“Today we live in a world that is divided. A world in which we have made great progress and advances in science and technology. But it is also a world where millions of children die because they have no access to medicines… It is a world of great promise and hope. It is also a world of despair, disease and hunger”
Governments still rely on economists steeped in orthodox thinking for advice. If things are to change, a clearer understanding of how the economy works is needed, not just by economists and policy-makers, but also by the wider general public – a voter who votes in ignorance forges the chains that bind him. Economists have erected round their subject an intimidating barrier of jargon and maths, but this site and the books in our catalogue are intended to give the layman, the voter, a grasp of the basic principles.
Anthony Werner, Publisher
Governments around the world are wrestling with the problems of enormous debts, low growth, high unemployment and a gap between the demands of public expenditure and what can be raised through taxation. This problem has been acute since the financial crisis, but has been a hallmark of western economies for decades.
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This question was posed in a review of Our Land, Our Rent, Our Jobs in Moneyweb, on a Johannesburg-based website. The reviewer, Ciaran Ryan, acknowledges the difficulty: ‘There is so much invested in the current tax system that it is hard to imagine an alternative. The cost of administering SA revenue systems is about R10 billion a year, and there are an estimated 2 000 registered tax professionals lumping another R1 billion on top of that as fees. A far greater cost is the combined hours and expense incurred by companies, executives, lawyers and the courts dealing with tax matters. That’s a stubborn oak to cut down.’
In their book, the authors point out that some 50% of South Africa is rendered economically unviable by the tax system, creating large scale unemployment and migration of the rural population to the crowded shanty towns surrounding the major cities. Apart from all the social problems created by this, the government is unable to raise enough revenue to pursue the promise made on the abolition of apartheid of buying up land to redistribute to the black population. There is growing frustration, particularly among the young, at the failure of government to deliver on a brighter future for all, leading to the formation of a new Marxist party, Economic Freedom Fighters (EFF).
A taste of what could follow, were the EFF to replace the ANC as the government at the next election, was given in an open letter, published in the Mail and Guardian by the EFF’s self-styled ‘commissar for land and agrarian revolution’, Andile Mngxitama. He warned Sir Richard Branson, who had just bought a vineyard in the Cape, ‘that the EFF policy of land expropriation without compensation may, in the near future, affect your investment adversely’.
The authors of Our Land, Our Rent, Our Jobs put forward a way of reforming the tax system that would stimulate economic growth and create new employment, while at the same time making the redistribution of land easier to achieve, thus reducing the two major tensions within the country that could become explosive if not addressed. Read the full review here.
Two weeks later a review of No Debt, High Growth, Low Tax in Moneyweb, contrasted the dire situation in South Africa with the two ‘tiny specks of land’, Hong Kong and Singapore, which ‘consistently rate as among the freest and most prosperous nations in the world … provide levels of public service that are the envy of developed nations … Unemployment in both states is negligible’ and ‘Hong Kong has nearly double the financial reserves of the UK and Singapore’s per capita GDP now exceeds that of the US.’
In his book, Andrew Purves reveals how an important ingredient in the success of Hong Kong and Singapore is the large amount of revenue the governments draw from the economic rent of land, thus making them less dependent on the plethora of conventional taxes which impede economic development elsewhere. Were South Africa to follow this path, as advocated in Our Land, Our Rent, Our Jobs, it too might enjoy high growth and low unemployment.
No Debt, High Growth, Low Tax ‘provides a few interesting examples of how Hong Kong managed to finance public facilities by charging rent on appreciating land values. One such example is the Mass Transit Railway, [showing] how these governments tackle public finances with a keen sense of business dynamics. The government leased the land for the railways to the Mass Transit Railway Corporation (MTRC) at “pre-development” prices, along with development rights on land above the stations. The MTRC built shopping centres, offices and apartments above the train stations – on which it collected rent used to fund the building of the railway network. As the development rolled out, the value of the land increased proportionately, as did the rental income.’ Read the full review here.
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In his recent article “How to Fix the Housing Crisis” in Prospect Magazine, Andrew Adonis argues that the public sector must use its underdeveloped land to provide new housing which is badly needed. He concludes his article: “It is bold state action—central and local government leading development in partnership with the private and voluntary sectors, not abdicating its responsibilities to them—which will resolve the housing crisis. With its vast ownership of land, and its powers to plan, develop and finance, government can get the job done, and it has no one else to blame for inaction. It’s simple, really.”
This is a topic which caught the attention of our latest author, Andrew Purves. Below we outline his key arguments and how they relate to the premise of his new book. To read his full response in the comments section click here online.
Purves argues that the problem with the housing crisis is one of price rather than supply. In the private sector prices are very high and the cost of Housing Benefit has risen significantly in the last decade to subsidise the population forced to rent. “What then are the primary causes of the high price of housing? At number one, would be the high price of land. At number two, would be the easy availability of money (from the banks) to make those purchases.”
“How, therefore could we reduce the price of land?” Purves continues, “For the last several decades, anyone living in London could point out great swathes of undeveloped, in some cases derelict, land lying out of use: the 13 acre Battersea Power Station site, for example, or the stretch along the river from Kew Bridge to Syon Lane in Brentford, stretching north to where it meets the M4, both of which are only now being developed. What prevented this from happening earlier, was the ease with which developers can hold land out of use at no cost to themselves.”
Purves proposes that a simple land value tax, based on site value would provide the incentive to maximise the development potential for all pieces of land. A tax on land would have the added advantage of bringing down the price of land, so that the cost of housing would better reflect the cost of building it, rather than the cost of the land on which it is built.
Andrew’s book, published September 2015 is No Debt High Growth Low Tax. It outlines how the governments of Hong Kong and Singapore have used the revenue from leasing land to avoid the enormous debts which other countries have suffered from since the latest financial crisis on 2008. Purves explains how his research can give further insight to the problems and solutions surrounding the housing crisis.
“Adonis makes an interesting point about Hong Kong’s underground railway operator (MTR), which is as much a property developer as it is a railway company. However, he does not explain why this is the case – development and sale of buildings in Hong Kong in fact pays for the railway, and retaining ownership of the station infrastructure allows the MTR to benefit from ongoing rental income to maintain the railway in the future. ”
“Hong Kong provides over 30% of the public with housing at low rents, while in Singapore, 90% of the population lease their property from the publicly owned Housing Development Board, which could provide a useful template for redevelopment in all those land rich London Boroughs.”
So, Adonis’ suggestions of using existing public land to build housing is a good one. However, could this not also be improved by ensuring private owners of land are suitably taxed to ensure that property is made available to those who need it? You can read more about this proposal in No Debt High Growth Low Tax.
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