naturally pay more back to the community,
keeping in time with the growth of society. In time Land Price should
equal zero, but Site Rental will replace that, growing as society does,
ensuring the people get a share of the improvements.
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The speculative component of land prices would be removed as the
increased supply of property (huge tracts are withheld from supply by
speculators) leads prospective buyers to pay only what the property is
worth in terms of location, infrastructure and amenities.
It’s probable that land prices would drop to zero within the first couple of years. Remember, there is a big difference between land price and land value.On
the introduction of the system, anyone holding land speculatively would
either have to put it to productive use or get rid of it. If they hung
onto it, they would be out of pocket by the annual rental value.
Putting it to productive use would result in a dramatic increase in
demand for labour and therefore an increase in trade and thus in the
general welfare. Getting rid of it would result in the asking price for
land dropping substantially to the point where supply exceeded demand,
with the seller getting progressively more desperate to sell and thus
avoid the site rent.
In the end, land price is replaced by land value, as represented by
the Site Rental. The Site Rental is representative of only what can be
earned by occupying that piece of the planet.
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Whether a political party were elected on a site rent platform, or a
government were persuaded to change over in mid term as the result of a
referendum, then there would obviously need to be a period of
transition in which legal matters were sorted out, legislative changes
made, procedures established etc.. This could possibly take a year or
so. At the point where the system becomes law, then the current
unimproved site values at that time (as is already available for
scrutiny wherever rates are collected) would be used as the basis on
which the first annual rental is struck at a rate of say 10%, or
whatever was determined as required for government expenditure (using
the same methodology to set rates).
Although initially set at ten percent on the unimproved value of all
sites, the asking price for land would obviously fall dramatically on
the introduction of the site rent system, and would drop in many areas
to zero as the supply of sites outstripped demand. Site Rental,
representing Land Value, replaces the inflated Land Price that is
possible at present with wasteful land usage. At this point, within a
year or so of the implementation of the scheme, the government would
simply collect the annual site rent as its sole source of revenue. In
other words, the occupier would enjoy exclusive use of the site for as
long as they continue to reimburse the community for the benefits which
their exclusive access gives them. In that way, the value created by
the community’s presence – the economic rent – is returned to the
community as revenue for its government.
There would no doubt be a bit of panic, especially among all those
whose whole or partial income derives from rent in one form or another,
but even these people would see, once they’d calmed down, that the
benefits to the whole economy of such a radical change would massively
outweigh any losses. Those whose income though is largely gained from
community generated rent through monopolistic holdings of land and
resources, licenses, etc. would be violently opposed, obviously, as
their livelihood would be threatened and they would be reduced to
relying on their own skill and efforts to produce income. They would be
forced to live on their earnings and not their incomes.
On the positive side for these people would be the fact that they
would still retain their mansions and their yachts; the legitimate part
of their income from shares in productive enterprises like BHP, CRA
etc., would still be coming in – in fact it may increase, as these
enterprises would be taking part in a massive resurgence of industrial
and corporate activity fueled by higher wages in the pockets of the
consumers and cheaper manufacturing costs for the exporters. So even
they would not necessarily be any worse off in the end, and would enjoy
living in a happier, less fear-ridden and corrupt society. The best
salve to their fears would be to give them all a years supply of
valium, and a government-subsidised short course along the lines of
“Only work generates wealth”.
Regarding the immediate redundancy of the very large numbers of
taxation and related department functionaries, including Ministers and
Ministerial departments ; even if the government undertook to continue
employing them to twiddle their thumbs rather than paying out large
packages, I think most of these people, within months of the start of
the new system would be eager to get into it, seeing that they could
employ their talents in a totally free market and generate as much
wealth as they wanted to.
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There are now two parts to a purchase. The purchaser must agree to
pay a Site Rental for as long as they occupy the site, to the
Government (not the bank). This represents the cost of the land
component, the amount that today typically consumes 70% of a mortgage
price. The second part to an auction is the purchasing of the
improvements - the building. This is what the past owner receives from
the auction. This is also the amount that the purchaser may need to
borrow from the bank. This may mean we are borrowing $70,000 -
$150,000, rather than the full $350,000 plus amounts of today. As long
as we pay the Site Rental and keep the bank happy, we maintain
possession of the site.
