From Fred Harrison’s Share the Rents
Fred Harrison

Rent: Society’s Taxable Income (aka ATCOR)

by Fred Harrison on 2 January 2020

JOHN LOCKE said it first. In 1691, he wrote a letter to a Member of Parliament in which he warned that it was futile to tax workers’ wages. His insight was published in Some Considerations on the Consequences of the Lowering of Interest and the Raising of the Value of Money. Such taxes would reduce take-home pay below what people needed to live on. So taxpayers would defend their living standards by reducing the Rent that they paid for the use of land. In other words – ATCOR: All Taxes Come Out of Rent.

Rent is society’s net income – the residual value after covering the costs of living. It is what people can afford to pool in the public purse, after looking after themselves from the fruits of their labour.
Locke’s theory made sense for a society in which people were free. That freedom was defined by the right to determine how much of income was net of the living costs. But by the time Locke was helping to shape public policy, the aristocracy had already begun to re-enserf English folk in a post-medieval form. They did so by roping off the commons. That deprived the peasantry of their right to self-sustaining life.

Locke’s version of liberty was expressed in his trilogy “life, liberty and estate” – the doctrine of the social contract. Estate was the old English term for land. But 200 years earlier, the aristocracy had begun in earnest to turf people off the commons to make way for sheep, while Henry VIII legitimised the theft of land by grabbing the estates of the monasteries and abbeys. Over the following centuries, an increasing proportion of the population lost the freedom to determine their destiny as Parliament sanctioned the enclosure of common land.1

Adam Smith intervened in 1776 with his proposals for the revision of governance. The state, he explained, should be funded in a way that caused minimal damage. This would be achieved by paying for public services out of Ground Rent – the nation’s taxable income.
If governments had adopted Smith’s model, taxes would have been removed from earned incomes, the wages and the revenue people could earn by investing their savings in productive enterprises. Those taxes, Smith stressed, inflicted damage on the nation’s wealth and people’s health.

Taxes were bad, and they were futile: people shifted the burden off their wages and onto the net income that they could afford to yield as Ground Rent. To reinforce his argument for a systemic transformation of the financial system, Smith provided at least 10 examples of how government revenue did, indeed, come out of the nation’s Rents.2

The virtue of the direct payment of Ground Rent into the public purse was the benign impact on industry. By this means “no discouragement will thereby be given to any sort of industry. The annual produce of the land and labour of the society, the real wealth and revenue of the great body of the people, might be the same after such a tax as before”. That was why Ground Rent, and the ordinary rent of land, were what he called “the species of revenue which can best bear to have a peculiar tax imposed upon them”. This contrasted with a tax on a manufacturer: the burden would be passed on in the form of higher prices paid by consumers. They, in turn, would be left with less income, which meant they would have to reduce what they paid as Rent to their landlords. A tax levied on the producer would ultimately result in “a reduction of rent, the final payment of the tax would fall upon the landlord”.

Another virtue of Rent-as-public-revenue was its transparency, because “the quantity and value of the land which any man possesses can never be a secret, and can always be ascertained with great exactness”. This contrasted with taxing the producer of goods, which caused “endless vexation as no people could support”. Smith noted that “land is a subject which cannot be removed, whereas stock easily may”. By raising revenue directly from Rent, auditing the taxable capacity of a nation entailed no difficulty.3 It neutralised the temptation to dodge taxes by transferring assets to tax havens.

Ground Rent and houses

For Adam Smith, “Ground-rents are a still more proper subject of taxation than the rent of houses,” because that charge would not raise the rents that people paid for their dwellings. A levy on Ground Rent would fall on the owner of the Ground Rent, who (as a monopolist) was already exacting “the greatest rent which can be got for the use of his ground”. But if the tax was levied on the tenant, “the less he would incline to pay for the ground; so that the final payment of the tax would fall altogether upon the owner of the ground-rent”. Smith believed that raising revenue from Ground Rent was reasonable, because this was revenue which the owner received “without any care or attention of his own”.4

