The Land Price Subsidy

1. The Land Price Subsidy The land under my house in Claremont has risen R2.5M in the 24 years we have lived there: a 20 times increase. I had nothing to do with this: it is an unearned profit and relies on nature (views, fertility and weather), location, infrastructure, amenities and myriad State, Provincial and Municipal services. These profits arise whenever the State targets earned income taxes and VAT and allows landowners to keep their unearned land revenues. No wonder landowners are UNwilling sellers: they and I are enjoying a handsome subsidy thanks to the SA Treasury. Indigenous land tenures are fairer as Joshua Nkomo explains:

2. The Original ZANU-PF Land Policy “We don't believe in trading land or selling land-no. That does not mean we will be taking people's land. It means that other people who haven't got money will have a chance to use land, which is the common property of everybody. “And if they have to pay some rates or rents that will go to a general (tax) fund of the people. Our system is this: once you use land, that land belongs to you. But you have not bought it. You cannot sell it to someone. The land belongs to the people, but everything on that land is yours.” Joshua Nkomo: cited in ‘The Predator State’ by Fred Harrison 2010

3. Compensation for loss of Land Values? Compensation for the withdrawal of a subsidy is unlikely for there is no expropriation when land rents replace income taxes and VAT. Nor any change in title deeds. Owners receive recompense from living in a tax haven where there are no taxes on private property; on work or savings. Everything is tax free. Neighbours with identical plots will pay the same tax whether they work eight hours a day or twelve.

4. Hong Kong and Singapore Comparisons with Mr Nkomo These two countries have five times SA’s GDP per head and are like Mr. Nkomo describes. There are hardly any ‘real’ land price increases there. Unemployment is now 2%a consequence of low land prices.

5. Average ‘Nominal’ Residential Land Prices [ABSA] 1994=R39 000 2012=R496 000 12 times: [CPI=4 times] Farmland 2012 =R60000 per ha Whydoes the SA Treasury make land unaffordable for millions?

6. Difference Between ‘Natural’ and ‘Man-Made’ Assets Man-made’ Assets: Bricks and mortar, plant and machinery ‘Natural’ Assets: Land [Air, Spectrum, Rivers and Oceans] Not produced, a gift to every South African-every human. Lasts in perpetuity. No depreciation-no new models. Fecund, two rabbits yield 840 in one year. Factory floor for the unemployed. One hectare, one millionaire in 3-5 years. Produced by citizens working the land in the country and in shops, offices and factories etc. Limited lifespan: even houses last only 20 years before the demolition squad: unless continually maintained and refurbished.

7. The Devastating Role of Income Taxes and VAT in an Economy ‘Man-made’ Assets: Bricks and mortar, plant and machinery ‘Natural’ Assets: Land and the Spectrum If 100% of land rents are taxed then the price of unimproved land falls to zero without the earth diminishing by one centimetre. Economists call these assets inelastic because they can be taxed 100% GOOD TAXES If 100% of the rent of bricks and mortar, plant or machinery are taxed then these all become scarce and prices rise. People will flee taking whatever they can carry. BAD TAXES

8. Katz Tax Commission Interim Report Lied (1) KATZ (para 1.5.4 h) SACPRIF For equity and growth don’t balance BAD and GOOD taxes. sec 25.5 of the Constitution:-"The State must take reasonable legislative and other measures, within its available resources, to foster conditions which enable citizens to gain access to land on an equitable basis.'' Limit taxes to resource use only-on unearned land rents. “Both equity and the enhancement of economic growth require a considered balance between direct and indirect taxes, “And between taxes based on income, transactions, resource use and consumption, and also require a balanced presence in the system of taxes on capital or wealth.

9. Katz Tax Commission Lied (2) KATZ SACPRIF Economic stability is meaningless when 25% of the population are unemployed. A single land tax will mean 100% employment because when jobs are short people can afford land as sec 25.5 demands. “The Commission recognises that economic stability cannot be promoted through attempts to shift the tax burden predominantly onto any single dimension of economic activity.” sec 1.5.4 (h) the 1st Katz Interim Report page 10 (1994) “It is not in the tax system that the remedy for poverty is to be found.” Sec 2.4.3, 3rd Interim Report of the Katz Commission.

10. SACPRIF recommendations for setting future Tax ‘Rates’ (1) • Commencing in the 2014/15 budget and continuing for four years until the budget of 2019/20, all income tax and Vat collections are to be gradually repealed. To be announced in the 2012/2013 budget to give due noticeto owners of 27m hectares of unused arable land (Frost and Sullivan 2007). • Simultaneously the collection of surface ‘land’ rents as a budget item (currently comprising mining royalties and landing fees etc) be increased to exactly replace the repealed income taxes and VAT.

