REPORT dated 4 October 1999 to



by Godfrey R. A. Dunkley, Cape Town,

the Immediate Past President of 'The International Union for Land Value Taxation and Free Trade'.



Dear Sirs,


The views expressed are my own, whilst conforming to the objectives and beliefs of the International Union and all its affiliates and also based upon the works of Henry George and the teachings of the School of Economic Science, London.





A Land Tax is not merely a fiscal matter. It is not about collecting finance for some local rural administration areas, nor even about raising additional revenue for central government. A land tax is rightfully a user charge arising from the privilege of excluding others from enjoying the benefits of tenure and use of selected parcels of land. The value of that privilege will vary from one site to another. It is determined in a free market according to a number of factors provided jointly by nature and the community, past and present. Location relative to infrastructure and markets is a major consideration.


Prime sites and mineral rich land provide an unearned advantage over marginal sites and this advantage is expressed in market value applied to the land only, excluding improvements.


Those citizens, who, under the protection of law, reap the largest benefits from land tenure or ownership, should rightfully contribute the largest share towards the defence and stability of the nation. They have the most to loose.


Traditionally, according to most original scriptures and recorded history, land tenure was accompanied by corresponding duties to the community and government. These duties included defence, keeping the peace and caring for those unable to care for themselves. Security of tenure was for the purpose of production, not for speculative withholding at the expense of others.


All wealth, by definition, is produced by the application of labour to or on land. Those who are deprived of access to land are automatically deprived of the opportunity to provide for themselves and their families. Their only alternative is to seek employment.


These points are so fundamental that they merit some elaboration: Land may have intrinsic value arising from a number of sources. It may have agricultural potential, mineral potential, be endowed with water, scenic beauty, have value conferred upon it by the community around it in terms of infrastructure, social services, access to employment, markets, population density etc.


Some land, particularly in rural areas, is so marginal in its intrinsic value, that any man or woman using it may only just be able to produce enough on it to sustain themselves and their families. If they then have imposed upon their income any taxes, such as VAT or income tax, they will not be able to sustain life and will abandon the marginal land and move in towards the more valuable land in the hope of finding employment. This leads to the universal phenomenon of urbanisation, a force that cannot be controlled unless it is addressed at this fundamental level. It is this

effect of taxation at the margin that we refer to as the "tax wedge".


Without going into too much further detail, one can easily see how a vicious circle can be set up. Abandoning the margin reduces the total productivity and the potential tax net. In order to maintain revenue, the authorities increase the tax rates. This further reduces the margin.


The injudicious imposition of a land tax at the margin could aggravate the effect of the tax wedge described above. On the other hand, I believe that the proper application of a land tax would present the opportunity to reverse the cycle described above and ameliorate the negative aspects of urbanisation.


A national land value tax or user charge is therefore the only natural and logical form of taxation. It will result in equity and justice for all. Such a land tax or user charge should be designed to collect most, if not all, of the annual rent of all land irrespective of its current or intended use, provided it has a rent value in a free market.


The revenue thus raised will allow for removal of the tax wedge that separates labour from employment. This tax wedge is a collection of taxes that do not reduce to zero at the margin of production and, by increasing the cost of labour, are a major cause of unemployment. The most destructive of these are VAT, PAYE or SITE and fuel tax.


Not only does this wedge of taxes results in marginal land being put out of production, but it introduces a further problem, namely, it introduces a class of marginal labour even on prime land.


Marginal labour applies to all levels of employment where the cost of employment is equal to their productive return. Impose on this any portion of the tax wedge and they becoming too expensive to employ. Proof of this is readily observable throughout the country, particularly in the former independent homelands where taxation has closed many industries down. Thousands of unemployed workers have no other employment opportunities to turn to nor is there land available for self-employment.


The total amount of revenue available for collection as a land tax or user charge will be larger than that available under the present system of taxation. The former encourages economic growth but the tax wedge is highly destructive. Meanwhile land lies idle for the want of labour and labour is idle for the want of land





Many benefits will arise from collecting a land value tax or user charge for the exclusive use of land, together with the removal of the tax wedge. These can be summarised as follows;


       Removing tax from labour will provide work opportunities for the unemployed.

       Taxing land will reduce speculative withholding and provide new access to land.

       Improved employment will relieve poverty and its resultant misery.

       Increased employment will substantially reduce the level of crime and civil unrest.

       Steady employment will restore dignity previously destroyed by economic in equities.

       Reduce tax evasion.

       Help to restore law and order.

       Conform to justice and the provisions of the Constitutions.


Most of these are obvious and require little elaboration.





Any new legislation relating to land use and taxation should comply with the appropriate clauses in The Constitution of the Republic of South Africa, 1996.


Significant here are the following clauses in the Preamble and Founding Provisions of the Constitution:

       South Africa belongs to all who live in it.

