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THERE IS a maxim in classical political economy, with which many modern economists agree, that "all taxation is at the expense of [economic] rent", and that gains won from any reduction in taxation -- or the imposition of wage restraints for that matter -- will automatically flow to Rent. The truth of this is observable today in the cruel irony whereby tax transfers, in the form of welfare benefits intended to help the poor, actually do the reverse by pushing up Rent and, by extension, the cost of goods and services. Henry George wrote:

any temporary improvement [in wages as a result of reductions in taxation] would ... be ultimately swallowed up by increased land values ... reduction in the expenses of government can have no direct effect in extirpating poverty and increasing wages, so long as land is monopolised.[1]

Recent studies by the Land Values Research Group in Victoria put Australia's potential Rent from land sites at $90 billion and from resources at $60 billion; a total of $150 billion. Current total revenue is $190 billion, (of which barely 5% is Rent). Therefore, eliminating all taxes on production and trade could see the value of Rent increase to $330 billion, (sites $210 billion and other resources $120 billion). Since the "sector" ratio by aggregate value of sites in Australia is: residential 6; commercial 2; rural 1, the Rent revenues from each sector would then be: residential $140 billion, commercial $47 billion, rural $23 billion. On that reckoning, current residential Site Rents would average $20,000.

With taxes abolished, wages would obviously increase immediately by the amount of the PAYE and other taxes and compliance costs previously deducted. Tax and compliance costs in Australia currently take around 54% of average household incomes of $45,000.[2] We could therefore expect, after deducting estimated site rents, an average improvement in annual household disposable incomes of around $4,300. However the citizens' dividend will significantly boost this outcome.

Given current revenue requirement of $190 billion less dead weight losses of say conservatively 20%, then revenue required under a Site Rent system would be around $150 billion. With projected revenue of $330 billion, (see above), this could leave a surplus of approximately $180 billion. This surplus, distributed as a citizens' dividend or CD, would deliver $25,000 per household,[3] bringing average household disposable income to $50,000, or $960 per week, and median weekly incomes, currently about 75% of the average, would rise to $750 per week. Compare these outcomes with the average household disposable income (1996-97) of approximately $410 per week before housing costs.[4]

If the enterprise-stifling burden of taxes on production and the onerous compliance load were no longer borne by individuals and business, the effect would be either a reduction in retail prices or increased wages. Given that market competition would preclude the saving migrating into higher prices for goods and services; the end result, as shown in Table 1, would be an effective doubling of average disposable income.

OF THE million or so business in Australia in 1997, 80% of them employed a total of around seven million people -- about 80% of the workforce.[5] These businesses averaged a total before-tax trading profit of $357,699.[6] Deducting an estimated $112,000 each in taxes,[7] and $30,000 each in estimated compliance costs[8] then leaves $216,000. With estimated aggregate Site Rent (excluding resources) for rural and commercial sites being $70 billion (see above), then, business site rents would average $87,000, resulting in an average immediate gain in trading profit per business of approximately $55,000.

But what of the increased disposable incomes of consumers; what effect might this have on business incomes?

If the average household spent say 70% of the extra disposable income, ie around $400 per week on goods and services, this would pump an annual $145 billion into the economy, resulting in an addition to the annual trading profit of each business, as shown in the table below, of around $45,000.[9]

Higher wages to directors and entrepreneurs and higher returns to shareholders would mirror the general doubling in the real value of disposable incomes referred to above. The benefits of the considerable savings in compliance costs, as indicated above, would add even more to profit margins.

The projected increase in business profitability is a static projection and although predicated on a conservative (70% of the potential) increase in consumption, takes no account of the inevitable surge in productivity and export potential.

Projected gains of over $500 per week per household in disposable income and $2,000 a week in after-tax trading profit for businesses may seem extraordinarily high, but the fact is that we are earning these sums already! The problem is that we are not receiving them. That wealth, the legitimate source of government revenue, is being siphoned off by land and resource monopoly.

Any change to our tax systems which fails o recognise the mechanism inherent in land _ monopoly whereby any increase in disposable income simply drifts into higher land price, will fail. Reclaiming Rent for revenue is the only way we will release labour from the iron grip of land and resource monopoly and allow all citizens to contribute to, participate in and enjoy the full benefits of a Site Rent System.

In a site rent system, with all constraints on employment and productivity cast off, wages and profits would naturally start to rise immediately, so that the percentage of Rent to household income and Rent to profit margin would diminish even further. Whether the gains went to Wages or to Rent is largely irrelevant, since surplus revenue would in any case find its way back to household incomes as a Citizens' Dividend -- an equal share for all in the Common Wealth.

REFERENCES

[1] Henry George, Progress and Poverty, Book VI, Ch. 1, p.302, Centenary edition.

[2] Income Distribution Report Issue 8 April 1998, table 3, NATSEM, University of Canberra, and unpublished LVRG research.

[3] Year Book Australia 2000, Population, Households and Families, suggests that as at June 1998 there were an estimated 7.1 million households in Australia. I have used 7 million as a round figure in calculations.

[4] Income Distribution Report, Op. cit., table 3. Also Who Bears The Tax Burden, Natscm; Housing in Australia, 1975-97, Discussion paper 28. Natsem; Australian Social Trends 1999, Cat. 4102.0 ABS, Unpublished data, ABS 1993-94 Household Expenditure Survey

[5] Small Business in Australia, 1997 ABS, cat 1321.0

[6] Summaries of Industry Performance 1992-93 to 1997-98, December 1999, ABS cat No. 8140.0.40.002

[7] AusStats Time Scries Spreadsheets table 5206.028 Australian Demographic Statistics, ABS.

[8] Estimated to be at least 15% of payrolls or $200,000 per business. (See Summaries of industry Performance etc.; Op. cit.)

[9] $400 x 52 weeks x 7 million households + 0.8 million businesses = $182,000 gross sales. The result multiplied by 25% = $45,400 trading profit.