Category Archives: Politics

Right-Wing Support for LVT

When the Labour Party included a paragraph in its manifesto for the UK’s 2017 election stating that it would “initiate a review into reforming council tax and business rates and consider new options such as a land value tax”, the mere suggestion of a land value tax (LVT) was unsurprisingly derided by Conservatives and the right-wing press as “Marxist” ideology. Of course, this is nonsense, as Chris Game explains in his article “Land Value (or Garden) Tax – more Adam Smith than Marx”.

Some of my fellow LVT advocates have suggested to me that one of our most important tasks is to convince people on the right of the benefits of land value taxation – no easy task given the way the idea is frequently attacked and distorted by the right-wing press and conservative politicians.

However, there are several politicians, economists, journalists and think tanks on the conservative and libertarian right who have supported the idea. I thought it might be handy to put together a collection of articles, along with extracts, and videos supporting LVT from a right-wing perspective that can be shown to sceptics on the right, as well as perhaps to give us an insight into the arguments that may be useful in trying to convince such people.

I’ve focused on people on the right who happen to be LVT supporters here, rather than LVT supporters who happen to be right-wing. I’ve also chosen to stick to more modern times, rather than go back to the days of Adam Smith (although Smith’s views are included in the article on Geo-libertarianism). A couple of the sources do not exactly provide ringing endorsements for full taxation of all land, but do at least accept some aspects of LVT. If anyone spots something that I’ve missed then please let me know. Links to all sources provided.

 

Nick Boles (Conservative MP, 2010-)

It sounds bonkers but we should embrace a land tax

“In current circumstances, one of the most pernicious taxes is national insurance as it punishes employers for taking on new people and, because we have a fairly free market in labour, reduces people’s take-home pay just as surely, though a little more indirectly, than income tax. But if we want to cut this tax on jobs and wages, we need an alternative source of revenue that is reasonably easy to collect and which is less damaging in its effects on people’s incentives to invest, expand and hire new people…

[A land value tax] would deter speculative land banks and would encourage property owners to develop brownfield sites and put rundown areas of inner cities back to good use. Over the longer term, it would lower the price of development land and help us get off that quintessentially British rollercoaster of house price booms and busts…

Using the proceeds of a targeted Land Value Tax to cut the national insurance tax on jobs might give the British economy the crucial leg-up it needs.”

David Curry (Conservative MP, 1987 – 2010)

The much bolder option

“What puzzles me is why, if he really wants a radically energised planning system and is prepared to have a huge fight to get one, Mr Brown has not gone for the much bolder option – a tax on the value of the site itself. This tax would take the form of an annual charge on the value of a site, levied according to its status in the local plan, whether or not it was developed. Its advocates claim that it would bring idle land into the best use for it, leading to an increase in supply and a decline in price.

Rather than capturing planning gain on one site at one moment, a land value tax would also recover value from neighbouring sites that had benefited from the development. Local authorities would collect more tax by the mere act of designating (or zoning) suitable land for industrial or residential development, thereby increasing its value even if no development took place. Landowners would have no incentive to hold sites back from development. Councils, by contrast, would have an incentive actively to pursue re-zoning.”

Conservatives for Liberty

Libertarian solutions to the housing crisis

“One of these policies could be the replacement of council tax and stamp duty land tax (SDLT) with a new and simpler land value tax (LVT) on the unimproved value of all UK land. As derelict land in close proximity to urban infrastructure such as roads and railways is more valuable than Greenfield land with little nearby infrastructure, the redevelopment of poorly-utilised inner city land by its owners over new Greenfield sites would be encouraged by the LVT.

Consequently, the LVT would significantly assist in the prevention of undesired urban sprawl and the preservation of rural settings; making its introduction an effective replacement to green belts.

The elimination of SDLT would help to stimulate the UK property market; something that will need to occur if we are to encourage more housing development in the UK. Another added bonus is that the LVT would be very difficult to evade. This is because British land cannot be physically moved beyond the jurisdiction of UK tax authorities.”

Samuel Brittan (Thatcherite journalist)

Tax England’s green and pleasant land

“Yet, far from being an outrageous Bolshevik idea, the case for a land tax is one of the oldest and least disputed propositions in economic thought…

The basic point is that the supply of land, with rare exceptions such as reclamation in the Netherlands, is fixed. But because of its scarcity owners can command an income over and above the normal return to the enterprises placed upon it.”

