Policy Paper Submitted by the International Union for Land
Value Taxation to the United Nations Financing for Development Preparatory
Process at the NGO Hearings Week, November 2000
Public
finance policy can be structured to enhance both private sector economic
activity and public sector services. A
fundamental reform in tax policy can optimize incentives for a productive
market economy while also providing money for education, health care and other
social services, as well as infrastructure. Such reform promotes a different kind of market system where
wealth is fairly distributed and basic needs for all are met.
Does
this sound too good to be true? We are
accustomed to compromise and trade-offs, to sacrifice one goal for another. That a systemic reform can simultaneously
promote economies, which are both free AND fair may seem to be an impossible
ideal. But a public finance
perspective, variously known as land value taxation, green tax shifting, or
resource rental offers such a reform.
It
is estimated that approximately 93% of taxes collected worldwide fall on labor
and economic production. Removing the tax burden on all forms of labor and
productive activity can greatly enhance private sector enterprise, especially
small business. Freed from taxation, workers get increased purchasing capacity
and investors more funds to invest.
Shifting
taxation ONTO the economic base of land and natural resources has other
positive consequences. Taxes would function as user fees for what is
essentially common heritage resources. Investments in land speculation would be
curbed, thus freeing funds for productive activities.
Taxing
land sites according to land value promotes urban and rural land reform,
providing affordable access to land for homes, businesses and farming.
Sufficiently high resource rental fees, captured for public sector benefits,
promote more careful and efficient use of natural resources by the private
sector. Conversely, the under-taxation of natural resources leads to their
over-exploitation. A high access cost for non-renewable resources can also
stimulate investment in renewable energy and other sustainable technologies, as
less profit can be made on extracting irreplaceable resources.
Several
UN bodies have recommended this approach or urged its consideration.
The
United Nations Centre for Human Settlements (Habitat) included it in the 1996,
as well as the 1976, declarations. The 1996 Habitat agenda states:
"The
failure to adopt, at all levels, appropriate rural and urban land policies and
land management practices remains a primary cause of inequity and poverty. It
is also the cause of increased living costs, the occupation of hazard-prone land,
environmental degradation and the increased vulnerability of urban and rural
habitats, affecting all people, especially disadvantaged and vulnerable groups,
people living in poverty and low-income people." [B.75]
"Apply
transparent, comprehensive and equitable fiscal incentive mechanisms, as
appropriate, to stimulate the efficient, accessible and environmentally sound
use of land, and utilize land based and other forms of taxation in mobilizing
financial resources for service provision by local authorities; [76(d)]
Consider the adoption of innovative instruments that capture gains in land
value and recover public investments."[76(h)]
The
Food and Agriculture Organizationıs International Fund for Agricultural
Development has a global consortium of intergovernmental and civil society
organizations, The Popular Coalition, which urges governments to
"establish land-tax systems, especially for underutilized land and land
held for speculative purposes."
A
paper distributed by the UN at the April 2000 prepcom of the Commission for
Social Development also urged a land value tax as the most immediately feasible
way of coping with global poverty. The author of Department of Economic and
Social Affairs Discussion Paper 11, Professor Anthony Clunies-Ross, recommends
"full exploitation of the possibilities of taxes precisely targeted on the
site value of land and the rents of other natural resources."
The
International Union for Land Value Taxation and its 60 member organizations are
working to implement these recommendations. The policy is to shift taxes OFF
labor and productive capital (thus increasing everyoneıs purchasing capacity
and wealth creation incentives) and ONTO land and natural resources (thus
curbing speculation and private profiteering in the worldıs common heritage).
Such a tax shift makes land prices affordable for housing, other basic needs
production and infrastructure.
When
we fail to tax land values adequately, as they rise during development, and tax
wages instead, workers soon cannot afford housing and other basic necessities
unless they work longer or go deeper into mortgage debt. What should be the
true purpose of a market economy and development - to efficiently provide for
the needs of all - is undermined. Under the current model which commodifies
land and resources, land prices become a greater proportion of the costs of
production as development proceeds.This primary cause of the widening rich/poor
gap demonstrates the law of rent, a concept little understood even within the
field of economics. As private profits accumulate from resource rents and
interest payments, the gap between rich and poor keeps growing year by year.
Most
"poor" countries are not poor. Rather, their people are poor, because
the countriesı valuable land and other natural resources are controlled by only
a few. Land value taxation promotes both urban and rural land reform.
Land
values rise because of population growth or concentration and because of
infrastructure and other services provided by the public sector. Reducing taxes
on wages and productive capital while recapturing the increase in land values
(resource rents) BACK to the public sector assures both a fair and functional
market economy and a continuing source of tax funds for the public sector.
The
public fund can also be a source of low-interest loan financing to community
members. Under this arrangement, the people themselves become beneficiaries of
both resource rents and interest payments. The recapture of rises in land value
and the revolving of loan monies all within the public sector enables countries
to develop with less need for outside funds.
Examples
of land value tax / resource rent approach to financing for development:
Harrisburg,
the capital of Pennsylvania, was in 1980 on the Federal list as the second most
distressed city in the United States. The city gradually reformed its municipal
tax policy by shifting taxes OFF of buildings and ONTO land site values. Now
taxes on buildings have dropped and land is taxed five times more heavily. With
land sites freed from speculation and underuse and buildings less burdened by
taxes, labor and capital went to work restoring the city, now considered to be
one of the highest quality of life cities in the US.
