If we think there is an implicit social dividend from land …

… why don’t we just have a land tax, instead of trying to restrict voluntary trade of land between individuals.

My impression has always been that one of the fundamental reasons for tax was to proxy for a social return on a nations capital – such as land.  By doing this we get the advantage of actual property rights on land, even though in essence we hold a belief that society as a whole owns that land.

Now my impression of this debate is that NZ society DOES believe it implicitly owns the land.  If we had a land tax that proxied the “rental income” for society, it wouldn’t matter who owned the property right to use the land and this whole debate about foreign ownership could be chucked out the window.

Another point in favour of land tax is it?

Update:  Danylmc at Dim Post discusses the same article.  I’m not sure I would interpret history the same way as him – was there really much of a cost from the running down of our grossly inefficient railway system?  However, lets not argue about this point here – as it is peripheral to both posts.  There are two primary points that need to be raised beyond my land tax call above.

Firstly, if the problem is that the government sold the asset too cheaply, then we should raise that as the issue.

Secondly the arbitrary idea of a “strategic asset” might crop up – if we want to think along these lines, lets actually do some thinking.  We should ask “is it a public good”, “are there competition issues” and/or “are there externalities from the assets use”.  If these things hold, then we can ask what is the best way to define ownership.

Yes there are cases where the government should own assets – but they should be determined by analysis instead of arbitrary catch phrases like “strategic asset”.  Obviously there are too many management consultants floating around government at the moment given the amount that term is floating about.

  • Hmm. You think we wouldn’t be having these calls if we did have a land tax? Interesting. I’d expect instead that folks would say that the tax is too low on “iconic” properties, where “iconic” just means whatever property somebody might want to buy. And that the same thing would be repeated if that tax were increased.

  • @Eric Crampton

    Very true.

    I am just trying to look for a frame where we can remove negative nationalism – note that this tax would be on all landowners, regardless of nationality. It is just the “rental” for the property right.

    I would not be a fan of differential taxes on the basis of nationality, that is for sure.

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  • Chris

    Any land tax will probably exempt commercial properties like farms. Would either party capable of gaining power be interested in isolating the farming community? No. Anything that hits foreign ownership will invariably hit domestic ownership – that is, unless Treasury wished in the strongest of terms to institute a taxation policy that discourages foreign investment. So the burden of a land tax would fall primarily on property developers and individuals. And more so on individuals. The recent fears surrounding foreign ownership have been based around landowning business like farms, not businesses that can rent, move production offshore and avoid a land tax by making their NZ assets as fluid as possible.

    A land tax wouldn’t actually solve the base issue when it comes to foreign ownership – the idea that ownership is in foreign hands, rather than being in Kiwi hands. It’s too true, too often, that objections to foreign ownership are based on xenophobia rather than any kind of rationality – I seem to recall a few studies that seem to think the reaction to racism comes from the amygdala, and isn’t a rational process at all. It’s not the money you get from taxation – it’s the principle of foreign investors owning assets core to Kiwi identity.

    This is the problem – you’re looking at an irrational reaction and trying to explain it in rational terms that aren’t anything at all to do with the real problem of objecing to foreign ownership.

    As for a land tax, well – if it were to be instituted, I don’t think I’d very much wish to invest in NZ. I’d be looking at moving back to Europe as soon as possible and rebase myself there. Tax my income, institute CGT, but don’t even think of taxing the very core of the Kiwi dream.

  • Ello Chris,

    @Chris

    “Anything that hits foreign ownership will invariably hit domestic ownership”

    As it should – given that the target of the tax is to act as “rental” on land, not to determine the nationality of the owner.

    “It’s too true, too often, that objections to foreign ownership are based on xenophobia rather than any kind of rationality”

    I do not disagree with you here – but that is sort of the key point for raising the land tax idea. If people say no to the tax but still want to restrict ownership to NZ citizens it sort of suggests a nationalistic or even xenophobic bias.

    “As for a land tax, well – if it were to be instituted, I don’t think I’d very much wish to invest in NZ. I’d be looking at moving back to Europe as soon as possible and rebase myself there. Tax my income, institute CGT, but don’t even think of taxing the very core of the Kiwi dream.”

    Really? If we taxed land it would mainly turn up through a decline in land prices, since land is completely immobile. Furthermore, that tax could be used to reduce distortionary taxes like income taxes and consumption taxes.

    A land tax isn’t based on the rate of return of the land, so it won’t impact on investment decisions at the margin – it will only impact on the lowest return investments by stopping them going ahead.

  • Chris

    Hi Matt,

    “I do not disagree with you here – but that is sort of the key point for raising the land tax idea. If people say no to the tax but still want to restrict ownership to NZ citizens it sort of suggests a nationalistic or even xenophobic bias.”

    And that’s what they have. Like I said, it’s not rationality that this is based on – it’s entirely based on a strange prejudice that runs against not just foreign ownership of land or investments, but also targets foreign students, migrants and even, in some quarters, tourists. It’s difficult for me to reconcile a land tax as a resolution to people just being xenophobic. I think that the basic fault is that people will say no to a land tax, and they’ll also complain about foreign ownership – side note, not that this will stop them buying foreign products. Xenophobia has certain practical limits, usually found on the shelves of New World.

    “If we taxed land it would mainly turn up through a decline in land prices, since land is completely immobile. Furthermore, that tax could be used to reduce distortionary taxes like income taxes and consumption taxes.

    A land tax isn’t based on the rate of return of the land, so it won’t impact on investment decisions at the margin – it will only impact on the lowest return investments by stopping them going ahead.”

    You’re right, of course, and there lies the problem – try arguing this to those who paid $400,000 for a prime slice of Wellington City land. The drop in land value added to the additional levy for the act of ownership isn’t something that’s going to be palatable. This is the lowest possible return on major investments, isn’t it – it’s going to impact on the lowest return investments in the private housing market.

    Of course, I’m in favour of progressive taxation, because at the core of my thinking is the principle of the more you earn from this society, then the more you should be willing to pay to maintain it, within reasonable limits.

    That doesn’t discount the idea of flat taxation on some levels – but because I also believe in upward mobility and in some sense the egalitarian nature of NZ society, ownership taxes are something that is going to be anathema to the general population.

    Income and consumption – based on what you take out and what you put in – are to my mind the fairest, but NZ has a lot of modification to existing laws before it’s got anywhere like the efficiency of other systems.

  • @Chris

    “It’s difficult for me to reconcile a land tax as a resolution to people just being xenophobic.”

    The intent of the land tax is to get people who have property rights over land paying a rent on it on the basis of “social ownership”.

    I’m being generous and assuming that some of these people aren’t racist – they just have this belief about the nature of land ownership, which is why they don’t want people who aren’t involved in NZ’s social contract and democratic system with the land. A land tax solves this – and all we are left with following that is xenophobia.

    “You’re right, of course, and there lies the problem – try arguing this to those who paid $400,000 for a prime slice of Wellington City land”

    The transitional impact is very important, indeed. This is always the way with major changes to the tax system.

    Tax is always a tough issue and it is fraught with equity concerns. If we were going to put in a land tax we would need to think about this carefully.

    In this current context, I was simply raising an alternative to “banning foreigners from buying land” that would help to solve the issues raised by groups who criticise foreign ownership – outside of the racism. I wanted to do this to make it clear that using the regulatory stick of banning is not as appropriate as setting a price.

    Now, when people are irrationally racist it is true that they will keep saying “ban ban ban” – but by setting up an alternative, we can at least make it clear that these people are solely saying this on prejudicial grounds.

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