.

INTRODUCTION

Every tax imposed on the people or any sector of the economy will have an effect upon the quality and character of the nation. This fact should be the first consideration when designing the new tax reforms.

The system of taxation to be adopted in future should be designed to eliminate many if not most of the bad effects of our present system of taxation. To quote Milton Friedman, "There is a sense in which all taxes are antagonistic to free enterprise -- yet we need taxes ... so the question is: -- which are the least bad taxes?"

PROPOSAL AND SUMMARY

All existing taxes which adversely affect the quality of life of the majority of the population should be phased out and replaced by a system of taxation which will enhance the physical, mental and spiritual well being of our nation.

It is said that both extreme wealth and extreme poverty are counter productive to spiritual and mental development. Our present taxes result in the increase of both extremes; of progress and poverty. This is not conducive to the establishment of a stable and happy nation.

A complete change can be brought about by changing the whole system of financing all levels of government. The change envisaged would also provide the additional revenue required to finance the new system of government without undue hardship for those who can least afford additional taxes.

All taxes on production and labour, both direct and indirect should be phased out in stages. At the same time a new system should be introduced to collect the Natural Rent on land. This is an annual value given to most land in the presence of the community and the markets, services and infrastructures provided by the nation as a whole.

This change will gradually dispel the major causes of poverty, discourage the withholding of land from production and increase the wealth, happiness and moral quality of our nation.

EFFECTS OF OUR PRESENT SYSTEM OF TAXATION

Many of our present taxes press heavily at the margin of production. They have been a contributory cause of marginal land and industries being put out of production. They have also played a significant part in marginal labour becoming unemployed. The least productive land and many labour intensive industries are the first to suffer. The unskilled labour rendered jobless becomes the most difficult to reemploy.

Symptoms of the problem such as migration to the cities, growth of squatters camps, poverty and crime cannot be dealt with in isolation. Influx control and police activity are unable to counter this dangerous- trend. There is an economic cyclone which sucks everything towards the centre: the pressures which cause it are predominantly due to taxation and its effects on land tenure.

The following is a short list of symptoms: --

Idle land and idle labour
Inflation of prices and downturn in production
Growth of squatters camps, poverty and crime
Increased land prices and shortage of housing
Speculation in land
Growth of large corporations at the expense
of small business
Growth of monopolies
The accumulation of wealth into fewer hands
Economic injustice resulting in agitation and
political activity
The demise of democracy, capitalism and free
enterprise and the growth of one party states
and communism
Lowering of moral standards and increased
dishonesty.

These symptoms can be seen world wide and in all cases taxation plays a part in their growth and could play a part in their cure.

TWO SYSTEMS OF TAXATION

Taxation can be based on two major systems namely those which fall on production and labour and secondly those which are based on rent.

Taxes currently in operation are based on production or on labour. Taxes on labour are indirectly taxes on the product of labour. Company taxes, income tax, sales tax, fuel tax, licences and customs are all taxes on production. They are all passed on to the consumer and increase the cost of production or the price to the end user. They are all counter productive arid inhibit the creation of wealth. Their side effects were given above.

Any tax which bears equally on the production of prime land and that on the least productive land or that most distant from the major markets leads towards an accumulation of wealth on the former and poverty on the latter.

General Sales Tax and tax on automotive fuel or equipment are examples and are the taxes most destructive to our economy. They should be the first to be most critically examined and phased out as soon as possible. They bear lightest on those who control prime land and heaviest on marginal land and marginal labour.

Collecting the Natural Rent on land not only provides an excellent means of collecting revenue from those most able to pay but also encourages the best utilization of natural resources. It discourages the withholding of land for speculative purposes and the accumulation of unearned income at the expense of the overall economy.

Collection of Natural Rent bears heaviest on prime land and reduces to zero on the least productive land in use, namely marginal land. Prime land is given the highest annual rental value by the growth and infrastructure provided by the efforts and presence of the community as a whole.

Site value rating which is applicable in towns and cities throughout the Transvaal is such a tax. It encourages growth and discourages the withholding of land for speculative purposes; flat rating or equal rates on land and improvements has the opposite effect.

A system such as site value rating should be extended to include all land at a level which would appropriate the majority of the Natural Rent. Overseas studies have shown that this should provide sufficient revenue to replace all other taxes.

ADVANTAGES OF COLLECTING NATURAL RENT

When Natural Rent is not collected as the only system of revenue it is capitalised into land value or present value of anticipated income. This causes the escalation of land values beyond the means of those who would put that land to best use. This results in inflation, unemployment and idle land.

Rent is paid by the majority of people particularly those who have recently purchased property. The land value adds to the cost of building or production. The interest on that portion of the mortgage bond or loan which represents the land value is in fact rent but it is paid to the building society or mortgagor.

When this Natural Rent is collected on all land, whether productive or not, then land will become available at reasonable prices to those able and willing to put it to best use and pay the rent under free market conditions.

RECOMMENDED REFERENCES

The Hon. Frank A W Lucas Q.C. understood the effects of taxation when he played a part in introducing site value rating into Transvaal ordinance. An article 'Can Taxation Be Constructive' by Justice Lucas is of interest. Your attention is also drawn to the 'Report of the Transvaal Township Commission, 1912 Union of South Africa' chaired by M R Greenlees and the 'Small Holdings Commission (Transvaal) (OS 51-'13) Minority Report para. 17, 18, 22, 23 & 40' in which the then Mr F A W Lucas deals with the subject. His recommendations were the amendment of the Local Authorities Rating Ordinance, 1912, to make it obligatory upon municipal authorities within certain districts to rate land values only, exclusive of all private improvements and the abolition of the total or partial exemption of agricultural land or the surface of proclaimed land within the areas of those municipal authorities.

Winston Churchill understood the need for change in the system of taxation. Ref. Chapter 4 of "The People's Rights" entitled 'The People's Land' by Winston Churchill.

Fred Harrison 'The Power In The Land' published in 1963 gives a good account of land use and the state of the economy related to systems of taxation.

There is a strong move afoot in the U.S.A. to reduce rating on improvements which is in effect a tax on production and replace it with increased rating on land. The editorial from the 'New York Times' dated 13 May 1983 provides interesting reading in this connection.

Several cities in the U.S.A. have already started to change their rating system in this direction with measurable economic advantage.

Although the trouble in Ireland is superficially one of religion it has been shown to have its origin in, and gaining strength from, the system of land tenure and the tax system which helps to perpetuate it.

Henry George described the essence of this problem a hundred years ago in "Progress & Poverty". An article from "Land & Liberty" July/ August 1983 entitled "Ireland -- Nation At The Crossroads" by Raymond Crotty gives a brief update and the possible solution.

In some respects the problem and symptoms are so close to our own that every step should be taken not to develop the hatred and violence which is now part of Irish life.

A coalition government of small parties took power (for a short period) in Denmark from 1957 to 1960. Their express purpose was to change the system of taxation to that being recommended here.

During ,the period that they were drafting the necessary legislation a significant improvement took place in many aspects of the economy. Whilst offering a vast improvement in the overall economy of the nation the changes provided a threat to powerful, vested interest and an orchestrated counter move was able to defeat the government.

The economic advantages brought about by the anticipated changes and the disadvantages resulting from their defeat are given by Knut Tholstrup in 'Economic Liberalism'.

CONCLUSION

The South African economy can be speedily rescued from the doldrums it has been allowed to settle into. By a complete change to collecting revenue from Natural Rent on land. South Africa can be transformed into an economic giant, a stable and relatively peaceful society.

"In my opinion, the least bad tax is the property tax on the unimproved value of the land". Professor Milton Friedman.