House prices and the Window Tax

Observing how, in 1775, taxes were levied on windows in people’s homes, Smith emphasised that “The natural tendency of the window-tax, and of all other taxes upon houses, is to lower rents. The more a man pays for the tax, the less, it is evident, he can afford to pay for the rent”. The increase in the rent of dwellings had more than offset the taxes on windows. This was because of the rising demand for dwellings; it did not falsify the theory. And, as Smith concluded, “Had it not been for the tax, rents would probably have risen still higher”.5

Taxes on the profits of farming

A tenant farmer would not reduce his output in response to a tax levied directly on his profit. Why not? Because he would still be liable for Rent to the landlord. He would, therefore, continue to produce at the same level of activity. But, noted Smith, to protect his profit, the farmer would end up “paying less rent to the landlord. The more he is obliged to pay in the way of tax, the less he can afford to pay in the way of rent”.6

The Poll Tax on slaves

Smith tracked the impact of the Poll Tax that was levied on the slaves on plantations in the English colonies in the Carolinas of America and the islands of the West Indies. Those taxes, Smith explained, reduced the profits of the agricultural enterprises. And so “As the planters are, the greater part of them, both farmers and landlords, the final payment of the tax falls upon them in their quality of landlords without any retribution”.7

Taxes on the sale of property

When taxes are levied on the transfer of property, the buyer is in the best bargaining position. “He considers what the land will cost him in tax and price together,” observed Smith. “The more he is obliged to pay in the way of tax, the less he will be disposed to give in the way of price.” So the tax on land is passed on in the form of a lower price paid to the seller.8

A tax on the wages of labour

The chaos caused by a tax on wages was carefully examined by Smith. He concluded that, whichever way the burden was twisted (reducing profits, raising the price of consumer goods or inflating the wages paid to workers), there was no escaping the ultimate outcome. “In all cases a direct tax upon the wages of labour must, in the long-run, occasion both a greater reduction in the rent of land, and a greater rise in the price of manufactured goods, than would have followed upon the proper assessment of a sum equal to the produce of the tax, partly upon the rent of land, and partly upon consumable commodities.” He branded those taxes as “absurd and destructive”, and he was emphatic about their disruptive effects.

The declension of industry, the decrease of employment for the poor, the diminution of the annual produce of the land and labour of the country, have generally been the effects of such taxes. In consequence of them, however, the price of labour must always be higher than it otherwise would have been in the actual state of the demand: and this enhancement of price, together with the profit of those who advance it, must always be finally paid by the landlords and consumers.

The consumers to whom Smith referred were rich people, most of them landowners.

One detects sorrow in Smith’s words as he recorded how, while the deadweight burden of bad taxes did, ultimately, come out of Rent, this circuitous route victimised the poor by pricing them out of work.9

Taxes on the “necessaries of life”

In the 18th century, the principal taxes on the “necessaries of life” were on salt, leather, soap and candles. These taxes caused an increase in wages, but the charges would ultimately “fall upon the rent of the landlord”. Again, Smith expresses the bitter consequences of this indirect way of raising revenue for government. One manifestation was the “forced frugality” imposed on the working population. Another outcome was a reduction in fertility, and some people resorted to immoral behaviour. Immorality affected children whose parents were impoverished. If the children survived the hardships to which the bad conduct of their parents exposed them, such conduct commonly corrupted their morals, “so that, instead of being useful to society by their industry, they become public nuisances by their vices and disorders”. That was a human price paid for bad fiscal policy.

Taxes upon necessaries, so far as they affect the labouring poor, are finally paid, partly by landlords in the diminished rent of their lands, and partly by rich consumers, whether landlords or others in the advanced price of manufactured goods; and always with a considerable over-charge.

