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  • The Invisible Hand

Why Britain Needs a Land Tax?

A land tax is an economist's dream but it is yet to be properly implemented in any country. If politics would stop interfering, Britain and any other country could benefit greatly from this policy.

A land tax is popularly attributed to Henry George in his book Progress and Poverty. Although the idea dates back to John Locke, Adam Smith and David Ricardo, the ideology known as Georgism has gained popularity among economist yet is not employed in the UK. Instead we used a stamp duty tax on the sale of property. A land tax would be an annual levy on the value of land owned. In most cases this is affordable because the value of land tends to rise so it may not hurt wealth significantly. A land tax does exist in some areas. In Australia, it exists on a state level with a 0.55% levy going up to 1.5% in Tasmania. This accounts for 4.5% of total tax revenue in Australia. Meanwhile Denmark has an average rate of 2.63% and a maximum rate of 3.4%. These examples serve to dispel complaints that a land tax would be hard to collect and calculate.

The key attraction to a land tax was highlighted by classical economists Adam Smith and David Ricardo. A land tax is one of the most efficient types of taxation because it targets idle assets and does not hurt the productive capacity of the economy. The only real losers are idle landowners who contribute little productive potential to the economy. It may also create an incentive for landowners to look for alternative uses of their wealth so there may be an increase in innovation and enterprise. Because the supply of land is fixed, all the burden of a land tax is taken by the producer and not passed onto tenants. Even arch-neoliberal economist Milton Friedman called it the “least bad” means of raising public revenue.

Land is like an untapped oil field of tax revenue. At a time when the government is squeezing the budget so tightly, it seems a no brainer to use this sort of tax. It is naturally progressive because the wealthiest own the most land pay the most. The revenue can also be used to redistribute wealth and fund public services.

Land tax would replace a current stamp duty system as Australia has done. This means it is cheaper to move house so labour immobility and regional unemployment is lessened. This helps tackle wasted output so economic growth would be improved from knock-on effects.

A land tax is exactly the sort of policy any responsible government of any political agenda should be advocating. We need to be more logical and sensible with taxation and simplify it. With this tax all people can pay lower income taxes or government spending can be increased. This is another example of when a great economic policy is often ignored by policy makers.

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