LETTER: Extend tax to ‘unearned’ land rents
Higher taxes on passive land rents offer a sound means to lower taxes on hard-earned income and savings
Stuart Theobald alleges that weak property rights lead to slower growth (“Land rights and the economy are tightly bound in SA”, Aug. 2). But does he mean “hard-earned” property rights such as wages, salaries, rents, interest, profits, dividends, capital gains, and consumption?
Or is it “unearned” land rents? These are a rates and taxes user-charge, excluding improvements. They are unearned because they arise independently of any work or investment. They rely only on nature’s endowments and state spending on infrastructure and services.
The entry cost to bare land is about 16 times the annual market rent. But that is the value of nature’s gifts and state spending at the purchase date. It is an infinitesimal fraction of the replacement cost and a small fraction of what the land will be worth in future if the state continues to subsidise land values.
When land rents are relieved of taxes higher land prices will prevail. The more land rents are taxed the lower income taxes need be.
Countries that grow the most are therefore those where the hard-earned fruits of citizens’ labour and savings are relieved of taxes. In Hong Kong and Singapore, 35% of their budgets are land rents. And neither has any agricultural or mining sectors to speak of. Yet the IMF predicts that their GDP per capita at purchasing power parity in 2021 will be, respectively, five and eight times higher than in SA, where land rents are not taxed.
Section 25.5 of the constitution requires that bare land is affordable. And section 228 prohibits taxing people because it increases the cost of living.
That is why finance minister Tito Mboweni’s 2018 medium-term budget policy statement acknowledged the imperative of replacing income taxes with a countrywide increase in rates and taxes to match his 2021 budget. That will take a big slice out of the jobless queues.
Peter Meakin, Claremont
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