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The “unimproved value” of a site is simply its worth discounting any
improvements - the land value itself. It is the current market price
less the current value of all improvements. As happens now, it is the
market which determines the value of a site and anything on it. The
desirability of a site for residential, commercial or industrial
development, for the establishment of a mine, or for exploitation as a
fishing-ground, is what creates its value. A derelict site fronting a
shopping mall will be worth by and large what its neighbouring sites
are worth. This fact is demonstrated when a vacant site goes to public
auction. The amount of the successful bid determines the value of the
site. The unimproved value of farmland in a marginal rainfall area is
likewise determined by public bidding.
Any work carried out on a site, be it a multi-story exclusive store
or a wheat crop, are improvements. The full value of these improvements
should rightfully belong to whoever produced them. Our present system
of local Council rates incorrectly rates on improvements, under the
Capital Improved Value system (CIV). This penalises landowners for
developing and improving their property. It also means that households
pay a higher share of the tax burden than the wealthy property
speculator who owns vacant land. No wonder our suburbs are sprawling
for miles.
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You can’t escape a site rent. You can’t hide land in an offshore tax
haven. If you don’t pay up you lose the site. People on poorer sites,
say the outer suburbs pay a lot less compared to the posher suburbs due
to that famous modern day fable “location, location, location”. So by
and large this is a progressive tax system.
Those renting only pay a rent on the improvements (the building) of
the site they occupy, typically 30 - 40% of the cost of today’s rent.
The landowner pays the site rental, the remaining 60 - 70%. This helps
the poor save money for the Great Australian Dream.
It’s worth bearing in mind that those who wanted to work would have
no difficulty finding work. Work would be looking for them. Those who
didn’t want to work would be no worse off than they are now. This
system would end involuntary poverty and unemployment with the access
to cheaper land breeding small business incentive.
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At present, wages gain about 3% p.a, the sharemarket 7-10% and now
land, instead of the 15% plus gains of recent (on a huge lump sum
amount), would be left with about 10% of a much smaller increased land
value ie a 10% share of whatever gain on a $45,000 Site Rental versus
the old 15% on $450,000. Owning land would thus still see competitive
returns to what can be earnt in banks or the sharemarket, just not as
large a capital gain as the lump sum would be greatly reduced in size
and growth. For more see Land Price versus Land Value.If the person is a renovator, they are entitled to all of the gains from the improved building.
Also, with the speculative component removed, the land market would
be less volatile, reducing the risk of land ownership. Cheaper land
values would give our youth hope.
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Some locations will drop but others, particularly those in central
locations, may infact rise due to the immense productivity gains from
our more streamlined taxation system.
Whilst the land price would fall to zero, the site rental would
takeover as a yearly lease-type arrangement. The actual site revenue
base will broaden with a vast increase in the take-up and utilisation
of sites. There would be an initial decline in asking prices, which, in
a static economy, would result in less revenue, but the point is that
under a site rental system, much of the land which is now held out of
use for speculative gain would be taken up and put into productive use
either as residential land or in commercial or agricultural ventures.
This would increase the amount of wealth generated by an unfettered,
wealthier workforce. Since the wealth generated by the community would
be so much higher than at present, and would largely remain in the
hands of those who produced it, the community’s reliance on
government-provided welfare and other resources would be reduced
markedly, with a resulting decline in government expenditure.
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Under this proposed reform, land and resources would no longer be
kidnapped and held out of productive use by private monopolies. Access
would be within the reach of anyone who was willing to reimburse the
community for the community-created value of the site. Wage levels,
uninhibited by fear of unemployment, would flourish as demand for
labour surged. People given a free hand to produce and to prosper, and
knowing that they would get as much income as they wanted to work for –
or as little as they needed to comfortably survive – would begin to do
the sorts of work that pleased them. The quality and range of goods and
services would increase dramatically, thereby improving their
attractiveness to our trading partners.
