Tax Reform – Part III

1. On November 27th, 1993, the Financial Times published an important article by John Plender, where all the major problems of the modern taxation system were raised, highlighting the need for tax reform.

A year later, November 1994, during the annual conference of the American-Hellenic Chamber of Commerce, Mr Provopoulos, professor of Political Economy at the University of Athens, stepped on the podium. Although the finance minister Mr Papadopoulos had just spoken before him, Mr Provopoulos did not hesitate to point out that the new tax reforms proposed by the minister were not, in fact, a reform of any kind; a new philosophy of taxation was needed. Sadly neither then, nor  later during his tenancy as Governor of the Bank of Greece (2010-12) during the economic crisis, did Mr Provopoulos propose some new taxation philosophy or system, despite the outrageous elements of the current system; the levels of which have increased exponentially with irregular levies, new unjust taxes and the general increase in taxation that was introduced by the heftily paid consultants to the Ministry, inspired under the danger of government bankruptcy (2011-12).


2. The present system of “progressive” or “proportional” taxation is founded on a rule proposed by Adam Smith, which reads “The subjects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the state.” (Wealth of Nations, Bk 5, ch 2, pt I2, Of Taxes)

However, Smith also gave three other rules: the second rule reads “The tax which each individual is bound to pay, ought to be certain and not arbitrary.”

The third reads: “Every tax ought to be levied at the time, or in the manner, in which it is most likely to be convenient for the contributor to pay it”.

And the fourth reads: “Every tax ought to be so contrived, as both to take out and to keep out of the pockets of the people as little as possible, over and above what it brings into the public treasury of the state.” In other words, the system of collection should be as cheap as possible.

It is quite obvious that the second rule is not in effect at all. Various taxes are completely arbitrary. Nor are they certain or fixed for the majority of the taxpayers. In many cases, new taxes are imposed (direct and indirect) without prior debate or warning, and in others, a tax might be levied retrospectively, that is with effect from a date in the past!

The third rule is also not in effect. The taxes are paid at a time and in a way determined by the State; in the event of delays in payment there can by hefty fines. In Greece, it is not uncommon for businesses and professionals to have to prepay a sum for next years’ tax in advance, up to as much as 50%, an amount calculated on the basis of the earnings of the current tax year (for future earnings that may never come) Moreover, businesses and professionals have to pay 15% of their gross income in tax, regardless of the final net result of the administration.

Even though there may be some future tax return, the taxpayer suffers damages from the loss of potential interest, inflation and lack of liquidity; these will not be reimbursed by the state. This is an expression of state-absolutism and its despotic plundering.

All these aspects have grown to monstrous proportions and anomalous forms under the special tax measures imposed by the irresponsible Greek government during the economic crisis of 2009-2012.

Smith’s fourth rule does not come into effect either. The costs of collecting the taxes are immense, requiring extensive tax authorities and their various branches, such as market regulators, customs and the like.

The first rule, which constitutes the general principle behind modern taxation, has a limiting aspect which renders it almost ineffectual. It essentially implies that the more some people work and the more they increase their income, the more tax they will have to pay. The irrationality of this system is made clear through a simple example: Take, for instance, two small farmers, A and B, with equal amounts of land and fertility in the same area, with a yearly income of 10 units each. Similarly, two photographers, A and B, with like shops in the same area of town also enjoy a yearly income of 10 units each. Now, farmer and photographer A decide to work harder, putting in longer hours and working on holidays and cutting back on spending wherever possible. The following year, their production and income rise to 12 units. Farmer and photographer B do not make any such efforts, remaining with the same or a lower income. The government now demands A to pay a greater amount of tax, but turns to B with compassion and offers them tax relief or subsidies! Thus, taxation acts as a counter-motive to work and produce. This last point of gross injustice was examined more thoroughly on Tax Reform A, §4-5.


3. As I have written repeatedly in the past, Land Value Taxation has only partially been put in effect in a few places around the world. As was demonstrated in Tax Reform – Part II  §5-6, several prominent economists praise it but at the same time do not actively press governments to adopt it. The politicians tend to be very ignorant – which becomes obvious from the appalling tax measures they legislated during the economic crisis!

