The late Doug Herps was Deputy Valuer-General of New South Wales and valuation consultant to the Commonwealth Grants Commission.  The argument carried in his 1988 address is today more important than ever and provides valuable historic insights into land-based revenues in Australia.



The Walsh Memorial Bequest Address
delivered at Macquarie University School of Economics 27 May 1988
by MD Herps, FAIV, DipLaw (BAB), FSLE


From the beginning of white settlement in Australia our forbears were confronted by the many problems of settling themselves into what was imagined to be an empty and hostile land. After the discovery of gold in the 1850s, however, the population rose dramatically and municipal problems multiplied. But the all important access to land was largely denied to many settlers because so much that was favourably situated or well watered and fertile had become locked up by the squatters, many of whom had gained possession, often illegally, of tracts as large as European principalities. What to do about this urgent social problem became the most pressing need of the second half of the nineteenth century.

This was a time when white settlement was constituted under separate colonial governments and each looked to the Motherland for precedents. What they found was not very helpful, for the English system of local government had grown up in a community of landowning aristocrats and rent-paying tenants – and public finance for welfare and basic services was largely provided by a system of rating on the Annual Rental Value of landed property.  In Australia, however, the townsman was generally an owner-occupying tradesman, and the countryman an independent settler. The English model was tried in the beginning but proved unsuitable and gave way to a system based not on property income but on the market or selling price of land or, as it became known, its Capital Value and later its Unimproved Capital Value.

Local government, moreover, did not in the colonies occupy the important position it did in England. The colonial governments were each supreme in their own territories and the emerging cities, municipalities and shires were their creatures. It was to the colonial governments that the settlers looked for solutions to their problems, and the former responded by imposing taxation on the market value of land, both as a source of revenue and a means of breaking up the squatters’ holdings.

In 1879 there appeared on the scene in America a man with a message many thinking people were ready to hear. His name was Henry George, a self-taught printer turned political economist, who, in that year, published a book entitled Progress and Poverty which was soon hailed by leading critics as a remarkable book that could not be lightly brushed aside. It quickly gained a wide circulation throughout the English-speaking world and, along with George’s later works, was translated into the leading European languages.

George’s theme was that the fundamental reason for the maldistribution of wealth in a free enterprise society was the private ownership of natural resources. He did not advocate the nationalisation of land as did some of his socialist contemporaries but a concentration of revenue-raising, or a single tax as it came to be known, upon the value of land, so that its yearly worth or economic rent would be taken into the public treasury in lieu of taxes on labour and production. He regarded the economic rent or annual value of raw land as society’s natural income, increasing as the need for revenue grew with expanding population and social progress. These were not original ideas for they followed the track blazed by the French Physiocrats and later by political economists such as Adam Smith, David Ricardo, JS Mill and Herbert Spencer. But George carried their implications further than his predecessors and expressed them in unsurpassed prose and with compelling logic.

In a comparatively short lifetime George travelled and lectured extensively and his thinking had a potent influence upon many colonial legislators such as Sir George Grey and Richard Seddon in New Zealand and Sir Joseph Carruthers in Australia. In the wider sphere people of many nationalities and backgrounds were impressed, notably Leo Tolstoy, Lloyd George, Sun Yat Sen, Albert Einstein and the eminent town-planner Walter Burley Griffin. Among those whom George influenced we must not forget the late FW Walsh whose generous bequest brings us together on this occasion and whose name we remember tonight.

In the course of this address I shall briefly outline the historical development of land or site value taxation in Australia and show how it developed down to the present. I shall try to measure its potential and its significance as a source of public revenue and finally point to ways it could replace many of the punitive taxes on labour and capital which presently plague our economy and threaten to reduce it to a so-called ‘banana republic’.

Historical context

From the earliest days of white settlement in Australia revenue from dealings in land was an important part of the consolidated revenues of colonial governments. As the English Crown, following Cook’s discoveries in 1770, had assumed ownership of all ‘wastelands’ in the eastern half of the continent and of New Zealand (then a part of ‘New South Wales’) it was able to charge rents for lands leased to settlers and lump sums or instalments of purchase money when land was disposed of under what became known as ‘conditional purchase’. But as more and more land came into private hands, both legally and illegally, it became clear that the diminishing Crown estate could not be relied upon to provide a worthwhile revenue from rents and sales alone as this source would eventually dry up.

In the second half of the nineteenth century, therefore, the colonial governments began to look for alternative revenues from land. In time they tapped this source at three points. First, they continued to collect rent from unalienated Crown lands leased for private occupation for terms of years or in perpetuity. Secondly, they began to impose taxes on the selling value of land and thirdly they provided legislation for the new cities, towns and shires to levy rates on land on the English model. Of these three sources we shall see that it was from rates on land that by far the largest revenues were collected.

By the late nineteenth century the rents of Crown lands had become the least important in revenue terms but enabled the various Lands departments to recover at least the expenses of managing what remained of the Crown estate. The rents of most tenures were periodically re-appraised and were based on the productive value of the land in its virgin or site-improved condition depending on its state when leased. In New South Wales, Queensland, South Australia, Western Australia and the Northern Territory the Crown estate included areas of arid or semi-arid land of enormous extent but of low value on which only open-range cattle and sheep grazing was possible; in Victoria and Tasmania there was little remaining Crown land, most of lt having been taken us during the first generation of white settlement.

