Land Value Taxation Campaign

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Land rent for public revenue

Musings on inflation

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Inflation is back in the news. These thoughts were sent to me by Robin Smith, a long-term supporter, though a critical one.

  • Inflation, through new money, is the best way for politicians to redistribute wealth In reduced purchasing power; it acts as a stealth tax, unjustly taking from the producer who saves and in hands out to the non producer who spend.
  • As the distribution of wealth is already so poor, there are fewer wealthier votes to lose and millions of poorer votes to buy.
  • The poorer recipients of the unjust taxation are a much bigger constituency. So it is perfect political expedience
  • Given the wealth is pre-distributed to the poorer constituents, is there a catch? Yes, of course! The deficit spending always ends up in land values through higher rents.
  • The poorer tenants can now afford to pay more, so the real-estate owner merely raises the rent.
  • In the end, the poorer are actually the losers And the real-estate owners the winners
  • Do the politicians look this far, when they get elected by an overwhelming majority for their unwise policy. Do they care?
   

Fishing after Brexit

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As the post-Brexit negotiations proceed, or, apparently, fail to proceed, fishing has emerged as a major topic of disagreement. Yet there could be a simple solution. British fishing grounds belong to the British people, not to British fishermen or British owners of fishing boats, or owners of fishing boats registered in British ports. The British people are entitled to the value of their fishing grounds.

In economics, fish in the sea are classified as ‘land’, which provides a clue about how this national natural resource ought to be managed. Ownership of the seabed up to 12 nautical miles already forms part of the Crown Estate, and this might be extended to include all the fishing grounds which belong to the UK. Management could then become the responsibility of the Crown Estates Commissioners, who currently supervise and receive rents from fish farming in coastal waters. One of the benefits would be that the Crown Estate would have an incentive in managing the resource from a long term perspective. Since it would wish to optimise its revenue, it would presumably - or could be charged with, the operation of some scheme of leasing or licensing 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 would be valid for a limited period of from one to five years.
  • Licences would 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 would be sold at open auction, possibly on the internet or, in the case of inshore fishing zones, locally; as an estate management company, the Crown Estate is experienced in this kind of commercial practice.
  • Revenues should be reserved for policing, protection, conservation, fish hatchery and research.
It is important that auctions should be open to all - French, Spanish, Dutch, etc; otherwise local fishermen might collude to hold down the bidding. Nevertheless, auctions would automatically give UK coastal fishermen an advantage; Dieppe fishermen would be unlikely to outbid those from Hastings for bidding for licences to fish off the Sussex coast in small boats, as their access across the stormy waters of the English Channel would be too unreliable for it to be worth their while to put in a high bid, if any at all. If the French played 'dirty' and subidise their fishermen's bids, the British get the money. But the French and Spanish cannot reasonably complain that their fisherman are being locked out when they have the opportunity to bid for licences to fish in British waters.

The arrangements might take a couple of years to bed-in, as the industry would have to adapt. With only short leases, fishermen might prefer to rent their boats and tackle from leasing companies rather than own them outright. One of the great opportunties is that it would enable depleted stocks to be replenished, through the use of hatcheries where spawn can be hatched and protected until the fish and crustacea are large enough to stand a fair change of survival. With ownership of the grounds vested in a body like the Crown Estate, there is an incentive to enhance the stock as this will generate a return as the value of the licences will be higher.

The long term aim should be to protect and enhance what is an important part of the national ‘estate’.

 

How our Economy really works

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BOOK REVIEW How our Economy really works – A radical reappraisal by Brian Hodgkinson.

The author, is, unusually for a supporter of land value taxation and free trade, a graduate in economics, having gained a first class honours degree in Politics, Philosophy and Economics at the University of Oxford. This puts him in the advantageous position of being able to apply a critique of mainstream economics in its own terms, something which most of us are unable to do.

Most supporters come to land value taxation through a study of economics within the mainstream classical tradition as it was developed by the French Physiocrats, Smith, Ricardo and Henry George. As was explained in ‘The Corruption of Economics’ by Mason Gaffney, and is referred to briefly in this book, the classical tradition of economic thinking was re-worked about 120 years ago, with the conflation of land and capital, the former being regarded as a sub-species of the latter. For those who have studied in one of the few institutions which has continued to teach economics in the classical tradition, this volume is a useful compendium, relating classical theory to the main issues which are currently a matter of public concern, and which politicians are chronically unable to address with effective policies. Counter-productive policies are commonly imposed and then surprise is expressed when they do not work. Armed with a knowledge of basic classical principles such as Ricardo’s Law of Rent, failure could have been predicted. If you are familiar with the supporting body of theory, this volume is therefore an invaluable resource and will keep the readers’ thinking up-to-date and relevant.

Unfortunately, for anyone who does not have a grounding in classical economics theory, the book will probably seem incomprehensible, as so much of what is said is counter-intuitive. Ricardo’s Law, which is foundational to the arguments presented, is covered only briefly. Most readers unfamiliar with it would need it to be explained more fully so that they grasped its full significance. The widepread state of ignorance of Ricardo’s Law has become particularly evident in discussions on the changes that will occur following the departure of the UK from the European Union – such as the possible end of farm subsidies and import tariffs. For this reason, this volume is not something that could be handed to anyone in the expectation that it would enlighten them; to that extent, it does nor really live up to its title. It would, on the other hand, be useful as a text book for a course on the subject, where students had the opportunity to pose questions, with a tutor on hand to explain the ideas that they found difficult to grasp.

As a bonus, Hodgkinson clears up a confusion which has always been a difficulty in the theoretical work of Henry George: the notion that interest is the return to capital. Hodgkinson regards capital as an input to production, no different in principle from other inputs such as labour and components which are a product of labour. On that analysis, interest is merely the price of the credit needed to purchase the capital. This view has the advantage of dividing the products of wealth creation into just two streams instead of three: rent and wages, accruing respectively to land and labour.

How our Economy Really Works – A Radical Reappraisal by Brian Hodgkinson. Published by Shepheard-Walwyn (Publishers) Ltd · 107 Parkway House · Sheen Lane London · SW14 8LS

ISBN: 9780856835292 - Paperback £9.95

 

Digital tax EU fail

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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.

 

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