Addressing The Deficit without Increasing Taxes or Reducing Services

Dave Wetzel FCILT

President, Labour Land CampaignChair, The Professional Land Reform Group

General Secretary:The International Union for Land Value Tax

Former Vice Chair, Transport for LondonFormer Leader London Borough of Hounslow

Former Transport Committee Chair, Greater London Council

GlobalNet21 Webinar 15 November 2011

Addressing The Deficit without Increasing Taxes or Reducing Services

Dave Wetzel FCILT

President, Labour Land CampaignChair, The Professional Land Reform Group

General Secretary:The International Union for Land Value Tax

Former Vice Chair, Transport for LondonFormer Leader London Borough of Hounslow

Former Transport Committee Chair, Greater London Council

GlobalNet21 Webinar 15 November 2011

The UK is in Debt

The UK has a deficit -Because the UK’s

annual expenditure is higher than our

annual income

But let’s put the total debt into proportion

UK Debt as percentage of GDP1945 to 2010

UK DEBT 1945Was 3.2 times more than 2010

UK Debt2010

And remember in 1945 the UK had to:

• repair or rebuild bomb damaged homes, docks, bridges, roads, business premises, roads, railways etc.

• find jobs for demobilised servicemen and women.

• and shift industry from producing armaments to selling manufactured goods to a war-ravaged world economy.

Not only did they achieve this but the 1945-51 Govt also managed to create full employment (for the first time after a major war), establish the welfare state, introduce decent pensions and unemployment benefits, improved education, and create The NHS!

Suppose the UK found a new rich oil field in the Midlands?

Like oil-rich Middle East countries we could not only pay-off our debts

But also IMPROVE public services and CUT those taxes that damageour economy

Taxes like vat which increases prices and income taxes which reduce workers’

spending power

But the UK is unlikely to find new natural resources

But we could make better use of an existing resource

Our LAND

But what could that be?

To produce wealth we require three factors:

1. Labour (all mental and physical human effort in the production process)

2. Capital (Man-made wealth used to produce more wealth e.g. Tools, equipment, machinery, business buildings, parts etc.)

3. Land (all the free gifts of our universe such as dry land, oceans, fish in the sea, natural resources oil, coal, gas, ores, space, the electro-magnetic spectrum etc.)

What is the return to these three factors?:

1. The return to Labour is WAGES (salary, bonuses, peace-work

etc.)

2. The return to Capital is INTEREST (interest rates, profits, dividends,

etc.)

3. The return to Land is RENT (economic rent as opposed to rent for hire cars, buildings, equipment etc.)

Who deserves to receive these returns?

1. WAGES? surely belong to those who create wealth by working

2. INTEREST?surely belongs to those who save and invest

3. RENT?the rent for hire cars, buildings, equipment, domestic appliances etc. must surely belong to those who made

these items or who fairly transferred their ownership –

But Who deserves the economic rent of NATURE?

Who deserves the RENT of LAND?

RICARDO’S THEORY OF RENT

As agreed by

Adam Smith

Henry George

Karl Marx

William Vickrey

and others

4 x fields

Imagine Four Fields

of equal size

4 x fields

These sites could be used for factories…

4 x fields

Offices or hotels…

4 x fields

Shops…

4 x fields

Or housing…

We’ll use agriculture for this example

4 fields of equal size and equal access.

The only difference is the fertility

resulting from Mother Nature

Land

Labour £100k

What do we need to produce wealth in these fields?

Capital £90k

Profit £10k

Breakeven£200 k p.a

Land

Labour £100kper annum

Capital £90kper annum

Profit £10k

Income

£10k £1m

Labour £100k

Capital £90k

RENTProfit £10k

Breakeven£200 k p.a

£210k

£1.2m

Income

£10k £50k £400k £1m

Labour £100k

Capital £90kProfit £10k

£210k

£250k

£1.2m

£600k

Rent

GDP

But not a good model of the economy

What’s missing?

