In the UK. a great deal of taxpayers money is currently spent on regional assistance schemes aimed at depressed areas, in order to encourage economic activity and a revival in fortunes for the populace in those areas. A national land value tax would automatically address this problem. It would effect a transfer of the tax burden away from lower value areas towards higher value areas, and so reduce the necessity for such regional assistance schemes. The effectiveness of this would of course depend on the condition of tax neutrality – that the introduction of LVT must replace other taxes by the same amount. Assuming that the other taxes so reduced are universal, that is at the same rate throughout the country, then all areas would benefit, poor areas and wealthy areas alike, but only the poor areas would gain the benefit of a lower land value tax, related to location; the wealthier areas would have an equivalent increase; so the wealthier areas would gain and lose, the poorer areas would only gain. In this way there would be a re-distribution, not of wealth but of the surrender of wealth in the form of taxation. With a national system the total government receipts would remain the same but they would receive more from the wealthier areas than the poorer areas, reducing the need for assistance to the latter, and so effecting a saving for the national exchequer, which would benefit all. Where rewards related to work are concerned people would prefer to help themselves rather than rely on welfare.
Clearly this benefit of regional re-distribution would not arise where LVT was applied only at the local level, for instance where adopted voluntarily by a town or city as an alternative to the council tax. Also, at local level there would be an absence of agricultural land that would be integral to any national tax. At the local level LVT would be primarily an urban tax and therefore, as previously explained, would be well suited to a limited local application. There are several cities in Pennsylvania USA including Harrisburg and Allentown where LVT has been operating beneficially for many years (1). With LVT there would be a re-distribution of the tax burden, related to location values, and the tax would provide local authorities an excellent opportunity to regain control over their own finances and their own affairs.
Devolution and Local Taxes
Few governments advocate the most important factor in devolution to the regions; the power to raise revenue, (2). For instance, at the present time, half of the local government revenue derived from business rates is surrendered to central government, which then redistributes this in the form of grants to local authorities, at its discretion.* LVT, if applied at the local level, would be an ideal means for giving local authorities real power. If local authorities are not able to raise revenue to finance necessary services they become dependent on support from central government, and as Roland O’Regan pointed out in his book Rating in New Zealand:
“Grants and subventions from central government are the kiss of death to local government’ (3)
Raising revenue for local government has become an intractable problem over the years. The various methods tried, Local Rates, the Community Charge and Council Tax have all proved unsatisfactory (for a critique of the council tax refer to item 3.07 Winners and Losers, .Council Tax Deficiency). A local income tax has also been proposed as a solution. However there appears to be a general consensus that any local tax should relate in some way to property and be graduated according to the rentable or capital value of the property. Previous systems have attempted this in different ways, but none has ever directly taken into account one of the most important factors, the value of the site upon which the property stands.
The value of a property has two parts; the value of the building, the bricks and mortar, and the value of the site. A tax on the site value only would resolve many problems. It would remove the current penalty against new building or making improvements. It would encourage the productive use of vacant and ‘brownfield’ sites and it would provide a natural system of gradation. It would also dampen down the escalation of property prices and speculation based on constantly increasing location values. Although it is generally accepted that an LVT would have the effect, certainly in the central urban context, of restraining if not reducing land values, at the other end of the spectrum, at the margin of agricultural land, values might actually increase. In his book Location Matters, Tony Vickers points out:
‘ Marginal land would by definition attract no LVT, but the reduction in other taxes would bring land that is currently uneconomic to farm back into profit. Agricultural land values at what is now the margin would rise’. (4)
Tax evasion and avoidance
The government relies heavily on income tax to raise revenue, but one of its great weaknesses is that it is easily subject to evasion by unscrupulous operators. This costs the exchequer countless billions in lost revenue, which of course has to be made good by the honest taxpayer. There is also a thriving legal tax avoidance industry in which highly paid lawyers and accountants devote their time advising us how to be ‘tax efficient’; in other words how to avoid paying our taxes. All of this depends on the obscurity and ambiguity of the existing tax systems. LVT is a system that is clear and obvious to all and would eliminate this unproductive activity, which represents an enormous waste of a human resource that could otherwise be employed to some useful purpose.
Tax in whatever form, has never been popular. It is usually seen as an evil; an unwelcome burden to be borne with resentment and avoided wherever possible. But in an enlightened society the payment of tax would be seen not only as a good, but also as a privilege; in being able to contribute to the well-being of society. It isn’t tax that is the problem; it is the type of tax and the means by which it is applied.
Economists generally agree that a land value tax would be efficient in that there would be no ‘deadweight loss’ A deadweight loss is where the imposition of a tax has a deleterious effect on the taxable source itself or the effectiveness of collection. Most taxes suffer from this defect; income tax is a discouragement to work, VAT is a discouragement to trade, and so on. LVT would have no negative effect for land supply is fixed and the imposition of a tax will neither increase nor decrease supply.
- In October 2015 the government set up a review for ‘business rates retention’ to allow local authorities to retain the whole amount, but no legislation ensued; the debate continues.
(2) This is now being re-considered in Wales: http://www.bbc.co.uk/news/uk-wales-politics-24763988
(3) Roland O’Regan, Rating in New Zealand, 1973, Baranduin Publishers Ltd. Waiuiomata, New Zealand, p.179.
(4) Tony Vickers, Location Matters, Shepheard Walwyn Ltd. 2007, p.58.