Regarding the recent ACT Liberal Party scare campaign against rates, Dr Terry Dwyer writes:
Being fundamentally disinterested in political games but keenly interested in policy and good government (which, judging from Mr Slipper’s emails, sadly does not always seem to be uppermost in the minds of all politicians), I have sent the attached letter to the Canberra Times.
Fundamentally, I am not interested in a scare campaign against rates. Rating unimproved land values for public revenue has the endorsement of all competent economists from the Physiocrats onwards, through Adam Smith, James Mill, JS Mill, Alfred Marshall etc etc. Milton Friedman can be quoted in support, as can FA Hayek (barring his quibble it could not be done – made when Australia had been doing it for decades).
Senator Sir George Pearce, one of the architects of Canberra’s land tenure system, and whom Sir Robert Menzies described as the wisest man he ever sat at a Cabinet table with, would be appalled by an attack on land value rating, as would Sir Allen Fairhall.
I certainly do not like paying taxes but I am willing to pay for value received. I am willing to pay for public services that add value to my land. What I object to are waste in public spending and water and electricity prices which have inflated tax components in them.
ACTEW is a complete offence to any form of rational economics. Yet no one in this election seems to realize rates to recover fixed infrastructure costs are the natural way to bring per kilolitre or per kilowatt prices back to economically correct levels at short run marginal cost prices. William Vickrey of Columbia University, who won the Nobel prize, would be appalled at ACT water and electricity charging.
May I please, therefore, see more detail on both your tax policies? What are you going to do about ACTEW and its pricing policies? What are you going to do about ACTEW’s fraudulent “dividends” to the ACT Treasury?
Being a believer in “equal opportunity” (and, I hope, not unfriendly to anyone), I leave you both free to use this letter as you wish and have no objections to its publication. I am happy to talk to either or both of you or anyone else on this subject. The Australian taxpayer helped pay for me to a do a PhD in tax theory at Harvard on a Harkness Fellowship (the American Rhodes Scholarship equivalent) and I believe they are entitled, in fairness, to get a dividend from time to time on their investment in my studies.
I just wish we could have a sensible debate on tax policy for a small territory with an open economy and a diminishing revenue base from land sales and stamp duties. The fact is, as Ken Henry would agree, that land values are the only tax base which does not die off, depreciate or emigrate in the long run – and, contrary to Keynes, the long run arrives every ten years.
This evolved into:
Letter to the Editor
Canberra Times
10/10/2012
Land value, top rate
There has been some talk about rates recently. Land value rating has long been endorsed by economists as an efficient form of taxation. Adam Smith, John Stuart Mill, Milton Friedman and many others can be cited in its support. Indeed, the abolition of taxes on land transfers in favour of an annual rate charge was proposed by Mill in the mid-19th century. The system of rating unimproved land values was a world-first when introduced in 1907 by Sir Joseph Carruthers, a founder of the Liberal Party in NSW. He was justly proud of his achievement. He declared, ”The embodiment of the principle of ‘taxation on unimproved values’ was a great victory to the principles so ably enunciated by Henry George, a man whom I met and long conversed with on many occasions … I doubt if there are many who can find fault with its operation.”
No one likes to pay a tax. But if you have to pay a tax, it is far better that the tax be upfront, clear and unavoidable so that everyone pays. An avoidable tax is a bad tax. You do not want distorting effects on transactions or economic activity. Land value rating is upfront, clear, unavoidable and non-distorting.
Some quite reasonably ask lawyers and accountants to help them legally minimise income tax, GST, stamp duty, payroll tax etc. But who has ever heard of a ”rates avoidance” scheme? In the ACT, a small economy where jobs and business can easily cross its borders, it is far better that transactions taxes, such as payroll tax and stamp duties, be replaced by land rate financing.
Only private businesses, workers and consumers bear the brunt of taxes such as payroll tax and car registration. But rates can be collected on land leased to or from the Commonwealth, as well as from investors on ACT land who come from elsewhere.
Shouldn’t those whose lands are made more valuable by the growth and amenities of this city be expected to help pay for running it? How is that unfair?
Rather than criticising a shift to rates away from stamp duty and payroll tax and the like, critics of the ACT government would be better to concentrate on remaining inconsistencies and distortions such as the new non-uniform rate scale, ongoing land transaction charges and other hidden taxes in water and electricity charges, not to mention wasteful spending.
Dr Terry Dwyer, Canberra City
