GOOD  GOVERNMENT

"Good Government" journal of political, social justice, and economic comment, working for *A democratically-controlled and just government revenue to governments by the proposed collection of all 'economic rents' as their proper revenue, at the same time abolishing all taxes, tariffs, and unjust privileges; *The maintenance of peace and justice without undue interference in national or international trade or commerce, or in the private transactions of its electors; *Proportional representation in multi-seat electorates, and referendum, initiative, and recall; *Continuous education of the electors in the economic facts of life. Articles: "The Asian Currency Crash;" "Henry George's Teaching;" "Paying a Fair Share;" "What are capital gains?" Richard Giles.

A JOURNAL OF POLITICAL, SOCIAL, AND ECONOMIC COMMENT
THE PROPER REVENUE OF A NATION IS THE SITE RENT OF ITS LAND
Published in every alternate month by
The Association For Good Government
122 Little Eveleigh Street, REDFERN, NSW 2016, Australia. Telephone (02) 9319 3313. Editor: Richard Giles
PO Box 443, Enfield, NSW, 2136, Australia, Tel (02) 9744 8815, Fax (02) 9744 3804
66 68
LinkExchange Member

PRINCIPLES OF GOOD GOVERNMENT GOOD GOVERNMENT RESTS ON THESE FOUNDATIONS

   These tables show immense property speculation in Asia. It is only reasonable to assume that this property speculation has so inflated Asian currencies that, in turn, those currencies which were tied by government to the American dollar became susceptible to speculations.
   The exception, as the graph illustrates, was Japan.
   However, appalled at the collapse of property prices and the subsequent collapse of banks which had lent to speculators, the Japanese government is taking steps at taxpayers' expense to restart the growth of property prices.
   Let us hope that the billions being poured into Asian economies by the World Bank will not fall into the hands of property speculators.

PAGES 2-3 -- GOOD GOVERNMENT, DECEMBER 1997

   George applied economic theory to resolve the social problem of poverty. In Progress and Poverty (1879) he uses the concept of economic rent to show that when all land is enclosed and its rent privately appropriated, the fruits of progress are taken by land and resource owners in the form of economic rent. Producers only earn enough to go on producing. What more employers can earn than their workers comes from unpaid wages or unpaid rent.
   In the special conditions of capitalism -- the enclosure of land and the rapid increase of a materially progressive population -- this rent grows more rapidly than earnings, making society more and more unequal and unstable. At the same time the pursuit of rent by land monopolisation brings about an unstable economy by artificially high land prices, depressed earnings,and periodic business cycles (as land speculation waxes and wanes).
   Since George's time the welfare state has mitigated those conditions somewhat by a `social wage'. At the same time an immense welfare state for the rich has grown up by countless awards of economic privilege to the wealthy. George considered that the only true way to overcome this instability was by the collection of the economic rent of land and resources as public revenue.

Conclusion: The Association is at an impasse for two reasons. First, after an hiatus of twelve months in 1994-95 we have restored staple activities, but we cannot now go forward to more intensive promotional work without office staff, the return of our main office and equipment, and adequate and `no-strings' funding. Second, we are at an impasse because we may have to leave Henry George House, the building bought to be the home of our movement.
   We cannot make more intensive use of this building because we lack the funding to employ office staff to help expand our activities. We appeal to those who are confident that we can expand our activities to do what they can to remove these impediments.

PAGE 6 -- GOOD GOVERNMENT, DECEMBER 1997

What is a capital gain?
Now such a motley list must make one ask the question, what is a capital gain? It most certainly is not an item held for profit; this would make the stock held by any merchant liable to capital gains tax -- and, incidentally, make wholesale sales tax into a capital gains tax. Neither can a capital gain be a profit made from disposing of an item owned for "personal use and enjoyment". We have already seen that. So, when is a gain a capital gain?

GOOD GOVERNMENT, DECEMBER 1997 -- PAGE 7

Capital gains as rents

Thankfully, the mention of the sale of licences provides us with the clue that a capital gain is a`rent' as that term is often understood in economics. A rent is an excess return available to labour and capital expended in a restricted market. In other words, it is a monopoly profit.

A rent is something other than a return to labour and capital. It represents a return due to a condition underlying this expenditure of labour and capital. This may be an artificial or man-made condition, such as prevails in the case of a licence -- a shortfall in supply due to restrictions upon access of supply to a market -- or it may be a natural condition where something of rare quantity and quality is sold, such as a master painting.

The rent to land qualifies under both these conditions. First it is a natural occurrence governed by the fact that nature and society does not make the most desirable sites in quantities which may satisfy everyone. And, second, land is made artificially scarce and expensive by the withholding of land from its full use.

Capital gains taxes
No doubt many welcomed the capital gains tax. But they forgot that there were already many capital gains taxes. Even income tax could be thought of as a capital gains tax. But there was already betterment tax, land tax and local rates. What were these but attempts to capture capital gains? And, since 1979, there had been s.94 contributions. This captured some of the capital gain which came to developers when they obtained rezoning or other approvals to develop land.

Weaknesses of capital gains tax
For all that too, the capital gains tax was not a very efficient form of capital gains tax -- if that makes sense. For one thing it exempted the principal place of residence; it exempted assets bought before 1985 and it included a mostly fictitious capital gain on buildings.

For the most part capital gains do not exist on buildings. Buildings make capital losses. They depreciate. Even the ATO acknowledges this when it sets out depreciation rates for owners of investment properties. This anomaly becomes plain if we think that, were we to buy an investment property for $150,000 and sell it for $205,000 four years later the building would be considered to have made a capital gain. But, all the while the owner would have been claiming a depreciation allowance on the property!

Capital gains tax only captures rent at the point where an asset is sold -- surely a weakness in a tax that is setting out to capture capital gains. There are the records to keep. There are also enormously difficult special cases. There are the assets disposed of in a deceased estate, by a divorced couple; and there is such a thing as net capital gain made after offsetting capital losses, for example, on shares.

A single capital gains tax?
Clearly there has always been a capital gains tax in land tax and rates, forms of revenue which capture excess returns to land as they occur -- a much better way to capture capital gains. Why do we need so many capital gains taxes?

Really all we need to do is to extend this co-called land tax to include capital gains from the sale of natural resources (including air waves), and to invent (if we need to) a way of capturing capital gains which flow from the publicly-conferred profits from licences, quotas, tariffs and other forms of privilege. When this is done, and speculation discouraged, we might ask why we need to place a capital gains tax upon furniture, electrical goods, rare books, or indeed on any item of private property.

Magazine CONTINUED