11. Setting the Tax Rates for a Change to Rent Revenues (2) • That the amount of land rent payable on each parcel of land be defined as follows: • For residential properties:- The median market land rent per square metre in each suburb (or a part) which land owners are willing to pay for exclusive use rights and privileges in place of income taxes and VAT. On conditions similar to the Municipal Property Rates Act 2004 including perpetual tenure and periodic rent reviews. Preferably determined by auction.

12. Setting the Tax Rates for a Change to Rent Revenues (3) • For non-residential (commercial) properties:- 29%pa of the value-added [the GDP of each parcel of land] OR the land rent determined as for residential uses- WHICHEVER is the higher.

13. What changes to personal tax liabilities occur? • It is calculated that each of the approximate nine million South African ‘formal’ households can expect to pay an average of R5920pm in income taxes and VAT in the year ending February 2013. • Inflation adjusted, that will be exactly the amount of land rents that the average SA landowner (who happens to live in Southfield, Cape Town) will pay in rents as their R5920 private property in taxes and VAT are gradually returned to them.

14. How did this tragedy occur?(1) The Rule of Law • SA Treasury defines a tax “as a compulsorypayment not proportional to the good or service received in return for that payment.” (2006 Environmental Fiscal Reform Study) • Income Taxes and VAT are not, with death, ‘the two certainties in life’ but a felony and a crime under the SA Constitution which is “the supreme law of the Republic; law or conduct inconsistent with it is invalid, and the obligations imposed by it must be fulfilled.” • On the other hand land rents, like rates and taxes, comply with Treasury’s definition of user charges “for specific goods or services rendered. These payments are based on the individual benefit principle and attempt to link the amount paid to the benefit received by a specific individual.”

15. How did this tragedy occur?The Continuing Threat (1) In addition Minister of Finance Pravin Gordhan has recently prepared an affidavit where he asserts that: “the decisions around e-tolling were based on rational policies and were longstanding” and that “fiscal policy decisions, in particular, were "sensitive" and were decisions that could only be made by the government.” "Ultimately it is for policy makers, elected by and accountable to those they represent, to choose between various forms of revenue collection.” But that requires rational fiscal policies….

16. How did this tragedy occur?The Continuing Threat (2) The Katz Commission errors show that when it comes to policy issues the State must act rationally. The Constitutional court has ruled on this matter in the RYAN ALBUTT Case, 2010 “But, where the (State) decision is challenged on the grounds of rationality, courts are obliged to examine the means selected to determine whether they are rationally related to the objective sought to be achieved. What must be stressed is that the purpose of the enquiry is to determine not whether there are other means that could have been used, but whether the means selected are rationally related to the objective sought to be achieved. And if objectively speaking they are not, they fall short of the standard demanded by the Constitution.” SACPRIF has prepared a list of the irrationalities of income taxes and VAT as Annexure A of our submission So the Constitution must rule and there is no need for land nationalisation or expropriation without compensation, etc. etc. When unused land becomes affordable to all under a land rent fiscal regime then all will become employed.

17. How did this tragedy occur?The Continuing Threat (3) So let sec 25.5 of the Constitution rule:- "The State must take reasonable legislative and other measures, within its available resources, to foster conditions which enable citizens to gain access to land on an equitable basis.'‘ South Africa awaits your urgent approval of this submission.

18. Common Endorsements fromDiverse Commentators The Single Land Tax is approved by: Leviticus, Adam Smith, Karl Marx, David Ricardo, The French Physiocrats, the SA Freedom Charter, Fred Harrison, numerous Nobel Prize laureates including Professors Milton Friedman and Joseph Stiglitz, Joshua Nkomo, Margaret Thatcher, Winston Churchill, and Professors Mason Gaffney and Fred Foldvary.

19. The Henry George Theorem (1) “YOU assert the right of labourers to employment and their right to receive from their employers a certain indefinite wage. No such rights exist. No one has a right to demand employment of another, or to demand higher wages than the other is willing to give, or in any way to put pressure on another to make him raise such wages against his will.  There can be no better moral justification for such demands on employers by working-men than there would be for employers demanding that working men shall be compelled to work for them when they do not want to, and to accept wages lower than they are willing to take.

20. The Henry George Theorem (2) “THE natural right which each man has is not that of demanding employment or wages from another man, but that of employing himself that of applying by his own labour to the inexhaustible storehouse which the Creator has in the land provided for all men. “FOR then, all being free to employ themselves, the mere opportunity to labour would cease to seem a boon; and since no one would work for another for less, all things considered, than he could earn by working for himself, wages would necessarily rise to their full value, and the relations of workman and employer be regulated by mutual interest and convenience.” Progress and Poverty