Re: LVT Hong Kong hokum (Re: What the LVT is, and what its advantages are - must read
- From: royls@xxxxxxxxx
- Date: Thu, 18 Jan 2007 00:30:42 GMT
On Wed, 17 Jan 2007 10:05:44 -0500, S. Doo <none@xxxxxxxxxxxx> wrote:
First we'll note that any argument that Hong Kong was built on or runs
on land value tax is nonsense.
You are now predictably equivocating. Technically, HK can't have a
"land tax" because the land is already publicly owned. The argument
(which is correct) is therefore that Hong Kong's economic success was
built on recovery of publicly created land rent for the purposes and
benefit of the public that created it. There is absolutely no doubt
that during its many decades of rapid economic growth and mounting
prosperity, HK did this more than almost any other jurisdiction in the
world. Originally, it was done through the public land leasing
system. It was not LVT in the strict technical sense, but functioned
in a similar way in that it recovered a large amount of publicly
created land rent for public purposes.
Hong Kong has diversified tax revenue
and always has --
Lie. Its revenue was originally almost all from land leasing, having
been founded over 100 years ago, in an era when almost every literate
person understood the basic economics of taxation policy better than
you do.
it collects through income taxes about the same
percentage of GDP as the US.
But collected much less when it was a shining example of growth before
it reverted to the PRC.
It also collects a host of other taxes,
as politicians everywhere choose to do.
A decade under the PRC has not been good for HK, granted, and
landholder influence on HK tax policy has gradually given it many of
the undesirable and unjust "features" seen in property tax systems
elsewhere.
It does have a land tax too -- but this raises an interesting
question: has Hong Kong thrived *in spite* of the land tax harming it?
The people in Hong Kong clearly think the answer is "yes", as they've
been diversifying revenue *away* from land tax as qucikly as possible
for reasons they are very happy to explain, ever since they had a near
fiscal meltdown a decade ago.
The "people"?? No, of course that is just false. It is on orders
from Beijing that HK's economy is being progressively mismanaged for
the unearned benefit of a small political and financial elite.
Now, what were the traits I gave as the problems particular to land
taxes?
The costs are that appraisal-based assessment systems are a costly
bitch -- so the assessment system always resorts to some kind of
shortcut that compromises the fundamental claimed benefits for land
tax -- *and* the politicians obtain powerful incentives to rig the
market and restrict land usage, both to artificially increase the
lease rates they tax and to give themselves greater leverage in
forging crony relationships with developers at the citizenry's
expense.
Let's see how that fits Hong Kong.
The land tax was enacted only in 1940 as an emergency war financing
measure (taxes were going up everywhere around then!)
Yes, and calling it a land tax is a misnomer, as unlike LVT it also
falls on improvements, and does not fall on idle land. But the "new"
land tax was levied _on_top_of_ the original land lease payments.
After the war, the government kept the tax coming in -- as governments
everywhere kept collecting the taxes that people got used to paying as
war financing measures. (Why should the politicians cut them merely
because the war was over?)
Partly because unlike the USA, HK was occupied by the Japanese and
suffered substantial damage.
But it was impossible to collect the land tax on actual *value* by
appraisal, due to all the reasons I've given before (as easy as
appraisals are!)
Nope. They chose not to do it because it would have reduced the
unearned incomes of wealthy, politically powerful landholders.
So they assessed the tax using a short-cut based on rental or lease
income derived from the land.
That was simply to favor the rich, and was little or no easier than
just appraising the land.
The assessed value of land is determined
by a formula applied to rental income received on it. No rental income
= no tax on the land, regardless of its actual market value.
So unlike the original system of land lease payments, the 1940 "land"
tax does not center on recovering land rent, and is far from being a
true LVT. Right.
Ergo no
tax on land under homes, on empty city lots, stretches of empty land
bought in the countryside for "speculation", etc.
Which explains why HK has not done even better: it recovered more land
rent for public purposes than almost any other jurisdiction in
history, but still not nearly as much as it could have -- and less and
less as time goes on and its government falls under the control of
wealthy landholders.