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If Community Site Rent were introduced, then, wages would rise, and the following would result:
- MNC’s and large businesses typically rely on large sites with big
carparks. As large land users they will have to pay higher site rents
than your average small hardware store, helping to restore the balance,
moving us towards re-localisation.
- Consumers, having more disposable income, would not be forced any
longer to opt for the cheapest product, and would be in a position to
take ethical decisions on what they do and do not buy.
- The result of this would be that any MNC’s which were using
unethical practices would lose sales against more ethical competitors
- If MNC’s had production sites in this country they would have to
offer higher wages to hold their workforce, which they could may
struggle to do whilst remaining competitive. This may lead them to
close down operations here and move the production offshore to a
cheaper labour source.
- If the MNC derived a significant part of their income from ground
rents, either directly or indirectly, (i.e., through cheaper labour or
raw materials), then they would probably be forced to cease operations
in this country anyway if they wished to maintain the same levels of
profitability for their international shareholders.
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The vast bulk of unproductive sites, including those held for
speculative gain or in anticipation of upzoning, would come onto the
market. Unimproved land values therefore would initially fall which
would in turn make them more accessible to all, whether first home
buyers or commercial enterprises. The site rent, being based initially
on a percentage value therefore would probably produce less revenue
from existing occupied or utilised sites, but since there would be a
large increase in the number of utilised sites, the total revenue would
remain or more likely increase.
The cost of mortgages would drop because the land component would
cost less – and in a very short space of time, it’s sale price would
drop to zero and all you would be paying would be its annual rental
value. In this scenario, you would only be borrowing to the value of a
year’s site rent at the most for the land component, after which time
you would more than likely earned enough to easily afford the next
years rental. You would still be paying off the money borrowed on the
building. As well as this, because everyone would retain a much larger
portion of their earnings, they will be able to come up with a larger
deposit, and also to pay off any loan much more rapidly. The demand for
money will drop, resulting in interest rate falls.
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How will it effect new and long-term mortgagors/owners?
Those who have, not long prior to the changeover, taken on a
mortgage over a residential or commercial property may feel ill-served
by such a site rent for revenue system as they will be obliged to pay
both the mortgage repayments, and at the same time be liable for the
community site rent. They are no worse off though and in fact are
probably better off, because;
- Employment conditions & wages will greatly improve due to the
increase in small business. Other spin offs include a safer society,
better public transport and reduced overall household debt pressures.
- The long-standing mortgage payer has been liable for a
comparatively similar amount, but over a longer period, but will never
the less still be liable for the same site rent.
- For the newer mortgagor, in all likelihood interest rates in the
new system would decline dramatically, due to both a decline in site
values and therefore demand for finance, making the mortgage
effectively cheaper. On top of this, both the above mortgagees will
from the date of changeover be able to retain a much larger portion of
their income, since all taxes will have been abolished.
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No, we wouldn’t necessarily be occupying more space, we may even be
occupying less but doing it much more efficiently, productively and not
environmentally damaging or resource indulgent (i.e., requiring road
networks and separate infrastructures out to geographically isolated
satellite suburbs.)
Lack of land supply is the property sector’s latest diversion plan
to real analysis of housing un-affordability. take a cycle around your
community and you will soon see a large number of vacant blocks of land
and empty houses. This is where the real land supply problem is. We
don’t need any more public land supply (and endless urban sprawl), we
need this private land supply, currently locked up to enhance capital
gains, encouraged onto the market. Site Rental is the most efficient
way to do this.
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The critical point is that the Site Rent is levied on unimproved (no
structures, fences or other improvements) values. In marginal country
this would be very little indeed. In high rainfall fertile country it
would be more since the unimproved land itself is more productive.
However, it would still be minuscule compared to current mortgage
levels. It is ultimately the market which decides the value anyway.
Once you’ve paid the site rental, you keep what your earn, and pay no
tax, direct or indirect, hidden or not, on anything else. You keep the
fruits of your labour, and you earn more or less as much or as little
as your desires demand.
