Friday, June 12, 2009

Labor's Georgist History

Origins and Early Days of the ALP

The last decades the nineteenth century was a turning point for the Australian labour movement. The preceeding twenty-five years to the crash of 1890 and the subsequent "bitter fight" had been one of relative prosperity for Australian workers with an expansion in capital investment. Trades Councils were formed through most of the colonies in the 1880s with Intercolonial Trade Union Congresses held in Sydney, Melbourne, Adeliade, Hobart and Brisbane. There was a strong move towards a federation of union bodies, and historians note the influence among the working class of books such as Bellamy's "Looking Backward", Gronlund's "Co-operative Commonwealth" and Henry George's "Progress and Poverty".

It is from the latter that this essay is based; for most who have even a modicum of knowledge of Australian labour history, the distatesful racism that permeated working-class organisations at the time is well known. Consider the following motion put by one Mr. H. Barnett of the Bootmaker's Union of South Australia at the 4th Intercolonial Trade Union Congress in Adelaide in September 1886:

"That in the opinion of this Congress the time has arrived when immediate steps should be taken about the total abolition of Chinese and Coolie immigration because - first, the competition of Asiatic against European labour is entirely unfair; second it is well known that the presence of Chinese in large numbers in any community has a very bad moral tendency"

The fact that this motion was carried unanimously at that Congress should serve as indication as the strength of opinion towards "non-White" labour. It served as the first item in the "fighting" and "general" platform of the Australian Labor Party in 1902, and was repeated in the 1905 platform, through to the 1919 platform, the 1921 platform (where the "socialisation of industry, production, distribution and exchange" was adopted) and so on, well into the 1940s and beyond. As immigration minister, Arthur Calwell remarked in 1949: "We can have a white Australia, we can have a black Australia, but a mongrel Australia is impossible".

At the same time however, there is a less well-known history, one that is far more noble. Returning once again to the 4th Intercolonial Trade Union Congress of 1886 we find that there was another motion that was passed unanimously, this time moved by Mr. A.G. Vagg of the Progressive Society of Carpenters and Joiners, Brisbane:

"That it is the opinion of this Congress that a simple yet sovereign remedy which will raise wages, increase and give reminerative employment, abolish poverty, extirpate pauperism, lessen crime, elevate moral tastes and intelligence, purify government and carry civilisation to yet nobler height, is to abolish all taxation save that on land values".

The socialisation of land values was supported by a variety of different organisations in different degrees; the Land Nationalisation Society of the late nineteenth century and the Single Tax League being two obvious supporters. As a means to more progressive changes, the Knights of Labour also gave their support. When the Australian Labor Party was established these values first saw their expression in item four of the "fighting" and "general" 1902 platform with support for the nationalisation of monopolies. In the 1905 platform this was separated into support for nationalisation of monopolies as the second item and a progressive taxation on unimproved land values as the fifth item; notably this was the only element of the platform at the time which indicated support for any sort of taxation - interstate tariffs were to be determined by referendum.

In 1910 the Fisher Labor government introduced a Commonwealth Land Tax. In the words of the Australian Tax Office:

"In 1910 a land tax was introduced by the Commonwealth Government to provide for the defence of the nation and to prepare for a major increase in migration. The land tax was also introduced to encourage large landholders to subdivide their land and sell it to settlers. Many large landholders were wealthy Englishmen who would rarely visit or use their land. Introducing a land tax encouraged them to sell to settlers who would use the land productively."

In other words, the purpose of the land tax was precisely what Mr. A.G. Vagg had intended some twenty years prior; to end speculation, to break up the large holdings, to encourage productivity and therefore increase wages and so forth. The influence of this idea was widespread; even the opposition Liberal Party (as it was then called) lead by Alfred Deakin remarked, quite correctly:

"The whole of the people have the right to the ownership of land and the right to share in the value of land itself, though not to share in the fruits of land which properly belong to the individuals by whose labour they are produced."

