By Neville Bennett
The way that NZ 'manages' its land is now in deep crisis.
Land is fundamental to the health of our society, and especially to its continuity, but it hardly figures in debates and there is no action by politicians to ensure that it is used efficiently and equitably.
Moreover, there are increasing bids by foreign corporations to buy choice bits of 'godzone' and I think we need a new policy debate on what is about to an avalanche of alienation.
Notice Gareth Vaughan’s story about Harvard, which already has interests in Kaingaroa and Big Sky Farms, today pitching for Dairy Holdings.
Why is there a land crisis?
1. Some land is not being productively used, and there is no pressure to use land productively if the owner has deep pockets. There must be more land that is un-used or under-used because owners enjoy ownership at minimal holding cost. I have a remedy (more later)
2. Some land has risen incredibly in market value since purchase. The owner has made enormous potential capital gains. There is no CGT in NZ. J.S Mill was on to this when he wrote "Only the landowners grow richer, as it were in their sleep without working, risking and economising". He called for the taxation of land in order to recapture the unearned increment accruing to the land owners.
3. Countries like South Korea, Taiwan are buying land for food security. Food security is the biggest looming issue.
4. This country pays enormous respect to the law relating to land holding. This may conflict with community needs as it appeared to do in this scandal.
The case of the Crafar Farms, or more especially public interest in the possibility that the receivers might sell them to Chinese interest, raises issues.
The push-me-pull-you Crafar episode goes to the heart of our malaise. We know that it is relatively easy for foreign companies to buy large swathes of our land and use it for their own purposes. Public opinion is probably against the Crafar farms going into Chinese control.
The opposition is rarely motivated by fears of China as such, there would be opposition to any foreign buyer because they would use ‘our’ land for their own purpose, and eventually we would end up as peons or serfs in our own country. This may be overstating the admittedly more complex array of sentiment on the issue but it touches on a core thread in the blogs.
The assumption in this case is that land is a scarce resource. NZ has large quantities of prime land that is cheap by international standards but once the land has been alienated, its holding costs are ridiculously low.
Moreover, as the holding cost of land is low, there is a tendency for landholdings to increase in size. This is especially clear in the case of dairying.
Dairying was once the preserve of small family farms, mostly in the Waikato, who developed local cooperatives. But the rewards of scale meant farms grew larger to maximise use of capital invested in fencing, walkways, mechanization, milking sheds etc. But family farming is not dominant in dairying, especially in the new frontiers of Canterbury and Southland; the corporates are now the driving force. I imagine that it is very difficult for the hard-working couple to break into dairy farming.
Dairy farming is remarkable because it pays so little tax. There has been a good debate on this in interest.co.nz. I merely want to stress that our system taxes only the 'profits' to an operation after very generous allowances of 'expenses'. The land owners also get access to untaxed water.
This system is leading to huge land accumulations and I believe huge ranches or whatever are not desirable in the long run as few people get an opportunity to buy land.
I believe that countries with a more inclusive land policy are much better. We have come away from our traditions where the state broke up large estates to give 'little people' a fair go.
We only mutter darkly too when eastern potentates buy up large tranches of South Island high country to build nice little lodges where they can almost domesticate game animals for the rich to shoot. No holding costs of course.
We see nothing wrong too in rich guys buying land for exclusive golf courses. No holding costs, of course but a lot of supporters.
What is to be done?
We need a land tax to broaden revenue (and lower income tax) but particularly to check large accumulations and to increase output. I have argued this before.
A useful quote comes from Thomas Jefferson, one of the drafters of the American constitution
Another means of silently lessening the inequality of [landed] property is to exempt all from taxation below a certain point, and to tax the higher portions or property in geometrical progression as they rise. -- Thomas Jefferson
I think a case could be made for a light tax on rent: the great earlier economists believed so.
Ground rents are a species of revenue which the owner, in many cases, enjoys without any care or attention of his own. Ground rents are, therefore, perhaps a species of revenue which can best bear to have a peculiar tax imposed upon them. -- Adam Smith
With the editors indulgence, I will write further on land in economic theory to stimulate debate on our predicament. I will particularly address the thought of the great John Stuart Mill who said:
"When the sacredness of property is talked of, it should always be remembered that any such sacredness does not belong in the same degree to landed property. No man made the land: it is the inheritance of the whole species."
But I think we need to go further and increase community control of land. My text will be from J.S.Mill:
“The land of Ireland, the land of every country, belongs to the people of that country."