The landlords pay the heaviest price, because they “always pay in a double capacity; in that of landlords, by the reduction of their rent; and in that of rich consumers, by the increase of their expense”.10

The tax on wine

Smith was driven to the same conclusion when he analysed the economics of a tax on the production of wine. “The whole weight of the tax, therefore, would fall upon the rent and profit; properly upon the rent of the vineyard.” The producers of commodities such as sugar were aware of this effect, so they asserted that a tax on output would not fall on consumers, but would reduce the Rent they received as plantation owners. Smith pointed out that this argument demonstrated that, to the contrary, if the tax was extracted out of the Rent of plantation land then it was an appropriate charge!11

The impact of tithes

Traditionally, communities supported their church and clergy by allocating a proportion of their produce as a tithe. That charge “diminishes more what would otherwise be the rent of the landlord”. Smith reviewed the relative virtues of a Land Tax compared to a tithe in the colonies compared to the charge levied on rent-rolls in Great Britain. But he saw no reason to alter his conclusion: one way or another, the charge came out of Rent. As Smith noted, “There is no farmer who does not compute beforehand what the church tithe, which is a land-tax in kind, is, one year with another, likely to amount to”.12 This enables the farmer to make “a proportionable abatement in the rent which he agrees to pay to the landlord”.13

Silence of the post-classical economists

Macro-economists of the 20th century omitted from their mathematical models this process of shifting the tax burden onto Rent. There can be one reason only for that omission: the scholars would be obliged to discuss the logic of the roundabout method of raising government revenue. They would have to address Adam Smith’s arguments that this tortuous method under-funded not just the material infrastructure of the nation, it also corrupted the moral fibre of the population.
The earliest land-grabbers accepted this situation as the price to be paid for consolidating their privileges, which stemmed from the privatisation of the nation’s Rent. Besides, the suffering caused by under-production in the economy and the blunting of human sensibilities was endured by others, not them. But the final outcome was the failure of governance. As Smith noted, if landlords ceased to play their part by direct payment of Rent into the public purse, “it is altogether impossible that the tenant should continue to do his”. The outcome was distress, a decline of output, and the indebtedness of governments.14


1. Locke wrote fine prose on the theory of governance, in which he championed the freedom of the individual. But he profited from the practises of his time: he invested in the Royal African Company, which transported slaves to America. He also contributed to the constitution for the colonists who deprived the indigenous peoples of their land and settled in Carolina, where they established slave plantations.

2. The page references provided here are to the 1976 edition of The Wealth of Nations, edited by Edwin Cannan and published by the University of Chicago Press.

3. Bk 5, Ch 2, Pt 2, Article 1, pp. 370, 374-375.

4. Bk 5, Ch 2, Pt 2, Article 1, p.370.

5. Bk 5, Ch 2, Pt 2, Article 1, p.373.

6. Bk 5, Ch 2, Pt 2, Article 2, p.383.

7. Bk 5, Ch 2, Pt 2, Article 2, p.384.

8. Bk 5, Ch 2, Pt 2, Arts. 1 & 2, p.390.

9. Bk 5, Ch 2, Pt 2, Art. 3, p.392-4.

10. Bk 5, Ch 2, Pt 2, Art. 4, p.400-403.

11. Bk 5, Ch 2, Pt 2, Art. 4, p.424-425.

12. Bk 5, Ch 2, Pt 2, Art. 1, p.362.

13. Bk 5, Ch 3, p.472.

14. Bk 5, Ch 3, p.464-465.


Honesty personified
“What has destroyed every previous civilization has been the tendency to the unequal distribution of wealth and power.” – Henry George


Workers’ share of productivity has shrunk for some time.

Analysts fail to espy, however, wages and non-rent profits to be what is left after economic rent has been privatised into land prices. Although most of us are involved in the process, a significant share of land prices is held by only a small fraction of the population.

No political party wants to acknowledge this reciprocal relationship between land prices and wages, because many Australians are heavily committed to treating homes as an investment, instead of a place to live.

This is undoubtably a function of the tax regime giving all the wrong signals to investors.

Since 1984, land prices on all categories of real estate have risen at an average of 9.25% pa while GDP growth has increased at nothing like that rate.  Australian Bureau of Statistics catalogues 5204 and 6416 show that the land component of average home values has reached 66.63%.In many locations the land share of residential value is beyond 80%.