That is, the Hong Kong tax really is a land *rent* tax (LRT) not a
land value tax (LVT).
You're right, the land tax imposed later isn't LVT, because unlike the
original land lease system, it does not tax the properties you
mentioned above, and it also falls partly on improvements.
Well, that's OK, a step in the right direction at least (the Georgists
obviously think, or they would mention it!) -- although it does rather
significantly compromise the benefits claimed by the Georgists for
this particular land tax.
Right; which might be why they _don't_ claim it for _that_ "land" tax
but for HK's original system of leasing public land to private users.
And it pretty much puts the kibosh on the
claims they like to make regarding Hong Kong -- that it is so
developed because of the tax on empty land, and all that. Eh?
The land lease payments applied whether the land was used or not. The
later 1940 "land" tax doesn't.
But still, revenue from land is and was pretty significant -- back
when the fiscal crisis hit a decade ago, land accounted for about 40%
of government revenue through the *combination* of land tax and
government *sales of land* to developers.
Sales of land?
You are talking about the land _lease_ system. Land is still all
publicly owned in HK.
Yes -- you see when the government receives a substantial part of its
revenue from taxing lease income,
Which as you have stipulated, is _NOT_ LVT...
it has a very powerful incentive to
keep land *off the market* to restrict supply of leasable land and
manipulate lease prices upward to increase its tax revenue.
But not if it would have got the rent from that land anyway.
And as a
monopoly seller of land, it at the same time has the opportunity make
sales of land above what would be the market prices if the citizenry
had access to all land through a free market. Classic monopoly
behavior. (Think of Saudi Arabia manipulating the marginal price of
oil, through all the oil reserves that it keeps off the market).
Yes, Saudi Arabia is a good example of private ownership of land and
other natural resources: the Saud family owns the whole place.
Of course, politicians with such monopoly power over land make the
land sales they do make to their few selected favorite political crony
developers...
Agreed, cronyism and corruption have greatly worsened in HK since the
handover to the PRC.
The whole story is told in standard public finance texts ...
( E.g _Laws of Taxation in the Hong Kong SAR_ by Berry Fong-Chung Hsu
-- the whole Part II describes the "painfully regressive" land tax
system and the need to get away from it.)
Which, as you stipulated, is getting farther and farther from LVT.
... but we can hardly expect Georgist true believers to go to the
library to seek out such boring tomes by professionals, when they are
so much more attuned to being convinced by their own Wiki pages and
each others' web sites!
Your lies are disgraceful. Georgists are well aware of the problems
HK brought on itself (and now being visited upon it by Beijing) by
moving away from its original land lease revenue model and taxing
production and capital investment instead of just land rent.
Fortunately, though, it's no problem at all to find contemporary
analysis and news accounts of the effects of Hong Kong's land
management policies dating from the crisis a decade ago, even on the
web. E.g.:
Under orders from Beijing, the policies in place since the crisis have
been even farther from LVT, with the predictable result that HK's
economic performance is a shadow of what it was before the handover to
the PRC.
One of the main drives of Government policy is to keep land prices
high so that the yield from the various land taxes remains high. Crown
land is released in a controlled manner at auctions with care taken to
ensure that the market is not flooded. A reserve price is posted and
the land withdrawn if this is not reached...
This policy is not driven by HK's desire for revenue, but by Beijing's
commitment to shovel unearned billions into the pockets of existing
landholders and mainland speculators. _They_ pocket orders of
magnitude more wealth as a result of this policy than HK's government
does. The government just misses out on land rent from the idle land;
it is the _current_landholders_ who get almost all the benefit of the
restricted supply and monopoly pricing. And HK's economy has recently
been suffering accordingly.
This policy takes precedence over other Government policies, e.g. even
when the Government adopted a policy in 1994 of encouraging lower land
prices, it still maintained its policy of reserve prices at auctions
and withheld land on numerous occasions even though this had the
effect of keeping prices higher than they would otherwise be...
Right. And not releasing the land primarily benefited existing HK
landholders, not government coffers.
