Strangers, Sojourners and Commonwealth
A Moment Wisdom From The Torah ...
Originally this address was going to be on the Australia's Future Tax System Review, more commonly known as the Henry Review, and in particular on the subject of the mining tax which has generated significant public debate. However as events have taken their own priority, as they often do, an opportunity has arisen to take a step back and look at the entire package within the context of public finance and draw a parallel with a wisdom found in first books of of the Christian Bible or the Jewish Torah.
The Torah begins with a beautiful foundation myth; allow oneself to imagine being witness to creation, where from a single point begins the separation of the forces of nature in mere moments, then cosmic expansion, then the formation of sub-atomic particles in the first seconds, hydrogen, then helium, then more complex atoms in the first minutes, then, one hundred million years later the first stars begin to shine. All this is captured in the opening words of Genesis which can simply wash over you; Bereshit Bara Elohim. Conservative intepretations of those three words we all know from our schooldays; "In the beginning God created ...", with all that follows. However other interpretations, such as the principle book of Jewish Kabbalist mysticism, The Zohar, argues that the words should be understood in their exact order: "In the beginning it created Gods", the idea that creation itself is revealing to its subjects, and that we can all aspire to a higher mentality through consideration and reflection of existence in its deepest sense.
The rest of the Torah is well known; it continues with the events of a heroic golden age and the fall from grace and survival from cataclysmic events, and the establishment of a nation, and patriarchial rules and laws. These rules are sometimes based on contextual conditions, on other times on the aesthetics of symmetry and others on universal principles. Those of the former two standards are often archiac or discriminatory. We find, for example, the justification of patriarchy on the pains of childbirth in Genesis 3:16 is unacceptable, the suggestion of the death penalty in Deuteronomy 22:2 for adultary is perhaps a little harsh, let alone the same for those who dare work on the Sabbath, as demanded in Exodus 31:15, we baulk at selling our daughters into slavery to please their masters, such as suggested by Exodus 21:7-8, or for that matter taking up slaves from neighbouring nations, as allowed from Leviticus 25:44
Yet among all these errors there are moments of great timeless wisdom when the words are tied to our conditions of existence. Genesis 3:5 reminds us that because we know good and evil we shall be as gods, and Leviticus 25:10 and 17 tells us to proclaim liberty throughout all the land to all, places a prohibition on oppression and on Leviticus 19:33-34 it is decreed that the stranger shall be suffer no wrong and shall be treated equally with love. But most potently in terms of political economy, and as a reminder of our own status in creation is the decree in Leviticus 25:23-24 "The land shall not be sold for ever; for the land is mine, for you are strangers and sojourners with me. Throughout the country that you hold as a possession, you must provide for the redemption of the land."
... Is Repeated Throughout The Ages
The basic idea that we are foreigners and tenants to the world means, in terms of political economy, that natural resources should be treated differently to those goods and services from the hand and mind. Through theory and observation, the greatest thinkers of the world have consistently come to the same conclusion - that the nature is a gift of Providence, the source of our commonwealth, to be shared equitably among all and when that gift is taken away from us by the few then the many suffer greatly. The ancient Greek philosopher Aristotle speaking of the bad days of Athens commented "The whole of the land was in the hands of a few, and if the cultivators did not pay their rents, they became subject to bondage". On the other side of the world at a similar time, the Chinese philosopher Confucius remarked: "When the Great Way prevailed, natural resources were fully used for the benefit of all and not appropriated for selfish ends... This was the Age of the Great Commonwealth of peace and prosperity."
In the early modern times Gerrard Winstanley, a radical leader of the Diggers and the Levellers during Cromwell's Protectorate argued: "The Earth (which was made to be a Common Treasure of relief for all) has been hedged in to Enclosures by the teachers and rulers, and others have been made Servants and Slaves". His views were echoed by William Ogilvie, the "rebel professor" of Scotland who said "the earth having been given to mankind in common occupancy, each individual seems to have by nature a right to possess and cultivate an equal share." The famed English common law theorist of the eighteenth century, Sir William Blackstone, stated "The earth, therefore, and all things therein, are the general property of all mankind from the immediate gift of the Creator". His contemporary William Godwin, an early exponent of utilitarianism and anarchism, "It is territorial monopoly that obliges men unwillingly to see vast tracts of land lying waste or negligently and imperfectly cultivated, while they are subjected to the miseries of want."
