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Land Value Taxation and Catholic Social Teaching

Land value taxation is a practical means of implementing Catholic Social Teaching, as set out in the series of Papal Encyclicals commencing with Rerum Novarum, promulgated by Pope Leo XIII in 1891.

Wherever injustice and extremes of wealth and poverty exist, we find land ownership concentrated into the hands of a few. And prosperity is most widely distributed in those countries where land ownership is also most widely diffused – even though, paradoxically, those countries often lack natural resources.

It is easy to see that poverty – for example, in the rural parts of Latin America – is due to lack of access to land, but although most of the economic problems of the developed world – unemployment, low pay, bad housing – are also, at root, problems to do with the distribution of land, this relationship is less obvious. This is because the land issue is hard to appreciate when so few people earn their living directly from the land.

The social teaching of the Catholic Church has constantly returned to the question of private property. The right to private ownership of property has been affirmed, but the Popes have also balanced this view with the reminder that, “God gave the earth to the whole human race” – (Rerum Novarum) and “Every person has the right to glean what they need from the earth” – (Populorum Progressio, 1967). The same principle lies behind the biblical Law of Jubilees: “Land shall not be sold in perpetuity, for the land belongs to me, and to me you are only strangers and guests”. – Lev 25:23.

At first sight, there is a contradiction between the idea of private ownership of property and the assertion that land is God-given. This difficulty has arisen because modern economists regard Land as a species of Capital. It is essential to be clear about the distinction between Land and Capital. By Land, we mean God-given natural resources: agricultural land in its state of natural fertility; a vacant site in a town; minerals in the ground; and so on. Capital is a product of human labour: examples include trees which people have planted in an orchard; farm animals; ships and aircraft; factories, office buildings, and the machinery in them. Property, which consists of buildings standing on plots of land, thus comprises both Land and Capital. Once this distinction is acknowledged, the apparent contradiction in the social teaching of the church is resolved.

The Church affirms the natural right to ownership of Capital precisely because it is a product of human effort, and people have a natural right to the full fruits of their labour. But if Land is God-given, and not the product of anyone’s labour, then there can be no natural right of ownership. The social teaching of the Catholic Church has repeatedly linked land ownership to the concept of stewardship, pointing out that property ownership carries obligations: “The right of ownership is not absolute” (Quadragesimo Anno, 1931); “There is a social function inherent in the right of private ownership” (Mater et Magistra, 1961).

The profound truth of this principle can be appreciated when we remember that land values arise from the presence of the community and the desire of the community for the products of land, and that these land values are further sustained by public services such as roads, railways, schools, parks and hospitals.

This is the core of the moral issue raised by land ownership. Not all land is equal and not everyone can own land. Land owners can exact a payment – which we call rent – for the use of a resource which they did not make. We have come to accept that whoever happens to hold the title of the land is entitled to claim the rent, but such a claim has no foundation in natural justice. In the absence of any obligation to the community, landowners can enjoy rights and privileges without corresponding duties, setting society on a path which will ultimately lead it to tear itself apart.

How, in practice, might property owners exercise their duty of stewardship? One method which has been suggested is the taxation of land values, with the progressive phasing-out of existing taxes. The land value tax would operate as an annual tax on the rental value of every plot of land, the assessment being the market value of the site; a vacant site in a row of houses would be assessed at the same value, and be liable to the same tax, as its neighbours. The tax would be paid regardless of whether the land was in use or not.

Land value taxation has two principal aim To even-out the differences between those who own the most valuable land and those who own land of little value or none at all. To raise public revenue justly in a way which does not penalise business, enterprise or labour.

Land value taxation would have the important practical benefit of discouraging speculators from holding land vacant and out of use, because owners would not want to risk being saddled with the land value tax, since this would make it expensive to allow land to remain derelict. As empty sites and buildings were swiftly re-cycled to accommodate new uses, employment opportunities would be created and the housing problem would largely resolve itself.

If existing taxes were to be replaced by a land value tax, the burden on marginal areas would be reduced, redressing the disparity between regions. In Britain, a change to land value taxation would bring particular benefits to people in places such as Northern Ireland, Tyneside and Merseyside, where land values are low; these parts of the country would suffer less of a handicap than they do at the moment.

Existing disincentives to employment caused by the tax system would diminish, because land value tax does not bear on labour and production. It would be cheaper to employ people and the severity of the present poverty traps would be mitigated.

Under a system of land value taxation, there is no need for rent control because landlords take care not to ask their tenants to pay more than they can afford; if the tenants go out of business or leave because they can find cheaper premises elsewhere, then the landlord picks up the land value tax bill. The introduction of the land value tax would thus eliminate one of the most important factors driving up the cost of houses and business premises beyond affordable levels – thereby causing homelessness and unemployment.

Between 1880 and 1914, land value taxation was the focus of a dynamic popular movement in Great Britain and Ireland, and it remains the subject of an ongoing campaign. Land value taxation is widely used abroad, for example, in parts of the US, Canada, Denmark and some Australian states. Unfortunately, the rates of land value tax have never been high enough to allow existing taxes to be cut sufficiently to allow the potential benefits to be fully realised.

Taxation is the fiscal expression of the relationship between the individual and the community. Most modern governments raise their revenue by levies on the production and exchange of goods and services. We take this method of taxation for granted, but it is of relatively recent origin. Our taxes are widely regarded as unfair and bureaucratic, since they are, to all intents and purposes, a tariff of fines for engaging in legal economic activity; the dishonest simply avoid paying, whilst those who can afford it employ professional experts to exploit the loopholes. Modern systems of taxation are damaging to the economy, forcing large numbers of people out of work, yet they are unable to bring in sufficient to pay for the services which people regard as part of civilised society.

An alternative form of taxation – land value taxation – would provide a practical means of applying the principles set out in the social teaching of the Catholic Church. It would alleviate many of the most persistent political, economic and environmental problems that afflict us.