TAXES AND THE NANNY STATE

Radio 3AW’s Neil Mitchell said this morning the “numb nuts” who want to tax soft drinks in order to tackle obesity, and tax this, that and the other, for such-and such reasons ought to “get out of our lives”.  Health and other experts are constantly telling us what we should be doing to the tax system in order to fix this or that, he says.

It’s hard to disagree with Mitchell that we have indeed become a nanny state.

He mentioned the case of a chap in the municipality of Darebin who has been charged double rates on the lot on which he grows vegetables next to his home, because council considers it to be ‘vacant’, and doesn’t want to encourage vacant allotments in residential areas, veggie gardens or not.

Mitchell’s examples parallel goings-on in the tax forum being held in Canberra over the last two days.  The experts have been invited, so we’re getting a cacophony of views commenting upon the far-reaching recommendations of Ken Henry’s panel which inquired into ‘Australia’s Future Tax System’. Many participants, of course, argue from a perspective of self-interest, instead of what’s good for the nation.

Ken Henry

I’ve watched some of the Canberra proceedings streamed live, and, looking at Ken Henry, imagine he must be terribly frustrated at what’s happening about him, because his panel recommended the abolition of a multiplicity of inefficient taxes, and the use of four revenue bases, only. This has virtually become invisible in the discussion.

I could see the invited experts are obviously very intelligent people, but, each and every one of them has been deprived the privilege of studying Ricardo’s Law of Rent (community-created economic rent) in any depth.

Although this is the same economic rent Sir William Petty used to value Ireland for William the Conqueror, today’s textbooks condition us, by lying to us, that economic rent is as low as one or two percent of the economy.  Therefore, economic rent is not worth quantifying, not even worth studying, much less capturing for public revenue:-

….. land rent forms such a small percentage of national income that 2% is nothing compared to the present tax percentages, which are around 30. …… All this makes a figure of 1-2% for the remuneration of land sound incredible, and yet that is reality.”  Income Distribution, Jan Pen, Penguin Press, London, 1971

But by 2000 urban land rents represented only 4 percent of national income, even in crowded England with its very high housing costs.A Farewell to Alms: A Brief Economic History of the World, Gregory Clark, Princeton, 2007

Even if governments could take all rents without rebellion or severe recession (sic), rents would not come close to covering expenses. In 1929 property rents accounted for about 6 percent of national income. The percentage has steadily dropped (sic) to well under one percent today. Whereas property taxes once provided 65 percent of state and local budgets, they now supply about 17 percent.”  New Ideas from Dead Economists: An Introduction to Modern Economic Thought, Todd G Buchholz, Plume, New York, 2007

With all this obfuscation, it is therefore remarkable that Ken Henry chose land tax as one of the four most efficient tax bases around which Australia should seek to build its future.

If the character of a nation is shaped by its system of taxation, against this criterion we should be capturing to the public purse the nation’s economic rent: the whole rent, and nothing but the rent.

Although this might appear to satisfy Neil Mitchell’s concerns about nanny state taxes, not so. Neil may shortly be relied upon to conduct his annual onslaught against state land tax.  (Sigh! :()

The understanding that individuals ought not be able to privatise the 50% of the economy which is our economic rent – created not by individuals but by the Australian community as a whole – sadly continues to elude our ‘experts’.