David Cowan (Conservative activist, Tory Reform Group)

Progressive Conservatives should support a Land Value Tax

“The introduction of a LVT ought to be viewed as the most legitimate way to raise new revenue.

For too long, landowners and speculators have been able to reap sizeable economic outputs from rising land values, though contributing little economic input. One example being how the construction of the Jubilee line sent surrounding land values shooting up to £10 billion, to the benefit of landowners, while taxpayers still had to foot the bill….

Properties of all shapes and sizes are already overtaxed by the likes of council tax, business rates, stamp duty land tax, planning charges, and landfill tax. If these taxes were to remain then LVT would be burdening people with further unwelcome costs.

Instead, LVT should replace those property taxes – either entirely or at the very least mostly…

The LVT would not harm enterprise. It would boost productivity, discourage urban sprawl, could replace the plethora of punitive property taxes, and would be relatively simple to administer and collect.”

Adam Smith Institute (ASI)

PRO-GROWTH TAX REFORM

“Reform business rates and council tax into a pure Land Value Tax on unimproved land values so that capital investment is not taxed.”

UK Budget predictions 2016: What do free marketeers want from chancellor George Osborne?

“The ASI wants business rates to be stopped from taxing capital. Its reasoning is as follows: business rates tax property values, so they effectively tax both the land a property is built on, and what sits on top of the land (bricks, mortar, machinery).

“Taxing land values is a relatively good way of raising revenue, because it does not discourage production. But taxing property discourages construction, improvements and investments in new machinery,” it says.”

Ben Southwood (ASI)

THE ASI AND HOUSING IN 2017

Tax unimproved land values, not transactions. Stamp duty land tax destroys huge amounts of economic value and prevents allocative efficiency—it should be abolished. Council tax and business rates disincentivise improvement and bias buildings toward certain uses—they should be first merged, and then levied only on unimproved values.”

Sam Bowman (ASI)

Sam Bowman discusses the devolution of business rates on BBC 5 Live

“If and when they do revalue business rates, there’s a disincentive to anybody who is a business or is a land owner to improve the property that they’re on, and we don’t want that. What we want is them to only be paying the value of the land, and to try and get as much as possible from that land, by building as much on that property or the most profitable thing they possibly can. We’d get that with a land value tax, we don’t really get that really from business rates.”

BUSINESS RATES: NOT SUCH A GOOD TAX AFTER ALL

“A good rule of thumb is that if you tax something, you get less of it, which is why taxes on capital are such a bad idea. But since there’s a fixed supply of land, taxing the value of land doesn’t get you less of anything. Nice one.”

WHY EVERYBODY IS WRONG ABOUT THE LAND VALUE TAX (EXCEPT ME)

“It’s a bit silly to call this a ‘garden tax’, since council tax valuations already include gardens. Unless the Tories are proposing to exempt gardens when we calculate how much a property is worth, they too favour a ‘garden tax’.”

Tim Worstall (ASI, Forbes)

Land Value Tax is a great idea – but it’ll never happen

“One reason to like this tax – as Milton Friedman pointed out – is that it’s the least distortionary tax there is. No one is making land anymore, so we’re not going to reduce the supply of it by taxing it. That is true of everything else – tax apple consumption and people eat fewer apples, tax incomes and some work less, tax profits and people set up fewer businesses. But land is in fixed supply, so we’re not getting less as a result of gaining our necessary tax revenue from it…

It’s also right that everyone should pay it. Yea even those horny handed sons of the soil, the farmers. Land that’s on top of some Dale is worth spit and so would pay near nothing, someone using Surrey to grow turnips probably should be encouraged to make better use of it.

For, yes, having to pay tax on the value of the land does indeed mean that people will have to allocate the land to a use which will producing a decent return on that value. This is why the OECD has insisted that “repeated taxation on property”, by which they mean the LVT, makes the economy more efficient, unlike all other taxes.”

There are good taxes and bad taxes

“How much economic activity doesn’t take place because of the imposition of different types of taxes?

Repeated taxes on property, that is business rates, have the lowest deadweight costs of any form of tax. The only one that could be better is a proper land value tax.”

