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.