The implications of the high land price policy are far-reaching:
* Generally, land prices are higher and less land (or accommodation
space) is available for people and business in Hong Kong under the
policy than would be the case without it. The social and economic
effects of this policy are very significant.
Agreed. LVT would eliminate this vicious injustice by placing all
land under taxation, thus ensuring that land policy serves the whole
community, not just those who already hold land.
* Maintaining the policy drives the Government into an "unholy
alliance" with the property developers and the banks who all have an
interest in maintaining prices as high as possible.
Agreed. It is overwhelmingly wealthy private landholders, not
government officials, who drive and benefit by HK's current anti-LVT
policy.
* The policy encourages an unhealthy reliance by the Government on
administrative measures rather than market forces. So, for example,
the Government chose to make its intervention in the property market
in 1994 by administrative measures, e.g. by making presale of flats
difficult, rather than by "open market operations", i.e. by releasing
more land. This sets an ominous precedent.
Agreed again. For soi-disant "communists," the PRC's goons have shown
a remarkable subservience to the financial interests of wealthy, idle
landholders and land speculators.
* To compensate for the distorting effects of its policy, the
Government is forced into further intervention in the market process
by widely providing public housing. It is astounding that in a
supposedly free market economy, more than 40% of the population live
in public housing - all owned by a single landlord. This policy is
even being extended by the so-called "sandwich class" housing support
programme...
Agreed. By holding land off the market to serve the narrow financial
interests of large, wealthy private landholders, speculators, and
banks rather than maximize its revenue, HK's Beijing-controlled
government has betrayed the people of the city and moved giant steps
farther away from the land rent recovery model that served it so well
for so many decades.
[And from Time Magazine...]
The root cause of Hong Kong's problems is its land policy. It has
nurtured a system in which a few developers are given the privilege of
underwriting, directly and indirectly, the 40% of government revenue
that derives from real estate. The developers serve as both de facto
tax collectors and as a construction arm for the government, for which
they receive profit margins and privileges few monopolists dare dream
of.
All too true. And increasingly remote from anything analogous with
LVT.
... the handful of developers exacerbate a housing shortage by slowing
down construction because they and the government are the only two
builders in town. It's legitimate because no rules forbid it. It's
rational because they want to maximize profit. Developers sit on an
inventory of land sufficient for at least five years of private
production of space...
Which they could not possibly be doing if the land rent was being
recovered by LVT, as it was by the old land leasing system.
In the United States, prosecutors are aggressively pursuing
Microsoft's Bill Gates for earning "monopolistic" profits. But Bill's
"evil" gains seem modest compared with those of Hong Kong's
developers. The software giant's pre-tax profit margin averaged 42%
over the past five years, compared with 133% for Cheung Kong and 71%
for Henderson Land, two of Hong Kong's largest developers. Microsoft
pays an average of 35% profit tax, compared with 12% for Cheung Kong
and 15% for Henderson. While Gates has to worry about antitrust suits
brought by the government, Hong Kong's property tycoons serve as the
government's proxy....
http://www.time.com/time/asia/asia/magazine/1999/990215/shaw2.html
Yep. Many Georgists are well aware of how the people of HK have been
betrayed through Beijing's dismantling of the former market-based
system of leasing out public land.
Ah, the Georgist ideal come true in action in the real world!
Liar. HK _was_ one of the more Georgist jurisdictions on the planet
during its decades of rapid growth. No more, especially not since the
PRC took it over.
Just how free-market, honest-government, libertarian can one get? ;-)
One can get at least as free-market, honest-government, and
libertarian as HK was for many decades with leasing of public land,
before the PRC took it over and started shoveling money into the
pockets of existing landholders.
Hey, will we ever see these traits of the *real life* functioning land
tax mentioned on the LVT page at Wikipedia?
??? Why would we, when it so obviously is far from being LVT? You
might as well demand that income tax and sales tax be mentioned as
examples of real life LVT.
I doubt it. We don't see them there now, do we? And they aren't
exactly *new* news.
And they aren't exactly -- in fact, they are not remotely -- LVT,
either.
-- Roy L
.
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