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* Neville Bennett was a long-time Senior Lecturer in History at the University of Canterbury, where he taught since 1971. His focus is economic history and markets. He is also a columnist for the NBR.
nevillebennett@clear.net.nz
www.bennetteconomics.com
34 Comments
Some interesting ideas here. I think Thomas Jefferson nailed it... .i would wish to preserve a NZ similar to that in which I grew up and a brake on overseas ownership of "our" land .."Our" people would include all those who have a stake in NZ society regardless of race. I think americans or europeans who have raped their own communities and are now looking for a safe haven to preserve their wealth are as unwelcome as moneyed asians who see an opportunity to invest in an uncorrupt country and profit from future shortages of food in their own lands.
I agree with this, and am suprised there isn't more online about it. I have been searching NZ websites daily for any articles on land tax (and also captial gains tax) to learn more about it, and neither are very popular subjects (as a side, have also been searching for MMP and am pretty glad that is finally becoming a popular topic).
Hope this helps...
Adam Smith (1723 – 1790)
... widely cited as the father of modern economics and capitalism.
John Stuart Mill (1806 – 1873)
... An influential contributor to social theory, political theory, and political economy,
his conception of liberty justified the freedom of the individual in opposition to unlimited state control
Thomas Jefferson (1743 – 1826)
...Jefferson idealized the independent yeoman farmer as exemplar of republican virtues, distrusted cities and financiers
Karl Heinrich Marx (1818 – 1883)
...oops, sorry, Neville didn't mention him.
NZ -- Tax Working Group 2009 - land Tax
And on this site (interest.co) in 2009.
The wiki on land value tax is pretty good too.
Dr Brash quite liked it as well:
"A land tax combined with lower income tax and higher gst rates is a very appealing package...If the trade-off were a substantial reduction in income tax rates there would be a lot to commend it" (2007)
There seem to be a lot who don't simply dismiss it...
Opposition from vested interests:
http://www.stuff.co.nz/southland-times/news/3248188/Developers-slam-land-tax-proposal
Bruce Sheppard blogged about land tax:
"
bruce sheppard #4 09:32 am Feb 03 2010Rocketman, Get a copy of any of the major NZ banks finacial statements, and look at the regional and industry exposures, and then you will see that unfortunatly the cost of your paradise will be widespread default, loss of captial in banks and a spreading of the pain over the whole community, the next knock on effect will be a compression in bank lending across the board and a credit squeeze, that will kill non farming business as well.
For me I say bring it on, as we really do need a good kick in the guts to wake up, but Rocketman, such times bring on revolution( whatever form that takes inthe 21 century) and politicans never vote for certain death any more than turkey's vote for Christmas."
I think that in the long term you have to make the hard decisions because the economy will recover and the next generation will be the better for it.
http://www.stuff.co.nz/business/blogs/stirring-the-pot/3286437/The-ins-…
I See
The Greens say they will support the government if it wants to introduce a tax on land and a comprehensive capital gains tax.
http://www.stuff.co.nz/national/3257153/Greens-offer-National-land-tax-…
I would vote for them although it seems to contradict the thrust of their obsession with "te Tirritti" and "tangata whenua" (which creates the impression that we Pakeha are interlopers in the land of the Maori). Hopefully they are growing up (and listening to Chris Trotter).
Yeah might have to think about it too.
If we are going to have extremely low rates, like what we've got, for a very extended period of time, then unless some policies are put in place to balance this out, then it's a no brainer house and land prices will be driven up again.
The government better get a policy in pretty soon to get people away from borrowing, or the debt binge will continue, setting us up for an even bigger crash in the future.
The Brazilians are starting to think that selling productive land to the Chinese is a bad idea:
Politians the world over are bought/influenced/lobbied. As a consequence they end up making decisions that are profoundly contrary to the interests of the electorate that put them in power.
It is hardly inconceivable that Key/English may have been subject to some serious pro-Chinese influence.
"... no action by politicians to ensure that it is used efficiently and equitably...."
Hang on...why the hell should I have to ask a bloody politician how I may use my land....it's bad enough now with red tape and BS to the eyeballs...bloody shiney bums in offices deciding too dam much already.
"We need a land tax to broaden revenue (and lower income tax) but particularly to check large accumulations and to increase output."
Bennett...you are a Marxist!
As for a land tax...do you seriously think the 2017 Labour govt will NOT use land tax as a means to bloat the state one more time....think about it Neville.
The first order of battle is to reduce the State...cut the splurge on useless departments that serve only to make Sir Humphrey happy as...and soak up the unemployed.
Your nutcake ideas Neville would lead to you having to ask what you may do with your bloody life...where you may go...how much travel you may have...when you may retire...how many babies you may have...on and bloody on...think about it Neville, before you demand govt stick its dam nose in any deeper.
Bugger bloody govt...get the pricks out of our lives.
Neville great article. Im in California looking at land and what is happening in this part of the world.