As a second source of the Colonies’ consolidated revenue funds, land taxes were introduced:
first in Victoria in 1877 (1)
and then in Tasmania 1880 (2)
South Australia 1884 (3)
New South Wales 1895 (4)
Western Australia 1907 (5) and
Queensland in 1915 (6).

The newly created Federal Government, whose original source of revenue was principally from customs and excise, enacted a land tax under the Land Tax Act, 1911 (Commonwealth). This measure imposed a graduated tax beginning at one penny in the pound of the total Unimproved Capital Value of an owner’s holdings with an initial exemption of five thousand pounds. This Federal tax remained in operation until 1952 when it was repealed by the government of Sir Robert Menzies who invited the States to augment their revenues from land tax as a partial substitute for the States’ income taxes which they had surrendered to the Federal government during World War II.

It is of interest to note that New Zealand, which had become a separate colony in 1841, adopted the land tax principle much earlier than Australia. In fact, between 1849 and 1855, at a time when that country was divided into provinces, the citizens of the town of Wellington and the provinces of Marlborough and New Plymouth passed ordinances which provided for rates to be levied on the ‘fair value of land exclusive of the value of improvements’.

It is now known that in 1855 the province of New Plymouth gave effect to this principle, this being probably the first instance in modern times of the practical adoption by ratepayers of the system which became known as rating on the Unimproved Capital Value of land. In so doing it is claimed that:

this handful of settlers, in this most remote of European settlements … made a contribution to social theory and practical administration which was to prove of immense importance in the development of Australia and New Zealand. (7)

It is all the more intriguing to reflect that these early New Zealand settlers adopted this concept a generation before Henry George advocated the same system.

Later, in 1878, after provincial government was abolished in New Zealand, a national land tax was introduced which required that:

all land shall be valued at the capital value thereof to sell, after deducting therefrom the value of all improvements thereon. (8)

Undoubtedly these early efforts of our New Zealand cousins greatly influenced the subsequent land tax and land rating legislation of the Australian colonies, particularly in the official valuation of land, for the determination of which New Zealand established the first Australasian centralised valuing authority. (9)

By far the most significant way in which Australian Governments, first as Colonies and later as States, drew upon the value of land for revenue was in the development of a system to finance the needs of local government.

In the beginning the revenue base they adopted was borrowed from the law of England where it had operated since the beginning of the seventeenth century. (10) This was the system of rating on Annual Rental Value of land including improvements. However, as the early settlers found that this heavily penalised and discouraged the making of improvements, they quickly discarded it for a rate based not on total property income but on the market or selling price of raw land which became known as the system of rating on the ‘Unimproved Capital Value’ of land which was also the base the central governments adopted for their land taxes.

The pioneering work in local government rating was done by Queensland which, although the last to adopt a statewide land tax, was the first colony to abandon the English system and to embrace the principle of raising revenue from the capital value of land excluding improvements. This was introduced for local government purposes by legislation in 1879 (11) and made compulsory for all Queensland’s local authorities in 1890. Although the concept of rating on the unimproved capital value of land did not finally emerge in the colony until 1890, Queensland’s early local government legislation required every local authority to make a valuation of the ‘annual value ‘ of each parcel of rateable land and to levy its rates on that basis. Moreover, the 1879 Act provided for a separate valuation of ‘buildings and houses’ and allowed for the deduction of one-half of the annual value in respect of those improvements. In 1887 country land was assessed on its annual value with the values of improvements specifically excluded. In 1890 Sir Samuel Griffiths Liberal-Conservative Coalition Government introduced the Valuation and Rating Act (Qld.), a measure which excluded improvements from local authority rating in both urban and rural areas and was the first legislation in Australia to impose rater (as opposed to land tax) on the unimproved capital value of land. A Queensland Royal Commission of 1896 endorsed this concept and prompted a consolidating Act, the Local Authorities Act, 1902 which drew no distinction between rural and urban local authorities and confirmed the previously established principle of valuing land, excluding improvements, for local rating.

Queensland’s pioneering work in the field of local government finance was undoubtedly greatly influenced by its Premier and later Chief Justice, Sir Samuel Griffith. This outstanding legislator and jurist was motivated by a philosophy closely resembling that of Henry George as evidenced by his remarkable Law of Property Bill which he introduced into the Queensland parliament in 1880. It is unlikely, however, that he was influenced by George but rather by his great scholarship and acute sense of social justice.

Following Queensland, South Australia (1893) (12)
Western Australia (1902) (13)
New South Wales (1905-06)(14) and
Victoria (1915) (15)
each legislated to enable their local authorities to raise their finances by rates on the unimproved capital value of land, either as a compulsory alternative to or local option for the English system of Annual Value Rating. Tasmania alone retained the English system in toto and has continued with it to the present day.

