Land value tax and Indigenous Australian Lands

Many economic reformers have proposed replacing many taxes by broad-based taxes on land ownership, specifically the 'unimproved' value of land (commonly called a Land Value Tax or LVT). Advocacy for an LVT goes back to 18th century economist David Ricardo1 and 19th century populist reformer Henry George.2 While usually considered a 'progressive' proposal, it has adherents on both the left and right of politics.3 In Australia, the case for an LVT was most recently made in the 2010 Australia's Future Tax System Review ('the Henry review').4

The Henry review proposed excluding low market-value land, and the partial LVTs leveled by many state governments currently contain a large number of exceptions, including for primary production (agricultural) land. As the Henry review's proposals were mostly un-enacted, most land claimed as native title is agricultural or low-value, and native-title related payments are currently tax-exempt, whether an LVT or other taxes can or should be levied on native title (or other Indigenous) land is currently a largely theoretical question.5 As the ABS's recently released National Land Account figures show, the majority of Australia's land value is in urban residential land:6

The value of land at 30 June 2016 comprised of:
• 81.4% ($4,169.6 billion) in residential.
• 8.4% ($430.0 billion) in commercial.
• 5.3% ($270.8 billion) in rural.
• 5.0% ($253.7 billion) in government.

However, given the potential direction of both future tax reform as governments face growing deficits, and of the reforms to native title law proposed by the Australian Law Reform Commission in Connection to Country,7 which would make native title claims easier in more 'settled' (and hence higher-market-value) areas of Australia, taxation of native title land may not be theoretical in future. Whether such a tax should be supported by those generally in favour of Georgist reform should therefore be considered seriously, before it becomes a live political issue.

I argue that native title land should generally be excluded from any LVT, on the grounds that many of the assumptions underpinning arguments for LVT fail when applied to Indigenous lands. The potential consequences of this exclusion are also examined.
There are many arguments supporting a LVT. The Henry review summarises the economic argument, stating:

"Land value tax [LVT] is efficient because the tax reduces the price of land but does not affect how it is used, or how much is used. Unlike capital and some labour, all land is immobile. If returns to capital or labour are higher elsewhere, those factors of production will tend to move toward those returns, but land cannot do so. This means that, in response to changes in demand, it is only the price of land that is affected, not how much it is used. The more (less) people are willing to pay to use the land, the higher (lower) the value of the land…

Someone must use the land, though; because it is immobile, it cannot be shifted out of supply. This makes land an efficient tax base... The landowner cannot reduce their tax liability by changing land use — an empty block pays the same tax as an identical developed block since both blocks accrue the same 'economic rent' over time…"8

While the landowner cannot reduce their tax liability, they can affect the return on their investment in land by putting land to economically productive uses, instead of low-return or idle uses. In the absence of a LVT, landowners can 'bank' land, speculating that its price will rise for later sale, instead of developing it.9 This diminishes the land supply for the broader community and earns an entirely passive return on investment as the land's value rises, above and beyond the return from normal economic activity (an 'economic rent'). A LVT discourages such behaviour by charging taxes on 'idle' land, which rise as the underlying value of the land rises; thus landowners have an incentive to either put land to productive use, or to sell it to those who will make use of it.10

These effects are one reason LVTs have frequently been advocated by both progressive reformers, such as Henry George and 'Ricardian socialists', and free market economists such as Milton Friedman. Free market thinkers approve of the LVT's function of reducing economic rent and incentivising land to be put to economically productive uses, as opposed to other taxes which disincentivise work or investment.11 Progressives observe that, compared to other broad-based taxes such as poll (head) taxes or consumption taxes, LVTs fall upon the 'idle rich' (in the 17th and 18th century, particularly the landed aristocracy), who benefit from the returns of land ownership in areas of economic growth without themselves contributing to growth, as they did not create the land, but merely control access to it.12 Evading taxes on land is also inherently difficult as land, unlike money, cannot be concealed in trusts, moved to offshore bank accounts, etc.

These arguments also relate to deeper progressive concerns about the existence and nature of private property. A progressive strain of thought going back to Rousseau holds that private property (particularly in land) is an unwarranted theft, maintained by force, of what should be commonly owned resources.13 A LVT is then seen as a justified charge by the community for this privatisation of the commons.

Having summarised the arguments for a LVT, I will also summarise the chief arguments against it. First, there is the conservative 'moral' argument, that private property, whether in land or other forms, should be respected by governments as a right and the product of individual enterprise, rather than be subject to confiscation or taxation.14 This argument, used to great effect by Australian mining oligarchs against the Rudd government's mining super-profits tax,15 implicitly ignores the unique pre-existing quality of natural resources, which are, according to advocates of an LVT, uncreated by human effort.

Second is the argument of George's opponents, such as John Bates Clark, that there is no such thing as a 'pure' natural resource that can be analytically separated from the capital invested in it. As Mark Blaug summarises, “fields have to be drained, cleared and ploughed before they can be cultivated and once in use have to be maintained by further expenditure just like ordinary capital goods.”16 It is not possible, Clark argued, to separate the 'economic rent' part of rent, which LVT targets, from the return on capital investments, which becomes 'blended in an intimate mixture' with the land.17 Therefore, taxing land heavily will undermine investment and have economic distortionary and disincentive effects, just as taxing wages or profits does.

Arguments for the existence of private property frequently rely on Locke's argument that private property was rightfully created out of the natural commons by the first people to 'mix labour'18 with nature, and that such privatisations are justified as long as 'enough, and as good' is left for others.19 Critics have pointed out that Locke's theories were advanced to justify the colonisation of the Americas. They depend on an act of mental terra nullius that assumes that 'nature' was not the creation of, nor laboured upon by, prior Indigenous inhabitants, and that an 'endless frontier' exists from which 'enough, and as good' can be taken by other colonisers, disregarding the existing inhabitants.20 Locke's justification fails to engage with the real history of western property, which was mostly claimed by state or private violence (or 'primitive accumulation' as Marx ironically called it21).