The corporate farmers here have a voracious appertite and have corporatised large areas where they can make the most use of subsidies. The Chinese are here, they have been buying Walnut farms and the prices are now over 20k an acre(they have driven prices through the roof) for anything useful. They are also buying cropping land and very busy looking. Returns on cattle are to low to give a decent return, prices are up and the regional bank manager is talking of bubble number two. He said to me that if they had no capital gains tax, half the farms in the area would be for sale as farmers cashed in.
He thought corporate farming was not desirable, they all hate the idea of large scale foreign ownership. He thought the Chinese were creating a bubble not unlike the Japanese did in the 80's he thought resentment will grow to the Chinese, its masked but is in reality a foreign government buying the land. At the moment prices are good and production is increasing but in the bank managers eyes its just another bubble. `he said to keep out of land investment if you need a return. Houses on the other hand are cheap. Houses that sold for 450k are now short selling around the sub 200k. We had a mutual interest in commercial property and empty commercial property is not worth a dime but also no income and unemployment is shocking in some areas, empty garages, car yards and businesses litter the area.
I agree we need to re look at our tax system. We need to keep families on the farm not let large scale farms form due to banking favor. I sold a farm to a large scale dairy farmer he valued his farms every year and went to the bank to borrow up to the limit, this is dangerous behavior and behind the huge rise in farm debt. Time we woke up to what could be our future.
To the housing nuts. Yes you can buy houses in the USA that give a reasonable return and the house you buy is better built than home but you cannot borrow unless you are a US citizen.
I strongly recommend reading ~Greg Pytels take on the Chinese
http://gregpytel.blogspot.com/2011/04/china-is-buying-up-world_07.html
"Neville Bennett was a long-time Senior Lecturer in History at the University of Canterbury, where he taught since 1971."
In other words Neville Bennett has been in his ivory tower of guaranteed govt money for 40 years and his experience with working the land is a big fat zero.
Wolly. So, so, so correct. And yet air-heads, with no coal-face experience, get so much un-deserved attention. You should find the time, do hop up SH1 and visit with Amanda as per the invites. Twice now. It would be a justice if SHE could pick your brain, do an interview and turn it into an article. Be a change from the CHOSEN air-heads.
Property Council chief executive Connal Townsend said debate about the future ownership of the 16 Crafar dairy farms appeared to have tapped a racist vein, when the real issue was New Zealand’s willingness to value its own landholdings and provide certainty to people who can commit capital, generate local employment, and encourage economic growth.
“The Green Party co-leader, Dr Russel Norman’s reported called for changes to overseas investment rules so foreign interests can only lease New Zealand property sends a terrible message to the global community that this country is off limits to much-needed capital.”
Mr Norman’s sweeping comments ignored the reality that New Zealand operates in a global capital market and desperately needs investment. “This debate risks damaging this country’s attractiveness to foreign investors across all sectors, including commercial property.
http://www.scoop.co.nz/stories/PO1007/S00062/overseas-investment-necess…
You would thing NewZealanders could scrape the capital together for tractors, milking sheds, clover seed and the like?
If Norman has his way jh, you will be told what you are expected to do on your own land, how many you must employ, what you must pay them, what you will be paid as a return on what Norman determines your land value to be...and when you may stop working and who you may sell to and the price. He is looking more like a control freak by the week. Neville Bennett and Norman must be good mates!
The last Labour government began this process of central control of land use when they ripped into forestry . Ag & Fish Monster , Jim Anderton , brought in punitive per hectare taxes for farmers who didn't replant de-forested land . The tax levied was greater than the value of the land , in most areas .
....... The un-intended consequence was to crush the industry . New plantings stopped . Seedling nurseries were bankrupted . And farmers embarked on a rapid slash & burn across the country to convert land to dairying , before the tax was enforced .
Government's own Landcorp joined the fray , hoiking out 1000's of ha. of pines in the central N.I.
Several questions spring to mind : Why did the previous Labour government love that forest pest , the radiata pine , so much as to encourage it's replanting ?
:- Why has the National government not undone the bloody stupid tax that Labour levied ?
..... shiny bums in central control , cock up a land-owners rightful use of his holdings , Neville . And the erratic ramblings of some commie pommie poet sound policy do not make , good sir . Adieu !
First up, Neville, it should be illegal for foreigners to own/buy farm land.
The crafar farms should all be sold separately , but the banks don't like that as they won't get as much for them.
As for a capital gain tax: that will drive all family farms out of business. Because when it comes to establishing the next generation the capital gains tax would make the figures impossible. It's hard enough now to hand/sell them on. The only reason farm values have gone balistic is the banks have been far to willing to lend on capital gain, not on income. Some banks even told farmers they were asset managers, not farmers.
The only thing you can tax farmers on is their income. You can call it rates, land tax, capital gain but it all comes out of net income after expenses. On the east coast of the North Island in the last four years most of us have been running losses due to the droughts. So where's the money going to come from for all your new taxes.