AN INTERESTING AND CORRECT WAY TO DO HOUSING TAXATION

“As Henry George pointed out to us all the art of land value taxation is to tax the unimproved value of said land. Another way to say the same thing is that we’re trying to tax the value that society adds to the land, not what the owner has added themselves. Land in the centre of London has a higher value than much land elsewhere just because it is surrounded by London. It seems reasonable enough that some of that value created by London should be taxed to pay for London.”

NO, NO, THEY’RE QUITE RIGHT HERE WE REALLY MUST CHANGE BUSINESS RATES

“That is, business rates are a crude proxy for a land value tax and as a crude proxy they’re not quite good enough. What we want instead is a proper land value tax, one that taxes the undeveloped value of that specific plot of land, that value being determined by all the other development that has taken place around it. What is actually developed upon that plot should not be taxed in the slightest. In that manner the retailer, the occupier, will not be bearing any of the cost of the rates, the developer will not be yet the landlord of the land itself will be carrying the full burden.”

Contra Piketty It’s Not A Wealth Tax We Need But A Land Value Tax

“For a reasonable analysis of how zoning (or in the UK, planning permission) works is that those who currently own houses in desirable, low population areas, vote to get the zoning policies which keep those areas low population at no financial cost to themselves. The point of land value taxation being to insist that they carry that cost of excluding others from building houses in such desirable areas.”

Sadly, all too many don’t understand business rates

“Business rates are not perfect as they rely upon the rentable value of the building, not the land it is upon. But they are the closest we’ve got to a good tax, a land value tax…

If you happen to be trading in a property hot spot (and, indeed, your brilliant business may have contributed to the success of that place, as in Southwold and Port Isaac, areas with notably good independent shops that will be hit by rate hikes), or big brands have arrived and now surround your enterprise, then your valuation goes up and you find yourself catapulted out of the small business relief zone.

Yes, that’s the point. There’s a limited supply of land in those hot spots, taxing that land is the least distortionary tax that we have. It’s a good tax. And note what is being taxed – that the other people around that property are adding value to it.

But the revaluation works for the online retail giants. According to CVS analysis, the nine Amazon distribution centres in England and Wales will be able to knock £148,000 off their property tax liabilities this year (despite annual sales in excess of £6bn). Similarly, fashion retailer Boohoo gets 13% knocked off the bill for its distribution centre in Burnley; so it goes on.

Quite so, this is what we want to happen. There’s a limited demand for chi chi shopfronts in Burnley and there’s lots of land. Thus we tax the use of low value land more lightly than the use of high value land.”

Why We Want Dynamic Scoring Of Budgets; It Would Bring Us A Land Value Tax

“However, we also know that different taxes have different deadweight costs… We even know a rough order of ranking of those deadweight costs. Transactions taxes have vast deadweight costs: at least one official report on the financial transactions tax (the report from the EU itself) tells us that that tax would make the whole economy so much smaller that it would actually lose tax revenue by being levied. Lower than that are wealth taxes (a once off wealth tax that no one knows is coming does not, but a regular one does), then capital and corporation taxes, then income taxes, then with still lower deadweight costs consumption taxes (like a VAT or sales tax) and then finally, at the bottom, we find that repeated taxes on non-movable property can even have positive deadweights. And that last can also be called a land value tax.”

Institute of Economic Affairs (IEA)

UK Budget predictions 2016: What do free marketeers want from chancellor George Osborne?

“For the Institute of Economic Affairs (IEA), this is the solution: Property taxation should be completely overhauled, with the long-term aim of abolishing council tax, business rates and stamp duty, and replacing them with a Land Value Tax on commercial land and a tax on imputed rent for residential property.”

Taxation, Government Spending and Economic Growth.

“If properly constituted, a tax on location value may cause disproportionately little economic damage, because land cannot be hidden or taken overseas to avoid the tax and owners cannot respond to the tax by producing less value in its location”

“The move away from existing property taxes and towards a land value tax and a tax on the imputed rent from owner-occupied housing (or a housing consumption tax) would create a tax sys­tem much more conducive to growth. Existing taxes on business property would be abolished and homeowners would no longer suffer stamp duty when they moved to take a more productive job. The tax on imputed rent would end the bias against rented property that exists in the UK tax system and a land value tax is well understood by economists to be one of the least growth-inhibiting taxes available.”

