Henry George still has a following in Australia. Every so often letters to the editor come in marked “The Henry George League”. Another prolific letter writer, Bill Mason, wrote Georgist theories, but never attributed them.George founded the San Francisco Daily Evening Post which folded in the 1870s depression. It inspired him to write Progress and Poverty published in 1879. Because of its history, his theories still have some relevance in Canberra, especially in light of the new inquiry into land tenure.
George argued that the raw value of land rose because of the growth of the economy in general, not through individual effort. Idle landowners were reaping the benefit of other people’s toil and therefore the state should tax the whole of the increase in unimproved value.
Such a tax would reap such a large amount that no other tax would be necessary. This would stimulate construction and economic growth and be administratively simple to apply.
George’s ideas took root in Australia in the lead up to federation. Australia was suffering a depression at the time so the idea of taxing idle land-owners took hold. It meant that at the time of the great constitutional conventions, the Founding Fathers were determined that there would be no idle speculation in land resulting from the founding of the new Federal capital _ necessitated by the inability of NSW and Victoria to pick an existing capital.
They therefore stipulated in the Constitution that the federal territory should be large enough to prevent people buying up around it _ 100 square miles. Further, that the territory should be vested in the Commonwealth, which meant that leasehold would be the highest land tenure.
In theory this meant the Commonwealth could charge a Georgist tax. It could charge the full increase in land value when the lease was changed _ either on expiry or when it was changed, for example to allow different land uses or more building.
The inquiry announced a week ago _ one of a series over the past 30 years _ is to ask whether leasehold is still working and still appropriate. (It is difficult to see it being changed because it would require a constitutional change.)
Because of the Constitution, every individual land holding in Canberra has a lease with a stated land-use or purpose clause. To change this clause is essentially a contractual matter between the land-holder and the Executive. With freehold land, on the other hand, land-use changes are often done more broadly with zoning. This is done by councils or states in a legislative or quasi-legislative way.
The difference is that land in Canberra is dealt with case-by-case. In theory that leaves more room for favouritism, discrimination and relative secrecy. It also means that when individual land-use changes become known objectors can target them and create a public fuss to get them over-turned. Moreover, the system requires both a lease-change and building-approval process _ doubling the aggro. It may be a better system in theory, but it certainly requires a higher standard of land administration and land administrators.
Now, when the Founding Fathers envisaged a federal capital they did not imagine for a moment that it would in any way be self-governing. Indeed, they provided another special clause in the Constitution providing that the Federal Parliament could make laws for the territory. Perhaps they thought a leasehold system would be more likely to work administered by a national government with high national ideals _ not affected by isolated groups twisting the arms of locally elected representatives or individual developers doing deals.
In any event, there have been strong defenders of leasehold in Canberra both under the Federal administration and self-government. Many of them take the Georgist line. When someone changes land use from, say, a golf course, to housing the increase in value of the raw land is a community asset and the developer should pay the whole value, that is 100 per cent betterment. There is good argument in that, though I think there is sufficient community benefit in encouraging appropriate development and more efficient land use to give a slight discount _ but not the foolish hidden subsidy of 50 per cent or more that governments have given in the past.
Most of the leasehold purists, however, do not take the “community value” argument to its logical Georgist conclusion. The community should also get the benefit of the increased value caused by general economic growth even when the land use does not change. So that a 100 per cent betterment tax would be paid on the increase in unimproved value of residential leases (which at present even escape capital gains tax) _ provided, of course, other taxes on productive activity were removed, especially payroll tax, though it is difficult to see any reduction in federal taxes happening.
Henry George was an absolutist. His extreme proposals would probably not work. But there is some general sense in ideas, particularly for Australia now. We do over-tax productive activity (employment, income-gaining and manufacturing) and we under-tax unproductive activity (sitting on residential land and consumption).
With the historic context in mind, the latest inquiry has to come up with recommendations that will eliminate unearned windfalls and capture the increased value of the land for the community and at the same time allowing worthwhile development and protecting the core values of Canberra. The balance gets ever more difficult to achieve.