Land Value Taxation Campaign

  • Increase font size
  • Default font size
  • Decrease font size

Land rent for public revenue

Digital tax EU fail

E-mail Print PDF

President Trump is stepping in to the dispute over EU proposals for digital taxes. That raises important questions. What do the US tech giants owe to foreign governments that they do not already pay through existing taxes? How exactly do these obligations and liabilities arise?

If existing taxes do not cover the obligations and liabilities owed to governments, the shortfalls are not just from the US tech companies but must also be owed by other companies operating in foreign territories generally - companies with property portfolios, for example. It indicates the need for a broad-based review of taxation based on sound principles. Sound principles are not being followed by EU measures such as General Anti-Avoidance Rules, which flout several of the basic foundations of good law, and other steps the EU has taken to crack down on offshore companies - which are bound to fail.

The proposal for a digital tax illustrates the cluelessness of the EU Commissioners. There is a real issue, but they come up with a gut reaction which plays to a certain gallery and fails to look at underlying principles. In the words of Adam Smith,

"The subjects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the state." In other words, tax paid should be related to benefits received." Ability to pay arises from those benefits.

As regards digital taxes, there are many ways of capturing revenue, based on sound economic principles, which are worth exploring. Digital businesses require physical offices and plant, and use physical resources in physical locations - radio spectrum and cable wayleaves, for example, which in economics are classified as 'land'. The taxable value of these businesses can be captured through leasing of radio spectrum, which already happens through a system of auctions, and the taxation of wayleaves, which is also feasible through a leasing system. Revenue might also be generated from domain names, since these have some of the characteristics of land. Names with just a few letters, or are easily remembered, are not in unlimited supply and are effectively trade marks. A digital tax would cut into the potential revenue from these sources. It is a pity that politicians, especially EU politicians, are not on the ball when it comes to land and other natural resources.

 

Cracking down on low pay.

E-mail Print PDF

A new report from the Resolution Foundation Companies says that employers who fail to pay the minimum wage should be punished more harshly in an effort to crack down on low pay. Oh dear.

Wages are the least that someone will accept to do a job. If the demand for labour is buoyant, then stingy employers will not attract and retain the workers they need. A lack of demand for labour cannot be legislated away. The authors of this report ought to know that.

It is also the case that employment will not occur if the value added by a worker is less than the GROSS LABOUR COST to the employer. The tax system is the villain. Gross Labour costs to employers are around 60% higher than real purchasing power of wages.

http://www.landvaluetax.org/business/employers-burden-update-2019.html

 

Flybe in trouble

E-mail Print PDF

The UK regional airline Flybe is in financial difficulties and is asking for the government to reduce or scrap air passenger duty. Against them is the green lobby which is arguing that air travel should be reduced; we do not have a view on the latter. However, this highlights the need to review the way in which the aviation industry is taxed. Flight paths are ‘land’ and a public resource. They are managed by a private-public partnership company, National Air Traffic Control Services NTCS), which was set up to distance air traffic control from the Civil Aviation Authority (the CAA), which is responsible for overall regulation. Applying the principles on which land value taxation is based, we might say that air traffic should be limited by decisions about the number of flight paths that are permitted. These flight paths can then be allocated through the leasing by auction of landing and take-off slots. Under such a regime, the government would get rid of duties and surcharges, which are a complex and clumsy way of rationing air space which is, of its nature, limited. If the present duties and surcharges are phased out, the landing slots will be worth more and the government will get its revenue anyway.

 

Fishing and Brexit

E-mail Print PDF

The Campaign has no view as such on Brexit. However, outside the European Union, the UK is able to develop innovative policies which would not be permitted as a member country. One of these concerns fishing rights.

In economics, fish in the sea are classified as ‘land’, which provides a clue about how this natural resource, which belongs to the nation as a whole, ought to be managed. Applying the same principles from which land value taxation arise, some scheme of leasing or licensing could be devised on the following lines.

  • Fishing grounds would be divided into zones based on criteria such as location to ports, types of fishing habitats and availability of species.
  • Licenses should not be freehold but be valid for a limited period of from one to five years.
  • Licences should be subject to terms and conditions such as sizes and types of boats which can be used, methods of fishing, size of mesh, quantities and sizes of each species which can be caught.
  • Licenses should be sold at open auction; auctions for inshore fishing zones might be held locally.
  • Revenues should be reserved for policing, protection, conservation, fish hatchery and research.

The long term aim should be to protect and enhance what is an important part of the national ‘estate’, and as any prudent landowner would do, revenues would be ploughed back so as to maintain, and preferably increase, the long term rental yield. The precedent has been set with the systems for auctioning of offshore oil exploration rights and radio spectrum.

 

Business rates and their effects

E-mail Print PDF

In view of the announcement of Business Rate reform in the Queen’s Speech, a potted summary of the imact of the tax on business property is presented here.

Business rates concessions are only of temporary help, and only to existing tenants. The value of the concession will be captured by the landlord at the next rent review, and new tenancies will be agreed at rents which reflect the value of the concession.In granting this concession, the government is giving up a stable and reliable source of revenue, with little benefit to the group of people it is intended to help.

The effects of the business rate and any other property taxes are best understood in the light of Ricardo’s Law of Rent.

  • Regardless of who is nominally responsible for payment, the incidence of the tax is ultimately on the owner of the land. However, this effect may be subject to a time lag. In the case of new lettings, the entire incidence of the property tax is on the landlord, as the rent that can be charged is directly affected by the amount of the tax payable by a tenant, whose concern is with total occupation costs.
  • In the case of existing tenants, there is a time lag. An increase in the property tax is borne by the tenant until the end of the lease or until rents are reviewed. Conversely, the benefit enjoyed by a tenant from a reduction in property tax is temporary and is clawed back by the landlord when the rent is reviewed or the lease renewed.
  • If the property tax exceeds the gross annual rental site value, the site cannot be put to sustainable economic use; ie it is sub-marginal.

The following implications arise from the above points.

  • Unless valuations are up to date, it is possible that if rental values are falling – for example, due to changed trading conditions. The tax can then tip land into sub-marginality.
  • Because valuations are based on land plus improvements, the tax payable may exceed the land value of the site. This situation can arise where sites of low land value are developed with valuable plant; examples are Nissan in Sunderland, chemical plant in locations such as Teeside and Runcorn, and steel manufacturers in Scunthorpe and South Wales. This damages the long term prospects of these locations as viable manufacturing sites.

REFERENCE The effect of the ten year ‘rates holiday’ in the Enterprise Zones established in 1981 is analysed in the report of this study commissioned by HM government after the conclusion of the scheme. This confirms the prediction of Ricardo’s Law, that the incidence of property taxes is on the landlord and that any concessions are captured through rent increases.

http://webarchive.nationalarchives.gov.uk/20090211195642/http://www.hmrc.gov.uk/research/report42.pdf

 

Have your say?

Do you have something to say?
Would you like to contribute to this web site?

Read more...

We use cookies to improve our website and your experience when using it. Cookies used for the essential operation of the site have already been set. To find out more about the cookies we use and how to delete them, see our Privacy Policy.

I accept cookies from this site

EU Cookie Directive Plugin Information