The case for a Land Value Tax

“The tax has attracted many proponents because it is as close as possible to an ideal tax – it is efficient (does not alter economic activity), equitable (the richer tend to have more land than the poor) and has revenue raising potential (the tax is difficult to avoid or evade). It also recognises land as a precious finite resource. More importantly, if implemented properly it can potentially seed economic growth, lead to greater productivity and even energise house building (as well as helping stabilise the cycle in land prices).”

Kristian Niemietz (IEA)

Autumn Statement: splashing central government money around is not ‘devolution’

“Now imagine local authorities had to finance all of their expenditure from their own tax revenue, and imagine a large chunk of that revenue came from, say, a local Land Value Tax (LVT). They would then have a strong incentive to grant planning permission more liberally, because this would be an easy way to broaden their tax base. That is the way to solve the housing crisis – not subsidising developers, and not subsidising homeownership.”

To solve the housing crisis, we must take on NIMBYs and abolish the green belt

“Sensible tax changes would strengthen incentives to permit development by giving local authorities ‘skin in the game’. This could be achieved by, for example, replacing council tax, stamp duty, business rates and (property-related) capital gains taxes with a local Land Value Tax (LVT). Local authorities would retain 100 per cent of LVT revenue. This would encourage tax competition for residents, and it would allow local authorities to capture a part of the ‘planning gain’ (the increase in land value when planning permission is granted).”

Conservative Home

Andrew Lilico: Is it possible privately to own land?

“Likewise, the question of the private ownership of land is not one of whether private persons can possess or control or even trade claims on the use of land.  The question is whether I can truly own land the way that I can truly own a spear.

I say: No.  But what I mean by that is quite narrow, as with the airspace.  You can own buildings – because buildings are created with labour and other non-land property… But you cannot (normally?) own the space (the “land”) in which the buildings and the soil sit because, as with the airspace, no property or labour has contributed to its creation…

In a previous piece, I argued against wealth taxes.  But the reasoning of this post suggests that land taxes are not wealth taxes, for land cannot be part of a private citizen’s property.  The land is owned (if by anyone) by the Crown.  So the Crown might legitimately charge a fee for its use.  I do not think such a charge should even be described as a “tax”.  It is more like a usage fee.”

How and why should we tax land?

“In theory, the cost of paying the tax wouldn’t be passed on to tenants, but it would capture the “‘undeserved’ gains landowners make on the investment of others, such as the government improving nearby transport links.”

One could also argue that it would be an excellent way of discouraging the excesses of the British property market.”

Milton Friedman

Milton Friedman talks about property taxes

“There’s a sense in which all taxes are antagonistic to free enterprise – and yet we need taxes… So the question is, which are the least bad taxes? In my opinion the least bad tax is the property tax on the unimproved value of land, the Henry George argument from many, many years ago.”

Milton Friedman, Land value tax and internet currencies

“Governments can collect taxes best on things that don’t move. Land is an ideal basis for taxation because you can’t take it away.”

David Nolan (founder of the Libertarian Party)

LVT advocates

“What kind of taxation is least harmful?….My own preference is for a single tax on land, with landholders doing their own valuation; you’d state the price at which you’d be willing to sell your land, and pay taxes on that amount. Anyone (including the tax collector) who wanted to buy it at that price could do so. This is simple, fair, and minimizes government snooping into our lives and business.”

Various Libertarian sites

Why Libertarians Should Support Land Value Taxation

English Common Law is based on natural relations within society, and not arbitrary decrees and statutes, and so it can be seen that the right to assess landed property for a land-related payment is merely a recognition in our law that land ownership cannot be absolute, that land anywhere in the world existed before any human society was formed, that the land that we live on forms a common social resource, and so it not genuinely “ownable” by anyone in any country, society or time period…

The original land grants made to Norman nobles could only be made in the context of English Common Law, which provided for exactions to be made by the Crown. It is clear that a common social resource—the land—a resource that naturally exists, is not the product of investment or the application of human skill and is generally not something that more can be produced of—has become monopolised by a few…

It is right therefore that the state attempt to extract as large a proportion as possible of the economic rent derived from possession of land, minerals, forestry and fishery resources, and the electromagnetic spectrum, and land taxation should be seen in this light. Given the fact that land is a common social resource, it is doubtful whether the word “taxation” is correctly applied to a land levy. What we are talking about here is not taxation of income or profits or the restriction of economic activity, but a levy that is based on the fact that no original ownership of the common resources ever existed.”

