Land Value Taxation Campaign

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Land rent for public revenue

The dead loss of VAT

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Brexit is a golden opportunity to get rid of all the trade tariffs we have been saddled with by the EU - that is, to reduce taxes on sales of goods and services, by dropping not only existing ‘free trade agreements’, with their enforced tariffs, but while we are at it, VAT as well. As a tax, it would be difficult to conceive of anything more damaging, because it applies precisely at the point where supply meets demand. As the UK drifts to what seems likely to be a "Hard Brexit", persisting with VAT merely retains our own home-grown version of a toxic trade tariff.

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Irish border troubles

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I came across this information in a discussion about what should be done about the border between Northern Ireland and the Republic.

Ireland's top exports (Source: International Monetary Fund, World Economic Outlook Database (GDP based on Purchasing Power Parity). Accessed on February 18, 2017) http://www.worldstopexports.com/irelands-top-10-exports/

  1. Pharmaceuticals: US$31.8 billion (24.9% of total exports)
  2. Organic chemicals: $27.6 billion (21.5%)
  3. Optical, technical, medical apparatus: $13.1 billion (10.3%)
  4. Electrical machinery, equipment: $9.8 billion (7.6%)
  5. Perfumes, cosmetics: $8.6 billion (6.7%)
  6. Machinery including computers: $7.2 billion (5.6%)
  7. Aircraft, spacecraft: $3.8 billion (2.9%)
  8. Other chemical goods: $3.4 billion (2.6%)
  9. Meat: $3.2 billion (2.5%)
  10. Cereal/milk preparations: $2.5 billion (2%)

Most of these are specialised products having a high value in relation to their weight. Thus they can sent as air-freight. The UK is the only country with reasonably good surface transport links to the Republic. The Republic has no container port comparable with Felixtowe or Southampton, let alone Rotterdam or Hamburg. It cannot have. The population is too small to generate the necessary traffic.

This table below, from the same source, is also instructive: 15 of Ireland’s top export sales destinations, by dollar value during 2016. Also shown is each import country’s percentage of total Irish exports.

  1. United States: US$33.2 billion (25.9% of total Irish exports)
  2. United Kingdom: $16.3 billion (12.7%)
  3. Belgium: $16.3 billion (12.7%)
  4. Germany: $8.4 billion (6.6%)
  5. Switzerland: $6.9 billion (5.4%)
  6. Netherlands: $6.5 billion (5.1%)
  7. France: $5.4 billion (4.2%)
  8. China: $3.3 billion (2.6%)
  9. Spain: $3.2 billion (2.5%)
  10. Japan: $3.1 billion (2.4%)
  11. Italy: $2.6 billion (2.1%)
  12. Australia: $1.6 billion (1.3%)
  13. Israel: $1.6 billion (1.3%)
  14. Poland: $1.5 billion (1.2%)
  15. Mexico: $1.5 billion (1.2%)

After Brexit, most of the Republic's exports will not be to EU countries.

All the trouble will be due to the EU's rules for the Single Market coming into effect as the UK moves outside it. The same rules already cause similar damage to the economies of the regions on both sides of the EU's eastern border, from Finland in the north to Ukraine in the south, taking in parts of the Baltic states, Belarus, Poland, Slovakia, Romania, Bulgaria, Serbia and the enclave of Kaliningrad, before 1945 Königsberg, an important commercial and industrial centre.

Perhaps the Republic should leave the EU too?

 

Paradise papers humbug

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Over the past few days, The Guardian has been running a series of outraged articles about the so-called "Paradise Papers", which are revelations about tax avoidance by the great and the good.

The outrage is humbug. It is significant that The Guardian has not opened any of its articles to comment.

If no laws have been broken, than the outrage must be backed by calls for changes in the law. But the entire concept of contemporary tax systems must then be questioned. People are mobile. Corporations are legal constructs. Attempts to tax either are doomed to failure.

The remedy is, or was, well-known - governments should draw the bulk of their revenue from a tax on the rental value of land. Land cannot be hidden, or removed to a tax haven. Its value can be established by market evidence, and an open system of valuation with published land value maps and a properly set up appeals procedure can guarantee justice in application.

One can understand that there is a powerful vested interest against such a reform, but when those who affect to be outraged by the "revelations" are silent on the subject, it looks like disingenuousness.

