We have offered guidance to the Expert Advisory Group on Tax on Land and Property

This is the big chance for Scotland: get the tax reform right, and Scotland can lead the way in Europe by demonstrating how to reduce the avoidable death rates in locations like Drumchapel.
 
An Expert Advisory Group on Tax on Land and Property has been established to advise the Scottish Land Commission and shape the recommendations that it will put to Ministers in late 2021.
“The Group will use the Land and property taxation in Scotland: Initial scoping of options for reform report as a starting point to work with the Land Commission on pragmatic and ambitious options for reforming tax on land and property in Scotland to help address inequalities and create a fairer, more resilient Scotland where everyone benefits from the use, management and ownership of land.”
 
The SLRG strongly supports these aims and has offered this note from its own economists. We hope its contents will assist the Group in assessing the various taxes proposed and in forming its final advice to the SLC – which will later be placed before Scottish ministers…
 
How to compare taxes?
 
Government economists are often tasked with assessing the effects of potential changes to tax types and rates. In presenting their findings they describe best, median and worst case scenarios, listing both the integral (e.g. likely changes in people’s behaviour) and external factors (e.g. a pandemic) they have identified that will influence the outcomes of the policy changes.
 
Such computations are hard enough when the subject is a single small change of say 1% to an Income Tax threshold or rate. When considering the whole competing gamut of revenue streams that could be applied to land and property – the task of the Group – the full scale and challenge of the job may be realised.
 
SLRG economists, Professor Roger Sandilands, Dr Duncan Pickard and Fred Harrison offer here a ready method to cut straight to the Group’s goal: finding and proposing the revenue stream(s) that will “help address inequalities and create a fairer, more resilient Scotland where everyone benefits from the use, management and ownership of land.”
 
What, then, is the method to efficiently and quickly (the task must be concluded within months) open to the Group to compare, weigh, assess and draw conclusions about each tax proposed on land and property?
 
Excess Burdens
 
The exercise required is the assessment of the excess burden of each tax. Such an approach will provide an objective comparison of the likely good or bad effects of each competing idea in the final report. Not only would such a comparison supply objective findings, but it would also offer a report of unprecedented clarity, logic and transparency to both ministers and voters.
 
The excess burden of a tax is its intrinsic effect on the economy and society. The effect could be positive or negative. Many effects are negative, giving rise to the alternative name for excess burdens: deadweight losses. With the exception of Pigouvian taxes, the Advisory Group should task itself with identifying and prescribing revenue streams with small or negative excess burdens.
 
Providing absolute assessments of the excess burden of each tax is not practical within the time and resources given to the Advisory Group. This task should nonetheless be proposed as the first priority for the relevant ScotGov finance departments with the resources to make the full computations. For its own purposes – making tax comparisons – the Group must in the first instance, and in forming its findings, make use of the work of economists providing data on estimated excess burdens. Much academic work has been done on this, offering clear comparisons between the good/bad social and economic effects of all kinds of taxes. Certainly all of those that will be under consideration by the Group. Such estimates offer more than sufficient academic evidence to justify the Group choosing to propose the taxes for Scotland that have been shown to inflict the lowest deadweight losses, none at all or better still, negative deadweight losses (social and economic gains).
 
Negative deadweight losses are better described as the incentive effects of a revenue stream boosting employment and trade through optimising the use of land, increasing employment and minimising inequality. We will be providing the Group with separate guidance on land and property revenue streams of this type that are immediately available to Holyrood legislators in 2021.
 
Social excess burdens
 
Taxes also influence behaviours that impact communities, life chances, health and human life expectancy: these social excess burdens must be considered by an Expert Advisory Group as well as the more obvious economic ones measured by GDP.
 
Accepting the need to consider social excess burdens, the Group would come to conclusions with the potential to transform Scotland into a beacon of hope in Europe and beyond: because the exercise would be one that takes into account mortality attributable to each tax option under consideration.
 