The land share of real estate values may be managed by an all-in land tax, together with the abolition of some one hundred inefficient taxes, as recommended by The Henry Tax Review. However, the attack by vested interests killed that option more than ten years ago, together with political ardour for tax reform.

As the profits share of GDP has been rising comparative to wages, the principle of calling for higher taxes on businesses is obviously a sound one: but how to do it? We need to discriminate between the struggling small to medium enterprises and those making super profits, the latter companies having obviously displayed the ability to shrug free from paying a fair contribution.

Therefore, it’s worth noting that land cannot be hidden – nor flee overseas.

As the cost of living rises, the Australian tax regime is overdue for repair if workers’ real wages are to increase.

It’s time for the Albanese government to resurrect “Australia’s Future Tax System” overseen by Ken Henry.

Is it up to it?


Latifundia perdidere Italiam: Pliny the Elder (AD 24 – 79)

With tax regimes favouring property ‘investment’ and fining real wealth creation, the question must be asked.

The answer really does appear to be ‘yes’ – so we may anticipate some sort of crash. Let’s trust it’s not the collapse of Pax Americana/Pax Sinae?

Self-interested politicians provide a lead: there’s more money to be had in pumping property prices than in working for a living. All but a handful of them are into property spec in a big way, such as they’re unlikely to legislate the necessary taxing of land rent and abolition of taxes that will reduce prices and our enormous levels of private debt.

Seems we must look to younger and increasingly dispossessed swinging voters to call governments and policymakers to account. Only then will the polity change.

There are latent signs that millennials do perceive the issue.


by Leo Foley (June 2007)

The Road to Leasehold

Section 125 of the Commonwealth of Australian Constitution Act provided for the seat of government to be within territory belonging to the Commonwealth.  In 1901, the Parliament moved “… to secure an area of not less than 1000 square miles…, the ground only to be let on leases to utilisers…” 

Later, Section 9 of the Seat of Government (Administration) Act 1910 provided:

“No Crown land in the Territory shall be disposed of for any estate of freehold”.

Legislators of the time were determined that they “shall not play into the hands of the speculators”.  Instead, Edmund Barton, first Prime Minister of Australia, termed the arrangement as a matter of good business: “we shall lease it on fair terms and still make a profit for the Commonwealth”.

Ideology rode high.  Austin Chapman sought a “brand of municipal socialism which would present to the world a spectacle not previously seen in; an entire city, and all connected with the city owned and managed for the people of Australia.”

The development of Canberra was informed by the experience of Washington in the United States.  Reference was made to the land in Pennsylvania Ave which, while locked up in private hands for 100 years, was said to have increased in value by hundreds of millions of dollars through the unearned increment. 

Most Australians supported the development of a Territory for the seat of government.  But no one was willing to pay for it.  What better way to escape the dilemma than to establish an onus on the yet unknown residents of the as yet unselected Territory to meet the cost of developing the capital.

Some optimistic members of Parliament considered that the capital city would be a paying income from land rent would almost certainly overtake the expenditure.

By 1920, however, political parties had lost their zeal for land tenure reform.  Parliament was uninterested, but for the lone voice of John Grant, who declared himself to be a disciple of Henry George.

The City Leases Ordinance 1921 empowered the Minister to grant leases of land within the city area for periods not exceeding 99 years.  The basic provisions were:

  • an annual rent of 5% of the unimproved value of the land;
  • the value of the land to be reappraised after 20 years;
  • the construction of a building, in accordance with the lease, was to be commenced within one year and completed within two years of the granting of the lease.

John Grant moved to disallow the 20-year revaluations, saying that a five-year period between reappraisals was essential.  This later proved to be an important point.

The first sale of leases was held in December 1924.  Residential land was sold at auction for £400 pounds, but the bid prices merely fixed the capital values, so all the purchaser paid at auction was the first year’s land rent, which amounted to 5% of the capital value. 

