Personally, I cannot see much future for your proposal that a tax of £5,000 per annum should be imposed on every citizen – for that is what your suggestion looks like. Quite apart from the question of how much that would raise for the Exchequer, for the person who earns £15,000 that would be a tax of 33%, which would plunge the rump of low-earners straight into the “underground” economy; and its incidence throughout the spectrum of earners in the community would represent the very antithesis of Adam Smith’s “canons of taxation”, in particular “ability to pay” and his dictum that taxes should be proportional to income: “Citizens should pay the taxes in proportion to the revenue which they respectively enjoy under the protection of the state” – a principle that is amply evidenced wherever a low-rate flat tax is correctly applied.

“land tax”, as a phrase, covers a multitude of horrors


Your other point: you refer to me being a fan of a land tax. This is misleading because “land tax”, as a phrase, covers a multitude of horrors, and nowhere on my site will you find support for that. Both Adam Smith and (more particularly) David Ricardo explained that the fairest tax is one that returns to the Community’s coffers the economic rent generated by the presence of the community itself – manifested for example in infrastructure development, notably transport. A useful example is our Jubilee line. It cost taxpayers £3.5 billion to build, including the developers’ profit, but added £13 billion to land values along the route. The point is that the £10 billion windfall in land value increases that went into private hands contributed nothing to the cost of the project itself.

The most effective way of allowing the economic rent generated by such projects to pay for the projects themselves is by taxing corporate added value, since added value (nothing to do with VAT – another dreadful misnomer) is a precise reflection and measure of the economic rent. This is not the place to go into the detail, but the following extract from my piece (May 2010 on my website) on what such a system can do for the community (in this case Sydney) gives more than a clue.

The government of New South Wales saw the light many years ago

The only barometer infallibly capable of yielding hard economic data is the rise in land prices and rental values. And here, of course, lies the clue to the most natural provision of infrastructure finance. The government of New South Wales saw the light many years ago. It collects an annual property tax (from which private residences are exempt)based on land values over a pre-set threshold. The value on which the tax is assessed relates to just the land – buildings and other structures on the land are ignored. There is therefore a huge incentive to improve properties. Adding buildings or refurbishing has no effect on the tax.

It is in the nature of every major infrastructure project to enhance life in the community, and this is axiomatically reflected in increased commercial land values. In this way projects are made to pay for themselves. The only disincentive the tax creates is to speculate in land by hoarding it – for the owner is liable for the tax regardless of whether the land is occupied. There are no gaps in the Sydney skyline!

It is obviously necessary to take great care when addressing major questions such as tax reform, and you have to begin from where you are, aberrations included! A low-rate flat tax, above a generous tax-free threshold, would now be a good place to begin, especially as it would replace other sources of tax revenue that are distinctly insidious in their incidence.