NZ has large quantities of prime land that is cheap by international standards ......
What a load of flubbawubba
When you actually work out the return on investment, NZ land is very EXPENSIVE, which is of course why the dairy farmers don't pay much tax.
I think that if interest was a non-deductible expense the NZ Gvt. would collect allot more tax and borrowing would be more unattractive (as it should).
So thats my idea; make interest a non-deductable expense. Not that it will ever happen; too much squealing from the pigs with their heads in the debt trough.
Thanks for your thoughts Neville you have stimulated some (hopefully healthy) debate.
Firstly, I'm not sure a "land crisis" is upon us (yet). If it is Kiwis becoming serfs in our own country, one way to impede this is to legislate that only NZ citizens are able to buy land in NZ. Of course existing landowners will howl, but tell me the contract that any of them signed that guaranteed in perpetuity they could sell to whoever they so chose ( Wolly are you ok if I sell my plot to Mugabe or Karadzic or Gaddafi?). I think I'm on to what you mean when you talk of the "community" having an interest in land, the question for me is, what size is this community - the nation, the province, or even the world?
Secondly, for thirty five years I've been hearing that foreign investment is one of the ways forward for this country. Mainly from academic economists and those with vested interests. I am unconvinced that most NZers have benefitted and doubt that future generations will reap much either. Most large businesses here are now foreign owned and controlled (not the one I work for) and profits made don't tend to stay in NZ.
There is, in my view, a way forward. Rebalance the borrowing/saving deficit in NZ by inflation indexing interest payments (both made and received) and make all interest paid to offshore entities nondeductible.Refine immigration policies to attract people with skills and drive who want to make this little paradise their home, It is knowledge, skills, and sheer hard work that can build a happy nation, not money from foreigners.
I am nor a Marxist , but I am a nationalist. I make no apologies for this. Greedy plutocrats who have no loyalty to any country are, to some extent, responsible for the mess this nation is getting into.
"Remuera households could be paying $6500 each and those on the North Shore $1300-$4000 a year. Financier Mark Hotchin of Hanover could be paying almost $100,000 a year for his three-section block in Paritai Drive,"
"Bryan Thomson, CEO of Harcourts real estate, said such a tax would penalise people who had scrimped and worked hard to get ahead."
http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10623183
Dolf DeRoos began his seminars by talking about how he studied how people became wealthy and found that property usually played a large part (the large part being unearned capital gains).
The North Dakota Anti-Corporate Farming Act of 1932, specifically outlawed the ownership of farming land by corporations, foriegn and domestic.
So even if we become trading partners with the TPP, New Zealand corporations can't buy ND farmland. This sounds like a good idea from this end as well. No foreign corporations are allowed to buy our land.
"1. Some land is not being productively used, and there is no pressure to use land productively if the owner has deep pockets"
I would argue the exact opposite. Some land is not being productively used because the owners do not have deep pockets. A classic example is Maori land with many partial owners.
In many cases current prices bear little relationship to the current earning capability of the land. If a foreigner wants to buy at those prices they are most welcome to. Given that some shrewd investors seem to be interested lately it does seem to suggest that some change in land use is likely. That is something we should pay close attention to.
New Zealanders cannot compete on the world market for our own land. This is a fact, The game is rigged. We do not have the money to out bid, governments, Chinese Corporates, Soveriegn Welath Funds, Huge Funds, Investment banks etc. We know this. So what we do have is the right to decide through the political process how the game works for us in our country. Other countries do it, The USA does it China does it. Singapore does it. The Oil stases do it.
1. Have you noticed how foreign entities like Harvard don't want to do useful things like build a University here, rather than just want to buy up things that New Zealand created.
2. All of this money sloshing around the world is looking for a real home. New Zealnd Land, Power station etc would be great for them. They trade semi worthless money for real assets. We get what exactly? The money is only worth what you do with it.
NZ didnt create the land....we just modded it a bit, but apart from that....
We pay global prices on food produce, yet only earn NZD wages while others earn far more and also now have to be prepared to pay international prices for land it seems....just who benefits? The bansk mostly it seems.... The cook islands have a law preventing any one but a cook islander in owning land....so Im beginning to think we should have the same thing here.
Money and real homes, yes indeed....there are too few hard assets with too much paper money wealth that I think is becoming desperate to land a hard asset with...before someone else does. We have a credit crunch just like the Great Depression on the near horizon and trillions of $s in funny money created out of thin air in the last 30 years playing musical chairs....with hard assets as teh chairs...
I suspect though NZers will have the last laugh, sometime in the future, it maybe 30 years time, the land will return to NZ ownership as global trade will be in-significant and land worthless to foreigners...
regards
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