Monday, 20 November 2017

Killer Arguments Against LVT, Not (425)

Ben Southwood @bswud referred to this article in The Guardian:

Construction has begun on a $2bn (£1.5bn) scheme to reclaim land from the sea around Monaco so that more luxury apartments can be built for the thousands of extra millionaires expected to move to the principality in the next 10 years...

... and he commented thusly

"The easier this is, the more value a land value tax would destroy"

Which is about as wrong as it would be humanly possible to be. Quite the opposite!

Let's remind ourselves of the facts:

1. Monaco has no or low income tax, it is a 'tax haven'.

2. The main reasons why apartments/land in Monaco is so expensive is because the world's super rich are prepared to pay for the privilege of not paying income tax. The extra few million you pay for a flat in Monaco instead of the much more pleasant Nice is broadly speaking equal to the net present value of the future income tax saving. If the Prince so wished, he could collect that value via LVT (and to some extent he does).

3. To all intents and purposes, 'Monaco' could mean the Prince of Monaco (as a landowning individual) or the government of Monaco (as a public body which controls land use). They are the same thing from point of view of the company doing the reclamation. They need 'Monaco's' permission before they can do anything.

4. As The Telegraph explained:

In recent days, Bouygues, the construction company, began work on the foundations, starting with dredging operations via a giant offshore vacuum that spits out sediment at a depth of 200m.

The principality is not paying a centime for the project but will receive an undisclosed payment for the concession and will own public buildings on the new site estimated to be worth €500 million.


The 'undisclosed payment' is a lump sum LVT in advance, and the future rental value of the public buildings is like ongoing LVT (instead of getting the location value of all of it, they are getting all the value from some of the buildings on it). The effective tax rate is clearly less than 100% or else the (risky) project would not be going ahead, but it is safe to assume that 'Monaco' wangled as much as it could.

To sum up: 'Monaco' actually runs a Georgist tax system - low income tax and high land values/government income from land values (a lot of Monaco is owned/controlled by 'Monaco'). So it would be more accurate to argue that this reclamation is only happening because of - and certainly despite - LVT!

If France shaped up, scrapped income tax and collected LVT instead, the value of apartments/land in Monaco would collapse. It would be worth no more or less than in Nice. As in most cases, it is government action which causes land/location values, in this case, the French government. It's just a question of who gets it. And of course, such ridiculously expensive and ultimately value destroying projects would not happen.

9 comments:

Ben Jamin' said...

As you say, a LVT is simply a tax on land rental values, that would otherwise be capitalised into selling prices or landlord incomes. No economic difference, only who collects.

For Southwood logic to be true (or all the other twats who say the LVT is distortionary), then unless all landowners were forced to let their land be used for free then there must be a misallocation of labour/capital. The "whats good for the goose principle".

Obviously, the opposite is true. Goods and services are generally put to their best use by those willing to outbid others for their exclusive use. It why we have property rights and markets FFS.

Mark Wadsworth said...

BJ, the irony is, if the prince owned that land personally and sold it to the developer,ASI would be perfectly happy.its a free market innit. But if the prince qua head if state makes a charge, that is an evil and damaging tax.

Ben Jamin' said...

MW.

Most of the faux-lib KLNs would fall by the simple application of this bleeding obvious fact.

Must be the word "tax" that shorts their logic circuits.

Mark Wadsworth said...

BJ, I had that argument with Richard Wellings of the IEA. He insisted, payment to private landlords use of land = fine, but payment to government for use of land = bad. Mentally ill.

Ben Jamin' said...

MW

And what if we were all equal share landlords (which economically speaking the LVT is)?

Maybe the trick is not the let the State collect it, but a non-profit organisation on behalf of all UK citizens,from which we then all get our equal compensation. ie rent/UBI . By legislation, all freeholders have to pay that compensation as employers pay wages now.

Would the faux-libs be ok with that?

Agree about Wellings. Had a similar experience.

Mark Wadsworth said...

BJ, "equal share"??? Are you some sort of mad Communist?

All this equality "one man one vote" stuff is bollocks.The right to vote should be freely saleable, if you turn 18 and want to vote, you have to buy the right to vote off somebody who wants to sell. Efficient allocation of resources. That would also create wealth - overnight, your right to vote could be worth several hundred pounds if you live in a marginal constituency.

Ben Jamin' said...

MW

Fine. But on the point of the State not collecting our compensation for us, what do you think?

More ideologically/politically acceptable? ie ringfenced.

Scrap the threshold, unemployment benefit, lower pensions and taxes as a quid pro quo.

James Higham said...

Any chance of that happening in France?

Mark Wadsworth said...

BJ, sorry, I got a bit carried away. Yes of course.

JH, non-existent?