Three questions come to mind!
1. What is Land Reform?
2. What is effect of taxation on Land Reform?
3. What is the message that South Africans can give to the rest of the world?
NEED FOR LAND REFORM
The single greatest problem in the world today is the contrast of wealth
and poverty.
*The world now has 350 billionaires whose combined net worth equals the annual income of the poorest 45% of the world*s population* (1) David C. Korten *The Limits of the Earth*). This contrast arises mainly from the mal-distribution of land ownership and the lack of access to land by the majority.
According to Susan George in her book *How the Other Half Die* *the most pressing cause of abject poverty which millions of people in the world endure is that a mere 2,5% of landowners with more than 100 hectares control nearly three-quarters of all the land in the world, with the top 0,23% controlling over half (2).
Similar conditions exist in South Africa, where 86% of the land is owned by the white minority. Because of this, labour does not have reasonable access to land and self employment. So both land and labour tend to be idle, kept apart by outdated laws and customs and by bad taxation.
LAND REFORM
The purpose of land reform should be to bring about a more equitable distribution of land ownership and access to land.
This usually involves changes in laws and regulations and also changes in customs.
Land reform is the process of examining and changing laws, regulations and customs relating to land ownership and land tenure. Preventive legislation needs to be removed and new incentive legislation introduced.
In South Africa there were laws to keep different race groups apart. These have been withdrawn, but it is taking time for the customs to change. Not only is it necessary to remove restrictive laws to bring about Land Reform, but it will be necessary to introduce new laws to assist in land distribution. Political and legislative change on its own is of no lasting advantage without being accompanied by economic reform, which gives an advantage to the people.
TAXATION
WHAT IS THE EFFECT OF TAXATION ON LAND REFORM?
This is one of the most neglected aspects of both economic research and land reform.
(1) TAXATION LOCAL GOVERNMENT LEVEL
The collection of municipal revenue or rates from anything other than land values encourages speculation in land and the withholding of land from optimal use. Revenue collected from a payroll tax or from any form of production or services, discourages employment. If rates are collected on the value of buildings they discourage construction and improvements. In effect, capital, which is highly mobile, is encouraged to go somewhere else.
There is only one suitable source of municipal revenue, and that is rates based on the market value of all land excluding the value of improvements thereon which is unimproved value of all land i.e. Site Value Rating.
SERVICES SHOULD NOT BE SEEN AS A FORM OF TAXATION: The cost of services, such as electricity and water should be related directly to consumption and capital outlay. These should be self supporting and have little impact on the municipal budget.
In the field of Site Value Rating, South Africa is a world leader, a fact not generally known.
Two studies on rating carried out over a 20 year period and a 10 year period are reported in *That All May Live* by Godfrey Dunkley (3). It is significant that 70% of all municipal rates collected in South Africa come from cities which are on Site Value Rating and make no charge on improvements.
Both studies showed that cities using Site Value Rating experienced twice the capital growth compared to those taxing site and improvements at the same rate i.e. FLAT RATING.
Capital investment is attracted to those cities on Site Value Rating. Rating on Buildings discourages investment, construction and employment. It is thus highly desirable for all cities collecting any portion of their rates from improvements to change to Site Value Rating.
Cape Town and Port Elizabeth are the only major cities still rating buildings at the same percentage as land i.e. FLAT RATING.
(2) TAXATION: CENTRAL GOVERNMENT
Although this Conference is directed at Municipal and Regional Level, Central Government tax policies are of great importance. The present systems of taxation in the Republic of South Africa and most other countries have a serious effect on the lives of the people. The greatest adverse impact is at municipal level.
Any tax which does not reduce to zero at the margin of production causes unemployment. The margin of production is where the cost of production is equal to the value of what is produced. There is no room for any tax.In South Africa, Value Added Tax together with some of the other direct and indirect taxes have created large unemployment in the former homelands. Many industries have closed down since re-incorporation into South Africa. Since there is no other employment for people in these areas, and as people do not have access to suitable land for self employment, they are forced to move to the cities.
There are at least 5 million squatters in and around the cities of South Africa. There is a shortage of over a million houses. This creates an unprecedented problem at municipal level. The only possible solution would be for government to change its tax policies. It is essential that all taxes at the margin of production be removed in order to reduce unemployment. These taxes should be replaced by Land Value Taxation. This should apply to all land according to its market value.