What is Geo-libertarianism?

“The term “geo-libertarianism” was coined by economist Fred E. Foldvary. The “geo” in “geo-libertarian” stands for Georgist. Georgism is the economic belief that people should keep what they work for, but the benefits of land ownership should belong to the community as a whole. Thus, they support a land value tax (or LVT for short). Straight away, you probably see that this view is at odds with the common libertarian idea of property being an extension of the individual. Georgism stresses the idea of community, and libertarianism stresses individualism. However, these views don’t necessarily to contradict each other if the community exists to protect the rights of the individual…

One of the first Americans to identify as a libertarian was also a Georgist. His name was Albert Jay Nock. Milton Friedman also referred to the land value tax as the “least bad tax.” David Nolan (the founder of the Libertarian Party and the creator of the Nolan chart) claimed that a single tax on land was the “least harmful” kind of taxation.”

A Tax Even Libertarians Could Love?

“The moral argument starts from the same place as John Locke’s famous discussion of property, with the claim that each individual is the sole rightful owner of his body and labor. Because George accepted Locke’s idea of self-ownership, he argued that most forms of taxation are unjust – essentially a form of theft. If you own your labor, and you choose to sell your labor to somebody else, no third party – including government – can legitimately demand that you give them a portion of the income you’ve received. To do so would be, in effect, to steal your labor.

But natural resources are not the product of anyone’s labor. They simply exist, on their own, as a free gift of nature. And because nobody created them, nobody has any better claim on the raw value of those resources than anybody else…

Natural resources, George thought, belong to humanity as a whole, and not to any particular person. A tax on the unimproved value of those resources is therefore one way in which humanity as a whole can reclaim what has been unjustly monopolized by a few, and do so moreover without violating individuals’ self-ownership.”

 

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To be truly “Open for Business” Brexit Britain needs a Land Value Tax

Since the UK voted to leave the EU in June, the Tory leadership has been determined to make it clear to the rest of the world that Brexit Britain will remain “open for business”.

A recent report published by the Institute of Economic Affairs (IEA) has suggested numerous tax and government spending reforms intended to achieve just that.  The authors encourage Chancellor Philip Hammond to take a sledgehammer to the UK’s tax system to stimulate economic growth, in what has been dubbed a “bonfire of taxes” by the Telegraph.

A key part of their solution is to replace several taxes with a new land value tax, described in the report as “well understood by economists to be one of the least growth-inhibiting taxes available”.

The idea of a land value tax – or LVT- has a long history, with figures from the 18th to early 19th century such as Thomas Paine, Adam Smith and David Ricardo supporting its implementation. It is closely associated with American journalist and economist Henry George, who believed that a tax on land could act as a “single tax” and replace all other taxes. LVT was also described by 20th century economist Milton Friedman as “the least bad tax”.

henry_george

American journalist and economist Henry George who believed a land value tax should replace all other taxes.

In the UK, a land value tax was proposed in 1909 by then Chancellor of the Exchequer David Lloyd George and his ally Winston Churchill. The reform was included in their People’s Budget but was ultimately rejected by the land owners who filled the House of Lords.

More recently, LVT has been supported by the Green Party and Labour’s Shadow Chancellor John McDonnell.

Numerous arguments are made in favour of LVT. Firstly, increases in the value of land are largely a result of the economic activity of other people. It is possible for land owners to receive unearned income simply by speculating on increases in the value of land without making any improvements themselves. Furthermore, by taxing land, governments can recoup some of the money that they invest in infrastructure and utilities, rather than allowing the resulting increase in land values to merely provide a windfall for land owners.

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Winston Churchill makes the case for land value taxation in 1909.

Photo credit: By BiblioArchives / LibraryArchives [CC BY 2.0 (http://creativecommons.org/licenses/by/2.0)%5D, via Wikimedia Commons

Secondly, the tax would encourage owners to develop valuable land rather than leaving it unused. In particular, sites in inner city areas would be used more efficiently, leading to a reduction in urban sprawl.

Unlike corporation and income tax, LVT would be virtually impossible to avoid. Advocates also claim that it would stabilise the economy, curbing the boom-bust cycle.