Seventeen
other municipalities in Pennsylvania have put this policy in place, all with
proven benefits of economic regeneration as indicated by increased building
permits and other criteria. This approach generates steady urban renewal in Sydney,
Australia. Hong Kong and Singapore capture land rent primarily by nationalizing
land and renting it out.
There
has been some experience with land value taxation in urban areas of nations of
Eastern Africa. Some cities in the Republic of South Africa have had benefits
from collecting a portion of land rent as revenue. The Land Resettlement
Minister of Namibia is currently working to impolement this approach. It is
also under serious consideration by the Russian parliament, the Duma.
The
Alaska Permanent Fund is an excellent example of the use of resource rents to
not only finance government but to provide an ongoing fund for both public
investments and cash payments to citizens. Under the Alaska Constitution, the
natural resources of Alaska belong to the residents of Alaska and are to be
used, developed and conserved for the maximum benefit of the people.
In
1969 the state auctioned off the drilling rights on tracts of land at Prudhoe
Bay. The original $900 million was spent to provide for basic community needs
like water and sewer systems, schools, health, education and other social
services. In 1976 the voters approved a constitutional amendment to establish
the Alaska Permanent Fund which required that a set percentage of wealth from
state-owned mineral resources be preserved to benefit future generations of
Alaskans. While the principle cannot be spent without a vote of the people, it
must be invested to generate earnings.
By
1999 the Fund had a balance of $26.4 billion and investment earnings of $2.5
billion, more than double state oil revenue. In the United States, the Fund is
larger than any single endowment fund, private foundation or union pension
trust. It would rank among the top 3 percent of the Fortune 500 companies in
terms of net income. It is one of the largest lenders to the U.S. government.
A
large portion of these well-managed funds are paid out as citizen dividends to
each man, woman and child who has resided in Alaska for at least one year. From
1982 through 1998 the dividend program paid out almost $7 billion to Alaskans
through the annual distribution of per-capita dividend checks. Dividend
payments this year 2000 are the highest ever - $2000 for each individual.
These
public finance principles apply at the global level, too. The Commission on
Global Governance recognised that global taxation is needed "to service
the needs of the global neighbourhood." Global taxes, based on the use
each nation makes of global commons, could include: (1) taxes and charges on
use of international resources such as ocean fishing, sea-bed mining, sea
lanes, flight lanes, outer space, and the electro-magnetic spectrum; and (2)
taxes and charges on activities that pollute and damage the global environment,
or that cause hazards across or outside national boundaries, such as emissions
of CO2, oil spills, dumping wastes at sea, and other forms of marine and air
pollution.
A
Global Resource Agency, similar to the Alaska Permanent Fund, could collect
global resource rents for distribution and investment. This would provide a
stable source of finance for UN expenditures for peacekeeping, environmental
preservation and restoration, and to finance justice institutions such as the
World Court and the International Criminal Court. Some of the revenue might be distributed
to all nations according to their populations, reflecting the right of every
person in the world to a "global citizen's income" based on an equal
share of the value of global resources.
A
Global Resource Agency with this mandate would:
·
encourage sustainable development worldwide;
·
provide substantial financial transfers to developing
countries by right and without strings, as payments by the rich countries for
their disproportionate use of world resources;
·
help to liberate developing countries from their present
dependence on aid, foreign loans and financial institutions which are dominated
by the rich countries;
·
reduce the risk of another Third World debt crisis; and
·
recognise the shared status of all human beings as
citizens of the world.
This
land ethic and policy has potential to benefit all and has deep roots in the
history of economic justice. A full Jubilee 2000 and beyond plan would not only
reduce or eliminate debt, but would also promote systemic reforms in land
tenure and taxation. This is the kind of "structural adjustment" the
people of the world really need.
The
Financing for Development process could further this tax shift approach by (1)
worldwide education and information, (2) encouragement of implementation on the
local and national level, and (3) creation of a body of experts to assist with
the transition to this policy.
The
International Union for Land Value Taxation and its 60 member organizations are
ready to work in partnership with the Financing for Development process, UN
agencies, member states and other development NGOs for the implementation of
this fundamental tax shift.
For further information about these
policy approaches and how they can be implemented contact the authors of this
statement: In the US, Alanna Harzok (717-264-0957 or email: earthrts@pa.net)
and Pat Aller (212-496-8256), UN NGO representatives for the International
Union for Land Value Taxation and in the UK, James Robertson, author,
co-founder of New Economics Foundation, and consultant on alternative futures,
economic & social change. Email: robertson@tp2000.demon.co.uk
Local-to-Global
Public Finance: http://www.greentax.net
International Union for Land Value Taxation: http://www.interunion.org.uk
Alaska Permanent Fund: http://www.apfc.org
New Economics: http://www.neweconomics.org
* Land Value Taxation Around the World, Third
Edition, edited by Robert V. Andelson, 2000, distributed by Robert Schalkenbach
Foundation; See website: http://www.progress.org/books