Basic incomes: fund them out of Rent

Destitution has been endemic in Europe for 500 years. Despite repeated attempts to eliminate poverty, governments have failed to empower everyone to work for a decent living. Now Scotland wants to go-it-alone, through independence, and the Scottish National Party proposes a universal basic income. Is the idea of a universal income realistic? It all depends on whether government is willing to fund the policy out of rent. Australia shows this can be achieved.

The Australian National Accounts report that at 30 June 2020 the continent’s total land values were $6.185 trillion.[i] Commercial, industrial and rural values were $0.9377 trillion, or 15.16% of total land values. So, what are the implications from the fact that residential values comprise 84.84% of total values? Can a reformed fiscal policy overcome the stresses in these straitened economic times, and enable people to pay themselves a basic income?

Q         You mean we should financially support individuals, not business, during viral episodes or times of economic collapse?

Yes. But there’s a case that business is also supported best by assisting individuals. Given a universal income to all people, say, of 18 years of age and above, not only does everyone have additional money to spend into business, but businesses have only to pay a wage over and above the universal income to retain or attract employees. Their wage bills will be vastly reduced.

Q         You’re talking about a basic income for everybody?

No, a pretty good universal income for everybody.

Q         So how can we possibly afford that? Where does that money come from? From higher taxes?

No, from lower taxes. The moment we institute a universal income, we effectively abolish income taxes because the earned incomes that supplement a universal income are so much lower. To tax these at a much higher rate to raise the same taxes as now would prove to be confiscatory to employers, if they are not so already.

Q         Oh, so we’ll have to tax goods and services at far higher rates?

Not at all. Along with income taxes, sales taxes already play a major role in our financial indebtedness and distress. Both forms of tax already cascade down through the production process into goods and services to double their prices, generating ongoing price inflation that consumer price indices fail to measure. The deadweight losses from taxes passed on in prices, along with escalating land prices (although land has no cost of production!) are the real generators of the inflation devaluing our currencies. To simply ascribe inflation to ‘excess money’ and/or ‘excess demand’ doesn’t get to grips with these underlying generators of inflation.

Q         OK, OK, but wait on a minute! So, you say this universal income doesn’t come from higher taxes? We have a magic money tree?

Yes, we do, but at the moment it serves only already-wealthy people. They’re currently expropriating the money tree unto themselves although they don’t work to do so. This also assists to explain how the middle class has become poorer over the last forty years and wage growth has declined.

The magic money tree is the annual value of our natural resources, sometimes called ‘economic rent’. Dr Gavin Putland wrote a paper Trickle-Up Economics for Prosper Australia in 2019 which assessed the economic rent generated by Australians as a whole—not by any individuals—to have become 50% of the Australian economy.

If we see this 50% of the economy to be a composite, not only of our annual land and natural resource wealth, but also of the extractive deadweight losses from taxes and the excess burden that they have passed on into the economy, we have a clue from where we may derive a universal income.

Q         Oh, I see! You’re going to tax land values? But that’s communism?

No. No communist country has both introduced a universal income and untaxed labour and capital. The following chart shows the incidence of US property taxes during the Progressive Era at local and state government levels. Australia managed to outdo the US with land and property taxes at all three levels of government during the same period. Under the influence of neoclassical economists, both countries retrogressed sharply at the Great Depression. It is difficult to argue that America and Australia were communist countries during the Progressive Era.

Q         How can you say this universal income comes out of the economic rent currently expropriated by the wealthy, though?

OK, imagine that we institute a significant universal income ….

Q         Wait a minute! Nobody would want to work! Everybody would do their own thing! I work. Everyone should work. We don’t want malingerers!

It’s true that the poorest people would be released from wage slavery to be able to ‘do their own thing’. That’s bad? However, to suggest that people won’t work unless they’re made to do so is to ignore that some form of work is innate to our existence, to the human experience, even if it is to do unpaid work. Could it be that ‘malingerers’ are more likely to be the victims of the current badly-devised distributional system?

Q         Maybe. But how does a universal income come out of this economic ‘rent’?

A universal income is an immediate and direct deduction from economic rent. Banking and other extractive rent-seeking monopolies generating the greater part of their profits from private debt built upon escalating land prices or other forms of ‘rent-seeking’ that minimise general wage levels will fare relatively poorly under a universal income regime. They will be required to offer a relatively greater additional wage to the universal income in order to retain employees than small businesses will be. If the universal income is further underpinned by public capture of economic rent to flatten land prices this also undermines speculative activity in real estate to reduce land prices and create affordable housing.

Moreover, if everybody 18 years and over receives a universal income and we were to capture land rent publicly, that rent would not be passed on in the form of higher prices. Economists may not agree on the fundamental cause of inflation, but they do agree that one defining feature of a public charge on rent is that it can’t be passed on in prices.

The main problem concerning a universal income is that it will be resisted by mainstream media and rent-seeking interests. That is what happened in 2010, when the mining companies produced advertising to frighten Australians when the Rudd government proposed a 40% resource super-profits tax. Political parties are likely to continue giving such businesses a greater hearing than their constituents unless people call them to account.

Another rather unlikely source of resistance to a universal income may be the unions. Despite having failed their members over the last 40 years, they consider it their role to obtain fair incomes for workers. Proposed ‘job guarantees’ don’t cut it: they are insufficient. A guaranteed decent income for all is a necessity. Unions would still retain a role in seeing to conditions in the workplace other than incomes.

The Scottish National Party presents an idea suited to the world’s increasingly troubled times. However, if Australia is typical, there appears to be scope for the universal income to be more than ‘basic’.

  • Bryan Kavanagh was employed in the Australian Taxation Office and the Commonwealth Bank of Australia as a real estate valuer before co-founding a private real estate valuation practice in Melbourne in 1997.  His blogs may be read at https://thedepression.org.au/

[i] Australian Bureau of Statistics Catalogue 5204 Table 61.

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