Could The Government Fund Itself With A Georgist Tax?

One of the great political problems is how to fund a government. Governments cannot realistically be funded by donations, so they have to levy taxes. No matter how you slice it, levying taxes on the people will always create discontentment, and not levying them is often no better. This essay discusses whether Georgism might work for New Zealand.

Georgism is a political philosophy named after American theorist Henry George. The essence of it is the belief that, while people should own the value they produce themselves, economic value derived from land (often including natural resources and natural opportunities) should belong equally to all members of society. Income provided by things that are part of the natural world, and which do not depend on human activity to have value, should be the common property of the citizenry.

Georgist ideas were very popular a century ago, before the rentiers used their ownership of the apparatus of propaganda to persuade the population that government should be funded by taxes on labour and consumption. Since then, the mainstream media has normalised the idea of taxing labour and consumption, mostly by not allowing any discussion of Georgism, and by restricting discussion to a narrow range of pro-capitalist models.

Alt-centrism finds much in common with Georgist ideas. Georgism is a very alt-centrist approach to funding a Government, because it rejects the Establishment, and their focus on taxing labour. Georgism stands directly opposed to the Establishment because it is precisely the Establishment who profits the most heavily from charging rent. In taxing the Establishment the most heavily, Georgism accords with alt-centrism the most closely.

An Australian study suggested that heavy taxation of rents could provide up to 87% of the funding necessary to run the Australian Government. The remaining money could be raised according to a similar philosophy – i.e. it could tax other properties whose value did not depend on human labour inputs (such as oil and mineral royalties), or it could charge fees to use common property such as the electromagnetic spectrum and fishery stocks.

Georgism rejects the idea of levying taxes on economic activity that is the result of a direct human labour input. The idea is that tax on ground rents ought to be enough to fund the Government, and therefore that taxes on income would no longer be necessary. For a modern state like New Zealand, the numbers don’t quite add up, but a Georgist tax could be enough to slash income taxes.

According to the New Zealand Household Expenditure Statistics for 2016, rent costs comprised 31.8% of New Zealand’s total weekly housing costs, which were themselves 25.6% of the total weekly household expenditure of $1,300.

31.8% of 25.6% of $1,300 is $105, the average weekly household rent expenditure. Multiplying this by 52 weeks equals $5,460 every year per household on rent. Multiply this by the 1,500,000 households in New Zealand, and we arrive at a figure of $8,190,000,000 charged in rent money every year. This is just from household rents – it does not include commercial rent, rural rent, mineral royalties, banking license fees or fishing licenses.

The Australian study linked above found that the total resource rents of Australia were over two times the size of just the household rents – in fact, household rents are only about 40% of the total resource rents charged in Australia. $8.2 billion divided by 40% gives us a figure in the ballpark of $20 billion dollars every year.

The total operating costs of the New Zealand Government run at about $76 billion per year, so a Georgist tax of 90% on resource rents wouldn’t cover more than a quarter of this.

However, it’s notable that individual income taxes bring in about $37 billion every year to the New Zealand Treasury. A Georgist tax of 90% on all resource rents would therefore provide the leeway to slash individual income taxes by a half.

Another way to look at it is that New Zealanders pay tax of around $7,400 on income up to $48,000. So if there are 2,500,000 taxpayers in New Zealand, this suggests that a Georgist tax on resource rents in New Zealand could replace all income taxes up to $48,000 per annum.

Eco-Georgism is a variant of Georgism that gives special consideration to the environmental challenges facing humanity this century. This involves heavy emphasis on making polluters pay for the externalities that they introduce to the environment. This would combine the heavy tax on resource rents discussed above with e.g. carbon taxes.

21st century Georgism for New Zealand, then, would be the political philosophy of funding government activity through two primary means: heavy taxes on resource rents, and heavy taxes on all activities that cause environmental destruction.

In particular, ground rents on urban locations, such as city-centre shops and rental apartments, would be taxed the hardest. This is because such economic activity amounts to little more than parasitism. Shifting the burden of taxation to this kind of extortionate activity, and shifting it away from labour, will also make the economy not only more fair, but also more efficient.


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