TAXATION

Evening Post, Volume CIX, Issue 120, 25 May 1925, Page 14

TAXATION

RATING ON UNIMPROVED

VALUES

PROGRESS OF THE MOVEMENT

{By P. J. O'Eegan.)

The adoption of rating on unimproved values by the city of Wanganui leaves Auckland the. only important centre in the North Island wherein the system of exempting improvements from the burden of local taxation has not been adopted. So far 38 yer cent, of the local governing bodies of New Zealand have adopted that system, including 41 connties and 55 out of the 117 boroughs. Accordingly, it is beyond question that in the near future all local taxation will be placed on the unimproved value of land, and as the annual rate revenue now amounts to £4.000,000, and is constantly increasing, it is abundantly clear that the system of taxation with which the name of Henry George is indelibly associated has taken definite and ineradicable root in thia country. That rating on unimproved values is popular is evident from the fact that a poll seldom fails, that few attempts are made to reverse the verdict of the ratepayers, and that these, save in a few unimportant instances, have always failed. For example, an attempt was made to revert to the old system at To Kuiti on the 29th ult.'—the same day as the municipal elections—but the ratepayers, by a majority of 250 votes, determined to stand by their nrevious verdict. When we bear in mind that our so-called educated men, as well as the great majority of the members of local bodies, are usually opposed to the change, the only proper conclusion is that the commonsense of the people, as has often been the case in history, is superior to the counsels of their alleged leaders. Though in this country the ratepayers were given local option in taxation as far back as 1896, New Zealand was pot by any means the first in the field inthis connection. That honour belongs to Queensland, where in 1890—the year of Henry George's visit to Australia—an Act was passed ordering the separate valuation of improvements and the levying of all local taxation on the unimproved value of land. Curiously enough, the measure was fathered by a Conservative Government, and its author did not hesitate to acknowledge his indebtedness to Henry George! Since then, New South Wales and more recently Victoria have granted ratepayers the option of placing all rates on the unimproved value, and the system has been so extensively adopted in both States that it must become general* in the near future. It is now twelve years since the great city of Sydney adopted the system, and it has there become so firmly embedded in popular favour that nobody anticipates the reversal of the popular verdict. Every inch of ground gained, therefore, will be "held, and made the starting point of further advance. So tho great movement that will one day culminate in the complete restoration of their Jand to the people goes on with irresistible might. The adoption of rating on unimproved values in a given district may not appear a particularly auspicious event in itself, but it is a fact none the less (1) that it raises the whole issue of taxation, and (2) that the system, in spite of those self-styled "practical" men who pronounce it a fad, is in complete accord with the settled principles of political economy. The illustrious Adam Smith, who may properly be called tho first expositor of that noble science, has some illuminating chapters on taxation. It is quite true that, like his great contemporaries, the Physiocrats of France, he does not perceive that what he terms "the ordinary rent of land" and "the ground-rent of houses" are but different names for the same fund. His conclusions are none the less convincing on that account, however, and tho reader may be surprised to realise that in principle there is between him and George little if any practical difference. First, Smith condemns the land tax which, in his day, had been levied since 1693 at four shillings in the pound on the "true annual rental" of agricultural land, because (1) of -what he terms "the constancy of the valuation," and (2) because of its limitation to agricultural land, and he maintains that a statute providing for the taxation of the rent of land, the owner being indemnified for his expenditure, should be "a perpetual and unalterable regulation or fundamental law of the Commonwealth." in other words, Adam ■ Smith demands a separate \ialuatiion of Jand and improvements and the exemption of the latter from taxation. Referring to town land,. he distinguishes between what he terms "the building rent"—that is, the rent for the land and improvements—from "the ground-rent" or unimproved value, and though ho does not unreservedly condemn the taxation of the building rent, he goes on to argue that "the ground-rent of houses" is a still more proper subject of taxation, placing it in the same category of utility as a tax upon "the ordinary rent of laud." A tax on ground rent, he writes, can never be paid by the tenant, but must be paid by the owner of the groundrent, "who acts always as a monopolist." He proceeds to a,dd that "nothing can be more, reasonable than that a fund which owes its existence to the good government, of the State, should be taxed peculiarly " Henry Georgo was a self-educated man