The above arguments explain why LVT is a viable and ethical taxation strategy in capitalist economies, and its roots in progressive critiques of feudal and private property. However, these critiques fail when applied to Indigenous property.

Unlike the history of western property relations, Indigenous people can fairly claim to be the first to 'mix their labour' with their lands. Through their maintenance of non-capitalist, kin-based property relations which prevented the development of marked inequality or class stratification, they also ensure that there is, for the most part, 'enough, and as good' for all members of their societies. Ironically, the Lockean justification for private property therefore holds good for Indigenous societies in ways which fail in settler-colonial ones. Furthermore, unlike Anglo-Australian land which is held as a grant from the Crown (in its feudal origins, literally, but now, as personification of the democratic state, the Crown-in-parliament), native title exists both temporally and logically prior to the Australian state, and thus is not dependent on the democratic community represented in the state for its existence.

The non-accumulative focus of most Indigenous economies, geared to the stable reproduction of people and social structures rather than the production of surplus value,22 also acts against one of the chief objectives of an LVT, ensuring that economically productive land is not left idle or used for unproductive purposes. While not denying Indigenous people's right to seek economic development on their land, native title is granted on the basis of customary connection, occupation and use.23 Those customary uses are directed to the maintenance of kin and spiritual relations and traditions and stable subsistence rather than economic 'development'.24 It follows that an LVT, which implicitly penalises non-economic uses, would be counter to the legislative purpose of the native title system, not to mention the aspirations of native title holders.25

The purely economic arguments for an LVT also fail when applied to native title lands. As summarised above, the analytical validity of LVT rests on the ability to draw a line between the 'improved' and 'unimproved' (or 'state of nature') condition of the land, such that only the landowners' returns from the 'unimproved' component (the 'economic rent'), is taxed. For settler society, this distinction is easy to make; the 'unimproved' state is the state it existed in when the settlers arrived. However, from an Indigenous standpoint, or when considering Australia's pre-colonial history, the idea that the Australian natural world existed separately from its Aboriginal and Torres Strait Islander owners cannot be maintained. Rather, the Australian natural world, including its ecosystems, soil fertility, distribution of plants and animals, etc, exist in the form they do because of the continuous 'investment' of Indigenous eco-cultural practices over 65,000 years or more;26 a 'capital' that was subsequently liquidated without understanding by the introduction of unsustainable European farming practices. Furthermore, Aboriginal belief systems understand the geographical and geological features of Australia as themselves deliberately produced by ancestral beings, who thus laid down the bases of society inseparable from a deliberate, mnemonic, meaning-infused landscape.27 Separation between 'improved' and 'unimproved' land thus makes neither ecological nor epistemic sense within Aboriginal country.

For all of these reasons, the Georgist LVT proposal, while a powerful critique of existing distribution of property within capitalist systems, fails when applies to Indigenous land. Native title lands, and other forms of Aboriginal property (such as land held under Land Rights legislation), should therefore, in principle, be excluded from any future application of LVT.

A further complication needs to be considered when applying this principle. While some 26% of Australia's surface area is covered by either land rights land or 'exclusive possession' native title, another 28% is 'non-exclusive' native title; native title which coexists with some other form of title, such as a pastoral or mining lease, usually (although not always) held by non-Indigenous people or corporations. How is an LVT to be applied in these situations?

One solution might be to determine the degree to which the non-exclusive title falls short of full title, as a hypothetical percentage of the benefits of full title, in each case. For example, this approach was taken by the courts in Northern Territory v Griffiths28 (aka the Timber Creek case) when calculating what percentage of the full market value of the land should be paid to the native title holders in compensation for the previously uncompensated value of their land. Over the course of the case's history, this percentage was reduced from 80% (in the Federal Court) to 65% (in the Full Federal Court) to 50% (in the High Court).

While this 50% figure could be applied as a flat rate, it should also be noted that the courts in each case referred to the particular rights and character of native title in the area, implying that this figure would not necessarily apply to other areas with non-exclusive native title. Performing such legal determinations over 28% of the continent would be both onerous, and potentially invidious in demanding that traditional land ownership and custom be 'reduced' to a percentage – which, if the Timber Creek case can be taken as a model, might vary significantly depending upon the decision-maker.

A better approach, in that it can use mechanisms already in place, is to note that in almost all cases of non-exclusive native title, any aspects of that title that would stand in the way of commercial use have been 'bought out' by the negotiation of Indigenous Land Use Agreements (ILUAs) or Future Act Agreements, mechanisms established by the Native Title Act 1993, between the native title holders and the other land users. These usually involve some compensation, monetary or otherwise, being given to the native title holder by the commercial land user. The solution is then simply to allow the commercial land user to deduct the value of this compensation from their assessed LVT payments (or other resource-rent based taxes, e.g. mining royalties).

It might be objected that this system creates an incentive for landlords and land users to support native title determinations on their land, raise their payments to native title holders as a tax avoidance mechanism, or to sell their land to Aboriginal and Torres Strait Islander buyers. However, given the almost overwhelming social problems caused for Aboriginal people by their original dispossession, and the general hostility to Aboriginal land claims still frequently encountered in native title29 and land rights claims30, I regard this as 'a feature not a bug'. Creating a financial incentive for private enterprise to support, rather than oppose, Aboriginal land rights can only serve the broader Georgist progressive goal of a fairer, more equal society.

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