In 1925, the seeds of destruction for the leasehold system were sown.  The Federal Capital Commission consented to leases being transferred without a building being erected on the leased land.  Parliament after Parliament had previously insisted that land in the Territory should be made available to land users only.  That restriction had been intended to keep land speculators away, but the door was opened allowing the land speculators to enter.  It was the greatest of many mistakes made by the Commission.

By the end of 1929, 485 leases had been granted.  Of this number, 186 had been surrendered.  But around 130 had been transferred by speculators, a very large proportion of the existing leases.

Senator Elliott, a fierce critic of the land rent system, attempted to obtain a site for his legal practice.  He was informed via the commission that there was no land for sale.  Local agents, however, advised that there were a great number of sites which previous purchasers were willing to sell.  He purchased leases for four blocks from two Sydney woman, who had secured them just four months earlier for the first year’s land rent of 20 pounds per block (80).  He paid them 1100 pounds for the four blocks.

In 1928, the head of the Federal Capital Commission (Butters) informed the Parliamentary Public Accounts Committee that the residential blocks auctioned in 1924 were really “a substantial gift by the Commonwealth Government to the purchasers”.  

The majority of Australians were either ignorant of this orgy of land speculation or indifferent.  Canberra was seen as faraway and artificial, and people had grown indifferent to land and its administration.

The system was under pressure on other fronts too.  Residents of Canberra found they could not buy into the property market in Melbourne or Sydney, because they had not benefited from the capital gain (the unearned increment).  One witness claimed that the leasehold system “might not be a disadvantage if the whole of Australia were under leasehold, but the difference in tenure is against Canberra.” 

Another witness, commenting on purchasers who had paid more than the going rate for a lease. claimed that “the Federal Capital Commission is virtually in the position of trustees for the people of Australia.  As such it should take care of the assets committed to its care, but at the same time it should protect the beneficiaries from their own folly and not take advantage of their weakness.” 

The Commission critics of the time were attacking the whole concept of leasehold, calling for its abandonment.  John Grant died in 1928, and the ideology of the founders was gone.

The absence of any published works elucidating basic principles of the Canberra leasehold system has always been notable.  As the years passed, the land administrators knowledge or appreciation of historical origins and development of Canberra’s leasehold system lessened. 

Treasury, by the late 1950s, had little knowledge of the difference between freehold and leasehold, and was not interested in the difference, preferring to regard them both as being equal sources of revenue, without distinction.

The land critics of the 1950 — 1970 period differed from the critics of the Federal Capital Commission period.  The more modern-day ones were attacking the administration or operation of the system.

Dark clouds gathered over Australia’s experiment.  By 1970, the rosy dawn predicted by its sponsors began to look suspiciously like a sunset.  The leasehold system of land tenure had not failed in itself but its operation was obstructed and destroyed by indifferent administration.

The Purpose Clause

In Canberra, the planner was given the power, through the ‘Purpose Clause’ of the lease, to control land use down to minute particulars.  Such power and such arbitrariness was unnecessary.  The purpose clause should merely have indicated the general purpose for which the leased land may be used, without being too particular.

If, for example, the planners arrange only one butcher, or one foodstore in a suburban shopping centre, it creates a monopoly affecting cost and quality of service.  Abolishing competition is not town planning.  It is more akin to a system of licensing of business. 

Valuation problems

There is no land market in Canberra in the same sense as there is in a freehold area.

  • Supply:  the Commonwealth is the landowner, controlling the number of block available for purchase, making them relatively scarce or plentiful.  Prices rise if blocks are scarce.
  • Demand:  the Commonwealth can also affect demand to some degree by transferring persons to and from the city.  This was important in Canberra’s formative years.
  • It is anomalous that the authority who values the land is also the land owner and the receiver of rents.  Valuation should be thoroughly independent of all other Commonwealth agencies and responsible to Parliament. 

The Premium

Premium payments have been allowed to obtain land.  It departs from the principle that no capital outlay is required to become the holder of a Canberra lease – just a year’s rental.