In summary, by 1915 all the Australian States as well as the Federal Government and New Zealand were raising a significant part of their public revenues from land values. For land taxes the revenue bases were the Unimproved Capital Value of land, whereas for local government it was either the unimproved value base or the inherited English Annual Value system which included the value of improvements.

With the possible exception of the Queensland legislation, the laws enacting this system of raising revenue were not initially based on any political, social or economic theory although by the end of the nineteenth century legislators were pointing to Henry George’s philosophy to justify and amend it. It was certainly not directly inspired by him but was rather the response of settlers coming to terms with an alien environment. As Sir Edmund Barton said of Canberra’s leasehold system, it was a system chosen ‘as a matter of business’. (16)

How a Potentially Good System Became Debased

All States have retained to the present day at least a semblance of the land revenue schemes previously outlined. In addition, the Australian Capital Territory and the Northern Territory in recent years have adopted rating on the unimproved value oi land as their principal source of revenue for local government purposes.

Many alterations, however, have been made in the form and substance of these systems in the course of the century they have

Originally the basis of land taxation and land rating in Victoria and Tasmania was, as already stated, the English concept of the annual rental value of land and improvements. New South Wales and Queensland, however, rejected the English model outright and, at an early stage, embraced as the revenue base what became known as the Unimproved Capital Value of land. Quite early this concept also became the base for land tax in all States. It also became the only base for local government rating ln New South Wales, Queensland and the Territories and an optional base in Victoria, South Australia and Western Australia. In the result, at the present time, some 70% of Australia’s local authorities, controlling about 95% of the rateable area of the entire country and raising some $3 billions in revenue, nominally use the unimproved capital value for virtually the whole of their rate levies.

In recent years a variant of the unimproved capital value base has been adopted in all jurisdictions except Queensland. I should explain that the original definitions of this concept in Australian legislation required the exclusion of the value of all improvements including those of clearing and land reclamation which, in the course of time, merge with the land itself and become indistinguishable from it; these changes in the configuration of land are called site improvements.

The difficulty in defining a suitable land revenue base was well understood and anticipated by George who, in an oft quoted passage wrote:

… no difficulty can attend the separation of land and improvements if all that is attempted is to separate (and exclude from taxation) the value of clearly distinguishable improvements made within a moderate period … this manifestly is all that Justice or policy requires … (because) each generation builds and improves for itself and not for the remote future … (and) each generation is heir not only to the natural powers of the earth but to all that remains of the work of past generations. (17)

This modification of the revenue base is now referred to as ‘Site Value’ in some States and ‘Land Value’ in others. In the briefest terms it means the selling value of bare land in its present configuration but having the benefit of all surrounding amenities. From now on I shall therefore refer to the revenue base as the ‘Site Value’.

Two technological improvements in recent years in the administration of these land revenue systems should be noted. They are the employment of the computer in establishing the rolls of valuation and ownership and the great advances in all States in the techniques of determining the valuations which make up the revenue base.

As to the first, all States and Territories have either adopted or are now adopting advanced computerised land information systems which have greatly expedited the issuing of assessments and further reduced the acknowledged low cost of raising revenue from land.

Initially the States Land Tax Commissioners relied on owners to file annual returns of their landholdings to establish the official tax records of each owner’s liability. By integrating Australia’s highly acclaimed registers of Torrens Title ownership and each State’s valuation lists, assessments of land tax, local rates and land rents can each be compiled and issued by computer with a speed and accuracy unknown only a few years ago. South Australia and Tasmania have already demonstrated the feasibility and cheapness of integrated computer systems of this nature and the other States and the Territories are setting up similar facilities. Local councils can now have their rate notices in the ratepayers’ hands in the first week in January, whereas formerly they were struggling to issue them in the first three months of the rating year. Land tax offices are dispensing with owners’ returns and are able to issue accurate annual assessments over a few weeks.

Great strides have also been made in the techniques of determining the necessary revenue valuations. These improvements include the development of centralised independent valuation authorities in each jurisdiction on the New Zealand model, the provision of more timely and consistent valuations and the use of the computer in the actual valuation process.

Strange as it may seem, early land tax legislation did not always provide for determining the revenue base. Some States, especially Victoria and Tasmania, relied on valuations of rental value where these already existed for municipal purposes. In other States – Victoria is an example – the Land Tax Commissioner was himself empowered to make the valuations and compile valuation rolls.

The entry of the Federal Government into the field of land taxation in 1911 brought to light gross inconsistencies in locally determined valuations within and between the States and gradually the New Zealand concept of a central valuing authority gained ground in this country. Such an authority would be independent, centralised, impartial and responsible only for the prevision and maintenance of valuation rolls. In other words the valuation and revenue collection functions would be completely separated.