Initially it was widely considered that this would be the only tax. Prior to that the Commonwealth gained finances through a customs and duties, which contradicted the political objective of free trade between the various states. For a few years it seemed that indeed this could indeed become the case, as the Fisher government successfully introducing a number of significant reforms such as the the first child maintenance scheme, the establishment of a Commonwealth bank and a Federal control of the money supply, and a citizen's militia.

However with the advent of World War I, the irrational loyalty to British imperialism over German imperialism led to excessive commitments. Now in opposition, Andrew Fisher infamously dedicated Australia to "the last man and the last schilling", a bill that would have to be paid in both money and blood - and eventually, with power as military adventurists in the Party caused a split over conscription.

To make up extra income, in 1915 Commonwealth introduced personal income tax and tax on company profits. The name of the Land Tax Office was changed to Taxation Office to reflect the wider sources of public revenue, which was followed with an "Entertainment Tax" in 1916 - which remained in force until 1953, and a War Tax on postage stamps, which remained in force even after the legislation was removed in 1920.

Forgotten Promises

Labor's opportunities to continue or expand this policy remained rare after the split during World War I; indeed there was no real opportunity at all. Conservative forced ruled throughout the second half of the 1910s, and throughout the 1920s. There was the brief Scullin government of 1929 suffered not only the effects of the Great Depression, but also the political fall-out which saw the Party split into three directions, with the entire New South Wales branch under the leadership of J.T. Lang being expelled, and the former Labor treasurer, Lyons, leading the conservative United Australia Party. Labor was in opposition for another ten years after that only again to regain power in the midst of the most terrible war the world has known. Again there was little opportunity to further something so supposedly prosiac as a land tax on site values.

Opportunity did exist after the war of course, and during that period the Labor government engaged in a series of substantial reforms; such as physical infrastructure investment such as the Snowy Mountain Scheme, social infrastructure investment such as the free medicine program, national unemployment and sickness benefit. Whilst the attempt to nationalise the banking monopoly - carried out after a Royal Commission determined that the private institutions did not engage in any serious competition - contributed significantly to the downfall of the Chifley govenment it is notable at no time did Labor even consider to remove its commitment to a Commonwealth taxation on unimproved land values.

As Labor lurched in crisis in the 1950s, the ever cunning Prime Minister Menzies took the opportunity to give the landlord class a free gift and remove land tax from a Federal to state jurisdictions where they could compete among themselves for the most appropriate rate - and thus also provide interstate landlords the ability to acquire multiple properties acorss different states each below the individual state threshold for taxable values. Arthur Calwell was provided the opportunity to respond to the Menzies' government decision in parliament and in his thirty minute speech he condemned the government, reasserted the right of the people to own the land and swore that Labor would return a Commonwealth Land Tax when elected.

"We of the Australian Labor Party have always believed that the land is the patrimony of the people and that nobody has a complete and absolute title to it. ...The land belongs to the people, and its use must be safeguarded and protected at all times... We have always believed in the land tax, and when happy days come again we shall restore the measure imposing the tax to the statute book of this country."

Devastatingly, it was the Labor Party itself which removed this commitment. In the 1961 Platform, whether by administrative incompetence or malice, the sixty-five year committment of the Australian Labor Party to a commonwealth land tax on site values was removed, without the deletion ever being taken to Conference for approval.

Some however were not so easily fooled. With the election of the Whitlam government in 1972 there was perhaps the first opportunity for decades for a Labor government to act without the pressures of an all-encompassing war, post-war reconstruction or economic depression. Clyde Cameron, Minister for Labor, raised in the very first pre-budget meaatings the need to introduce legislation to collect the economic rent of land instead of direct and indirect taxation on labour and capital. The following year he wrote to Frank Crean, then Treasurer, again for the introduction of Calwell's promise and a Labor platform item that had never been defeated on Conference floor. It was, of course, conviently forgotten with the the crisis of the Whitlam government in 1975.