Productive farms pay less under a proper Site Rental system than
under CIV (Capital Improved Value), as they generally have developed
their farms with more buildings and machinery. Farmers lobbying for CIV
have generally been hoodwinked by the real estate lobby, who prefer CIV
as then households and business subsidise vacant lots.
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How will it meet the needs/demands of:
Opportunities would abound. Large corporations which now rely on
making maximum profit from cheap, shonky and second rate goods would
face serious competition from smaller operators with lower overheads (
due to site rents), so would have to improve their game or disappear.
People would have much more money to spend, and would therefore create
many more new markets for the enterprising entrepreneur. It should be
remembered that if, prior to the change, the entrepreneur was getting
the bulk of their income from productive work, not from site rents,
then they would be bound to gain from the proposed change.
Those with capital already at their disposal could if they wished
put it to use establishing new enterprises or improving existing ones,
and so benefit from the new system which allows them to retain a much
larger portion of the wealth they generate, while at the same time
returning to the community its rightful share of the community
generated site value.
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All tariffs and duties would disappear. Local product would be
cheaper to produce, of better quality, broader ranging, and more
abundant than ever before. Our products would fetch a premium on the
world markets.
Imports would be cheaper. We could economically import the very best
capital equipment and use it to produce even better products for home
consumption and re-export. Consumers would have ready access to the
best the world had to offer in the way of manufactured goods and other
products
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Pollution, toxic wastes, erosion, salination, land degradation, over
extraction, decimation of tropical forests, diminishing fish stocks,
threatened wild life; Private monopolisation of land and resources is
the direct cause of all these environmental problems. Leases and
royalties charged to the extractive industries do not reflect the true
value of the minerals and other resources extracted. The true cost of
these items must include the cost of ensuring the absolute control and
minimisation of any resultant environmental degradation. If this
resulted in the prices of some of these resources increasing, then that
is what we must be prepared to pay.
In the manufacturing industries it is cut-throat competition among
producers which leads to much of the current pollution and
environmental degradation, and tempts those involved to cheat and to
side-step regulations etc. in order to survive. With a site rent for
revenue system they could afford to comply with the strictest
environmental controls.
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Broadly, anyone who gains part of their income from site rent will
lose that part of their income through the Community Site Rent .
Whatever part of their income derives from their own earnings will not
be taxed any longer and will remain entirely in their hands. They will
keep what they earn and no more.
The biggest losers therefore will be those who rely entirely for
their income from site rents, and who do not earn their living by
contributing to the production of wealth. The further down the scale
one goes in the ratio of income from site rents compared to that from
productive work, the better off the individual will be. At the very
lowest end of this scale, where the individuals income is made up
entirely of what they earn, then the maximum benefits of the system
will apply. In other words the people at the bottom lose least, those
at the top lose most. You could not have a more progressive revenue
system than that! Thus we have a total inversion of the age old pattern
of the community’s wealth aggregating towards the top at the expense of
all at the bottom.
It should be remembered that those with large fortunes at the time
of changeover would not necessarily be disadvantaged. Certainly they
would lose whatever part of their incomes which were derived from the
monopolising of community resources, but they would still retain all
their existing capital, which they would be free to invest in
productive, wealth-generating enterprises, and could utilise their
managerial and entrepreneurial skills. They would not lose their
yachts, island hide-aways, mansions and penthouses, rural acres. Nor
would they need their battalions of accountants and tax minimisation
experts.
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Don’t forget that the proposed Community Site Rent is struck
initially on unimproved values. So the value of the building, be it
hovel or mansion, is irrelevant. But to answer the point regarding
equity;
- The owner of a site of unimproved value $1m will pay $100,000
nominal site rent in the first year, and in subsequent years whatever
the annual assessed rental value is – in fact probably around 10% of
the site’s notional capital value, even though “capital value” or
“price” will no longer exist.
- The owner of a farm on marginal land out in the west of South
Australia, whose 2000 hectares, excluding any improvements is worth
$100,000 will pay $10,000 nominal site rent in the first year, and in
subsequent years whatever the annual assessed rental value is. This
farmer will pay no tax on his income from the crops, no tax on the farm
machinery, new car, furniture, fencing materials, food, clothes, beer,
books, new computer, TV set, home entertainment centre, RM Williams
boots.
