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.