20-year reappraisals

In early days, it was necessary to make the lease as attractive as possible by leaving the rent at a modest and unaltered level for a long period.  20 years was fixed.  By 1970, the same justification no longer existed.  Rents set in 1952 may have been reasonable, but by 1957 they were low, very cheap by 1962 and peppercorn in 1969.

Rates in Canberra

Each block received two separate valuations:

  • a valuation for land rent purposes, and
  • an annual valuation for rating purposes. 

Public servants seconded to the capital paid not only their house rental, but land rent and rates as well.  They were disgruntled.

In 1928, a Board of Review considered the question ‘why were any rates at all imposed in Canberra?’  That is, in a land rent system, why were rates necessary?

The justification for rates being levied in Canberra was found to be that since rates were payable in other parts of Australia, therefore they should also be paid in Canberra.  No consideration was made of the payment of land rent

A misunderstanding of the concept of rates lies at the heart of the problem.  Rates levied on the unimproved value of land are, in the words of the late Lord Goshen, rent charged in favour of the community.  Essentially, they are no different from the land rent paid for a crown lease. 

In a progressive community land values have a constant tendency to rise.  If the rent is fixed for 20 years, annual rates increases could be regarded as a supplementary rent.  However, this is not the concept of rates that is popularly held. 

Rates are regarded as a payment for municipal services and they are justified on the ground that municipal services add value of the land.  In Canberra, where the annual rental value of unimproved land should be entirely absorbed by rent, rates are an absurdity.  It is impossible to separate Commonwealth and municipal expenses so there is no basis for the level of rates to be estimated.

Rates in Canberra should have been abolished and the land rent remain as the sole payment for all leased land.

The demise of the system

In 1965, the joint committee was informed that “the originators of the scheme never contended that the Commonwealth must show a profit from the venture…”  That is how history can be changed.  Not one word in the public records of Australia will be found to support that statement.  In fact, it is the complete opposite of the original objectives of the policy of leasehold tenure.

Confused minds, departmental minds, freehold minds and small minds proved inadequate to implement the grand undertaking.  It led to the demise of the system.

John Gorton’s changes

Under pressure from lessees, in a by-election, The Prime Minister, John Gorton, put forward changes to the system that took effect from 1971.

  • the payment of land rent ceased;
  • the reappraisal of land values every 20 years for rental purposes ceased; and
  • the income lost in consequence was to be made up by increased rates.

The changes signalled the complete breakdown of the administration of Canberra’s leasehold system.  It was estimated that the government transferred $100 million in equity to lessees at that time, resulting in the loss of an important source of revenue.’

What of the future? 

By 1970, there were 23,000 lessees in Canberra.  But what of the next 23000 lessees? 

All land has a rental value and if the Commonwealth does not get this value, the lessees will.  The rent will be capitalised into land prices.  Hence, all Canberra leases sold at exactly the same price as freehold.

Lessees pay their rates which need not exist, and they pay for their homes, shops and offices against the ever rising barrier of high land costs.  In short, instead of paying land rent to the Commonwealth, they pay interest to the mortgagee companies for the money to build. 

Should the Commonwealth ever require to resume leased land for public purposes, it will have to buy back at enormous cost land which has been so lightly given away. 

Every decade the land rent should be increasing substantially and in one lifetime if the leasehold system was properly administered and land rent collected in the manner suggested, Canberra could be one of the richest cities in the world.  It would be unique in that it would have no municipal rates and far from being a drain on Commonwealth finances it could begin repaying to the Commonwealth the capital expenditure of past years.  This was the vision of its founders.

Lessons for future reforms

“A river is at its purest closest to its source”.

From the beginning, absolute principles should be laid down:

  • the lessee is entitled to the undisputed occupancy of the leased land and to its exclusive use during the currency of the lease; 
  • the lessee is entitled to nothing more or nothing less; 
  • in particular he is not entitled to increments in the value of the land accruing over the term of the lease.