- The owner/occupant of the fibro hovel would be unlikely to be
living next door to the mansion, and more likely be in an outer suburb
sitting on land worth maybe $40,000 at current values. He/she will pay
$4000 nominal site rent in the first year, and in subsequent years
whatever the annual assessed rental value is.
- But what would all these people be paying now in direct and
indirect tax? The millionaire; probably 5 or 10% of his/her true income
in income tax, but the same indirect taxes as everyone else. The
average wage or salary earner, between 30 and 50% of their income on
income tax and then the same as the millionaire in indirect taxes on
everything else. A minimum of 50% of average incomes disappear in
direct and indirect taxes, an increasing proportion of which goes to
support an ever more unwieldy and expensive administration. You don’t
start earning a clear wage until more than half way through the year.
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Pensioners would be better off, but will be faced with some
difficult questions in the beginning. At present day inflated land
prices, the $330,000 house would see the unimproved price at $230,000.
Ten percent of this is $23,000 in site rental. This would be a shock to
most retirees. However, it must be remembered that we are presently at
record highs for housing, and a site rental would return property
prices back to more realistic levels within a few years. Thus in a
year’s time 30% of the speculative price has probably been brought out
of the price. Site rent then falls to $14,000. It should fall back
again to about $10,000.
It is likely that a sole pensioner on $15,000 will initially not be
able to cover their site rental. They should sell and move to a smaller
premises. Alternatively, they could do a reverse mortgage and pay their
site rental from their estate. That is a negative but look at the
positives:
- their grandkids can now afford a house, reducing future generation’s reliance on any inheritance
- they can walk the streets in comfort as crime drops due to increasing small business, employment opportunities and wages.
- their pension’s purchasing power will be much higher, giving them
more dignity, as the removal of direct and indirect taxes will boost
pensions by 40%.
These are just some of the gains, making this small sacrifice well worth any short term transitional issues.
A couple on a pension will be able to continue as per normal, though
they may have to tighten their belts for the first year. The added
purchasing power of 40% will more than make up for the short term pain
of the transition.
Since governments would be in surplus they would happily, with no
pressure from the community, increase pensions to a level which
provided a comfortable retirement to those who had through their
working life contributed by their very presence to the wealth of the
nation.
It’s worth bearing in mind that this reform is not simply another
slightly more novel form of tax. This proposed Community Site Rent
recaptures and returns to the community at large what was previously
being diverted into private hands. It allows what was previously paid
out, with considerable pain, through a complex and massively
inefficient array of taxes to remain in the hands of the people who
produced it. For this reason alone, and for the justice of the
principle on which it stands, the Community Site Rent demands serious
consideration.
It the worst came to the worst, and the occupier was too ill or
incapable, then the site rent debt could simply be deferred until the
death of the occupier, and then retrieved from the estate, as are
mortgagee debts and rate arrears now.
After spending a lifetime seeing some people work blood, sweat and
tears for little return and others greasing the system through property
speculation, many retirees would be able to look back in satisfaction
as being the ones who made a small sacrifice for the greater good.
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These deserving retirees would be overjoyed with such a scheme.
Although they would indeed have to continue repaying the community for
the value which the existence of the community itself gives to the
site, this would be truly small beer compared to what they’re currently
being stung. When you consider that on top of their income and capital
gains taxes, they are paying up to 32% of every dollar on a truly
biblical multitude of taxes including income tax for the producers and
providers of goods and services plus all the other indirect and hidden
taxes we all endure.
If the unimproved value of the site that these retirees occupied was
worth say $100,000 (excluding the value of the house), then they would
be paying a maximum $10,000 nominal site rent in the first year, and in
subsequent years whatever the annual assessed rental value is. The
buying power of what’s left grows by at least a third since they’re
paying no income tax or capital gains tax, nor are they paying any of
the other multitude of hidden taxes and imposts. They’d be rapt.
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They will pay site rent and they wont be reimbursed for past taxes.