For example, it is estimated that annually, across Europe, about 50,000 people die prematurely because of the under-pricing of carbon dioxide and particulate emissions (externalities that are rewarded by the structure of current tax policies). Tax choices, historically, privileged the technologies that failed to contain/capture the waste from internal combustion engines, leaving air pollution at levels above WHO guidelines. The death count rises to nearly 125,000 people every year, who would remain alive but for the pollution levels above the lowest measured concentrations in the 1,000 cities that were studied. Ill-health and mortality are issues that need to be factored into an informed report on the taxes best suited for application to land and property.
 
Ella Kissi-Debrah represents the victims of flawed tax policies – dead in 2013 at the age of 9. Her misfortune was to live 30 metres from the traffic traversing London’s South Circular road. A coroner ruled that she died from acute respiratory failure, severe asthma and air pollution. In her daily walks to school she was exposed to nitrogen dioxide and particulate matter (PM) pollution at levels that exceeded World Health Organization (WHO) guidelines.
 
Such examples confirm epidemiologist Dr. George Miller’s conclusion that an estimated 50,000 annual UK excess deaths are attributable to “the method government uses to raise revenue”. The searching question is whether politicians can be trusted with the welfare of the people. Tax policy therefore needs to be framed with reference to its effects beyond the “fairness and efficiency” criteria traditionally employed.
 
Transparency
 
The responsibility laid upon such groups as the Expert Advisory Group on Tax on Land and Property is onerous. Its findings must be transparent and unequivocally geared to its goal to “help address inequalities and create a fairer, more resilient Scotland where everyone benefits from the use, management and ownership of land.” Making a comparison between the excess burdens of each tax – both economic and social – is the way to demonstrate and guarantee that the Group’s tax recommendations are based on the most comprehensive assessment, meet its stated goals, and conform to the requirements of good governance.

This exercise presents an opportunity to make proposals to ministers that would tend to equalise people’s life chances in Scotland, such as by reducing the loss of up to a dozen years of life for residents in neighbourhoods such as Drumchapel and by reducing mounting Scottish drug deaths attributable to social dislocation.

Scottish exam marking in 2020 could have shown the way to equality

Post code poverty has influenced exam results in Scotland from time immemorial. Did C19 offer a once in a generation opportunity to balance up the results?
 
At SLRG we often talk about the postcode life expectancy lottery in which Scots from e.g. Drumchhapel live on average less than a decade as long as their near neighbours in Milngavie.
 
Henry George explained ‘Progress and Poverty’ over a century ago in his book by that name. But the state revenue remedy he detailed (collecting the unearned socially produced economic rent of land as revenue) has not yet been rolled out in Scotland.
 
Vested interests (site owners) have enjoyed the privilege of harvesting the cream of Scotland’s socially produced wealth for a very long time. They are loathe to give up such privilege. But when the time does come to collect that wealth into Scotland’s public purse (AGR/LVT) and cancel the destructive taxes which repress jobs and trade, even the land owners will receive their full fair share of it back in the form of fully funded public services that will suddenly become affordable (the rent of land and natural resources equals approximately HALF of all GDP).
 
In the mean time embedded inequality persists, in the face of which no tinkering around the edges with palliative ‘progressive’ sticking plaster policies can make meaningful inroads.
 
The premature deaths by zone will continue.
 
Poor exam results will continue by zone.
 
Life chances will not be equalised.
 
The 2020 opportunity to foreshadow the potential future narrowing of the exam qualification attainment gap to zero – which could have been replicated by NOT marking down disadvantaged young students in 2020 – was carelessly missed.
 
https://www.edinburghnews.scotsman.com/education/sqa-results-petition-launched-re-evaluate-classist-marking-scheme-gains-more-12500-votes-seven-hours-2933290

The shame of embedded Scottish and UK inequality

Embedded inequality, subsistence wages, impoverished public services, unsustainable debt, land speculation, forced economic migration and homelessness can be history…IF we so choose.

Is it any wonder our public revenue is inadequate? The owners of rent-yielding assets extract one fifth of the gross UK income for doing…nothing. That equates to a staggering 40% of what should be flowing into the UK public purse by collecting AGR/LVT.

But if we fail to recognise the problem is ‘Rent-seeking’ we will make little progress.

Radical tax reform for national economic recovery after the pandemic

By SLRG’s Dr Duncan Pickard, Balmullo, Fife.

