A lesson for Iceland

Friday, 30 January 2009 22:02
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The Icelanders are thinking of joining the EU as a way of getting out of their troubles. They should take care. They must watch their fish. Unless the fish have gone already, they should keep out of the EU. Even if the fish stocks have gone, EU membership will do them little good in the end. There is the cautionary tale of Ireland to take note of. The EU pumped money in. That caused a property boom. The banks piled in and of course the inevitable bust followed. The property boom was the primary cause of the boombust, everywhere.

Iceland might well do better to follow a different path altogether. Forget about the EU, it needs to reform itself or it will die, slowly. Instead, they can phase out all taxes on wages, companies, goods, services, including import duties. After all, Iceland has to import to survive, and the last thing it needs is to make things more expensive for its people by taxing imports from anywhere.

This tax-free environment will make it an attractive place to do business of any kind, especially given its mid-Atlantic location. For example, it could become, amongst other things, an air-freight hub, because high value cargoes will continue to be sent by air.

How to pay for it all? Land value tax - a tax on the rental value of land.

Places where taxes on companies and labour are low have enormously high land values eg Jersey. The government need only to collect the land value. In fact, at a tax rate of 100% of rental value, there would be enough for everyone's welfare and a nice dividend for all the Icelanders, on top.

With a land value tax in place, the speculators will keep their distance and the country will thrive sustainably.
 

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