This is the principle of returning to the community, by means of a tax or levy, the value that the community itself has created. This value is measured through land values, which are simply an indication of collective prosperity.
The owner or occupier of a site may do nothing to effect any improvement or change on the site, but its value may increase nevertheless through surrounding communal activity or community funded infrastructure that has the effect of enhancing the value of the site. This increased value falls fortuitously to the benefit of the owner and may be realised in the form of increased rents or capital value at any point of sale. The revenue thus derived is not due to any work done by the owner, and is clearly unearned.
The classical economists, from Adam Smith onwards, were aware of this source of revenue, and it was David Ricardo in his ‘Principles of Political Economy and Taxation’, of 1817, that named it the ‘Economic Rent’ of land. The economic rent still exists, it has never gone away, it is still collected and it still goes into private pockets. The prime purpose of LVT is not to stop this collection but to re-channel it into the public coffers, thereby returning to the community the value that it has created.
The value of any property has two parts: the value of the building, the bricks and mortar, and the value of the site. Unlike the building the site value is determined mainly by its location within a community. As most estate agents would concur; where property valuations are concerned it is more a question of ‘where’ rather than ‘what’; primarily a matter of location. It would not be incorrect to describe LVT as a Location Value Tax, where the value of a particular site is determined by communal demand at that particular location.
It should also be noted that LVT is proposed as a replacement tax, not an additional tax. To the degree that it is introduced, other taxes should be proportionately reduced or eliminated. The overall tax take would remain the same.