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The only solution to the Greek financial crisis

Perhaps the most constructive comment on the solution to the Greek debt crisis has come from Andrus Ansip, prime minister of Estonia. He is reported to have said, “If I may give my advice to Greece, it is that you have to cut public expenditure. You have to make structural reforms. And you have to create a really efficient taxation system.” Whatever can he mean by a really efficient tax system?

Is the tax system in Estonia a guide for Greece? Mr Ansip has recently stated that Estonia should tax consumption and pollution and not property or work. As it happens Estonia does raise taxes from land value. Property owners in Estonia are liable to pay an annual land tax based on the market value of the land. The rate varies between 0.5% and 2.5% and is set by the local authority. Capital gains from the sale of a property are taxed at 21% of the net proceeds. This is not how a system advocated by our campaign would operate, but at least it is a starting point for an ‘efficient tax system’.

A really efficient tax system

What is the most efficient system for collecting state revenue? We can do no better than quote, yet again, the words of Henry George from his book Progress & Poverty: ‘The tax upon land values is the most just and equal of all taxes. It falls only upon those who receive from society a peculiar and valuable benefit, and upon them in proportion to the benefit they receive. It is the taking by the community, for the use of the community, of that value which is the creation of the community. It is the application of the common property to common uses. No citizen will have an advantage over any other citizen save as is given by his industry, skill, and intelligence; and each will obtain what he fairly earns. Then, but not till then, will labour get its full reward, and capital its natural return. When all (economic) rent is taken by taxation for the needs of the community, then will the equality ordained by nature be attained.’

Progress & Poverty — Book VIII, Chapter 3, Application of the Remedy: The Proposition Tried by the Canons of Taxation

Tomorrow, when the Greek parliament votes on the austerity package it it too much to hope that someone will take Mr Ansip’s advice and raise the issue of collecting the value in land created by the Greek community? Not only would LVT impose a built-in ceiling on government revenue and make tax evasion impossible but also it would relieve the tax burden on wages, sales, profits and savings while at the same time promoting the economic development that everyone says that Greece needs to get itself out of debt.

Michael Hawes