We must look forward. We hope they will see the benefits to society, in
particular their grandchildren, worth the change in thinking.
However, as we have just seen (above), pensioners will gain plenty
from this new perspective. They are already being taxed even if they
are paying no income tax. They are still paying rates, possibly a
mortgage or rent, possibly for the slightly better-off ones, capital
gains tax. Crucially, the many indirect taxes and hidden imposts hit
the hip pocket to the tune of about 40 cents in the dollar. Now if all
of these charges are removed, they would come out and march for this
scheme if the current taxation system only left them a few spare cents
for the bus fare to the march assembly point.
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Yes, but again, as in the case of the pensioners mentioned above,
they would be markedly better off. Bear in mind too that such a scheme
would very quickly eradicate involuntary unemployment, as there would
be a large increase of buying power in the community at large which
would naturally lead to a demand for workers. Small business would
boom, giving the unemployed other options outside of telemarketing.
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Don’t forget, ALL other taxes and imposts would be abolished. No
provisional tax, no taxes at all! It would be a golden day for anyone
wanting to set up a business, or expand an existing one. As things
stand now for small business, and for bigger business for that matter,
not only do they have to cover such things as payroll taxes, all of the
import taxes and other subtle add-ons, sales taxes and other rubbish,
but if their business does look like its beginning to finally make a
profit, lo and behold, the landlords not only up the rent, buts stick
their hooks in for a percentage of the turnover to boot. Many more
businesses under this proposed system could afford to be their own
landlord. Any entrepreneur worth his sea-salt would join those old
pensioners on the march. In fact he or she might even subsidise their
bus fare.
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This solution and any other which makes goods more expensive to the
local consumer simply reduces the market for the imported product, and
increases the price of the home grown substitute. The only winner there
is the producer of the protected product, who, with less competition
can boost his price without having to worry so much about service or
quality. He has a captive market. Tariffs and duties punish the
consumer by inflating prices and reducing choice and quality.
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To determine how much is actually spent on the environment in
Australia, the government should allow a tax rebate similar to that
previously allowed for R&D (under Hawke & Keating). The same
amount can then be levied against competitive importers. Result?
Improved employment, good for the environment, save the manufacturing
sector, improve competitiveness of industry in a globalised economy. Is
this workable?
The fundamental flaw in this proposal as with many others, whether
environmentally sensitive or not, is that the gains made will be
converted into higher rents and land prices, thus higher operating
costs for all producers including those involved in or reliant on the
extractive industries. It’s good in the short term, but in the long
run, without a Resource Rental system to back it up, we will have the
same urban sprawl, struggle to pay for transport and higher property
prices, giving us less time and flexibility to deal with climate change.
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Some sources claim that according to the Australian Bureau of
Statistics and the Reserve Bank, a debit tax of 1% to be levied upon
withdrawal of funds from a financial institution and remitted to the
Reserve Bank would provide a tax revenue of 360 billion dollars per
annum at current withdrawal levels (1997).
This proposed reform contains several minor flaws, not least of
which the questionable arithmetic! Some of these could conceivably be
overcome by legislative and other means. The fundamental flaw, however,
which it suffers in common with many similar proposals, is the
assumption that the gains made will remain in the pockets of the
community at large. We suggest they would not. The extra spending power
will be converted into higher rents and land prices, thus higher
operating costs for all producers and then on to the consumer.
If the system were implemented, and all of a sudden everyone had
twice the spending power that they had last week, then rents and land
prices would simply increase to soak up the extra money. Any benefits
would immediately be negated by an equivalent rise in property prices
and rents. For proof of this look at what happens during speculative
property booms. What happened in the eighties when surplus Asian wealth
suddenly started chasing Australian properties? The prices skyrocketed.
If you were a property owner at that time, would you have passed up the
opportunity of making a killing? The more money there is to spend, the
higher will be the privately monopolised economic rent.
