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Is economic rent sufficient to fund a modern state?

Further Reading:

NoDebtHighGrowthLowTax

No Debt, High Growth, Low Tax
by Andrew Purves


cat_econ_public_taxation_revenue

Public Revenue Without Taxation
by Ronald Burgess


Henry George Progress and Poverty

Progress and Poverty
by Henry George

‘At the end of the nineteenth century’, wrote the former Governor of the Bank of England, (The British Tax System, Mervyn King and John Kay, OUP, 1990 5th ed.) ‘a movement led by Henry George argued, vigorously, that … land should be the principal tax base. This tradition still survives, although it is apparent that the total economic rents, of all kinds, is not now a sufficiently large proportion of national income for this to be a practicable means of obtaining the resources needed to finance a modern State.’ This is a commonly held idea, even by those who are sympathetic to the idea of taxing economic rent. The authors began their next sentence with: ‘But the underlying intellectual argument for seeking to tax economic rent retains its force’.

Having been convinced of the efficiency and justice inherent in Henry George’s proposal for a Land Value Tax (LVT) to capture the economic rent, the author of No Debt High Growth Low Tax sought to find an example of where it was put into practice. As a frequent visitor to Hong Kong over many years, he became aware that its thriving economy, which had had to cope with housing millions of immigrants fleeing mainland China, was based on a system of leasehold, rather than freehold, land tenure. This means that a substantial part of government revenue is in fact raised from economic rent.

Just how substantial that is, is indicated by the fact that the Hong Kong government is able to fund major infrastructure projects, such as its underground railway and new airport, and education (free from 6-16, with subsidies for Nursery Schools, and higher education through a system of loans/grants for those who cannot afford it) without incurring the high levels of debt burdening most modern economies.

The curious thing, the author points out, is that very few people are aware of how it works, least of all those people who reside there and live with the consequences. The particular form of raising such revenue in Hong Kong is neither a complete system, having been introduced over the years in an ad hoc manner, nor one which has eliminated high levels of inequality.

However, what the system demonstrates is that economic rent is an enormous source of public revenue only partly tapped by the government, which only collects 3% of the rent on an ongoing basis, although it collects more in up front premiums for lease modifications, and new leases. The author outlines some of the features of the system in Singapore which also enjoys/relies on economic rent for a considerable part of its revenue and has no debt.

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“You can become wealthy by creating wealth or by appropriating the wealth created by other people. When the appropriation of the wealth is illegal it is called theft or fraud. When it is legal economists call it rent-seeking”

John Kay, Financial Times 27th Dec 2009

“If a free society cannot help the many who are poor, they cannot save the few who are rich.”

John F Kennedy, Inaugural Speech, Jan 1961

“If science is defined by its ability to forecast the future, the failure of much of the economics profession to see the crisis coming should be a cause for great concern”

Joseph Stiglitz

“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”

Nelson Mandela

LATEST BOOK

Rent Unmasked

Rent UnmaskedRent Unmasked explores the new economic paradigm that policy-makers need to solve global problems in the post-2008 era. With conventional economic theories discredited, the new model must equip governments with tools to re-stabilise societies in a dangerous world. Rent Unmasked explains why one paradigm only qualifies to serve this purpose: the dynamic model that reinstates time and space in economic theorising.

ISBN 9780856835117 | Price: £19.95