A tremendous responsibility rested on parliamentary representatives to see that the interests of Australians and their children’s interests were protected.  They should have referred to Australia’s formative years when the words unearned increment were basic to any discussion of leasehold tenure in the proposed Federal Territory.  As King O’Malley said at the Federal convention held in Adelaide in 1897: “the unearned increment created by the expenditure of the people’s money belongs to the people…”  

The experiment failed due to their lack of understanding.

pps: Subsequent to Leo Foley writing this history in June 2007, Canberra embarked on a 20-year program to replace stamp duty with land tax.


Leo Foley

by Leo Foley (July 2007)

From its earliest days, Australia has understood the concept of all land belonging to the Crown. 

When Australia was settled by the British in 1788, no recognition of prior ownership by indigenous people was recognized, and all of the land was claimed to belong to the Crown.  Governor Phillip made grants to ex-convicts (emancipists), and later to free settlers and marines. 

Emancipists were granted 30 acres, plus 20 more if they were married.  Free settlers and marines received 100 acres.  Grants were dependent on the land being actually settled and used. 

However, speculation arrived with the Second Fleet.  Governor Phillip returned to England in 1792, and Major Grose, of the New South Wales Corps administered the colony.  He made grants to his officers and allowed them to trade land.  The NSW Corps became notorious for their monopoly control of the rum trade (the ‘rum corps’), but less well known is their exploitation of settlers to become great landed proprietors.  Using monopoly trade practices and debt, they seized mortgaged properties and bought up land from disinterested grantees.

Colonial officials in London saw the dangers, but their attempts to place residential conditions were not enforced in the Colony.  By 1828, 3 million acres had been granted, but less than 10% was cleared, and only a quarter of that cultivated.  From 1821, grants to emancipists ceased, and larger sheep runs were handed to favoured free settlers, the size of the grants dependent on the number of convicts taken on. 

Grants ceased in 1831, when land was sold without limit, by auction.  The system was based on Wakefield’s theory that land should be sold at a price sufficient to produce a fund to pay the costs of bringing out emigrants (including many female) to work as labourers, but expensive enough to deter those emigrants from purchasing land.  In Wakefield’s mind, everyone would be happy – the rich would hold all the land, and the poor would never lack employment.  In theory.

But Australia is a big land.  The land sales policy transformed Australia.  As land was bought in huge tracts, poorer sheep owners moved to unsettled areas and ran their sheep over unlimited areas.  The ‘Squatters’ were born.  Naming them as trespassers had no effect, so a licence system was established.  For the payment of a small fee, they could use the land they claimed, and in time they received official recognition as owners of the land they grabbed.  A few hundred individuals controlled the land.

In Australia, water is scarce.  Squatters were required to pay £1 an acre for the land they claimed.  But by selectively purchasing land with access to water, huge areas could be controlled.  In one case 258,000 acres were secured as a single sheep station by the purchase of seven hundred 40-acre blocks with water access in different parts of the property.  Thousands of colonists and future settlers were shut out.

Various schemes to break up the large land holdings were attempted.  ‘Selectors’ were entitled to select lands occupied by squatters, but the squatters used dummy selectors (even from asylums) to ensure they continued to control the land.  By 1884, selectors had occupied over 23 million acres of Crown lands in NSW, but nearly all of it had passed into the hands of the squatters.  Much of the money required to fund this scam was sourced from London.  This led to a new phenomenon, the absentee landlord.

Squatters enjoyed the fruits of their land monopoly.  Their riches were used to buy land in the growing cities, and the proceeds of land sales in the new colony of Port Phillip (Melbourne) was mostly transferred to Sydney.  Squatters also gained political rights, enjoying multiple votes as property owners.  The property franchise ensured they controlled the Legislative Council

Between 1861 and 1894, 50 million acres were alienated to large holdings.  In the same period, there was a large increase in the urban population, as would-be farmers sought factory work.

Australia’s only rebellion, the Eureka Stockade, was a revolt against unfair miner’s licence fees, but less well known was their call to ‘unlock the land’.  The Melbourne newspaper, ‘The Argus’, campaigned in 1854 for a land tax to unlock the land.  So did the celebrated social activist, Caroline Chisholm.  On calls for compensation to squatters, she said, “they should compensate the colony for the frightful and demoralizing effect of such a system as the one we now have working.”

