The rebating or set-off of tax losses against other income, currently used
to promote investment in tax-free capital gains and to reduce income tax,
can as well be used to implement Resource Rentals, now!
Most investments are expected to show a positive net return, and pay tax.
The clever trick with property investment is to borrow to the maximum
(negative gearing), deliberately incurring a net loss which is set off against
other income in order to reduce net tax payable overall. Newspaper advertisements
invite the public to seminars to increase their income now by paying less tax, and
later, by picking up a capital gain. On this basis some on huge incomes pay no
tax at all, and may supplement their income with drafts against their growing
equities—farming economic rent and inflation. Even in terms of the income
tax regime this is now regarded as anomalous.
The set-off mechanism can just as well be used to implement a land
value tax or Resource Rental now! The mechanism currently being abused
to destroy society can also be used to build it. Any Resource Rental
should be set off against other tax payable, not just deductible from
other income for tax determination purposes. The charge would then be
seen as a valid and fair alternative—not just another tax, vulnerable
to vested interests and every tax collector, at every level, every year.
The merits of the case for Resource Rentals are well set out elsewhere.
For those who accept the case but protest it cannot be applied
without injustice, invasion of property rights, or huge compensation,
set-off is the complete answer to their plaint.
- It is no more an injustice than:
- Altering existing tax rates, as is done frequently.
- Introducing a GST or other form of tax with complex compliance costs.
- Changing the Rating system to include or exclude improvements,
or to reduce property rates in favour of User Pays charges, now
done arbitrarily and without reference to the Ratepayers.
Income tax would be the biggest offender of private property rights
conceivable. Any tax which confiscates the just rewards of industry,
saving, and investment in production is clearly an appropriation of
private property—normally called theft. Natural resources and natural
monopolies are, in fact, public property and should not be misappropriated
as private property.
When this distinction between public and private property is recognised,
the issue of property rights is neatly resolved.
It resolves the issue of compensation by applying the charge progressively,
and is accommodated by way of tax abatement accordingly. It must apply to
any Resource Rental, natural monopoly licence or land value tax.
Proceeds from Resource charges should be applied first to abolish GST, and then to
give interim hardship accommodation to those caught in the transition e.g. interim
thresholds for valuations and/or income tax. Under set-off, any Resource charge is
an alternative, not just another tax. Above all it is seen as such
by the individual taxpayer. Failure in this invites
constant assault from vested interests.
Moreover, as a land value tax base is diminished and ultimately extinguished, the
conversion to a comprehensive leasehold or rental arrangement can be institutionalised.
This would ensure:
(The Public Bodies Leases Act already provides the framework, and covers many of these details).
- Collection of the full economic rent on a market basis, and an end to the
- Provision for the disposition of improvements on voluntary relinquishment or
forfeiture of the lease.
- Other rights and responsibilities of both parties, such as compliance with
environmental constraints, and protection from maverick bureaucrats.