LVT would be unfair to savers who had invested in land

Saturday, 27 December 2008 01:04
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We sometimes come across the objection that LVT would be unfair to people who had chosen to put their savings into property. A question that came up recently was that,

"People like me who have chosen to put their savings into a property, and it is the main, if not only source of their pension, would seemingly see this pension whittled away by such a tax. It would unfairly advantage those on other forms of pension, especially final salary schemes and, in particular, the gold plated public sector pensions, for which a property asset is a meagre replacement. How can one justify advocating a scheme which so dramatically favoured one form of pension saver over another?"

This is a problem in theory but not in practice since LVT must be phased in over a decade or so, beginning with the replacement of existing property taxes. Long term, the replacement of existing taxes by a tax on the rental value of land would mean that nobody would put their savings into land, which is a most desirable consequence. It is the practice of using land as a savings medium which has brought about the present disaster, and others like it. Land ownership is a very dangerous way of saving for the future, as its price is subject to periodic bubbles and collapses, as many savers are discovering to their ruination.

Under an LVT-only regime, people would not be taxed on their earnings and so would have more money to save. Over 40% of people's lifetime earnings presently disappear in tax, which they could otherwise have been able to save if they wanted.

And governments spending, would be very much lower, since part is wasted in trying to repair the damage caused by people "investing" in land eg poverty and persistent unemployment. ("invest" is in quotations because land purchase adds nothing to productive capacity).

Because all these demands on the government cannot be met by taxation, they have relied on inflation as well. In the past 40 years money has lost 95% of its value and looks set to loose a lot more in the near future, thus it is ordinary people who save by building up balances in money accounts who are currently the most discriminated against.

In the short term, the problem described would not be of particular concern because it is not proposed to introduce LVT all of a sudden and the income stream from land ownership would dwindle rather than colllapse - in fact, as existing taxes are phased out, the tendency is for land values to rise somewhat as businesses become more profitable and people have more money in their pockets.

But under an LVT-only regime, economies would be so very different that people would evolve other, safer and more reliable methods of providing for their future and would not be forced to work 40 hours a week for 40 years in precarious economic environments.

 

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