As the age of enlightenment developed so these thoughts continued. The great French philosophers Voltaire and Jean-Jacques Rosseau remarked respectively "The fruits of the earth are a common heritage of all, to which each man has equal right" and "You are undone if you once forget that the fruits of the earth belong to us all, and the earth itself to no one" and the great German philosophers, Goethe and Kant, said "The great ones of the world have taken this earth of ours to themselves; they live in the midst of splender and superfluity" and "All men are originally in a common collective possession of the soil of the whole earth and they have naturally each a will to use it". In the New World, Thomas Jefferson argued "The earth is given as a common stock for men to labor and to live on. ... Wherever in any country there are idle lands and unemployed poor, it is clear that the laws of property have been so far extended as to violate natural right", whilst Thomas Paine - echoing earlier words from the Dutch philosopher Spinoza - said: "[I]t is the value of the improvement, only, and not the earth itself, that is individual property. Every proprietor, therefore, of cultivated lands, owes the community a ground-rent for the land which he holds"
Continuing the theme, Ralph Waldo Emerson, the founder of the Transcendentalists commented "Grimly the same spirit looks into the law of property and accuses men of driving a trade in the great, boundless providence which has given the air, the water and the land to men to use and not to fence in and monopolise". Harriet Martineau, the first woman sociologist compared it to slavery, "The old practice of man holding man as property is nearly exploded among civilized nations; and the analogous barbarism of man holding the surface of the globe as property cannot long survive." The freethinker Robert Ingersoll, said "I am satisfied that all human beings are entitled to the essentials of life, that is to say, to water, to air, and to land", whereas Abraham Lincoln remarked "The land, the earth, God gave to man for his home, sustenance and support, should never be the possession of any man, corporation, society or unfriendly government", whilst the poet Samuel Taylor Coleridge remarked "Nothing but the most horrible perversion of humanity and moral justice, under the specious name of political economy, could have blinded men to this truth as to the possesion of land"
Confirmed by Political Economy
Fortunately to Coleridge, the great economists agree with him. Adam Smith correctly argued that the owner of natural resources extracts their rent from the worker and was the first to realise that a tax on economic rent would not effect productivity: "It would fall altogether upon the owner of the ground-rent, who acts always as a monopolist and exacts the greatest rent which can be got for the use of the ground", he said. Following this David Ricardo bluntly pointed out that the interest of such monopolistists "is always opposed to the interest of every other class in the community...". John Stuart Mill "No man made the land. It is the original inheritance of the whole species. Its appropriation is wholly a question of general expediency. The increase in the value of land, arising as it does from the efforts of an entire community, should belong to the community and not to the individual who might hold title."
Modern economists agree. In a standard university textbook on economics, Paul Samuelson, a Nobel Prize winner in the field, along with William Nordhaus explain the issue: "The striking result is that a tax on rent will lead to no distortions or economic inefficiencies. Why not? Because a tax on pure economic rent does not change anyone's economic behavior. Demanders are unaffected because their price is unchanged. The behavior of suppliers is unaffected because the supply of land is fixed and cannot react. Hence, the economy operates after the tax exactly as it did before the tax--with no distortions or inefficiencies". Samuelson and Nordhaus are far from alone; another Nobel prize winner, William Vickey accurately states that "Economists are almost unanimous" on that issue, across the political spectrum with figures as diverse as Milton Friedman, Herber Simon, James Tobin, Franco Modigliani and James Buchanan being among other Nobel Prize winning economists who also concur.