Lastly, switching to a land value tax means the burden of taxation can be shifted away from productive enterprise, and taxes that fall mostly on the poor can potentially be reduced or even abolished.

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In the UK, three taxes that are usually considered prime candidates for replacement with LVT are:

  • Council tax – In the above-mentioned report published by the IEA, council tax is derided as “Confused, outdated and unpopular”.

 The regressive nature of council tax has been criticised by journalist George Monbiot: “Why should council tax banding ensure that the owners of cheap houses are charged at a far greater relative rate than the owners of expensive houses? Why should Rinat Akhmetov pay less council tax for his £136m flat in London than the owners of a £200,000 house in Blackburn?

 Furthermore, MSP and LVT advocate, Andy Wightman of the Scottish Green Party has noted that 83% of households in England would immediately be made better off by a revenue-neutral shift from council tax to a land value tax.

  • Business rates – The IEA has previously criticised business rates in a blog post arguing for LVT: “Ideally, as argued here, they [the government] should at minimum consider scrapping business rates and replacing them with LVT. Business rates have long been criticised by many businesses because of their complexity and discouragement of investment and growth.” 

Another problem is that business rates are reduced or zero for charities, agriculture and unused or underdeveloped land, which, according to the IFS, “provides a clear and perverse incentive to use land inefficiently”.

  • Stamp duty -It has been claimed that stamp duty, a tax on property purchases,  has “a strong claim to be Britain’s worst tax”.

Jonathan Isaby, Chief Executive of the TaxPayers’ Alliance says that “Stamp Duty is unfair, unjust and must be reformed. It stops ordinary families moving up the property ladder, discourages the elderly from downsizing, and worst of all is a barrier to young people looking for their first home”.

However, abolishing these taxes could be just a first step. As mentioned above, a land value tax could also be used to shift the burden of taxation away from workers and businesses, thus encouraging enterprise and entrepreneurship. Taxing land rather than income would help the government to achieve its aim of “making work pay”.

A shift to a land value tax would encourage economic growth as it would result in lower “deadweight losses” than other forms of taxation. Economist and land value tax advocate Fred Harrison estimates that these deadweight losses amount to around £500 billion every year: “How does this happen? Taxes such as those on corporate profits, consumption and most of the rest of the fiscal tools imposed on the people of Britain result in negative forms of behaviour. The cumulative effect of all those distortions can be summed in one statistic: £500bn. That is the additional annual wealth and welfare which the people of Britain would produce if they were not burdened by Treadmill Taxes… That is because the incentives to work, save and invest would favour higher productivity in the way people went about their daily lives.

Although, strictly speaking, they don’t have a land value tax, Singapore and Hong Kong are good examples of places where land rents have been captured for public revenue. In Singapore and Hong Kong most land is owned by the government, which leases it out to businesses and private individuals.

According to economist Neville Bennett, Hong Kong raises approximately 38% of its revenue from land leases. This has enabled the city state to keep its taxes on businesses and income relatively low. Income tax is very low in Hong Kong, with a top marginal rate of just 17%. Corporation tax there is 4% lower than in the UK (16% vs 20%).

Similarly, the highest earners in Singapore pay a maximum marginal rate of 20% on income above $320,000, while businesses pay a flat rate of 17%.

2048px-1_singapore_city_skyline_2010_day_panorama

Singapore, the country that topped the ease of doing business rankings every year from  2007 to 2016.

Photo credit: By chensiyuan (chensiyuan) [GFDL (http://www.gnu.org/copyleft/fdl.html) or CC BY-SA 4.0-3.0-2.5-2.0-1.0 (http://creativecommons.org/licenses/by-sa/4.0-3.0-2.5-2.0-1.0)%5D, via Wikimedia Commons

Land value taxes have been implemented in a couple of European countries. One of these is Estonia. In part thanks to its use of LVT, Estonia is considered to have the most competitive tax system in the OECD.

Denmark also has a land value tax in place, and like Hong Kong and Singapore, it has been among the top six countries in the ease of doing business index every year since 2008. Impressively, Singapore topped the rankings every year between 2007 and 2016.

ease-of-doing-business

Ease of Doing Business index 2015-17. Source: Wikipedia (link)

Although numerous other factors contribute to the ease of doing business in a particular country, basing their tax systems on capturing land rents clearly hasn’t had a negative impact on those countries in this respect.

