Perfectly muddled thinking

Saturday, 20 June 2009 06:07
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Henry Law's scathing personal comments on the proposed phone tax can be read on the LVTC blog.

The proposal for a £6-a-year telephone tax is a good illustration of the British government's intellectual bankruptcy. The amount is trivial, suspiciously so. Like pernicious weeds which develop by first getting their finest roots, as thin as hairs, into tiny crevices, new taxes always start off as small ad-hoc measures, and then, once they have got a hold, thicken and start sucking the nutrient out of the soil in ever-increasing amounts. And new taxes, like weeds, once established, are very difficult to get rid of.

Also suspicious is the assurance that the new tax is for a particular and good purpose. Most taxes have started off like that, as temporary measures, usually to pay for wars but in some cases for other things like pensions and hospitals. Such is the origin of the monster that is National Insurance, which has evolved into a fiscal instrument for keeping people out of work and on a meagre benefit.

The notion that broadband should be available everywhere is also an illustration of muddled thinking. It is a fact of geography that infrastructure is not universally of equal quality. Not everyone in the country can live within a kilometre of a supermarket, or a railway station, or be provided with mains water or electricity. It is only the postal service that operates a delivery service to all at a fixed price regardless of location.

Geographical advantage and disadvantage are reflected in land value. Public investment on infrastructure simply ends up in landowners' pockets, since they can lease or sell their land for more than would otherwise be the case. Subsidies for transport systems, broadband, and everything else, are essentially state welfare for landowners.

Matters are otherwise if the rental value of land is substantially taxed. In that case, people pay for what they get, and get what they pay for. When that is done, there may be justification for spending public money to improve infrastructure in deprived areas, because the investment produces a return from the enhanced land values and increased tax revenues generated. With such a tax system in place, it is possible to decide what investments are worth while and what are poor value for money. Otherwise the money is being thrown into a black hole, with any benefits being picked up by whoever is a landowner.
 

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