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March 22, 2011

Mirrlees / Adam / IFS: MPs ignore Land Tax proposals

The House of Commons Treasury Committee published their report of an Inquiry into the Fundamentals of Tax Policy last week. The Inquiry appeared to have been largely triggered by the IFS' Mirrlees Review last November, although the Committee report says it was more to do with the Government's earlier announcement on "a new approach to tax policy making" - an approach which totally ignores the potential to use tax as an economic instrument.

You can view a summary of what Mirrlees' lead author says about land taxes in slides by Stuart Adam, on IFS' website. Even better, if you can come to PLRG's next meeting on Tuesday 29th March at LSBU (6pm) you will get a chance to hear Stuart Adam discuss his views - its free too!

Treasury Committee were able to dismiss LVT out of hand with a quote on page 6 from a 2001 OECD paper:-

"While such a tax system would avoid distortions in economic behaviour, it would be highly unlikely to yield sufficient revenues to fund socially useful expenditure without producing substantial inequity."

 I found this paper here. It is No.6 in the series of Tax Policy Studies. In it, there is no attempt whatsoever to substantiate that statement! So much for a "study".

In a 2010 OECD paper on tax policy however - No.20 in the above list, or here - it says:-

"A growth-oriented tax reform would therefore shift part of the tax burden from income to consumption and/or residential property."
How could that happen without "sufficient revenues" from property?!
Ironically, the day before Treasury Committee published their report (which seems to have sunk without trace in the media), a piece in the FT reported that Hong Kong's Government, which relies on Land Rents accounting for about 40% of all its revenue, was giving US$770 to every citizen - because it has a surplus. How "equitable" is that?! The FT article, by David Pilling, is not supportive of this giveaway but many of the comments posted afterwards explain why this might be an extremely good idea. After all, any reputable economic theorist will tell you that 'economic rent' goes unearned to landowners if government does not collect it. Yet it is the actions of the whole community that create that value, so why not give it back to everyone?

Posted by Tony Vickers at March 22, 2011 5:07 PM | TrackBack

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