 

Business rate rise complaints misdirected

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The changes in the business rate have attracted the ire of the Confederation of British Industry and the Federation of Small Businesses. Part of the trouble, not mentioned by the complainers, is due to the deferral of UBR valuations when George Osborne was Chancellor. However, the CBI and FSB are doing their members no favours by complaining about the UBR in isolation. It is total occupation costs that count ie rents + rates. The relentless rise in rents is at least as much of an issue.

Alone of all taxes, the UBR takes account of locational advantage. It is the only tax which recognises that trading conditions in London's Oxford Street are better than in run-down stretch of Oxford Road, Manchester. There is also a substantial body of research which shows that where the business property tax has been reduced - as in the 1980s Enterprise Zones, all the benefits were captured in rents. Business got nothing.

  • The FSB ought to be promoting the interests of its rent-paying members by campaigning for the abolition of the iniquitous but universal upwards-only rent revision clause.
  • The CBI should be promoting the interests of its members by campaigning for valuations to be based on site values only, since the present system penalises owners of industrial plant on sites of low land value, such as chemical manufacture, oil refining, power stations, etc, which are over-charged under the present system of valuation.

It is astonishing how these trade bodies fail to campaign for policies which would be of obvious benefit for their members, whilst arguing for policies which would do their members little or no good at all in the long run. Business owners should ask themselves what they are getting for their considerable membership fees.

 

Bombardier v. Boeing - what wasn't said

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Comments about the Bombardier affair demonstrate the abyss of misunderstanding about the nature of trade and of the economic process itself.

US aircraft manufacturer Boeing has initiated a court case against Bombardier, relating to the proposed sale of aircraft to the US company Delta Airlines. Claiming unfair competition, the threat is to impose a tariff of over 200%. This threatens the livelihood of workers at a branch factory in Northern Ireland, which manufactures the wings of the aircraft. Boeing apparently produces no aircraft which would compete with the Bombardier model, which is for short-haul routes. The alleged unfairness is that Bombardier has received financial assistance from the Quebec government.

While a lot has been said linking the affair to Brexit, with which it has nothing to do, no commentator has pointed out that the main losers in this affair are Delta Airlines, which is being made to pay more for the aircraft it has chosen, or will have to purchase an alternative, and Delta's passengers, since the additional costs will be reflected in higher fares. Other losers are the Canadian taxpayers.

There is more than a hint of double standards here, because Boeing is able to transfer to its civil aviation division technology originally developed as part of its military contracts for the US government. But then again Bombardier management knows the situation. The Northern Ireland dimension is also worth a look. Factories like Bombardier's are sometimes located in peripheral regions because of the availability of labour, with or without some kind of financial inducement from government. This is partly an attempt to mitigate the damage done by a tax system which ignores geographical disadvantage, since the same amount of tax has to be paid per unit of added value anywhere in the country; this has the effect of amplifying those disadvantages and sending large tracts of the country below the margin of economic production.

Factories such as Bombardier's wing production unit can only nibble at the problem. To make matters worse, they tend to be one-product plants - they have all their eggs in a single basket. This savours of bad commercial strategy as much as anything else, since aircraft technology is to some extent transferable, for example, to the buoyant wind power industry.

Returning to the Bombardier affair: the company got a raw deal from the British government over the Inter-City 125 train replacement project. Hitachi having won the contract on the basis that its design came closest to the original, impossible to meet, specification produced by the Department for Transport. The specification was then altered so much that it ought to have been put out for re-tendering, since the final design was one for which Bombardier had a product available almost off-the-shelf. For reasons which have not yet been revealed, Bombardier refrained from taking legal action.

Bombardier has also possibly lost out, over a contract to provide new trains for regional routes in France. This is a wasteful job-creating scheme supported by the French government, with the aim of keeping Alstom's Belfort plant with a flow of work, since the existing 1980s (Corail) stock can almost certainly be refurbished and kept in service for another decade or two. The replacement has been brought forward, but the clever scheme is to use new TGV high-speed trains on the regional routes. where they cannot operate at their 300 kph design speed. Bombardier does not currently produce a TGV equivalent and has thereby not had the opportunity to tender for the new trains.How all this fits into EU competition rules is an interesting question.

The worrying thing here is that none of these points has had an airing even in the heavyweight newspapers.

 


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