Consider this scenario: As prospective first home buyers, we
suddenly have available extra money to spend on our first home (sound
like the First Home Owners Grant?). If all our fellow Australians are
in the same boat, in other words if everyone’s got more money, the
asking price for the blocks in the new subdivision suddenly go up by
exactly that amount. This is the reason why the often-trundled-out
“first home buyers assistance schemes” never benefit the first home
buyer; they benefit the landowner and the speculator – the land price
miraculously rises by just that amount, be it $2000 or $10000. Yes,
First Home Owners Grants really subsidise wealthy landowners! If you
put yourself in the shoes of the seller of the land you will see what
we mean. The seller holds out for the maximum that the market will
spend. The price demanded for land or for rental of domestic and
commercial properties will rise to soak up the available cash. So all
the benefits of this scheme end up in the pockets of those who
monopolise land and resources.
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We would be happy to acknowledge this claim if you could logically
and rationally refute the basic premises behind it, which are that;
- Before the community arrived there was no intrinsic value in land or resources.
- The advent of communities created demand and competition for sites which then gave them value.
- Since it is the presence of the community itself which created the
value, then this value must by right belong to the community and not to
an individual or group which throws up a fence around it.
- This community created value therefore would seem to be the
logical and by far the most equitable source of revenue for its
government, and the community therefore has not merely a right but a
duty, through its elected representatives to reclaim this community
created wealth as the only fair and just source of public revenue.
- This fund would be adequate to enable the government to carry out
all of its proper functions in the service of the community, and so
would enable them to abolish all other taxes, tariffs and imposts. For
evidence, please see this Ground Breaking work by Tony O’Brien
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“Why put the entire burden of taxation on one area of economic activity? This distorts people’s spending decisions and reduces GDP. It’s just as
foolish to do this by taxing only the use of land as it would be to tax
only income generated from labour!”
Answer: Income derived from holding land or resources out of use is
not productive activity. Bear in mind that this proposed site rent is
on unimproved values. If you owned a site and put up a house, shopping
centre or industrial complex, then you have every right to the rent or
sale prices which those improvements generated, but you have no right
to take the increase in site value which resulted from the very
presence of the community and the infrastructure which was built with
their wealth. It is incorrect to equate land with labour. Land is a
finite resource in whose production we had no hand. Labour and its
resourcefulness and potential is limitless. The adoption of this
system, far from reducing GDP, would see it skyrocket.
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Some say it’s an investment, and the investors deserve a return,
just like someone who has bought shares or has money in the bank.
A return of a certain percentage from investments in productive
activities is fine. After all the investor has provided risk capital to
some enterprise which is going to produce some product for public
consumption, and the returns to the investor simply reflect the level
of risk and an inflation factor. We have no problems with that. But if
you buy a site this year, be it in the CBD or the outer suburbs, and
hang on to it for ten years waiting for community funded infrastructure
and pressure of artificially created land shortage, or rezoning to push
up the price, then such profits as may arise in excess of those due to
inflation, belong to the community. How could anyone dispute this?
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The costs of Community Site Rent would be carried by every home
owner, everyone who rents, and everyone who consumes goods or services
which have land as an input.
There shouldn’t be such a thing as a free lunch, but there certainly
is. The wealth which is generated by the very presence of the
community, and which ends up in private hands pays for many a free
lunch, in fact many a free banquet with all the trimmings and has done
for hundreds of years. These people would be the big losers, in that
whatever part of their income derived from the community-created or
common wealth would be absent from their incomes. This is not to say
that J.Packer and his mob may still not generate a very respectable
income from the legitimate employment of their undoubted directorial
and entrepreneurial skills. All they would be foregoing would be their
former share of the earnings of their fellow human beings. All of those
among the wealthy elites in this lovely country of ours and elsewhere,
whose incomes exceed their earnings are in effect stealing the bread
from the tables of the millions whose earnings vastly exceed their
income.
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There is NO unimproved land value! The only income generated from land is from the application of labour and capital to the land.
No, there is an unimproved value. It is the value put on land by the
community before its even touched by the hand of man or woman. It’s the
amount you would pay for virgin farmland, or an empty city site. It is
this value, the unimproved value, which is the common wealth and which
belongs to all in the community. Your improvements on the other hand
belong to you. Every single drop of sweat, or byte of brain power you
apply to the increase in value of the asset, be it a new building, a
hotel, or a thousand hectares of wheat should be yours. Not John
Howard’s. You make it, you keep it. But return the community created
rent to the community.