As this matter was considered to be outside the Federal Governments Jurisdiction the Premiers Conference of 1913 recommended that each State set up its own valuation office. At first only New South Wales adopted the recommendation and established the position of Valuer-General in 1916. (18)

Later the New South Wales legislation served as a model for the other States and the Territories all of which now have Valuers- General, the Western Australian office having been set up as recently as 1978. (19) Victoria, however, still remains out of step with this development for, although it has had a Valuer-General since 1960, its legislation restricts his main function to supervising the valuations made by Victoria’s municipalities and certifying them as ‘true and correct’ for land tax purposes. (20)

The rapid increase in land prices throughout Australia since World War II highlighted the need for revenue valuations to be up to date but early legislation made inadequate provisions for revising them. A common requirement was for revision at intervals of between three and ten years or even longer. In recent years the use of out of date valuations led to inconsistency and injustice resulting in a search for ways of shortening the revision cycle. Whilst the valuation authorities recognised this deficiency it was only the recent advent of the computer which made this practicable.

Two States, South Australia and Queensland, have recently demonstrated that annually revised valuations are feasible with computer assistance. The first results of this innovation in South Australia were indeed embarrassing. When annual valuations of all local authorities in that State became available for the first time in 1986 for land tax assessments an increase of approximately 100% in the revenue base was revealed. This prompted South Australia to raise the tax-free threshold and to concede an across-the-board rebate of 25% in land tax assessments for that year. A similar outcome seems likely to emerge in Queensland where by 1990 annual valuations are planned to supersede that State’s valuation interval of five to eight years. The recent experience in South Australia is a striking vindication of the aptness of tapping the economic rent of land to meet the revenue needs of a growing community: it is a growth tax par excellence.

In most official valuation offices the computer is now being used as an aid in the valuation process itself. For example, in the Northern Territory, the 1986 residential Site Values for the town of Alice Springs were produced, with computer assistance, at a cost for the entire triennial revision of 75% of the cost of the 1983 revision. It is by using this technique, refined and employed statewide, that South Australia is now able to produce annual revaluations of every rateable property in that State.

Despite the improvements which modern technology has brought about in the mechanics of determining the revenue base and the speed and cheapness with which assessments can be issued, it must be admitted that in both the States’ land tax and local government rating systems serious blemishes have been allowed to debase an otherwise efficient and equitable method of collecting public revenue.

In the case of land taxes, most have become highly progressive with Victoria’s 1986 rate scale (21) containing 22 steps ranging from 0.36 cents for each taxable dollar on a valuation of approximately $50,000 to three cents on taxable values over $1,152,800 with a further surcharge of one cent on values exceeding that amount. It seems that framers of land tax legislation did not trust the impartiality of the market to distribute the revenue, for they imposed higher rates on the larger landholdings in the belief that this was necessary to break up large estates which had resulted from the uncontrolled scramble for land in the squatting age. This argument no longer has the force it once had and the retention of progressive rate scales like Victoria’s is a valid ground of criticism; ad valorem distribution is inherently impartial and is much preferred by landholders.

In addition, many exemptions have been granted over the years under pressure from sectional interests thereby greatly reducing the land revenue base. Exemptions are now of two kinds. First, most States set a value below which no land tax is payable (the ‘threshold’ exemption) and secondly they exempt from liability important categories of land, usually rural land and owner- occupied residential land. The result is that land taxation in most States now falls with increasing severity on commercial and industrial land which, on a value basis, accounts for roughly one-fifth of the potential revenue base. Exemptions of any kind are also a fruitful source of irritation and criticism and have no place in an equitable revenue system.

There are two notable exceptions to these trends. The New South Wales land tax is now virtually a flat-rate tax at 2% but with a threshold exemption of $94,000 and of course it falls mainly on commercial and industrial land as most residential and rural land is exempt from the impost. The other exception is Tasmania. In 1983 that State widened the scope of its land tax to include all freehold land with no threshold exemption although lt has applied lower rates of tax and shorter progressive scales to residential and rural land than to commercial and industrial land. I am informed that these changes have made land tax much more acceptable in that State.

In the case of local government rating which was always based on the principle of equality of treatment of ratepayers, there are also unjustifiable exemptions for land owned by governments, religious, educational and charitable bodies and numerous concessions to groups ranging from landowning pensioners to large developers.

In Queensland all residential and rural land is valued on the concessional basis of existing use, from which the potential value for subdivisional, commercial and urban development is excluded. In New South Wales local councils are prevented from increaslng their rate levies by more than small annual percentages dictated by the State government with individual rate assessments compulsorily based on long out-dated valuations.

The system has been further debased by the introduction, particularly in New South Wales, of very high minimum rates which are applied to home units and land parcels of low value under the arbitrary and unfounded belief that owners of these categories of land would not otherwise pay their fair share of rates.

Finally, in New South Wales and some other States local authorities are empowered to charge different rates in the dollar on residential, rural and commercial or industrial land which is a none too subtle way of shifting the liability of some groups of ratepayers onto others, often others with less ability to pay.

All these defects ln the States’ land tax and local government rating systems are very serious distortions of a revenue scheme which originally promised equitable treatment for all. Already there are pleas for further exemptions from land tax, even for its abolition. Local government’s once independent financial basis has become a travesty of the original scheme and this important arm of government is fast becoming a mere puppet of central government. There is a real danger that local government’s very foundation could be swept away and suffer the same fate as Britain’s property tax which was to be replaced by a poll tax under which the landed aristocrat pays no more than his footman.

