Tuesday 21 August 2012

Killer Arguments Against LVT, Not (229)

Spotted by MBK at stuff.co.nz:

Councillor Maher said he had "gone on about [LVT] for years" but the Government was in charge of the legislation and did not have the will to change it.

"It's an archaic tax based on land values that has no basis on people's abilities to pay. Just because people own a lot of property doesn't mean they have an ability to pay."


i. That's an equation with two variables isn't it? Like all true Home-Owner-Ists, he assumes that "the amount of land you own" and "your ability to pay, i.e. your income" are both completely fixed and a given, and that the economy has to be based on compensating such people by transferring "income" to them from other people who own "no or not much land and have higher incomes".

ii. In free markets (an anathema for Home-Owner-Ists), very little is fixed or a given and governments do not go round making cash transfers to favoured groups, it's just a question of allowing things to find their own equilibrium. In the instant case, one does wonder why or how people with low incomes managed to amass all this land.

iii. When taxes on earned income are replaced with taxes on land values, such worthy people (i.e. Poor Widows In Mansions and/or people who put farmland to inefficient use) will either reduce the amount of land they wish to occupy or try to increase their incomes, which are exactly the same market forces facing all tenants and first time buyers: if you want to live somewhere nice, either cut back on your other expenditure or try and earn more money (or some combination of the two).

iv. Once the dust has settled, we will magically find that for most people, the amount/value of land they occupy (and hence their tax bills after deducting personal allowances or Citizen's Income) will have been adjusted to what they can realistically afford, i.e. some proportion of their income, and henceforth "ability to pay" will not be a big issue.

v. Yes, of course there will be a few hardship cases - death, dole, disability, divorce etc, and under full-on LVT there would have to be a system of discounts/deferments for older people and/or a much higher Citizen's Pension. Details, details.

vi. How long would it take for everybody to downsize, upsize or rightsize? Five or ten years, tops.

16 comments:

Derek said...

Reading between the lines of the article I got the impression that the real issue in this case wasn't actually the LVT itself (although that was definitely what the guy was fulminating about) but a recent revaluation of land values for LVT. Perhaps it's been a while since the last one was done, or perhaps someone needs to appeal their assessment.

Mark Wadsworth said...

D, true, but I've done the topic of valuations to death. Clearly, there is some sort of trade off between verifiability, simplicity and accuracy.

There'd have to be a system of appeals, which is most easily dealt with by deliberately under-estimating the (relative) value of each plot and applying a higher percentage rate to each.

And a sensible tax system wouldn't involve big changes from one year to the next, so it'd seem fair to cap annual increases on any one site to x per cent.

And so on, but this is all administrative details and does not affect the substance of things.

DBC Reed said...

Did n't local taxation was based on land values in New Zealand. Interesting

A K Haart said...

"In the instant case, one does wonder why or how people with low incomes managed to amass all this land."

And why so much land isn't generating a decent income. Is incompetence being used as an argument here?

DBC Reed said...

Did n't know local taxation was based on land values in New Zealand etc.Sorry.

Mark Wadsworth said...

AKH, it's different for commercial/farm land and for residential. If the former isn't being used to generate enough income it's probably incompetence. With residential, the land by definition IS generating the income - it's just that the occupants want to consume that income themselves without paying for it.

DBC, we live and learn :-)

Kj said...

It seems that theirs is a system where council costs are heaped together and divided up by ratings based on land values. In that way, these ratings will jump irregularly with budget increases, *in addition* to land value increases. I can understand why that makes it harder to plan, and it will also make capital values move about irregularly.
It also pinpoints an important difference in tax principle in the LVT/CI-proposal from the traditional; where the budget is put together and tax burden is handed out accordingly, while ours is taxing what can be taxed, irrespective of the budget(and preferrably end up with as much surplus as possible). This needs a lot of explaining, and quite possibly legal changes in a lot of places.

Mark Wadsworth said...

Kj: "ours is taxing what can be taxed, irrespective of the budget"

Correct.

There's a strange misconception that LVT is like Council Tax and that it is merely there as a way of apportioning cash costs of running the local government.

As any free marketeer knows:

Cash cost does not = value of finished product.
The cash cost of preserving the Hallowed Green Belt is precisely £ zero but this creates huge value for certain houses - and places huge burdens on other people.

So the LVT collected can either be
- given to 'everybody else' as a cash payment (Citizen's Income) or
- spent on stuff which benefits people generally (health, education, paying off government debts) or
- specifically on things which boost rental values (better transport, better police, cleaner pavements).

So the government is basically the landlord-corporation and every citizens is simultaneously a tenant of AND equal shareholder in the landlord-corporation.

Derek said...

Kj has made an important point there. In essence the system whereby only enough LVT is levied to pay the public expenditure is like an LVT/CI system where big landowners get more CI than small landowners and non-landowners get no CI at all.

I prefer the standard system where there is no poverty and most landowners don't pay any net tax, two of the nice features of high LVT plus a flat CI returning all revenue which isn't actually needed for public expenditure.

Mark Wadsworth said...

D, I too prefer the latter (max LVT, max CI) but it's all a question of degree.

Then the other argument is, how much money is needed to pay for 'core functions' of the state (on the facts, about 5% of GDP, everything else is either discretionary or waste).

Kj said...

In essence the system whereby only enough LVT is levied to pay the public expenditure is like an LVT/CI system where big landowners get more CI than small landowners and non-landowners get no CI at all.

Good point. In addition to a long-term set percentage (of rental value) is stable in terms of affecting capital values, fairer on the site-owners.

Jonny cambs said...

I have simply moved on to the point where I no longer bother to debate the issue of property owners ability to pay.

If I was paid ten million a year but had decided to invest ten million a year in art, stocks, gold etc I would also have no ability to pay .

You have no more "right" to own a million pound house than I do to own a million pound car . Wealth is wealth .

Mark Wadsworth said...

Kj, agreed.

JC, that's the spirit!

But don't forget: we are talking about Poor Widows In Mansions who worked hard to buy their home out of Taxed Income and the house is full of Cherished Memories (bricks and mortar are the precursors of floppy disks and memory sticks) why should these noble citizens be Forced Into The Street their home is their wealth that they want to leave to their children so evil LVTers are forcing her children into poverty as well (continued page 94).

Jonny cambs said...

Funny how many poor widows can cash in their cherished memories if the price is high enough .

Mark Wadsworth said...

JC, I think the logic goes, if said PW can cash in her cherished memories, she can take them with her, go on a world cruise, leave a legacy to her children, buy a lovely retirement cottage on the south coast where friends and family can come to stay etc but if evil LVTeres force her out of her home, her mind is wiped clean and she'll end up in a hovel where none of her children or grandchildren can come visit her. Or something.

Jonny cambs said...

You're so right , better we take 40 or 50 per cent of the income and expenditure of the young families who will have to save their hundreds of thousands in order to buy her house ( out of the income they are earning by doing or paying for someone to wipe her backside and care for her in her dotage )

Let's face it, at least if we maintain this current model then at least her grandchildren can feel a warm glow during the three minutes of thinking time they will be allowed as slaves to their Chinese masters