.

Having discussed the numerous and varied forms in which land value appears, and having shown that as a socially created product it is the most just subject of taxation, it remains to consider the objects for which this taxation may be enforced and the limits which equity imposes upon its extent.

The object of taxation is to raise revenue either for national or for municipal purposes, and as the municipality and the State are equally representative of the people -- the one in their aspect as a whole, and the other in their aspect as grouped for special purposes -- it follows that both State and municipality have a claim on land values which we have seen to be socially created. This double obligation is already recognised to some extent in New Zealand, where land values are both rated by the municipality and taxed by the State. In many municipalities of New Zealand, in the whole of Queensland, and in almost the whole of New South Wales land values are the sole source of municipal rate revenue, improvements being entirely exempted from rating.

The method followed in these countries and equally applicable to the United Kingdom is of extreme simplicity. The capital value of all land within a rating area, whether occupied or unoccupied, whether used or unused, is assessed, a separate valuation being put upon the land and the improvements. Upon the capital value of the land -- that is to say, the price which it is estimated that a willing buyer would pay to a willing seller for the laud without improvements --a rate is levied of sufficient amount to meet the municipal expenses. Two men may own adjoining sites of equal area and equal value, worth, let us say, £1000 each. One of the sites may carry a building worth £1000; the other may be vacant and unimproved. The two sites will be equally assessed, both paying for each penny in the pound of capital value -- equivalent to 2s. ld. in the pound of annual value - 1000 pence or £4, 3s. 4d. annually.

The effects of this system will be discussed later on in dealing with the similar effects of national taxation on land values. Here it is sufficient to point out the facts which recommend it and condemn the system generally followed of rating landed property according to its rental. It is obvious that to rate or tax buildings and other improvements is pro tanto to discourage the expenditure of money and labour in making them. The man who pays no rates while he holds his land vacant, and has to pay a considerable sum if he erects a shop or factory, is in fact fined annually for being socially useful, and the greater the employment he gives to capital and labour the heavier is his fine. This on the face of it is hurtful and absurd, but the apology usually made for it is that the roads, bridges, street lighting, and other municipal services provided from the rates increase the value of property, e.g. of houses, and that it is therefore fair to make the owners or occupiers of houses pay for what is done. It is, however, untrue that municipal services add to the value of houses and buildings. They give increased value to the land, whether built upon or not, and consequently to properties which include land and buildings; but the latter, while never appreciated in value are sometimes depreciated by expenditure for which they are rated. To be clear upon this point one has only to remember that the value of a house depends upon the cost of replacing it with one equally useful. The making of a road or the building of a bridge will not add to the cost of replacing an existing structure, and therefore will not enhance its value; in other words, will not make any person willing to pay more for it than he would have done before the road or bridge was constructed. On the contrary, such improved means of communication may reduce the price or value of a building by making it possible to erect another quite as good at less cost. Suppose that building materials ferried across a river have cost £100 for carriage, and let us suppose that the river is subsequently spanned by a bridge, whereupon the cost of delivering the same materials is brought down to £50. The effect of the change must inevitably be to take £50 off the value of the house embodying these materials, for it would now cost £50 less to put it up than the builder had to pay. We are apt to lose sight of this frequent depreciation of the value of improvements by municipal and public works because we regard the property as a whole and fail to separate the building from the land in our thoughts. We see that a property will bring a better price or a better rent, owing to its being made more accessible, for instance, and carelessly assume that the house which forms part of the property has become more valuable. Analysis shows that the whole of the enhanced value attaches to the land on which the house stands; a vacant site adjacent to that built upon will share equally with the latter in the added value given by increased demand arising out of increased accessibility. Rating on unimproved land value alone is just because it takes cognisance of this fact, making the burden proportionate to the advantage derived from municipal outlay; the British rating system is unjust, because it exempts the vacant site which is wholly appreciated in value, and puts all the burden upon properties consisting in part only of land which is appreciated and in part of improvements which are depreciated in value.

That this system has evil consequences, as all injustice must have, and that the just system of rating unimproved land values has salutary consequences is the conclusion of both reason and experience. Reason tells us that rating of improvements will discourage building; the experience of New South Wales, of Queensland, and New Zealand has been that the removal of rates from improvements has encouraged building in a twofold manner. First, the man who could not afford to erect a house when it would be subject to an annual rate can do so with profit when he is not thus punished for his enterprise. Second, the owner of vacant land cannot so well afford to keep it idle when he must pay rates upon it every year. Thus more buildings go up, and, the supply of houses being increased, rents fall. At the same time the rates of the poor are reduced and those of the rich are increased for while the artisan's house is usually of greater value than the land it occupies, the houses and business premises of the wealthy, which are situated in the best portions of a city, are, as a rule, less valuable than the land required for them. A freeholder with a house worth £200 standing on £100 worth of ground would be rated upon £100 or one-third of his property, while the big land-owner, with a building worth £50,000 and occupying land worth £100,000, would pay rates upon the latter amounting to two-thirds of his property in house and land. Some striking examples in actual practice of this reduction of rating to the poorer classes by putting the rates upon unimproved values are detailed in a later chapter dealing specially with Australasia.

In the country as well as in the town the rating of land values is an incentive to enterprise and production. Land capable of use tends to be used to its best purpose, because it becomes more expensive to keep land idle at the same time that it becomes cheaper to improve and develop it. The secondary effects of increased activity in building, cultivation, and otherwise are impossible to over-estimate. Among them, in addition to lower rents, already mentioned, are increased employment, higher wages, and the improvement of social conditions in many ways which are fully discussed in the chapters relating to the national taxation of land values.

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