In 1870 William Gresham campaigned in Melbourne through the Land Tenure Reform League.  He called for alienated land to be repurchased, and the fee simple of the public domain to vest in perpetuity in the people.  Occupancy should be subject to rental, allowing the revenue of the state to be derived solely from the rental of land.  All indirect taxes would be abolished.

Australia’s first land tax was introduced in Victoria in 1877.  Aimed at land holdings over 640 acres, it was another measure to break up the large estates. 

By 1915, all States, the Commonwealth and New Zealand had introduced a land tax.  Australia federated in 1901, and in 1910 a Federal land tax was introduced. (See below) 

The Capital of Australia, Canberra, was settled on a leasehold system, with freehold in the Australian Capital Territory.  (See ‘Canberra in Crisis’, by Frank Brennan)

At local government level, rates are levied on land values only in NSW, Queensland, Northern Territory and ACT.  The system is optional in Victoria, SA and WA, and is used by many municipalities.  By 1970, 70% of municipalities, controlling 95% of Australia’s rateable land use, used unimproved land values for rating purposes.  Tasmania is the only State where all Councils have always levied rates on improved values (house, plus land).  In the 1990s, however, many Victorian municipalities changed from site value rating to improved values.  The State Government controlled the process by creating financial disincentives to continue rating on unimproved values.

The Federal Land Tax

Until 1909, over 99% of the Federal revenue of £15.5 million was obtained from customs and excise, and the Postmaster-General.  But those sources were inadequate for the Labor Party program of old-age and invalid pensions, the Australian Navy and large infrastructure developments.  A fresh source of revenue was required, and it was decided to implement the then popular idea of Henry George of securing the rent of land for public purposes.

The Federal Land Tax Act was passed in 1910, levying one penny plus 1/30000th of a penny on the first pound of land value, after exempting the first £5000.  It increased progressively by 1/30000th of a penny up to £75000, where the increment of tax was 6d in the £ (over £75000), and the average rate 3½d in the £.

As if the tax wasn’t complicated enough, various amendments increased the complexity.  In 1914, the rate was increased o 1/18750th of a penny!  In 1918, the rate was increased by 20%, but that was removed in 1922.  In 1927, it was reduced by 10%, and during the depression it was reduced by a further 33.33% in 1932, and a further 50% in 1933.  The lower rates remained in force until at least 1938.

In 1942 the Federal Government took over the Income Tax powers from the States.  It has retained them ever since.  Income tax became the main source of revenue for the Commonwealth, and Land Tax became less relevant.  The Federal Government abolished the Federal Land Tax in 1953, leaving the field to the States. 

The Federal Land Tax


  • Captured some of the value of land for the community
  • Ensured that land was recognized as a community resource.
  • Established Valuers General in all States;
  • Created an ability to calculate national land values.


  • Exemption of first £5000 value permitted fraud and evasion.  Larger estates were subdivided between family members, each member securing the £5000 exemption. 
  • The graduated rates of tax were unjust, making taxpayers face different levels of tax depending on their circumstances.  This distinction was based on ‘class’.
  • Small parcels of land were not subject to tax, which tended to keep the price of all land high.
  • Did not enjoy bipartisan support, so was marginalized and eventually scrapped.


  • The need for large infrastructure projects might create opportunities for the collection of rent from those who will benefit.  However, as the principal beneficiaries are resource companies, it is not likely to be seen by the public as the collection of ‘land rent’.
  • Strategic alliances exist if we are prepared to work with groups who may have different agendas
  • Availability of land has become a central issue in the ‘affordable housing’ debate;


  • Land is now seen as a State issue.  A strategic approach is required to lure the Federal Government back into the land tax field;
  • The ‘user-pays’ philosophy has overtaken the ‘unearned increment’ as the prominent idea in the popular mood.

There is no legal reason why the Federal Government should not again collect a land tax, but there are few signs of interest to do so.  So-called ‘reform’ of the tax system focus on consumption taxes and tweaking income taxes.