BusinessDay - PETER MEAKIN : Let the state take land rents instead of taxes.
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Published:
2011/06/28 07:11:56 AM
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THE only expropriation that works at all, and it works wonders, is where the state forswears its dependence on income taxes and VAT and appropriates land rents instead, a multiple of current rates and taxes.
Citizens are gradually relieved of "bad" taxes on their work, enterprise, profits, interest and trade. Instead, we will pay "good" user charges based on the values our lands enjoy, which are not of our making. These are nature’s endowment (fertility, weather and views) and community-driven values of location, infrastructure, amenities and services, population increase and governance.
In economic speak, this is the gradual nationalisation, or socialisation, of land rents, not land, and the simultaneous privatisation of all income taxes and VAT. This is a fiscal reform, not a land reform, which will end the state-sanctioned theft of work, savings and trade, replacing it with user charges of taxpayers’ preferences, higher in Clifton than Langa.
There is no tampering with title deeds, a sure sign of integrity. It also resonates with the preamble to the constitution, "that SA belongs to all who live in it", to which one can add, "except for manmade improvements and buildings", the legal basis of every piece of private property. For how can one own something one has not built, was not itself produced, is not reproducible and does not depreciate in any sensible way?
People cannot own the earth, but merely need exclusive use of it.
This is all worthy and mostly because it transforms a dysfunctional land price system where an average vacant plot now costs an impossible R500000 (and more for a smallholding) into one in which everyone, including all 5-million unemployed, can own a hectare or two of unused arable land by payments of rent.
There, with a bit of training and hard work, they can build themselves a wine estate or fruit farm with a sturdy three-bedroomed brick house, stables, swimming pool and a dairy with all the trappings of a country gentleman or woman. That was common a hundred years ago and today everyone can own an estate worth R1m in three or four years, if they can get land. That is a quantity surveyor’s estimate using the R55000 housing subsidy to buy the plumbing and electrics.
One is told that this won’t work because people want jobs, not land, and it is true that a drowning person will cling to any branch. Does that mean that, given the chance, he or she won’t clamber into a nice big lifeboat with steaming chocolate and warm clothes?
The irony is that when land becomes affordable, economic growth (and job opportunities in the towns and cities) will take off. That is because " gross national product will falter when wages, salaries, profits, interest, capital, property and trade are taxed because these costs all rise. It will flourish when land rents only are targeted, because they then all fall." This is an iron law which I have distilled from Adam Smith, David Ricardo and Henry George as well as Nobel laureates including Joseph Stiglitz.
Land prices are the Achilles heel of free-market economies, pulling them down. Many economists warn that a "rent for revenue" regime means the state and not landowners decide what is best for their assets, whether natural or manmade. But there will be no more interference with what people do with their land than now. The fact that unused land will begin to pay the same charges as neighbouring mansions will increase the supply of land as owners seek relief from higher holding costs. But this can also be due to higher interest rates.
While it is unique that land rents increase the supply and lower prices, it is anticipated in the constitution, in section 25 (5): "The state must take reasonable legislative and other measures, within its available resources, to foster conditions which enable citizens to gain access to land on an equitable basis." Equitable here is interpreted to mean affordable and so free of any capital cost.
All this points to the exasperating fact that land prices are actually a state subsidy arising without any effort on the owner’s part. The hard evidence for this is that state-funded installation and maintenance of infrastructure raises land prices, as research around the new Gautrain stations or offramps will show.
Maybe even Julius Malema will warm to SA’s "free-land, tax haven" economy. But who cares when the constitution speaks?
• Meakin is a professional valuer registered with the South African Association of Valuers.
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