Resource rents - a counter revolution

Efficient land and resource taxation.

The returns to immobile factors of production constitute an efficient tax base. A rent-based tax would ensure the right levels of exploration and extraction and provide sufficient encouragement for private sector participation. A tax on high-value resource rents would on average over time likely raise higher revenues than existing output-based royalties. There are several alternative mechanisms for applying a rent-based tax, and transitional arrangements are critical.

A land tax is efficient if it is broadly based. Existing land taxes are quite inefficient because they are not broadly based, and rates vary according to land use and landholding aggregation rules. An efficient land tax would apply equally to all land uses and aggregate holdings, but could have a threshold and different rates based on the value per square metre of land. In practice this could mean that most land in lower-value use (including most agricultural land) would not face a land tax liability and the tax would apply moderate rates to most other land. Transitional rules will be critical in changing the basis of land taxes, to smooth valuation effects and to allow ample time for those affected to make adjustments to their investments in land.

I wondered to what extent the efforts of Michael Hudson, my colleagues or me may have influenced the panel’s decision, or maybe they arrived at their conclusions quite independently? I guess we’ll never know. It doesn’t really matter.

What does matter is that Australia has taken the first hesitant steps to become the hub of a counter revolution in economics, and the Henry Review should be heartily congratulated for the part it has played in the process.

Now to convince timorous politicians, whether in Australia, the UK, or elsewhere to play their historical part in this counter revolution.

It would be nice to see Messrs Rudd, Cameron, Clegg and Obama leave office having problem-solved in the great classical tradition of David Ricardo, Adam Smith, John Stuart Mill and Henry George, rather than departing the political scene defeated, still clinging tenaciously to the dismal economics that has served Margaret Thatcher, Ronald Reagan and Gordon Brown so poorly.