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It is a great honor to be invited to comment on the land question in Viet Nam. The socio-economic dynamics associated with land-laws make an in-depth look interesting and will greatly influence Viet Nam's future development. I would like to thank the authors of this report for this opportunity.

As the government of Viet Nam is approaching the land question in greater depth, it is critical to properly understand the nature of land.

Land, in an economic sense, is defined as the entire material universe outside of people themselves and the products of people. It includes all natural resources, materials, airwaves, as well as the ground. All air, soil, minerals and water is included in the definition of land. Everything that is freely supplied by nature, and not made by man, is categorized as land.

Thus, land is the mother of all beings and things. Capital isn't. People's survival does not depend on capital, but on land. Land is essential to all life and prosperity. Wars are fought over land. Furthermore, poverty does not stem from a lack of (access to) capital but from denied access to land. Land is finite, but its existence in time is infinite. Land has no cost of production - no one can produce land. Thus, land is very distinct from capital (goods produced by mankind), just as there is clear distinction between land (Viet Nam) and labor (the people of Viet Nam).

Land is the common heritage of mankind and land distribution holds the key to the prosperity and social justice of a nation.

"In fact, how to ensure an appropriate and optimal allocation and utilization of land also poses a serious challenge to poor countries" Dr. Pham Duy Nghia (Faculty of Law, Hanoi National University)

Keeping land in the public realm does not exclude private tenure. In fact, international experience has shown that in most cases having land privately held improves productivity.[1] Thus, it is very important for the prosperity of the nation that the private sector has equal access to land in Viet Nam.

The current system of leasing the land, though, needs to be improved. Leases should be readily available to anyone willing to pay the current market price. All land-related data should be made public and easy accessible. Leases ought to be transferable freely. Lease prices should be adjusted annually to reflect the change in their value. The value (rent) ought to be collected annually.

There should be no distinction between State Owned Enterprises (SOEs) and privately held Small And Medium Enterprises (SMEs).[2] Whoever claims to hold the title to a parcel owes the full amount of the annual land rent to the public coffers. Thus no parcel would be held by any individuals, firms or government agencies at below market prices. This would greatly lower the prices of land and therefore encourage more SMEs to be started and enter the market successfully.

Thus, the government's main role is simply defining the uses - allowed and wished for - for any given parcel throughout the People's Republic, keeping good land records, fostering transparency by making use of the internet, keeping assessments up-to-date, and last but not least, collecting the annual value (rent) attached to land.[3] In short, act as a good estate keeper or steward. Good Governance, thus social justice, would be secured.

In land reform there is a lot of talk of dividing up the land among the people (Zimbabwe, Latin America, Cuba). As it is not practical to divide up the land and give everyone an equal plot (as plots would not be of the same quality nor would tomorrow's generation's rights be accounted for) there must be a better way to share this precious national heritage. Collecting the full annual value of each parcel of land (whether it is urban or rural, industrial or domestic, whether the soil contains diamonds or landmines), using the revenues to fund public services, is a socio-economic fair approach, and allows for equal opportunity for all.

The proper assessment of the value of a property is essential. Land value, reflected in the distance to a desired location, shrinks outwards and is close to zero on marginal land. The desired location, on the other hand, shows graphically like the peak of a cone. Among real estate professionals there is one golden rule for determining the value of a property: location, location, and location.[4]

Land value can be thought of as the relationship between a desired location and a potential user. The ingredients that constitute land value are utility, scarcity and desirability. These factors must all be present for land to have value.

"In fact, the rising land prices do not result from land transfers but are attributed mainly to the change of land use purposes (i.e. from agricultural land to construction land) and the State has to collect a major share of this increase." Dr. Dang Duc Dam (Prime Minister's Land Research Commission)

Every desired piece of land has a positive value. It is the government's task to determine such value (its economic rent) according to market forces and to collect such amount from whoever is willing to pay it. In return, the payer will receive exclusive "ownership" over the location. If many people or corporations compete for the lease, the price might be too low. Luckily, the market prices of surrounding parcels will give a clear indication of the value of any parcel of land (once mapped and made public by using latest IT-tools the value of a location will be even more transparent and self-evident). Collecting the annual value of the land makes it easy and fair to share land. It is a most civilized way to fund government activities, as every government action is reflected in land values. The more efficient a government works, the higher the land values.

Total rent is likely to be higher than current public expenditures. It is up to the community to decide whether to build more and better schools or roads, or in what way to invest the unexpected funds. Publicly collecting the economic rent of land will also be a real opportunity to cut back, or even eliminate income and transaction costs, thereby improving the overall incentive environment for investment, trade and employment.

"Land represents a natural resource and a national property. […] It should be noted that the superprofits from real estate development were not poured into the State budget to be reinvested in new and feasible projects to solve the social problems that the 'land losers' are faced with, but were [and continue to be. sic] misappropriated by private speculators and opportunists." Nguyen Gia Hao (Director, Ha Minh Investment and Business Consulting Company)

Land rent is the price paid annually for the exclusive right (a monopoly) to use a certain location, piece of land or other natural resource. Everywhere in the world people receive wages for work, capital receives interest for investment, and land receives rent for the exclusive advantages of a location. Equity and efficiency require that the (local) general public, who created land value, should be compensated for the exclusive use of a land site. That payment is in the form of a land value tax (LVT) and is a compensation, a user fee (for all the goods and services delivered) rather than a tax.

What are the key benefits of collecting the annual rent of land/location values?