It is wrong to believe that we should revert to live as we did before the pandemic. The statistics of its incidence show that the poorest people have suffered far more than the rich and a mindless quest to ‘return to normality’ will result in further widening of the gap in health and welfare between rich and poor.

Our antiquated, complicated and unfair tax system is responsible for inequality. The rich minority are given generous tax concessions whilst the poor are obliged to pay the biggest proportion of incomes in VAT, the most regressive of all the taxes.

The government needs money to pay for goods and services such as education, the police, the NHS, and pensions. Current taxes, collected mostly from Income Tax, NIC and VAT, are insufficient to avoid budget deficits and increases in the national debt. It is impossible to increase these taxes without causing more reductions in employment and trade. Sufficient funds could be provided without economic and social harm if the tax system is radically reformed.

Income Tax, NIC and VAT are charged on what people have earned for the work they do. But there is a large potential source of revenue which goes to a minority of the population that they do not earn.

That is the annual rental value of the land they own, known as Annual Ground Rent or Land Value Tax. (AGR/LVT) The most valuable land is in urban areas because that is where most people want to live and work. Most house owners do not realise that they are landowners.
The large increase in the price of houses over the last four decades is in the price of the land on which they are built, not the price of the houses themselves.

The increases in land prices are not produced by those who own their houses, they come from the demands of those who need somewhere to live and the services provided locally, such as schools, public parks and hospitals.

The total annual ground rental value of the land and other natural resources in the UK is sufficient to provide all the funds for the necessary functions of government.

Instead of encouraging investment in landed property with subsidies and exemptions from tax, a responsible government would gradually rebalance the economy towards productive enterprise by removing the burdens of taxation from earned incomes and increasing them on unearned incomes.

Houses will never become affordable to young people by building more houses. No matter how fast you build, banks can create new credit even faster. Their fractional reserve facility allows them to create money from nothing to meet the demand from house buyers.

AGR/LVT will enable economic prosperity to occur and inequality to be reduced by allowing people to keep all they earn. There will be no need to continue seeking increases in GDP, which is a poor indicator of economic well- being and encourages the wasteful use of scarce resources.

Duncan Pickard SLRG, June 2020.

SLRG Review: ‘Resilience Economics: An Economic Model for Scotland’s Economy’

Common Weal has published Resilience Economics: An Economic Model for Scotland’s Economy.

https://commonweal.scot/…/2020…/Resilience%20Economics_0.pdf

The authors present an overview of the current and historic problems Scotland has endured and a call for a better future using a wide range of economic ideas to build a Scotland that serves its people. It is a long document tracing the history of economic ideas and many of their flaws; but seeking to show how alternative ideas promise to help form a resilient Scotland.

Searching the document for specific proposed measures, there are none. A subsequent document is promised for these.

The attack on Neoliberalism is relentless, correct and fully argued, that cynical ideology being based, as the author mentions, “on a partial reading of Adam Smith”.

A gap in understanding is however demonstrated in the authors’ parallel and unqualified attack on the idea of the free market. That Smith revealed how the free market must be rendered benign by directing the economic rent to the community is not even discussed. The absence of any discussion of ‘Rent-seeking’, the poison lying hidden at the roots of each of the many Scottish problems listed, renders the paper deeply flawed.

Sad to say then, that despite an otherwise comprehensive discussion of many of the Scottish problems derived from 20th century economic thought, the notion that Neoclassical economics was devised with the single purpose of hiding rent extraction by a privileged minority, is not mentioned. Such a glaring oversight will, sadly, be cause for a huge sigh of relief from the free-riding, rent-seeking fraternity.

Here, SLRG’s Roger Sandilands, Emeritus Professor of Economics, Strathclyde University, reflects on the Common Weal document, ‘Resilience Economics: An Economic Model for Scotland’s Economy’:

“Apart from Adam Smith’s espousal of rent as a desirable, special, ‘peculiar’ “tax” to fund the government’s proper (though rightly limited) role in the economy and society, his other great motivation in writing The Wealth of Nations was to promote competition and eliminate artificial restraints on trade. He condemned monopoly, collusion, fraud and other unjustifiable barriers to entry into a business, whether as entrepreneur or employee.