In addition to regularly featuring among the easiest places to do business, these places also perform significantly better than the UK in terms of budget surpluses/deficits.

The most impressive record belongs to Hong Kong, which has achieved a budget surplus every year since 2006, while Singapore has done so on seven occasions over the same period.

hong-kong-government-budget

Hong Kong budget 2006-15 (link)

singapore-government-budget

Singapore government budget, 2006-15 (link)

Meanwhile, although not as impressive as Hong Kong or Singapore’s records, European countries Denmark and Estonia have also registered multiple budget surpluses during the period 2006-15.

denmark-government-budget

Denmark government budget 2006-15 (link)

estonia-government-budget

Estonia government budget 2006-15 (link)

By contrast, the UK has only achieved a budget surplus eight times in the past six decades, and not once in recent years, despite the austerity measures implemented by the coalition and subsequent Conservative government.

united-kingdom-government-budget

UK government budget, 2006-15 (link)

If the government wants to ensure that Brexit Britain is truly open for business, it would be well-advised to consider the examples of Hong Kong, Singapore, Denmark and Estonia and take a serious look at the idea of land value taxation.

Photo credit for featured image: CC BY-SA 3.0, https://commons.wikimedia.org/w/index.php?curid=353710

Basic Income vs Job Guarantee: A Few Thoughts

Since I began following the discussion about basic income a couple of years ago, I’ve seen a number of people arguing that a job guarantee is a better solution to alleviate poverty. Briefly, a job guarantee is where the government acts as “employer of last resort”, providing jobs when the private sector is unable to. I’ve read several articles about the concept, but have always had a few reservations about it and felt that some of the criticisms of basic income made by its supporters have been somewhat unfair.

For example, in August Pavlina Tcherneva, a prominent supporter of the job guarantee, made an appearance on RT’s Boom Bust programme (see video below). One of her main criticisms of basic income is that it doesn’t do enough to stabilise the business cycle. “The basic income doesn’t have this counter-cyclical stabilisation function” she says. “It is supposed to be provided at all times irrespective of the macro-economic conditions. Every fiscal policy has a counter-cyclical feature except the basic income guarantee”.

So far, this doesn’t seem to have been an issue with the Alaskan dividend – the nearest example to a basic income that we have – which has been providing every Alaskan with an annual, unconditional cash payment since 1982. Funding a basic income like this by means of a sovereign wealth fund is the method preferred by Guy Standing, co-founder of the Basic Income Earth Network. He has refuted the “business cycle” argument, saying that basic income payments made in this way can be increased and decreased depending on the state of the economy with an independent body making judgements on the amount being paid out.

However, if –unlike the Alaskan dividend – a basic income is used to replace existing elements of the welfare state, in particular unemployment benefits and tax credits, then Tcherneva’s criticism may be a legitimate concern.

Many basic income models already have a counter-cyclical feature built into them though. This usually involves an integration of the benefits and tax systems. For instance, several proposals for a basic income in the UK include the abolishment of the personal tax allowance. This means that, unlike now, all income would be liable for taxation. As soon as someone’s income rises they would begin to pay back more of their basic income through income tax. Additional marginal tax rates can be implemented to ensure that more of the basic income is clawed back from higher earners.

In this way, a counter cyclical feature is ensured: when the economy is doing well more people will be paying back their basic income, and when it’s not doing so well people will rely more on the basic income, just as they do with welfare now. Alternatively, a land value tax could be introduced to recoup some of the money from wealthy individuals. It is often argued that a land value tax would stabilise the economic cycle of boom and bust.

Clawing back the basic income in one of these ways also tackles another common criticism of basic income, namely that it isn’t targeted enough to people on low incomes. If the basic income is recouped from the rich, more money would be available to raise the level of the basic income and ensure that people on low incomes are better off.

I’m not against the idea of a job guarantee in combination with a basic income though. “Providing a financial incentive to seek work may not be enough, if job-hunting is difficult and expensive” writes basic income advocate Frances Coppola in Forbes. “People may need help looking for jobs, and in some areas may need the government to guarantee a job… The combination of job guarantee scheme with basic income should ensure that anyone who wants to work can do so.”