Current Land Revenue Bases In Australia and Their Significance for Public Revenue

The reform of this state of affairs, Henry George would have said, lies with an enlightened electorate. Sufficient men and women must realise the importance of land or natural resources in the economy. They must appreciate the basis of land value taxation and rating; they must understand that the value of land or, more correctly, its economic rent, provides a natural revenue base which expands with society’s expanding needs and is sufficient at all times to meet the legitimate expenses of government. So enlightened, they must demand that the politician undertake novel and radical reforms to our system of public finance. As has been said, the people must think for themselves in these matters for, in a democratic society, they alone can act.

Before examining the States and Territories’ land revenue bases and their potential as a source of revenue I therefore draw attention to the importance of the terms ‘land’ and ‘land value’ in Georgist philosophy and why these concepts loomed so large in his thinking.

The word ‘land’ as used by George is a technical term signifying the passive factor in production. It refers not only to the familiar categories of rural and urban land but also to the earth’s mineral, timber and water resources, its fisheries and air waves and the forces locked up in the atom. It therefore embraces all the earth’s natural resources outside of man himself. (22)

Land in this technical sense has a number of attributes of which four might be noted – although not in any order of importance:

First land has no cost of production since it is not the product of labour but is provided by nature.

Secondly, land was given not sold, to all mankind to labour and live upon; priority of possession does not give title to land, for that would exclude generation as yet unborn.

Thirdly, land is the source of all wealth and without access to it man can produce nothing and is as helpless as a fish out of water.

Finally, land is unequal in quality, some land being naturally more productive than other land and some sites more conveniently located than others.

It is this relative superiority of some land over other land which gives rise to the term ‘land value’ and here I must refer to the ‘Law of Rent’. In modern times this law was first given prominence by the French physician and economist, Francois Quesney, (23) the leader of the school of political economists known as the Physiocrats. It was later formulated by David Ricardo (24) and refined by Henry George who defined it concisely in the following words:

the rent of land is determined by the excess of its produce over that which the same application can secure from the least productive land in use. (25)

This law, sometimes referred to as Ricardo’s Law of Rent, has the force of an axiom and applies not only to agricultural land, as the Physiocrats thought, but to all land – as George emphasised. The economic rent of land accurately measures the relative superiority of some land over other land and hence arises the expression ‘land value’. In George’s words:

the value of land always measures the difference between it and the best land that can be had for the using … (lt) expresses in exact form the right of the community in land held by an individual and rent expresses the exact amount which the individual should pay to the community to satisfy the equal rights of all other members of the community. (26)

Some commentators have pointed out that in his use of the term ‘land value’ George departed from his usual strict precision with words and used it in two senses.

First, he used it as a common or general term to denote this relative superiority of some land over other land, that is as a synonym for economic rent. Secondly, he used it, as we naturally do in reference to the fact that, in a landowning society such as ours, land commands a market price which in reality is the commuted or capitalised equivalent of the economic rent which perpetual or freehold ownership confers on the title-holder.

ln relating theory to practice it can be seen that the revenues which our State and local authorities derive from land are in fact the collection of some part, in most cases a minor part, of the economic rent, whereas the price which we pay in the market for unimproved land is really the capitalised amount of the economic rent which remains in private hands after the payment of land rates and taxes. If we buy improved land, that is land including a house, a farm or a factory, the purchase price is notionally divisible into two essentially unlike components:

(a) the capitalised equivalent of the uncollected economic rent of the site and

(b) the current replacement value of buildings and other improvements which in strict economic theory are not land but wealth.

By the same token the rent which one commonly pays for a house or other item of real estate is also divisible into two parts:

(a) the site’s uncollected economic rent and

(b) interest on the landholder’s capital in the shape of buildings and other improvements.

The amount in dollar terms of that part of the economic rent which our governments collect in land tax, land rates and Crown land rents is obviously, for any one financial year, the total sum collected from these sources whilst the amount of the uncollected economic rent remaining in private hands is the total of the site value of all privately-owned lands. But as this latter component is a capitalised sum, it must be reduced to an annual equivalent if we are to quantify the land’s total economic rent. The sum already collected as revenue plus the balance of the economic rent in private hands I shall refer to as the apparent site rent, and its amount in dollar terms indicates how far the economic rent of land would go towards replacing our present multitude of taxes as George advocated.

Over the years a number of people have endeavoured to ascertain the amount of Australia’s economic rent and compare it with total taxation. The most exhaustive and reliable work in this field, in my opinion, is that of AR Hutchinson, late Research Director of the Melbourne-based Land Values Research Group.

In 1978 Hutchinson produced an excellent paper entitled Natural Resources Rental Taxation in Australia. (27) Using published figures of the Australian Bureau of Statistics, he pointed out that the combined revenues of all Federal, State and local authorities for the fiscal year 1976-77 comprising taxation in all its forms, income from public enterprises and from land rents and royalties were almost $29 billion.