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a)A good tax should take into account the capacity to pay. This tax
doesn’t — the unimproved value of land someone owns has no direct
relationship to their income.
b)A good tax should not distort saving and investment decisions.
This tax does — only the land input into an economic activity is taxed,
so people will substitute land for labour and capital. For instance it
would encourage intensive farming of small areas of land, when it would
actually be better to spread the labour and capital used more thinly
over a larger area of land.”
On a):the classic cry of the ‘widower’ is a cunning tool by the real
estate lobby to pull the heart strings on this entire issue. It is very
effective. However, key central locations are very important to the
community. Whilst change is not everyone’s cup of tea, anyone who has
helped a lonely grandma with the garden or cleaning of her big old
house will know that change can be as good as a holiday. The worst bit
is thinking about it. Once the change is made to a smaller, more
compact villa, the widow is re-invigorated and a new young family can
move in and make good use of the property (rather than commmuting
40mins plus to work as is becoming the norm for so many today).
On b)Site Rental is charged to encourage an optimal level, not a
maximum level of output. The lower taxation burden and greater
purchasing power on present incomes reduce the pressures to over-farm
one’s resources. Yes, greater efficiency is encouraged in land usage,
but rational decision making has room to breathe, such that spare
padddocks are still financial to rejuvenate, giving them time to
naturally regenerate for the next season’s livestock fodder. Balance is
the key, not wastage.
There is no such thing as a good tax, just as there is no such thing
as an acceptable way of being robbed. Any revenue system which takes
the bulk of your earnings in taxes, while allowing ‘in-the-know’
citizens to pocket the cream of community created wealth for themselves
is simply condoning and abetting the constant and repeated committing
of a crime.
These are the tenets of a good revenue system:
- It must be totally equitable. It must apply to all in accordance
to the benefit received from the community. (with this system, a
desirable block in Toorak might at a ten percent site rental, set you
back $75,000 nominal site rent in the first year, and in subsequent
years whatever the annual assessed rental value is. A block out the
back of beyond for your caravan might cost you $20 nominal site rent in
the first year, and in subsequent years whatever the annual assessed
rental value is.)You pay in accordance to the benefit which the
existence of the community gives it. Inbuilt in this is a natural
ability to pay.
- It must be easy and cheap to collect.
- It must be unavoidable.
Adam Smith, the godfather of economics, said a taxation system must
reflect one’s ability to pay, have a certainty to it, be convenient and
be efficient. Site and Resource Rents fulfill each of these criteria.
No other method of taxation does.
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Any income the speculator gets in excess of a fair wage to cover his
efforts can not rightly belong to him. If he gets a windfall from the
holding which he didn’t produce himself, then who produced it? The
presence and activity of the community did, and it is from them that
the speculator is taking the windfall and it is to them that it should
be returned to in the form of a site rent. Any arrangement which does
not do this is inherently unjust. Bear in mind this proposed site rent
is on unimproved values.
If you owned a site and bankrolled a house, shopping centre or
industrial complex, then a return of a certain percentage from
investments in productive activities is fine. After all the investor
has provided risk capital to some enterprise which is going to produce
some product for public consumption, and the returns to the investor
simply reflect the level of risk and an inflation factor.
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The investor is entitled to any gains made by the improvements they
made to the site ie renovations, new buildings etc. However, the major
gains we see in property prices are due to the actual increase in land
prices, the unimproved value. Our taxes finance improved services. Our
community development adds value to a neighbourhood. Baby-bonus type
pressures contribute to demand for the limited places on the earth. So
whilst the investor deserves about 10% of this capital gain, it doesn’t
deserve the full 100% of the capital gain that the community as a whole
contributes to. Our current system has masterfully managed a subtle
system of subsidy for those already wealthy enough to own a piece of
the planet.
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You’d be hard pressed to find a more unjust, illogical, imbalanced
‘way of life’ than this natural means to share the common-wealth.
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