If there is work to be done that won’t be taken care of by the market then why not have the government employ people in certain areas of the economy? If we look at the United States for example, there is clearly a need to deal with the country’s crumbling infrastructure. A jobs programme to fix this, like the one proposed by Bernie Sanders in his presidential campaign, would be a good idea.

L. Randall Wray, a professor of Economics at the University of Missouri–Kansas City and colleague of Pavlina Tcherneva, provides a list of other possible jobs that could be guaranteed by the government, such as companion for senior citizens, the bed-ridden, mentally or physically disabled, public school classroom assistant, neighbourhood clean-up worker, library assistant, environmental safety monitor, etc. These would be useful jobs that wouldn’t necessarily be filled by the private sector so I see no problem with a job guarantee providing this work.

A worthy goal that advocates of both the job guarantee and basic income have in common is the aim of redefining what is meant by “work”, allowing people to choose to do useful work that is not usually considered “productive”. However, if a government were to implement a job guarantee with the objective of simply achieving full employment, no matter what sort of jobs are being done, then I probably wouldn’t be in favour of it. This would continue the fetishizing of jobs and lead to more people being employed in what David Graeber describes as “bullshit jobs”. The main issue is see really is whether there is enough useful work to do for the government to guarantee everyone a job.

There is also plenty of work, such as care work, already being done that isn’t always remunerated and wouldn’t necessarily make sense being part of a job guarantee programme. According to Emily Holzhausen, Director of Policy at Carers UK, 1.4 million people in the UK each provide over 50 hours of unpaid care per week. A basic income seems like the simpler way to recognise this unpaid contribution and make it easier for people to take on and possibly share the responsibility of care work without involving state bureaucracy. If there are important jobs that need to be done within a community, does the government really need to get involved to provide formal jobs? We could instead just provide a basic income and let people decide what work needs to be done on their own.

An issue that I have with implementing a job guarantee without a basic income is that it would do nothing for people who are already employed but whose incomes fluctuate; the self-employed, freelancers working in the gig economy or workers on part-time/zero-hour contracts, for example.

In particular with the potential for giant leaps forward in terms of automation and artificial intelligence, it seems clear that we’re moving further towards an economy that creates fewer and fewer steady full-time jobs, and increasingly promotes flexible labour markets. Without a basic income we will forever be resisting this. It would surely be better to embrace new, more flexible ways of working, while also ensuring improved financial stability for workers in the form of a basic income.

Furthermore, a job guarantee doesn’t eliminate the disincentives to work caused by high marginal tax rates at the lower end of the income scale. As Scott Santens explains in a recent article, welfare effectively punishes people for working because it is withdrawn, whereas a basic income would help to remove the “benefits trap” and make sure that work always pays.

Related to this is the final criticism of basic income that I want address: the idea that basic income simply pays people to stay at home. Mariana Mazzucato (who I thought was a supporter of basic income) recently tweeted an article by L. Randall Wray to present this argument.

In the article, Wray talks about a job guarantee programme called Plan Jefes y Jefas, – or Jefes – that was introduced in Argentina following an economic crisis there in 2001-02. The scheme created around 2 million new jobs for poor heads of households.  

According to Wray, at one point three quarters of the participants were female. However, when the economy recovered and the men in the families began to find work again in the private sector, the government decided to draw down the Jefes programme and place the women back on regular welfare. When the women were asked “would you prefer to receive the benefit of the Jefes program but stay at home,” they all said that they would prefer to go out to work.

It seems odd to me that Mazzucato would see this as an argument against basic income. Surely it is rather an argument against welfare in its current form? I think this idea of basic income paying people – in particular women – to stay at home is a really unfair representation of basic income. Pilots have shown that a basic income can help people to work. For example, following a basic income trial in India, Guy Standing notes that people actually worked more, not less. One example he gives is of a disabled woman who was able to buy a sewing machine and become a seamstress. If – as job guarantee advocates seem to agree – people instinctively want to work, why would a basic income stop women from going out and participating in the community or finding a job? Unlike conventional welfare, a basic income would give them every incentive to do so.

I think this discussion about these ideas is really interesting and I intend to keep an open mind about a job guarantee. Like France Coppola, I think a job guarantee could be done alongside a basic income and I see no reason why we can’t try both.

See also Scott Santens discussing basic income and job guarantee with Iain Dooley of the Australian Employment Party: