Unemployment a Threat to Security

1. Full Employment by a Change in TaxationA Submission to (PLAAS)Programme for Land and Agrarian Studies UWC6th October 2006Presented by Godfrey Dunkley

2. Unemployment a Threat to Security • National Security is influenced by internal stability and social security. • This in turn dependent on economic factors such as employment opportunities, relief of poverty, affordable housing and land distribution, good education and healthy living conditions

3. Taxation a Key to Security • Present method of taxation is a major cause of unemployment. • Research is essential into the effects of taxation at the margin of economic production. • This has never been taken seriously and is not in public dialogue

4. Importance of Change in Taxation • Bring sub-marginal land back into production and create employment. • Economical land distribution possible whilst retaining Willing Buyer Willing Seller concept. • Marginalized labour becomes employable • A vibrant economy improves security

5. Statement Land distribution is essential to; • bring idle land into use • reduce unemployment • allow self employment • improve quality of life • restore human dignity

6. Statement(continued) • There is presently little if any cost to holding land out of use • Present taxes place much land beyond the economic margin and out of use • The whole tax system encourages speculation in land and withholding • A total change is necessary

7. Problem with Land • Demand driven market Government essential buyer • Sellers market • No incentive to sell • Asking Price = Economic Value + Speculative Value + Opportunity Value Typical example; Asking Price 20 x Economic Value

8. Additional factors • Present taxes freeze the land market • Present taxes impact mostly on • marginal land • marginal labour A change in taxation can free the land market and improve stability

9. Overview • Justice and Equity are ignored • Land-lording a world wide problem • A billion people living in abject poverty • Classical economists disregarded • Economic thought severely distorted.

10. Significance of LV Model • A better understanding of land values and ownership can help to improve security • The model helps to appreciate relative values and provides the basis for the diagrams that follow. • Five diagrams that follow attempt graphically to present the problems and possible solution

11. Land Value Model of Johannesburg

12. Application of Land Value Model 1972 • The following diagrams are shown on a vertical log scale, as a linear scale would show a meaningless ‘L’ shape. • Ratio of highest to lowest values in JHB model • approx. 1000 (CBD) to 1 (Suburbs) • or a million (CBD) to one (marginal rural land)

13. Potential Production Diagram 1

14. Production Curve(Dia. 1) • Graph shows productive potential • Value added = Production less input of material and services • Natural Rent =Value added, less Wages, less Return on capital

15. Rent Curves Diagram 2

16. Rent Curve(Dia. 2) • All taxes, effectively come out of the Rent Area • Economic Rent Curve = Natural Rent Curve less All taxes • Lowering taxes increases Economic Rent & land values • Market value = Capitalized Economic Rent + Speculative Value +Opportunity increases.

17. Concepts • Prime land enjoys excess production • Marginal land is the least productive land in economic use • Sub marginal land is where the cost of production exceeds the value of production • Rent is the excess of production compared to that at the margin

18. Idle Land Diagram 3

19. Effect of Idle Land(Dia. 3) • Speculation increases asking price • No production, no employment, no tax paid • Results in increased taxation on: • Productive land • Labour • Reduces wages in general • Makes all land more expensive • Shrinks the margin of production

20. Destructive Tax Diagram 4

21. Destructive Taxation(Dia. 4) Bad taxes are; • Destroying the economy • encouraging land speculation • increasing land prices • creating unemployment and poverty • resulting in health problems • forcing people into crime • undermining security and human dignity

22. Cannons of Taxation Classical Economists (Adam Smith, David Ricardo, Henry George) said: • Do not tax wages • Do not tax capital • Do not tax the products of labour • Collect revenue from land rent. • We do the opposite!

23. Rent Revenue Diagram 5

24. Revenue from Rent(Dia.5) • Restores Natural Rent by removing present DEADWEIGHT taxes • Collects revenue as a % of Natural Rent. • Will be more than at present • Removes speculative value of land • No rent or taxation beyond the natural margin

25. Results of Better Taxation • Land available for distribution • Becomes a supply driven market • Creates full employment • Improves supply of housing • Reduces social ills: • poverty, • crime, etc • Restores human dignity and security

26. Incentive Taxation • Prime Land • Fully productive: Rent less than Taxation(encourages full use and employment) • Unproductive: Will contribute to revenue (enforces use or sale of land) • Near Marginal Land • Small Rent but no Taxes(restores economic production) • Sub Marginal Land • No Rent, No Taxes, No Speculative Value (land available for subsistence farming)

27. Summary The changes recommended will give; • Land distribution by willing sellers • Create a supply driven market • Realistic land prices • Full employment • Reduced poverty and crime • Rapid housing construction • National stability and security • Restore human dignity

28. Remember Cannons of Taxation • Do not tax wages • Do not tax capital • Do not tax the products of labour • Collect revenue from land rent. • Why do we do the opposite?

29. For further information contact Godfrey Dunkley Email: godfrey.dunkley@gmail.com