India’s Newspaper, The Hindu, on a Land Value Tax
|January 26, 2014||Posted by Staff under Good Press|
This 2014 excerpt of India’s The Hindu is by Navin Singh.
While the traditional feudal class has largely faded out, post-Independence, especially in the last decade, real estate prices have soared to vertiginous heights, bringing realty back to the centre stage of the Indian economy.
The fall in property prices in 11 out of 15 major Indian cities in 2013 as compared to 2012, has created a feeling that the overheated real estate sector is showing signs of correction.
However, the Indian realty sector differs from that of developed world. Up to 50 per cent of the value of a property is paid by the buyer in “black”. Money is parked in this sector usually to evade taxes, and this flow of unaccounted funds is not likely to slow down anytime soon.
Black money, whether earned legitimately or siphoned off from government-spending, funds shady land deals. It jacks up land prices for end-users. Moreover, the builder-politician nexus delays projects without political patronage, leading to a mushrooming of irregular colonies lacking water lines and sewerage.
The logical solution would be to tax land at its annual rental value. The value tax was an idea considered by Adam Smith in The Wealth of Nations, but most famously and fervently advocated by Henry George. It has been used in the U.S., Australia, and Hong Kong. It has been dubbed ‘the least bad tax’ by Milton Friedman as it does not lead to allocative inefficiency. From Paul Samuelson to Joseph Stiglitz, it has many supporters in the economists’ fraternity. Michael Hudson is a vocal proponent and he has suggested it for China as a way to avoid the fate of debt-ridden Western economies.
Land value tax will end speculative land hoarding and bring down prices for the end-user. The money saved thus will be spent on other commodities, increasing consumption and give the economy a boost.
Mining companies, which find it more profitable to squat on natural reserves sensing a rise in mineral prices, will not do that once they have to pay annual tax on the value of the mines. They will have to mine it to earn revenue to pay tax, or choose to return it to the government. Unused prime urban land, of closed mills for example, will be promptly returned to the government for the same reason.
Ed. Notes: Indian governments are already recovering some ground rent, not by taxing private land but by letting public land. The value of public land for mining, in particular, is lucrative enough to spark a dispute between the federal and regional governments over who’ll get those immense rents. One solution might be: neither. Use the socially-generated revenue to pay the members of society a dividend from the recovered rents, a la Alaska’s oil share. That should end some of the competition and corruption. To end more, outlaw taxation, institute dues, forcing government to offer useful services that citizens would willingly pay for.