Income

£10k £50k £400k £1m

Doesn’t include Government expenditure

Breakeven now: £260k

Tax£60k

Labour £100k

Capital £90kProfit £10k

£210k

£250k

£1.2m

£600k

Breakeven£200 k p.a

Rent

Income

£10k £50k £400k £1m

Breakeven now: £260k

Tax£60k

Labour £100k

Capital £90kProfit £10k

£210k

£250k

£1.2m

£600k

Rent

Income

£10k £50k £400k £1m

Breakeven now: £260k

Tax£60k

Labour £100k

Capital £90kProfit £10k

£210k

£250k

£1.2m

£600k

Rent

GDP

Income

£1m

Labour £100k

Capital £90kProfit £10k

£1.2m

Rent

What is the freehold price?

10 - 20 years rent

Income

£10k £50k £400k £1m

Labour £100k

Capital £90kProfit £10k

£210k

£250k

£1.2m

£600k

x 10 yrs x 10 yrs x 10 yrs x 10 yrsFreehold =

£100k £500k £4m £10m

Rent

Income

£10k

Labour £100k

Capital £90kProfit £10k

£210k

x 10 yrs

LVT50%

Freehold =£100k

Rent

Income

£10k

Labour £100k

Capital £90kProfit £10k

£210k

x 10 yrs

LVT50%

Freehold =£100k

RentLandowner £5k

Land Value Tax £5k

Income

£50k

Labour £100k

Capital £90kProfit £10k

£250k

x 10 yrs

LVT50%

Freehold =£500k

RentLand Value Tax £25k

Landowner £25k

Income

£400k

Labour £100k

Capital £90kProfit £10k

£600k

x 10 yrs

LVT50%

Freehold =£4m

RentLand Value Tax £200k

Landowner £200k

Income£1m

Labour £100k

Capital £90kProfit £10k

£1.2m

LVT50%

Freehold =

Rent Land Value Tax £500k

Landowner £500k

x 10 yrs

£10m

Income

Labour £100k

Capital £90kProfit £10k

£210k

£250k

£1.2m

£600kLVT50%

Freehold =

Rent £5k £200k £500k£5k £25k

£25k

£200k

£500k

x 10 yrs

£100k

x 10 yrs

£500k

x 10 yrs

£4m

x 10 yrs

£10m

£50k £250k £2m £5m

Income

Labour £100k

Capital £90kProfit £10k

£210k

£1.2m

£600kLVT50%

Freehold =

Rent £5k £200k £500k£5k £25k

£25k

£200k

£500k

x 10 yrs

£100k

x 10 yrs

£500k

x 10 yrs

£4m

x 10 yrs

£10m

£50k £250k £2m £5m

£250k

Income

Labour £100k

Capital £90kProfit £10k

£250k

£1.2m

£600k

Freehold =

Rent £5k £200k £500k£5k £25k

£25k

£200k

£500k

x 10 yrs

£100k

x 10 yrs

£500k

x 10 yrs

£4m

x 10 yrs

£10m

£50k £250k £2m £5m

£210k

LVT50%

GDP

LVT HELPS AVOID URBAN SPRAWL

SPRAWLIf land is used efficiently in towns and cities with no

empty or underused buildings or sites -

Then the needs of investors and residents are met without being forced onto less advantageous marginal land which incurs extra cost and inconvenience.

The disruption to the countryside is saved, urban environments become more efficient and journey times are reduced for transporting goods and for individuals commuting.

Energy is saved – i.e. we help to address climate change.

Why collect land rent?• Land is a natural resource

• Land values are created by whole communities

• Landowners do not create land values

• Expenditure on public services usually leads to an increase in land values

• The planning process often provides landowners with huge windfalls

• Taxes on labour and capital act as a drag anchor on the economy

• LVT is a fair way of paying for public services

• LVT encourages new capital investment

• LVT promotes the use of empty sites

• LVT helps prevent urban sprawl

• LVT cannot be avoided - unlike other taxes

• LVT is easy to assess and collect

• LVT would provide automatic compensation

• LVT facilitates lower interest rates

• LVT evens out the property cycle

Land Value Tax is one way to collect land rent

Thankyou For

listeningDave Wetzel

Questions/Discussion

www.LabourLand.org

www.TheIU.org