Land — Where To Now? Possible solutions to the problem backed by Catholic Social Thought*
Mphuthumi Ntabeni continues to think through the question of land in South Africa. In this second part, of a two-part piece, he says that we have to think of new models for land expropriation. He also looks at what catholic Social Teaching adds to the debate.
Stephen Meintjes, analyst at Momentum SP Reid Securities, and the late Michael Jacques, have authored a book titled: Our Land, Our Rent, Our Jobs. The book proposes that we replace income tax, VAT, customs duties, excise, sin taxes, fuel levies, the Unemployment Insurance Fund (UIF), skills development levies and every other impost with a simple-to-collect tax based on land value. The proposal seems far-fetched until you read the book. First you'll do away with the exorbitant cost of administering SA revenue systems, which was about R10-billion a year in 2015 regardless of the taxes that the rich dodge with impunity. A far greater cost – almost unquantifiable – is the combined hours and expense incurred by companies, executives, lawyers and the courts dealing with tax matters. So doing away with all this will actually be a positive contribution to our tax system.
The book says that Land Rents is the best way to unleash the true potential of our economy stifled by the current tax system and obstructing job creation by punishing enterprise and ingenuity. Tax on profits discourage profits. Value-Added Tax (VAT) discourages expenditure. The proposals in the book are implausibly simple: establish a national land database and impose a ‘resource rental’ on the land itself. It suggests that this is how most municipalities valued land for rates and taxes prior to the introduction of the Local Government Municipal Rates Act of 2004. The authors argue that this resource rental could be phased-in over a few years and gradually replace all other forms of tax. All land would be subject to resource rentals, so communally-owned farms and redistributed land would have to be productively used in order to afford the rental. For that to happen there would have to be security of tenure – such as a leasehold and freehold title – as precondition for gaining access to credit markets and to free up billions of rands in ‘dead capital’ currently tied up in underutilised land.
Under such a scheme, the government would essentially become a rent collector. The income from this would, over time, not only replace all current forms of taxation but, by unlocking productive capacity, generate much higher receipts for the government both locally and nationally. Local governments in particular would no longer be dependent on hand-outs from central government and would be forced to deliver better quality services to residents. You would pay rent on your land only – not on the improvements you make to the land – which would be deemed the fruits of your own ingenuity and therefore for your pocket. The Land Rent Tax will easily match the R1.26 trillion income taxes and vat in 2017/18 providing government with the opportunity to scrap regressive taxes like VAT, which punish poor and economic production.
New models to consider in the debate on the expropriation of land
There are precedent-setting models that we can learn from that would suit our local requirements for the ethical expropriation of land. The Land Tax, as it was commonly known, played a crucial role in the industrialization process of Japan and Taiwan before it was abused by various parties with vested interests. Hong Kong and Singapore also offer interesting case-models because there the government owns virtually all land thereby deriving considerable revenue from this for the benefit of all citizens. This largely accounts for their low tax rates and consistently high economic growth rates. Singapore’s economic success does not depend solely on free trade and the free market. Its developmental successes also depend on the fact that almost all of the land is owned by the government, 85% of housing is supplied by the government-owned housing agency (the Housing Development Board) and 22% of the national output is produced by state-owned enterprises. This is interesting given that the international average for these kinds of enterprises is only around 10%. There is no single economic theory at play. Neither the Neoclassical, Marxist, nor the Keynesian economic theories can explain the economic system and success of the Singaporean free-market and socialist combination that allows for foreign entry into the Asian markets. Singapore doesn’t mimic any economic policies, instead it adapts everything into its own context. This is is how economic policy should be shaped. Although, for this to happen an informed, innovative, ethical government is crucial if it is to produce pertinent, effective and implementable policies.
A Catholic perspective on land
The preamble to our Constitution says that South Africa belongs to all who live in it, including all of its natural resources such as land, air and water. However, the Land Audit testifies that most of the land is held privately, so locational advantage and the resource rent which accrues from this land is for the benefit of private property owners.
Meintjes and Jacques don’t argue against private property per se, nor the corresponding right to earn private rentals on property. What is being argued for is that “such conflation of private property and a perceived corresponding right to any unearned benefits (arising from such property) has no foundation in natural law and is totally unnecessary”. In short: It is unjust for people to incur profit on natural unimproved land.
I see several similarities between this position and that of Catholic Social Thought on unlimited property rights that sees all natural wealth as “social mortgage”. This is in line with the Principle of the Universal Destination of Goods. The principle upholds the Catholic belief that the use of property be for the benefit of the common good. Thereby, accepting the prerogative of the state to reserve the power to take over land or any other assets for the benefit of the community, and the power to tax property, wealth and income. Catholics believe that the ownership of property is always conditional to its use for a socially useful purpose which would exclude the hoarding of land for means of speculative investment (something that unjustly inflates property prices). Catholics are not Communists, as others might accuse; nor are they entirely Socialists.
As an African, I prefer the word Communitarian to define Catholics – because it makes clear that the Universal Destination of Goods provides a framework that can also legitimise the capitalist private enterprise. When someone with capital (“goods to spare”) uses it to provide for a productive entity such as a factory, it can result in employment and decent pay for workers, commercial opportunities for suppliers, a supply of useful products and or services for customers, a just return to shareholders and profits taxable by the government. Catholics support and are willing to accept that the list of beneficiaries may not be for an entirely “universal destination”, but we also point to the necessary taming of private greed for community, social and universal concern.
*This is the second of a two-part piece. Read the first HERE
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