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Economic rents must become partof the public discourse

By Bryan Kavanagh - posted Thursday, 28 August 2014

It's arguable we're lurching to the hard right because there's been big money to be found for conservative think tanks, such as the US Heritage Foundation, our Institute of Public Affairs and the Sydney Institute, because these bodies believe things are pretty right as they are. ("Only leftists and socialists want 'reform'.") This mindset of course appeals to the 0.1% who have become significant donors.

Would Gina Rinehart and Harry Triguboff support any outfit that supports mining and land taxes? Highly unlikely! Fair enough. I guess that's democracy? Well, only up to a point, surely? Did classical economics need to be redesigned to conflate land with capital in order to suit the needs of these people to whom we've given the descriptor "the 1%"? Once there was land, labour and capital, but now land and natural resources have mysteriously transmogrified into capital, simply to appease our rent-seeking overlords. (Professor Mason Gaffney has documented chapter and verse on this process.)

Did our tax regimes, moreover, have to be redesigned to relegate land and resource taxation to the bottom of the barrel for revenue bases, instead of at the top where it stood in the progressive era?


Observant readers will have noticed that much of the world is currently reaping the whirlwind for appeasing those who sought capital gains in residential bubbles but, curiously, their politicians have not had the gumption to see to it that this won't be permitted to happen again by introducing taxes on land values whilst abolishing punishing taxes on business, workers and thrift.

In Australia, the Henry Tax Review was not whistling 'Dixie' in 2008 when it claimed: "economic growth would be higher if governments raised more revenue from land and less revenue from other tax bases", but we've avoided a real estate crash to date and are mollified by those pundits who claim "Australia is different. Here it's all about supply and demand." Sure!

Although the taxation of land and natural resources remains pretty-well invisible to economists, politicians and the public, the following couplet hints that the economic rent of our land and natural resources needs to become part of the public discourse.

An economics professor planned to live without acknowledging land. 
He would have succeeded but found that he needed food, clothing and somewhere to stand.

If the economics text books have to admit that the Physiocrats and Henry George were right that revenues from economic rents cannot be passed on in prices like taxes – generating massive deadweight in the economy – how have the 1% managed to fight back to avoid further investigation of the subject?

Why, by disinformation, of course! By lying about the quantum of economic rent:-


"The percentage [of property rent in the economy] has dropped to well under one percent today", New Ideas from Dead Economists: an introduction to modern economic thought, Todd G Buchholz, Plume, 2007, p.86.

"But by 2000 urban land rents represented only four percent of national income", A Farewell to Alms, Gregory Clark, Princeton University Press, 2007, p.198.

"Rent is one percent of the US income in 2004", Economics, Paul Krugman and Robin Wells, Worth Publishers, 2006, p.283.

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About the Author

Bryan Kavanagh is a real estate valuer and associate of the Land Values Research Group.

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