He then noted that the taxation component of this sum included an amount of $2676 billions which was made up of: $220 millions from State land taxes, $1319 millions from local authority rates and $1137 millions from crude oil and other minerals, all of which were actually site rent in character. He observed that the gross income from public enterprises and from land rents and other royalties were also in the nature of site rent, so that, for the year 1976-77, no less than $6.6 billions were collected by way of rent for natural resources,

Hutchinson then examined the amount of site rent remaining uncollected and which was represented by the market value of all occupied land as determined by the States’ valuing authorities. He found that the official site valuations of the six States and the two principal Territories amounted to $85 billion approximately, which, when adjusted to a common date and after the exempt lands had been brought to account, came to a grand total of approximately $106 billions for 1976-77. He then converted this $106 billions to a site-rental equivalent, using a 5% capitalisation rate which produced an approximate annual sum of $5.3 billions as the portion of total economic rent remaining uncollected by government. By adding the $6.6 billions already collected and the $5.3 billions uncollected he arrived at an apparent economic rent for Australia as a whole of $11.9 billions for the year 1976-77.

On Hutchinson’s calculations, therefore, the apparent site rent of land or site rent fund as it might be called amounted to approximately 11.9/29 x 100, or 41% of the total public revenue receipts exacted by all levels of government for the fiscal year 1976-77.

Having carefully compared Hutchinson’s estimates with independent ones, I have made in recent work for the Commonwealth Grants Commission on the relative capacities of the States and Northern Territory to raise land revenues, I am of the opinion that his analysis is sound. My only criticism is that Hutchinson’s estimate of the total site values of the States and Territories and his use of an arbitrary capitalisation rate of 5% were conservative.

But this conservatism produced a lower figure for the uncollected site rent component and is, I think, a tribute to the integrity of his conclusion. If he had had the benefit of the land market information available to me and had used a market rate of 8% to convert the official valuations to a rental equivalent, he could have concluded that the apparent site rent for 1976-77 was a little over 50% of total revenues collected in that year.

In the most recent work I have done for the Commonwealth Grants Commission I had occasion to adjust the States’ and the Northern Territory’s land tax bases to the 30 June 1984. (28) In that exercise I found that at that date the site values of occupied lands had greatly increased between 1976-77 and 1983-84 and amounted to approximately $243 billions or $246 billions if the Australian Capital Territory is included. If the exempt lands are brought to account this total becomes approximately $270 billions which, if converted to an annual equivalent at a market rate of 8%, amounts to $21.6 billions. This, of course, represents that part of the apparent economic rent which, in that year, remained uncollected in respect of land in private ownership or occupied by public utilities and exempt bodies.

In the same interval the total revenue of all levels of government had also increased sharply. Taxation had grown to an estimated $55.7 billions: in this total State land taxes had doubled and local council and water and sewerage rates had increased by approximately two-thirds. Of the other receipts, income from royalties had increased by about three times.

It can readily be seen, therefore, that although between 1976-77 and 1983-84 taxation receipts from all sources increased dramatically, the apparent economic rent of the nation’s land increased at an even faster rate and could have provided at least one-half of the total taxation receipts for 1985-84. Since that year there is no reason to believe that the position today is any different. Although total taxation has continued to increase we are all familiar with the extraordinary increase in the market price of land which has occurred in New South Wales in the last twelve months. It is also reported that land prices have increased ln other parts of the continent although less steeply than in New South Wales.

That Australia’s site rent fund is presently equal to at least half of total public revenues is reinforced by recent investigations which have been undertaken overseas. In England, David Richards, using recent United Kingdom Central Statistical Office figures, conservatively estimated that the capital value of land in the United Kingdom was £UK485 billlons in 1985, representing 183% of national income whilst the American, Steven Cord, using similar sources, arrived at a figure of $US3914 billions as the capital value of land in the United States in 1981 – or 166% of the national income. 29 My estimate of a capital value of $270 billions for Australian land at 30 June 1984 represented 145% of this country’s Gross Domestic Product for 1983-84.

Was Hutchinson’s finding that for 1976-77 the site rent fund would have provided 41% or, more accurately, 50% of Australia’s total public revenue an accidental relationship applying only to that year? I do not think so.  In fact, I think this proportion has remained fairly constant over the past ten years and is more likely than not to have increased in that period.

Of course some might be inclined to say that all that any investigation such as Hutchinson’s shows is that the site rent fund still falls far short of the financial needs of the Welfare State. There is a short answer to this: it is that total government expenditure could be very much lower than it is today, and few would argue against that proposition. Government expenditure, moreover, should be limited, in George’s view, to whatever revenue the site rent fund provided, because he considered it constituted society’s natural revenue.

George, however, together with the Physiocrats and Adam Smith, argued that the current market value of land represented only that part of economic rent left in the hands of landholders. The true potential rent of land is this figure plus all other taxation; that is to say, existing taxation diminishes rent and all taxation is ultimately at the expense of rent. If you wish to pursue and test this argument you will find it clearly expounded in Chapter I, Book VI of Progress and Poverty.

