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Full Employment by a Change in Taxation A Submission to (PLAAS) Programme for Land and Agrarian Studies UWC 6 th October 2006 Presented by Godfrey Dunkley. Unemployment a Threat to Security. National Security is influenced by internal stability and social security.

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Full Employment by a Change in TaxationA Submission to (PLAAS)Programme for Land and Agrarian Studies UWC6th October 2006Presented by Godfrey Dunkley


Unemployment a threat to security
Unemployment a Threat to Security

  • National Security is influenced by internal stability and social security.

  • This in turn dependent on economic factors such as employment opportunities, relief of poverty, affordable housing and land distribution, good education and healthy living conditions


Taxation a key to security
Taxation a Key to Security

  • Present method of taxation is a major cause of unemployment.

  • Research is essential into the effects of taxation at the margin of economic production.

  • This has never been taken seriously and is not in public dialogue


Importance of change in taxation
Importance of Change in Taxation

  • Bring sub-marginal land back into production and create employment.

  • Economical land distribution possible whilst retaining Willing Buyer Willing Seller concept.

  • Marginalized labour becomes employable

  • A vibrant economy improves security


Statement
Statement

Land distribution is essential to;

  • bring idle land into use

  • reduce unemployment

  • allow self employment

  • improve quality of life

  • restore human dignity


Statement continued
Statement(continued)

  • There is presently little if any cost to holding land out of use

  • Present taxes place much land beyond the economic margin and out of use

  • The whole tax system encourages speculation in land and withholding

  • A total change is necessary


Problem with land
Problem with Land

  • Demand driven market

    Government essential buyer

  • Sellers market

  • No incentive to sell

  • Asking Price = Economic Value

    + Speculative Value

    + Opportunity Value

    Typical example;

    Asking Price 20 x Economic Value


Additional factors
Additional factors

  • Present taxes freeze the land market

  • Present taxes impact mostly on

    • marginal land

    • marginal labour

      A change in taxation can free the land market and improve stability


Overview
Overview

  • Justice and Equity are ignored

  • Land-lording a world wide problem

  • A billion people living in abject poverty

  • Classical economists disregarded

  • Economic thought severely distorted.


Significance of lv model
Significance of LV Model

  • A better understanding of land values and ownership can help to improve security

  • The model helps to appreciate relative values and provides the basis for the diagrams that follow.

  • Five diagrams that follow attempt graphically to present the problems and possible solution



Application of land value model 1972
Application of Land Value Model 1972

  • The following diagrams are shown on a vertical log scale, as a linear scale would show a meaningless ‘L’ shape.

  • Ratio of highest to lowest values in JHB model

    • approx. 1000 (CBD) to 1 (Suburbs)

    • or a million (CBD) to one (marginal rural land)



Production curve dia 1
Production Curve(Dia. 1)

  • Graph shows productive potential

  • Value added = Production less input of material and services

  • Natural Rent =Value added, less Wages, less Return on capital


Rent curves
Rent Curves

Diagram 2


Rent curve dia 2
Rent Curve(Dia. 2)

  • All taxes, effectively come out of the Rent Area

  • Economic Rent Curve = Natural Rent Curve less All taxes

  • Lowering taxes increases Economic Rent & land values

  • Market value = Capitalized Economic Rent + Speculative Value +Opportunity increases.


Concepts
Concepts

  • Prime land enjoys excess production

  • Marginal land is the least productive land in economic use

  • Sub marginal land is where the cost of production exceeds the value of production

  • Rent is the excess of production compared to that at the margin


Idle land
Idle Land

Diagram 3


Effect of idle land dia 3
Effect of Idle Land(Dia. 3)

  • Speculation increases asking price

  • No production, no employment, no tax paid

  • Results in increased taxation on:

    • Productive land

    • Labour

  • Reduces wages in general

  • Makes all land more expensive

  • Shrinks the margin of production


Destructive tax
Destructive Tax

Diagram 4


Destructive taxation dia 4
Destructive Taxation(Dia. 4)

Bad taxes are;

  • Destroying the economy

  • encouraging land speculation

  • increasing land prices

  • creating unemployment and poverty

  • resulting in health problems

  • forcing people into crime

  • undermining security and human dignity


Cannons of taxation
Cannons of Taxation

Classical Economists (Adam Smith, David Ricardo, Henry George) said:

  • Do not tax wages

  • Do not tax capital

  • Do not tax the products of labour

  • Collect revenue from land rent.

  • We do the opposite!


Rent revenue
Rent Revenue

Diagram 5


Revenue from rent dia 5
Revenue from Rent(Dia.5)

  • Restores Natural Rent by removing present DEADWEIGHT taxes

  • Collects revenue as a % of Natural Rent.

    • Will be more than at present

  • Removes speculative value of land

  • No rent or taxation beyond the natural margin


  • Results of better taxation
    Results of Better Taxation

    • Land available for distribution

    • Becomes a supply driven market

    • Creates full employment

    • Improves supply of housing

    • Reduces social ills:

      • poverty,

      • crime, etc

    • Restores human dignity and security


    Incentive taxation
    Incentive Taxation

    • Prime Land

      • Fully productive: Rent less than Taxation(encourages full use and employment)

      • Unproductive: Will contribute to revenue (enforces use or sale of land)

    • Near Marginal Land

      • Small Rent but no Taxes(restores economic production)

    • Sub Marginal Land

      • No Rent, No Taxes, No Speculative Value (land available for subsistence farming)


    Summary
    Summary

    The changes recommended will give;

    • Land distribution by willing sellers

    • Create a supply driven market

    • Realistic land prices

    • Full employment

    • Reduced poverty and crime

    • Rapid housing construction

    • National stability and security

    • Restore human dignity


    Remember cannons of taxation
    Remember Cannons of Taxation

    • Do not tax wages

    • Do not tax capital

    • Do not tax the products of labour

    • Collect revenue from land rent.

    • Why do we do the opposite?


    For further information contact

    For further information contact

    Godfrey Dunkley

    Email: [email protected]


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