With the election of the Hawke government in 1982 the opportunity once again arose to lift the tax burden from productive labour and capital and shift it on the use of resource holdings. Of course, Cameron had long since retired and there were no strong advocates in the parliamentary party who could advocate such a position. Economic problems causes by monopolistic acquisition of resources don't go away however and the Hawke government introduced a Capital Gains Tax which at least partially mitigated against the most obvious rent-seeking incentives. It was strongly opposed, of course, by the conservatives at the time, but not reversed when the Howard government came to power. Indeed the former Prime Miniser once wrote: "I do not deny that all taxes, with the exception of those on economic rent and inherited wealth, have some [adverse] employment and economic growth effects."

Of course, a capital gains tax is a far cry from a site rental. Land is a different factor of production to capital, despite the attempt of vulgar neo-classical economists and equally vulgar Marxists to conflate the two. Stocks and bonds, collectible artworks and antiques are not the same as natural resources. Not surprisingly, capital gains tax also comes with a deadweight loss insofar it restricts trades (a "lose-lose" situation), and increasingly comes with significantly administrative losses as well with a collection of some 52 Capital Gains Tax "events", a slate of exemptions and semi-exemptions, and variations in calculating the amount owed.

Practical Effects

There are real and practical effects to creating an incentives to acquire natural resources both in a fiscal sense and in a physical and social environmental sense. Neither of these can be said are particularly good for the Labor Party, let alone society as a whole. Regardless of tinkering and the piling of complexity (and transaction costs) a general principle can be stated; if you tax an item, you create a disincentive for it to be produced or acquired. Thus, if the relative taxation of natural resources is low compared to labour and capital, then there will be a tendency towards monopoly as (a) it is fixed in supply and (b) demand (or rather requirement) is relatively inelastic. This itself contributes significantly to a boom-bust cycle, as investment is encouraged in areas which do not result in the provision of goods and services, leading to a crash in real estate prices, which is gradually rebuilt.

On a fiscal level, if production is distributed between rent, interest and wages (P = R + W + I) then wages and interest must suffer in proportion as rent increases. This relative impoverishment creates a public demand for government intervention to assist those at risk, but when the private expropriation of resource rents has already been accepted politically, taxation on wages and interest are required, which further suppresses economic activity due to deadweight losses in trades and compliance costs. According to the Land Values Research Group, since 1972 the total loss to the economy as a whole since 1972 has been $1 trillion further "[u]nder existing taxation arrangements, labour and capital fight over the 40% of GDP remaining from earned incomes after 28% of GDP has been taken from them by taxation and after 27% of the 32% of GDP comprising publicly generated resource rents has been creamed off by private interests."

These destructive fiscal effects have a very real effect on Australian demographic culture. The quest for economic land, or location, drives up land prices and reducing housing affordability. Working people then retreat to the suburban fringe, places which are notorious for their lack of community and physical infrastructure. In splendid isolation an "us and them" fortress mentality becomes a norm which was most clearly displayed in the 2001 "Tampa" election. Labor's surprising loss is indisputably a result of swings against the party in the working-class suburban fringe, which was most prone to racist fearmongering.

There are two schools of thought about what Labor should do about this. One argues Labor must adapt to these circumstances and engage in populist condemnation of asylum seekers, downplay commitments to multiculturalism, the environment and so forth and, in general, encourage and seek "aspirational voters" - whose aspiration is private wealth and public poverty. The other body of opinion argues that Labor should seek to change those conditions as they are destructive to both the party and to the country. Trivial economic analysis over the past elections shows that Labor's vote has been increasing where there is existing social infrastructure and a relatively higher population density.

But will the Australian Labor Party do this? Will they create the right incentives to encourage cities to become more compact, with high quality buildings and a high density of physical infrastruture, all of which help develop a civic consciousness? Will Labor offer a massive shift of the public tax burden away from the working class and on to the landlord class? Will Labor ever re-instate its sixty year policy of a commonwealth land tax on unimproved site values, so that those who hold a resource must pay the community the privilege of that exclusion?

Sadly, I believe it may be some time before this occurs. As the famous American civil libertarian and rights lawyer Clarence Darrow wryly remarked:

"The single tax is so simple, so fundamental, and so easy to carry into effect that I have no doubt that it will be about the last land reform the world will ever get."

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