The Way Ahead

Thus far it has been shown that in Australia the present level of the apparent economic rent of land is capable of replacing at least one half of the multifarious taxes which plague our economy. It is emphasised that this proportion is true of the present level for, if the politicians could be persuaded to extend the principle already established, the potential economic rent would rise dramatically. As George said:

… to shift the burden of taxation from production and exchange to the rent of land would not merely be to give new stimulus to the production of wealth; it would open new opportunities.  For under this system no one would care to hold land unless to use it and land now withheld from use would everywhere be thrown open to improvement. (30)

The selling price of land would tend to fall but its site rent would rise in favoured locations to take advantage of these new opportunities. Thus an expanding site rent fund would allow further reduction in the remaining taxes on labour and production. George claimed that his proposal was a genuine reform ideally suitable for the gradual dismantling of an arbitrary and regressive taxation system and its replacement by one based on incentive and enlightened self-interest.

How can we be confident that beneficial results would follow? The answer is that wherever the land rent fund has been tapped for revenue this has ensued as the following examples of its partial implementation have shown.

The Australian Capital Territory is a unique example. In this Territory, freehold ownership is forbidden by law and between 1920 and 1970 land rent and rates provided significant funds for developing and maintaining Canberra’s basic services and parklands. It is no accident that prior to 1970 house blocks in Canberra could be bought at auction or over the counter for a nominal sum and that the average quality and value of Canberra housing was the highest in Australia.

Those who are familiar with Perth will have noticed how clean and well-planned a city it is and how well served with parklands. This undoubtedly is due largely to its Metropolitan Improvement Act (WA) under which an annually increasing fund, amounting to $7 millions in 1983-84, is raised by a rate of a fraction of 1% on Perth’s site values to defray the cost of providing roads, parks, open spaces and similar amenities within the Perth Metropolitan Region Planning Authority.

Nor is it generally known that Melbourne’s new underground railway was partly built and is being maintained by a similar development fund, although in this instance the development rate is imposed on the net annual value of land and improvements. Nevertheless the principle of paying for a large public work from the land values enhanced thereby is sound and much to be preferred to the ill-considered arrangements for funding the new Sydney Harbour tunnel through escalating bridge tolls.

If further examples are required one has only to look at what has happened in Victoria when ratepayers exercised the option of having the basis of their municipal rates changed from net annual value to site value. In every case a surge in building activity and urban renewal has followed. In a group of American cities where the weight of the municipal ‘property tax’ has ln recent years been shifted from the value of improvements to the value of land, similar results have been observed.

In New South Wales the problem of Aboriginal Land Rights has been addressed with this principle in mind. The Aboriginal Land Rights Act, 1983 (NSW) makes provision for the annual setting aside and payment to the State Aboriginal Land Council of 7.5% of the land tax receipts for a period of 15 years from 1984 to 1999. The 1984 appropriation was approximately $13 million and with the rapid increase in receipts since then, and likely in the years ahead, the total fund could reach half a billion dollars. Of this fund one half is being applied towards purchasing land on the open market for the Aborigines’ benefit. Land so acquired is vested in local Aboriginal Land Councils and is being developed by them for farming and other purposes. In reference to this legislation the Sydney Morning Herald of 23 April last carried an article describing its advantages. This is a prime example of the capacity of the land rent fund to meet future revenue needs. I am informed this and similar projects financed from the State’s land tax receipts are already attracting landless Aborigines who would otherwise crowd into intolerable living conditions in the Redfern ghetto. This story may well be the pointer to a solution of a seemingly intractable problem.

Of course the examples I have just mentioned are no more than faltering steps in the right direction, and we must not blind ourselves to the fact that progress towards genuine tax reform has been slow and tentative.

But George’s proposal is not just another tax. It is an alternative to taxation – not an addition to it, and care must be taken that any extension of the present land revenue system is accompanied by a pro rata reduction in current taxation.

I have earlier called attention to the critical financial plight of local government, particularly in New South Wales. I said that in this State local government was given the land rating system as an independent revenue source. I pointed out that over the years that system had become debased by exemptions, high minimum rates, concessions and devices such as rate pegging and differential rates to favoured groups of ratepayers. And as local government is being starved of its proper revenue, it has been encouraged to assume responsibility for social services while its roads, footpaths and stormwater drains deteriorate to the point where public health and safety are endangered.

In a country as extensive and varied as Australia there is a good case for greatly extending local government’s functions to such matters as police protection, local courts, community justice centres, infant and primary education and public housing but only if it has the responsibility to pay for them. Grants and subsidies from central government are not the answer as they destroy local government’s independence.

In short, local government should not only be obliged to carry out all these basic services but to raise the money to pay for them. Its rating system must be freed of the curbs and impediments it presently suffers, and the revenue from the land rating system expanded to provide for all its functions. In this State if the Sydney Water Board persists with its ill-considered ‘pay-for-use’ system for water supply and sewerage, the land rates foregone should be transferred to local government. At the same time there must be corresponding relief from State and Federal taxation now raised to assist local government by way of grants and a proportion of income tax.