The main message was not so much “laissez faire” in a passive sense, but rather in the active sense of (i) promoting competition by stamping out obstacles to free domestic and international trade and (ii) encouraging the mobility of labour and capital.

Producers have a vested interest in protecting their current market share. There was nothing wrong per se in trying to make a profit. Why else go into business? But the Common Weal document rails against profit as a filthy word, always associated with exploitation of workers and the environment.

This is just emotional class and ideological prejudice. Certainly it is the duty (as Adam Smith emphasised) of government to intervene to curb excess profiteering through unjustified restriction on the entry of other producers capable of offering goods and services at lower cost and price, and/or higher quality.

“Neoliberalism” is used in a very loose sense by Common Weal to caricature the mixed economy, with its elements of both private and public participation in the economy. To the extent there is a private sector seeking to maximise profit, the opponents of private profits dub the economy as immorally ‘neoliberal’, with the government accused of defending a free-for-all that harms the vulnerable and the environment.

But if we condemn all profit-seeking, even where profits are needed to compensate entrepreneurs and investors for the opportunity cost of their time and money, business disappears unless the government steps in to run it instead. Carried to excess, we should know where that leads.

Until and unless Common Weal distinguishes competitive profit-seeking from monopoly profits, and in particular until it recognises unconditional land ownership as the Mother of All Monopolies, theirs is an ill-informed agenda.

Replacing private with public enterprise across the board is not what Adam Smith espoused. Common Weal is effectively libelling Smith. He was adamant that it was the duty of government to protect the consumer not the producer. Smith’s Wealth of Nations was a tract against the prevailing philosophy of mercantilism. By focusing instead on consumers’ interests there would be much greater pressure on producers to follow consumers’ interests through increased efficiency, reduced costs and prices, and better quality, service and choice. This was enlightened, non-exploitative self-interest.

The Common Weal document appears to me to be too prejudiced against “consumerism”. Which of us does not aspire to a higher income? Why do we do that? In order to hoard money under the mattress or in a bank? Of course not. It’s to improve our own standard of living. And in the process (abstracting from consumption that significantly harms our health or the environment) we benefit our fellow citizens through the extension of the market, in directions which conform to our own freely expressed preferences and priorities. That means (as again Smith emphasised) more jobs, more income for others, more specialisation within and between firms, hence more innovation and a more dynamic economy.

However, all of this is contingent
(i) on the promotion of competition between firms and the geographical and occupational mobility of capital and workers; and
(ii) ensuring that the (increasing) rent of land is returned to society in general that has created those rents. They should be our primordial community value, upon which all other community values rest. Only thus can we create a more equitable and dynamic economy and society, thus truly creating a more sustainable and resilient common weal.”

Free money for Scotland by changing Holyrood tax policy


You’d need a good reason to consider moving tax from wages to site rents. The good reason is the avoidable DEADWEIGHT LOSS of at least £500 billion a year suffered by the UK.

Scotland’s share of those annual losses is at least £38 billion, of which some £12.8bn can be cancelled by Holyrood using existing devolved powers to replace Income Tax with AGR/LVT.

The progressive justice and fairness of Annual Ground Rent (aka LVT) is avoided like the plague by vested interests in control at Westminster. But why should Holyrood follow like a lapdog, sticking with the harmful taxes that work against the interests of Scots?

And could we not use an extra £12.8bn/yr of SHARED prosperity right now?

Feeling poor Holyrood?

MSPs could add £12.8bn to Scotland’s economy today with a tax reform that would nut embedded inequality, fairly.

That additional £12.8 billion would be shared each year between Scotland’s public and private sectors.

‘Events’

Social unrest may be expected in the wake of C19. Not because we were hit by a disaster not of our making; but because the wilful starvation of public services, leading to poor pandemic precautions, will be repeated if there is no root and branch change to the way in which public services are funded.

Our call for the functions of state to be funded out of the rents of land and natural resources (AGR/LVT) is criticised for being too radical. How could you possibly even think of replacing income taxes?

Question: What would it take for a country like Scotland to take seriously a change of revenue from taxes that repress wealth production and privilege a minority, to a levy which dismantles privilege, boosts prosperity and shares the country’s net income with all of its producers?