There are many, as land is embedded in almost every daily activity. One of the bigger advantages is greater access to land. As land in most cases will only be held when used accordingly to its permitted use, and as speculation will be checked as future increases in land prices will immediately be returned to the public, there will be greater supply, thus lower prices. This will allow even poor people to access land, now supporting the public with their goods and services.

The administrative effort to collect the annual rent is minimal compared to the bureaucracies other taxes (on income, consumption, and trade) require. Web based transparency and frequent assessments are easily achieved. The title holder pays once a year, or when it appears convenient for the designed use. It is easy to comply, no need for papers, forms, and audits.

Revenues will allow for lowering other burdens on economic activity. This will boost revenues and allow for better services and even deeper tax cuts - increasing land values all along. No, or low business taxes attract Foreign Direct Investments, as well as allowing for small businesses to grow more easily.

With only the land fee to be paid to the government there will be no room (nor need) for tax evasion. A rice paddy cannot be moved. When its designated economic use is altered, or its economic price otherwise increased (better surrounding infrastructure, population growth etc.) then the additional value is instantly returned to the community.

As rent is best collected at community level, taxing land values will lead to greater self-sufficiency at all levels of government.

What needs to be done to implement Land Value Taxation (collecting the annual rent of a location) in Viet Nam?

Viet Nam already uses the system of leasing the land. All land belongs ultimately to the people, managed by the government. The government de facto acts as a land trust or estate keeper. Thus, almost everything stays the same, except:

• Current Land Use Rights (LURs) could be simplified dramatically, freeing the system of much of the current confusion, abuse, and inefficiencies
• Leases must reflect the true economic value that the resource/location would have if it were unimproved (its economic rent)
• Assessments must be accurate and thus frequent
• A database with all land holdings and assessment must be made public - web-based
• The lease/rent must be collected periodically
• Leases should be freely transferable, only pure administrative costs could be levied.

Taxing land values (collecting the annual lease value) is simple, straightforward, and transparent. Taxing land values fosters quality development and housing, offers equal opportunities to all stake holders providing socioeconomic justice.

The collection of land rent is only a just return for all public and private goods and services provided and enjoyed at any given urban location or plot of rural land. Collecting the annual rent returns to the public coffers the advantage an individual receives from the exclusive use of a land site. No single person can create the value of a site, it needs at least two to establish an economic value. Thus, it is the community at large, who - along with nature - creates land values.

How big is the economic rent of a country?

Rough estimates suggest about 1/3 of the Gross National Product, made up by the three components involved in any economy: The land, the people, and the tools. Dividing up the GNP by this three seems a reasonable way to begin the thought process. For Vietnam this amounts to roughly 13 billion USD a year that is not properly accounted for. Almost the amount that currently disappears into private pockets or is lost due to government inefficiencies. Imagine, once applied, the relief to productive industries (who currently bear the tax burden of public finances) and the vast opportunities to grow Vietnam's infrastructure.

When considering worldwide economics, most people think that land rent contributes only a small insignificant portion of value. But as societies progress, land has become the predominant force in determining the progress or poverty of all people within a community. Land in major cities is so costly that people are forced to move further away and travel great distances in order to get to work and social attractions. "In the more developed countries of the world, land rent represents more than 40% of gross annual production" (http://www.henrygeorge.org/ted.htm).

For example, the UK's Government's auction of mobile phone airwaves for 20 years raised £22.4 billion (and of course, the airwaves can be auctioned again in 17 years time!). Furthermore, as tourism booms in Viet Nam, the government soon will be able to auction off landing slots at airports on a periodic basis.

Not only is land rent the most sustainable and thus vitally important source of public revenue, the tax on land is of excellent value in the fight against excessive land speculation and corruption. With limited money to invest, people could invest in productive equipment and wages, rather than in high land prices which produce no additional tangible wealth.

What are the next steps to be taken?

• Create a proper and transparent land bank (accurate assessments, web based access, owners clearly identified)
• Introduce Land Value Taxation by decree
• Simplify the land laws (and adjust the valuation following the trends of a floating market)
• Collect the annual rent
• Lower taxes on production, labor, and trade

Using land value taxation as a means to raise public revenues and secure social justice will bring Viet Nam's Millennium Development Goals (MDGs) within reach.

NOTES AND REFERENCES

1. See Tideman, "Should Land be Rented or Sold?" http://www.econ.vt.edu/tideman/rentvsal.pdf

2. SMEs often have to rent their land from these SOEs, suggesting a major misallocation of resources. A recent survey from USAID of 2000 SMEs found that of those that were leasing their land, approximately 9% were leasing from an SOE. Combined with traditional rent payments this amount to a substantial factor in government inefficiencies, as funds are not properly accounted for. Even if there were no irregularities in the legal sense and even if the land were rented out at current market prices, providing land would still not be the mission of most government agencies and services. Thus, if government holds land, it should do so at full market prices.

3. If there is no further demand, anyone willing to pay at least 1,000 Viet Nam Dong to the public may keep any parcel in his name by public record. If needed, there can be sealed bidding. Whoever offers the higher compensation to the public gets it for the second highest price. It is the public though who decides its desired use.

4. The physical attributes of land include quality of location, fertility and climate; convenience to markets, schools and parks; availability of water, sewers, utilities and public transportation; absence of pollution; and patterns of land use, lot sizes, frontage, depth, topography; streets, and air- and waterways. Additionally, legal, social, and economic factors influence land values.