At the State government level what could be more regressive and indeed hypocritical than the Payroll Tax? It should be swept away and its revenue made good by abolishing the wide ranging exemptions from land tax now available. Stamp duties, especially on house sales and preferably on all transactions, should be done away with and their revenue replaced from a small increase in the wider ranging land tax. A State Development Fund based on the principle of Perth’s Metropolitan Improvement Fund should be established and funded by the land tax to provide the finance for essential State works such as motorways and rapid transit systems for the cities, for airports and for improved country roads.

In the Federal sphere what could be more callous and inflationary than sales or consumption taxes on such necessities as soya milk for babies who cannot stomach other milk? As to company tax – why is it necessary at all when individual shareholders have to pay income tax on their dividends? Company tax is also inflationary, being treated as an expense of business and recovered in higher prices for the goods and services companies provide. All these Federal impositions could be more efficiently and cheaply raised by the ‘precept’ method of finance under which the required revenue could be raised at State or even local government level by a special rate of land tax or a special local government rate, care being taken to see that the collecting authority, whether State or local, is properly recompensed for the expenses of collecting the revenue on the Federal or State government’s behalf.

It will be said that such changes in basic financial relationships between the levels of government are too radical, too revolutionary, even to be entertained for it would turn present relationships on their head. But it would cut government down to size, reduce the present army of public servants and restore the power now wielded by politicians to the people where it belongs,

What then are some of the benefits which could be expected from a reform of the country’s public revenues along these lines?

First, George said there would be a surge in employment as idle and inefficiently used land, much of it now carrying ‘For Sale’ notices, was put into productive use. This could be expected to occur in and around the cities and upon land already close to settlement whilst marginal land might be withdrawn from use and preserved for future generations as national parks.

Next, the selling price of land, but not its economic rent could be expected to fall and many homeless men and women who want to purchase homes but cannot afford the present ridiculous prices and high mortgages would find themselves able to do so and to marry and raise children. Perhaps the need for the overseas migration programme would disappear.

Finally, there would be lasting benefits to the environment. A great proportion, perhaps the bulk of present revenue, is derived by taxes on individuals and their incomes. Thus human work suffers now under the present tax regime because taxes on labour always tend to push the job towards capital-intensive, large-scale and environmentally destructive work methods. Therefore, abolition of such taxes would return work to the human scale and thereby give enormous relief to the environment. I would remind you that the Aboriginal inhabitants of this country lived in harmony with their environment for forty thousand years and all their labour was on the human scale. The concurrent rise in income taxation and the growth of environmental problems in this country may not be accidental; it suggests a cause and effect relationship. It is significant that the Scottish Environmental Party has adopted Henry George’ s programme as its policy for promoting ecological harmony in their ancient land which has suffered so much from the private monopoly of natural resources.

If Henry George were with us tonight, I believe he would be telling us that the way ahead for a country like Australia is not to give more power to a Federal government invisible and isolated in Canberra, nor to provide more revenue for politicians to squander on what they assume is good for us. It is to free local government, which is both visible and controllable, from the corrupting influence of financial handouts and restore to it its original source of revenue, the economic rent of land; it is to extend the functions of local government, not those of central governments and finance those extended functions by gathering more of the economic rent of land without exemptions and without concessions to self interest groups. It is to define and limit the powers of central governments and finance them by development funds, collected locally by means of further instalments of economic rent.

If you say this is too radical a programme, George would probably reply that it is preferable to being crushed by the socialist juggernaut.


1. Landed Estates Act, 1877 (Vic.)
2. Assessment Act, 1880 (Tas.)
3. Taxation Act, 1884 (SA)
4. Land and Income Tax Assessment Act, 1895 (NSW)
5. Land and Income Tax Assessment Act, 1907 (WA)
6. Land Tax Act, 1915 (Qld.)
7. Rating in New Zealand, Rolland O’Regan (1973, p21)
8. Land Tax Act, 1878 (NZ)
9. Government Valuation of Land Act, 1896 (NZ)
10. Poor Law Act, 1601 (UK)
11. Divisional Boards’ Act, 1879 (Qld.)
12. Land Value Assessment Act, 1893 (SA)
13. The Roads Act, 1902 (WA)
14. Local Government Shires Act, 1905 (NSW.) and
Local Government Extension Act, 1906 (NSW.)
15. Local Government Act, 1915 (Vic.)
16. Sydney Morning Herald, 18 January, 1901.
17. Progress and Poverty (Centenary Edn.) pp 425-6
18. Valuation of Land Act, 1916 (NSW.)
19. Valuation of Land Act, 1978 (WA.)
20. Valuation of Land Act, 1960 (Vic.)
21. Land Tax (Amendment) Act, 1986 (Vic.)
22. Progress and Poverty (Centenary Edn., p.38.7)
23. Tableau Economique, Francois Quesnay (1758)
24. Principles of Political Economy, David Ricardo (1817)
25. Progress and Poverty, ibid, p168.5
26. Ibid, p.344.
27. Natural Resources Rental Taxation in Australia, ARHutchinson
28. Commonwealth Grants Commission’s Report on General Revenue Grant Relativities , Vol. II.- Land Valuation Consultant’s report, p63
29. Land and Liberty, (Nov.-Dec. 1987, pp.92-3)
30. Progress and Poverty, p 436.7


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