In time, land at the margin of production would have little if any market value when the speculative element is removed. There would be no Land Value Tax collected on such land.
DEVELOPMENT IN CAPE TOWN
Thirty nine former municipalities and local authorities in and around Cape Town have been pooled together and subdivided into six new municipal areas. These form the Cape Metropolitan Area and the Cape Metropolitan Council has agreed in principle to change to Site Value Rating.
Cape Town municipality, together with two adjoining municipalities have decided to change to Site Value Rating as quickly as possible. To this extent they agreed to produce new Valuation Roles based on the market value of land only or Site Value. The new Valuation Rolls should be completed during 1998 and be applied in July 1999. The decision to value land only is something new in the Republic of South Africa. It has many logistical advantages namely:
ANTICIPATED PROBLEMS
The existing Valuation Rolls vary considerably in their age and reliability. The former Cape Town Roll is now 18 years out of date. Property Values have changed considerably in that time, but not consistently. Updating on a percentage basis has resulted in the injustice of many valuable properties being extremely under-rated and low priced properties being over-rated.
There is bound to be public reaction from those owners whose properties are currently grossly under-rated when the new Valuation Roll reflects actual market values.
LAND TAX HISTORY
Historically governments were supported by some form of land tax and by services provided as a payment for land use. Payment to government was often in the form of military service.
According to G T Wrench, (4) two highly successful societies existed between 700AD and 1400AD based on the economic laws given by the Prophet Mohammed.
One was in Mesopotamia and the other was the Moorish Occupation of Spain. In both cases poverty was relieved by the ZAKAT or Growth Tax. Zakat was a tax on all property owned beyond a certain maximum and was meant, as Mohammed said *To be taken from the rich among them in order to give to the poor*.
Zakat was of two kinds, SADAQAH, or tax on the growth of capital goods, and the TITHE or tax on the surplus produce of the soil.
Land Value Taxation and Site Value Rating are in fact modern applications of the intent expressed in Zakat. Both require careful consideration.
CONCLUSION
The quality of a nation is shaped to a very large extent by its system of taxation at central government level, and its system of rating at local government level.
In the absence of oppressive laws and customs, Tax Reform is the most important single factor in Land Reform.
Changes in laws and regulations can bring about temporary relief but only suitable tax reform can create a sustainable economy with equitable redistribution of land and income.
From our experience in South Africa, both what we have done right and what we have done wrong, we have no hesitation in making the following recommendations:
1. At Municipal or Local Government level, collect all revenue, with the
exception of services, from Site Value Rating encourages economic growth,
construction and employment. Site Value Rate discourages speculation and
helps make land available for housing.
2. At national level it is becoming essential for destructive taxation to
be replaced by Land Value Taxation, this will encourage employment and in
time reduce or even reverse the migration of people towards the cities.
The introduction of a Land Value Tax in strife torn areas could help to diffuse the situation. Disputes over access to land are major causes of both domestic and international strife. If the rent of land were collected in the form of a Land Value Tax, then people would be paying the community for the use of land according to its market value. This would reduce the incentive to own land in order to achieve unearned gains.
If Land Value Taxation were combined with payment of a citizens dividend the strife would be even further reduced.
When the stakes or prize is reduced, so is the competition.
3. If any Nation would like to implement Land Taxation, I have been assured that six of the world*s top economists are willing to work for your Governments to guide and implement such a system.
4. We are able to create a better society for all in the coming millennium, so I urge you to take action now.
THANK YOU
Councillor Bill Stibbe, Telephone (021) 761-6160 Cape Town
CELL 083 629-0824
Bibliography:
1. DAVID KORTEN, *The Limits of the earth**
The Nation, July 15/22 1996.
2. SUSAN GEORGE, *How the Other Half Die*.
Penguin Books 1976 p24.
3. GODFREY DUNKLEY, *That All May Live**
A. Whyte Publishers, 1990 p 122.
4. G. T. WRENCH, *Reconstruction By Way of the Soil**
Faber & Faber, 1945? P.220
The entire contents of this article are copyright 1997 by Godfrey Dunkley and Bill Stibbe.. Anyone seeking permission to reprint, store, redistribute or otherwise use this article will please contact Godfrey Dunkley at landtax@global.co.za