—a printer, in fact—and so it is not considered "tho thing" for the official teachers o£ what is nowadays styled "economics," to mention him, save with a monitory sneer! Ad3m Smith, on the other hand, waa a professor in a great university, and hence ho is not banned from the schools! Jt is not' a little curious, however, that Smith's principles of taxation, not to mention his agreement with "the Prophet of San Francisco," is so defty suppressed that nobody seems to be aware of it. The fact that the system expounded by George is in complete accord with the four great canons of taxation enunciated by Smith is a sufficient answer to the critics who dismiss it as a mere fad, but if a more complete answer is required, it is readily afforded by the working of the system in practice, for it has now passed the theoretical stage. The hall-mark of all truth is simplicity, and so the rationale of our system is so plain that it is readily comprehended by Mil- average man when his attention is diivrletl thereto. Land is not wealth, lint is' the basis or raw material whence all wealth i.-s produced. All wealth is Iho product of labour applied t;i land, and hence what we usually term improvement:! is merely another'-name [or wealth. Wo would leave to the producer—that is to say, the improver— all he produces, and hence we deny the right either of the State or of the local taxing authority, £o take from him anyl-hins ho produce's. Though land is not wealth, however, it confers on a privileged few tho power of commanding wealth—other people's wealth—and we would correct that, gross and indefensible infraction both" of public and of private rights by taking the root- or pe-'pic-valnc of land by'tho legitimate and constitutional uso of tho (ajdntr power. Accordingly, to. levy all the kv wJ .t&satioa s4 ihat pgoplo-raJw is

necessarily a stride—and a long stride— towards the ultimate goal. How the system works in actual practice is well illustrated by the case of Wanganui. There the value of the improvements within the city is £3,526,751, and the unimproved value is £3,206,565. Adding these two factors together, we find t.iat the capital value is £6,773,316. me annual revenue is £79 500, represents 3d in the £ on the capital value, and as the rates must hereafter be levied on the unimproved value only, they must be increased to 6d in the £. That is to say, the annual rates on all bare sections will be doubled. Accordingly, though no properties heretofore rateable will be absolutely exempt, the rates on improved properties will be reduced in exact proportion to the increase on the bare land. Now, it is quite true that under oar system a few wealthy men and powerful companies will be relieved to a substantial extent. But, on examination, it will be found that this is precisely what ought to be. For example, on the eve of the poll at Wanganui, the Mayor, Mr. Hope Gibbons, published a statement showing how the proposal would benefit certain important local industries, as follows :— PEESENT RATES. Wanganui Meat Freezing Co 6M 6 d(i Imliy Freezing Works mj 10 0 Dalgotjs Wool Store, GonriUc ... 68 15 0 ir^ k V ?? 1 Store- Castlecliff 65 15 0 Aramoho Woollen Mills «s> io o Kempthorne, Prosscr's Works, Aramono 812 10 0 £3803 5 0 RATES UKDEE IMPROVED SYSTEM (IF ADOPTED). WMsanui Meat Freezing Co. ..;... 150 0 0 J»jH S™ 0??^ Works 245 15 0 Levin s Wool store, Gonrille 25 0 0 Dalgety s Wool Store l.i 0 0 Loan Co.'s Wool Store, Castlec'lifT 25 0 0 Aram oho Woollen Hills 31 5 0 Xctnpthorne, Prosscr's • Works, Aramoho 93 10 0 £583 10 0 Mr. Hope Gibbons was good enough to say that these wealthy concerns would benefit at the expense of tho public, and he appealed to the ratepayers to say that they should pay their proper share of local taxation. But the answer is quite clear and equally convincing. First, these important industries will not' gain at the expense of the public, but at the expense of the mere speculators in land, becondly, it is common ground that industries are a good thing for the community and that they should be encouraged, and what better encouragement could be given them than to untax them? Tho real and only proper function of capital is to co-operate with labour in the production of wealth, and when capital is so applied it should be given free play. Capital employed, on the other hand, merely in blockading land is not merely useless, but -positively injurious to the community. Hence tho very cases given by tho Mayor to show the unfairness of rating on unimproved values, really afforded the strongest illustration of its unfailing equity. Now we see how misleading is tho contention—widely used within the last year by newspapers and politicians —that all taxation is necessarily a hindrance to production. Taxation which reduces the legitimate return to labour and capital certainly reduces production, but taxation which makes it unprofitable to gamble with the people's land has precisely the opposite effect. Of tlra truth rating on tho unimproved value of land affords the very best example possible. But here I postpone further examination of the subject.