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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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Unemployment a threat to security

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


Land value model of johannesburg

Land Value Model of Johannesburg


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)


Potential production

Potential Production

Diagram 1


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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