The Pathology of Income Maldistribution

... from Progress" #1045 Sept/Oct 2001
& "Geophilos" #00(1)

by Tony O'Brien

Recent studies in Australia show that land and resource values have outstripped wages several times over, and that wages have been depressed as a consequence.

On this evidence taxes on incomes will never be enough to make up for inadequate incomes caused by the investment in land values and natural monopolies.

  1. Average wages have increased by little more than 1% per year over the last 30 years.
  2. Land values (capital gains) have soared by around 6.4 % per year to 2000 % over 50 years. [In our view this is the cause of (1) above. It will become worse with access to cheap money. Ed.]
  3. Between 1910 and 1999 total land value in Australia at year 2000 prices, went from approximately $37,200 million to approx $850,000 million, at an average compound rate of 3.62%.
  4. Land value per capita went from approximately $8,650 to approx $45,000 at an average compound rate of 2.06%.
  5. Between 1907 and 1999 the arbitrated minimum wage at Year 2000 prices, went from approx $200 to $400, at an average compound rate of 1.19%.
  6. Direct and indirect taxes, and compliance costs take 53% of the average wage.
  7. Resource Rentals, if taken for Revenue would be more than enough to match current Budgets.
  8. Average household disposable income would rise by 56% even before the incentive or stimulus of penalty derived from the re-incidence.
Recent studies by the Land Values Research Group in Victoria put Australia's potential Rent from land sites at $90 billion and from resources at $60 billion; a total of $150 billion. Current total revenue is $190 billion. (In fact deadweight losses have been estimated as high as one-third of current revenue, but even a more modest 25% would reduce effective current revenue requirement to around $140 billion).

Since the "sector" ratio by aggregate value of sites in Australia is:

  • residential 6
  • commercial 2
  • rural 1

the Rent revenues from each sector would then be:

  • residential $60 billion
  • commercial $20 billion
  • rural $10 billion.
respectively. On that reckoning, current average residential Site Rents for Australia's 7 million households would average $8,500 per annum.

As at June 2000:

Average house value $175,000
Average annual household income (before taxes)$45,000
Average household tax and compliance costs$24,300
Average household disposable income$20,700
Estimated land value (65% of house value)$113,750
Estimated Site Rent (current yield of 7%)$8,500
Average household disposable income in a Site Rent System$37,500

Compare this outcome with the estimated average household disposable income (2000) of approximately $24,000. The average gain per household is $13,500 per annum or $260 per week.

[These studies, would show essentially similar results if conducted in New Zealand - Ed.]

- reproduced with the kind permission of Progress (Australia) and Geophilus magazines.
For some stunning research results, see Tony O'Brien's last paper: the title of it