Answer: EVENTS.

Events such as the Coronavirus pandemic may at last focus the minds of politicians. Or the looming avoidable depression of 2028? The UK and Scotland have been hit unexpectedly by a tragedy requiring state intervention on a massive scale. MMT suggests money be produced by governments to pay for it all. But what about when the limits of credibility in the currency are reached? Money production can only go as far as a country’s real potential production.

Today Scotland has taxes on wages and on trade. The tax rates are already set as high as they can be without repressing the tax base by an unacceptable level. Production is already repressed by at least £500bn/yr (UK). But more money is needed to make good the anticipated government Coronavirus spending.

Austerity will not be acceptable and if forced will produce social unrest. What is the way then for current unfortunate events to be faced up, challenged and pushed aside?

It is time for Holyrood to take seriously the SLRG proposals to start funding government functions with AGR/LVT and to cancel as much as possible of Scotland’s wage and enterprise imposts. This will collect a significantly larger sum into Scotland’s Public purse – all from UNEARNED income – and at the same time boost and share Scottish prosperity.

Everyone will be a winner except the parasites who expect to grow rich from by extracting wealth produced by the efforts of others. Yet even they will share the opportunities to invest in new productive enterprises germinating across the new Scotland. And they will also receive their full share of newly expanded and at last properly funded Scottish public services.

Rent is half of GDP …not 5%

By Roger Sandilands, Emeritus Professor of Economics, Strathclyde.

How can the claim be justified that Rent, the product of society and nature, is about half of GDP, when the text books put it at about 5%?

The national income accountants (who are accountants rather than what we would define as economists) look only at the surface phenomena. They look at income and basically allocate it between only two very broad categories: wages and ‘profits’ (or ‘operating surplus’).

I gave some figures for 2011 in my 2015 SLRG conference paper, The Hidden Potential of Rents. I reproduce the Appendix below showing basic figures for 2011.

Rent is camouflaged

There you see that there is no explicit mention of ‘rent’. It is bundled up in an aggregate of gross operating profits, as also defined in the Appendix. “Rental income” is any money paid for buildings, including land. No separate figures are given for land rent except where rent is paid for bare land and this is a very small fraction of all ‘rental income’.

We know that much of what is income from ownership of buildings is actually land rent

Accountancy approach problematic

But the more important problem with this accountancy approach to the distribution of income is that it takes no account of the way that the taxation of earned incomes (including income from man-made capital – buildings, machinery, equipment etc) ultimately falls on (squeezes) the rents that can be charged on land qua land. This again is the ATCOR principle: All Taxes Come Out of Rent.

Rent is half the national income

Once this is recognised and accepted then you can indeed justify the claim that rent is about half of national income. But otherwise people will scoff and refer you to the textbooks that state that rent in the modern urbanised economy is only about 5% or less of GDP, and hence totally insufficient to finance a modern state’s public spending (about 40% of GDP).

Remember that our aim is to replace taxes on earned incomes and trade. As those taxes fall, so the annual value of unearned land and natural resource rents increases. This large underlying annual ground rent (AGR/LVT) thus becomes transparent and available to finance the modern state. And in the process would breathe greater life, health and fairness into our sclerotic economy and society.

Appendix (extracted from The Hidden Potential of Rents)

Table 8.2 of the UK National Income Accounts gives GDP in 2011 at market prices (£1,537bn) by category of income and by its percentage composition, thus:

Total gross operating surplus: £436bn (28.4%)   

“Mixed” incomes (of the self-employed): £ 85bn (5.5%)

Employee compensation £820bn (53.4%)

Taxes less subsidies on products and imports: £190bn (12.5%)

Gross operating surplus is gross value added (GVA) minus labour costs paid by producers. It is the sum of (i) gross trading profits and (ii) “income earned through the ownership of buildings (rental income).” But separate figures are not easy to find for (i) and (ii); and nor is “rental income” calculated separately for land and buildings.

The opportunity for shared prosperity to be greatly boosted across Scotland is detailed in The Hidden Potential of Rents. Once the proportion of the national income composed of rent is understood, the question must be asked, who gets it?