       Human dignity, the achievement of equality and the advancement of human rights and freedoms.

       There is a common South African citizenship. All citizens are - equally entitled to the rights, privileges and benefits of citizenship.


In economic terms the Constitution would imply that all citizens have an equal claim to the collective rent of land in South Africa. It would not be practical for them all to have access to the same pieces of prime land. Those who are deprived of access to prime land have a duty to protect the right of tenure of others to that land, provided the rent is collected for the use of society.


Conversely, those who are deprived of all access to economically viable land have no duty to contribute to taxation in any form. It is also in the overall interest of those on prime land to have the state subsidise those who attempt to make a living on sub-marginal land, thus reducing the incentive to migrate to urban land as squatters.


It is thus the duty of legislators to pass suitable legislation at all appropriate levels and divisions of government to enable the intent of the Constitution to be respected. This can only be achieved by eliminating the tax wedge and collecting all revenue from the annual rent of land.





The original terms of reference given to the Commission of Inquiry were "To inquire into the appropriateness and efficiency of the present tax system and make recommendations on its improvement".


In 1995 the Minister of Land Affairs requested through the Minister of Finance that the Commission give attention to the question of the introduction of a land tax in South Africa. However their investigation was narrowed down to an insignificant portion of the advantages to be derived from this form of change in taxation.


While the report has been limited to rural areas, I strongly contend that the proper principles of land taxation could be applied with great benefit to society across the whole spectrum of land usage in South Africa. It would not however be appropriate to pursue this issue at any length in the present submission, so I shall confine my comments and recommendations to the ground covered by the Subcommittee.


I strongly support the recommendations of the Subcommittee that a land tax be introduced and most importantly, that the facilities for administering such a tax in South Africa should be developed. This would include comprehensive surveying of boundaries, proper record keeping, regular revaluation of land etc.


It seems that the Subcommittee has recognised the effect of the tax wedge at the margin and seeks to ameliorate this by treating the tax as a provisional tax in terms of the fourth schedule. (230.26). While this is a very pragmatic proposal it does not go far enough in removing the tax wedge at the margin, since the current level of income tax at the margin would still fully be in place. Some way must be found to reduce the effect of income and other taxes such as VAT to zero at the margin. While the short-term effect may be a small reduction of tax revenue, the longer term will result in more extensive land use (i.e. widen the margin), greater productivity and employment and wider tax net with increased tax revenues. The Subcommittee needs to apply their expertise and resources to this specific problem.


At the other end of the scale, on agricultural land adjacent to urban areas where market values may be higher because of speculative pressures, the Subcommittee support using a user value (230.22) so as not to discourage agricultural activity. I would, however, see "market value as being the natural measure of the intrinsic land value. This increase in market value and tendency to change the use of land (from agricultural) is a natural consequence of economic development and cannot really be artificially stopped in the long term. I suggest that the use of market values (on land values, not improvements) be phased in over a period of five to ten years.


Furthermore, when looking at the more valuable land (i.e. away from the margin), one sees that part of the income to the landowner derives effortlessly from the intrinsic land value, rather than solely from the efforts of the owner. There is an opportunity for the land tax to actually increase the total tax revenue, rather than just be treated as provisional income tax. This could more than offset any loss of revenue at the margin as outlined above. Again, the Subcommittee should apply their expertise to this question. One suggestion would be some sort of sliding scale resulting in reduced overall taxes at the marginal land and increased overall taxes at the more valuable sites.





If the decision is made to settle for second best in the form of a land value tax on rural land only, then there are a number of points to be considered.


1.     Tax base; land values are highly dependent on water rights so these should be included.


2.    Flat rating, i.e. including improvements, has been proved to be the worst system and should not even be contemplated. There is a mountain of evidence to prove this.


3.    Method; market value should be used in all cases. This will quickly bring market values down to realistic levels, as the speculators will also have to pay.


4.    Tax rate; this should be established at a national level of 2%. Exceptional cases could be given rebates or deferred payment.


5.    The rates liability should be offset against taxes that form part of the tax wedge only. For instance employers could be allowed a percentage discount or rebate on their wage bills. This would compensate for VAT and SITE thereby reducing the cost of labour. This would encourage employment.


6.    Capping should be discouraged and only allowed in the first five-year period.





If the Subcommittee wishes to pursue these suggestions, which would serve to refine of fine tune their recommendation there are a number of international experts who could be approached for advice. I would happily set up contact between the Subcommittee and these experts if so desired.


I will be available for an oral presentation if required.


Yours faithfully,



G R A Dunkley




"Land Value Taxation around the World" Robert V. Andelson

"That All May Live - Guidelines Towards a Better Society." Godfrey Dunkley

"Land Tenure: A Time Bomb Ticking in South Africa" Godfrey Dunkley

A copy of the "Economic Monitor"

Several copies of "Land and Liberty"