So it is in Australia; the Henry Tax Review was a highly consultative affair. Established in May 2008, it released its first discussion paper in August 2008, had a round of public submissions, released consultation papers in December 2008, had more public submissions to May 2008, held public meetings in all capital cities and two regional cities in March 2009, held focus groups in five capital cities and three regional centres in April 2009, released a further report in May 2009, held a two-day conference in Melbourne in June 2009, and delivered its report to the government in December 2009. The Government's response was released in May 2010. Approximately 1500 written submissions were received and considered by the panel.
The objective of the review the objective was to minimise economic inefficiency, provide equity and minimise complexity in our system of public finance. The review did not make any recommendations on the GST as that was excluded from it's its terms of reference. It was particularly concerned with the future environment, especially estimations that by 2050 almost a quarter of Australia's population will be over 65 and the immediate export market in south-east Asia. Whilst the issue was only addressed very indirectly by the Review it should be noted that the Australia has a very low proportion of public income and expenditure to GDP compared to other OECD countries. This may seem surprising for a country that is highly dependent on efficient and effective social and physical infrastructure.
Some of the key recommendations of the review included reducing the quantity of taxes, especially those which had very marginal revenue generation. Ten taxes generate most of the Australian government's revenue... and 115 others don't. The implication is that small rises in the top ten could justify removal of the 115 on the basis of administrative efficiency. The panel argued for a progressive and constant marginal tax rate with a high tax-free threshold and removal of tax on superannuation contributions and a reduction on the rate on superannuation fund earnings. The company income tax rate should be reduced to 25 per cent. The capital allowance arrangements for small business should be streamlined and simplified, by: allowing depreciating assets costing less than $10,000 to be immediately written-off. State-based payroll tax, a tax on employment, should be abolished. All alcoholic beverages should be taxed on a volumetric basis, which, over time, should converge to a single rate, with a low-alcohol threshold introduced for all products. The rate of alcohol tax should be based on evidence of the net marginal spillover cost of alcohol.
The most significant components of the review however are firmly entrenched in classic political economy; the use of natural resources as a major source of revenue for the public. Specifically, the review argued that the the government should abolish stamp duties (which increases the cost of housing and reduces sales) and move towards a Federal land tax, eventually for all properties. Alas the Federal government rejected that proposal, despite it being a part of the Labor Party platform for sixty years. The Review also included a value-based resources tax to effectively replace the current Royalties system, which is largely focussed on volume, is an extremely inefficient tax. All taxes come with an administrative cost (someone has to do that paperwork) and a deadweight loss through a reduction in trades; the Royalties scheme is particularly bad with 80c in every $1 being lost. The Petroleum Tax, which the Mining Tax is based on, is close to zero.
Although the Minerals Council of Australia supported a value-based resource tax in their own submission to the Henry Review, it seems that they changed their opinion rather suddenly when a federal election came closer, causing the original proposal to be recast with a lower rate. After all, a monopolist does not like losing power, even if it is better for the country as a whole. The mining industry under the current system is effectively high profit - for the companies - but with low productivity. A history comparison can be made with the "People's Budget" of the UK in 1909, which included a proposal for a national land tax. The Conservative-Unionists, who included a lot of large landowners, opposed this, arguing that welfare expenditures should be raised through tariffs on imports. Notably tariffs are very beneficial to large landowners, especially in agricultural produce. The lords of the UK profited very well indeed whislt the poor starved during the Great Potato Famine of Ireland and Scotland.
It was Ramsay McDonald, the first ever Labor Prime Minister of the U.K. from the 1920s and the 1930s who wrote in his book "Socialism: Critical and Constructive" that a moral argument for the common resource values is usually cast in a religious manner but equally a secular scientific argument in economics works just as well. Rent is toll for using natural resources, not a payment for a good or service. When rent is tranferred to private hands, the worst form of economic exploitation occurs, one which attacks our natural rights and causes great damage to our economy. It is for these reasons, that we should be in favour of what is being called the Minerals Resource Rent Tax in principle. Because what is at stake, is not just who should be the rightful recipients of the value of Australia's minerals, but our ability to recognise that we are strangers and sojourners in a nature which revealed and redeemed itself to us, in the form of a commonwealth.
Address to the Melbourne Unitarian Church, September 5, 2010