Let us note once again, that Land Value Taxation is based on the value of the land alone, not including the  value of any buildings, mines or other improvements on the surface.


a) In Pensylvania, USA, several cities have put LVT into practice for Local Authority revenue. For example, Harrisburg, since 1975 has been collecting council tax based on a value equal to six times the value of the buildings. Over the next twenty years, the plots that were unbuilt or had derelict buildings were reduced from 4200 to fewer than 500 while the population increased by 10%. Once the tax is imposed, landowners will put to use their lands and prices will drop!

Fairhope, in Baldwin County near Alabama, was founded in 1894 and in the year 2000 had 17000 citizens. Land Value Tax brings in enough revenue to cover the general County taxes, to build schools and a public library, make parks, maintain the water supply and finance other services.

In California this tax has been implemented since 1887 in various locations with access to water (Modesto, Turlock etc). Later, in §4 we will be looking into San Francisco.
b) Since 1843 LVT has been implemented in Hong Kong, which was then a British colony. Many economists mention the amazing effect that it had until 1997, when the colony was returned to China. In 1996, this system of taxation allowed for 44% of all workers not to pay any income tax, with the remaining having to pay a maximum of 15% of their gross income.

c) In 1878 LVT was partially in effect in New Zealand. In 1973, 293 out of 367 cities had adopted this method for the revenue of local authorities with no other tax placed on buildings or income.


d) LVT was implemented more fully in Taiwan in 1949 under article 143 of the local Constitution. That is where Chiang Kai-Shek fled with his soldiers and followers following his defead by Mao Zedong.The general continued the tradition which Sun Yat Sen started, the founder and leader of democratic China in the beginning of the 20th He held that “the tax on the land values as a means for collecting government revenue is a right, logical and just tax”.
In the years between 1950 to 1990 this small country was transformed from a small importer to a great exporter and its GDP rose from US $ 1.2 bn to US $ 150bn. At the same time, agricultural production dropped from 33% of GDP to 0.5%, while the revenue from LVT rose by 600.000% – and this is not a typo!
e) In 1993, Estonia, free from the oppression of the former USSR, chose to implement LVT on all of its lands, excluding embassies and graveyards. Starting with 1%, the tax went up to 2,5% on the value of the location, and has been used to fund local authorities.


f) In Denmark, the same tax for local authorities varies from 1.6% to 3.4% since 1912. The re-evaluation of the lands takes place every two years. Any landowners that wish to challenge the valuation can take the case to the courts; in 2002 there were 10 such cases. The tax authorities employ 210 auditors which cover 1.9million real estate entries. The state collects around €1.3bn while the cost of the collection is around €20million (or about 1.5% of the revenue).
LVT has been partially implemented in other countries too: In Australia, Singapore, Abu Dhabi and some areas of Canada. These figures come from

R.V. Andelson (2000), Land Value Taxation Around the World, Blackwell Malden, 3rdedition;

J.Jeusen (2010), Site Value Rates in Dernmark, Dublin, Trinity College;

Rybeck (2011), Resolving the Economic Puzzle, Shepheard-Walywin, London;

R.Lyons (2011), Residential Site Value Tax in Ireland, found online –



4. In Tax Reform B, §7, I wrote of the 12 clear advantages that the Land Value Taxation system enjoys. Let us now turn to a specific example and see the beneficial impact that the system has had on a well known US city.

San Francisco was ravaged by a strong Earthquake and a large fire and was all but destroyed in 1906. How did it come to pass that it was reborn from its ashes and rapidly develop into a bustling metropolis? How was is it that despite the ever rising population, it managed to develop in an organised manner instead of clumsily sprawl in all directions like other major US cities?

At that time, there was no financial help from the Federal Government or any other authority like there is today. There was no revenue from oil or natural gas like in other cities. The local authority did not have the power to tax income, as it does today. The Panama-canal and its massive boost to maritime trade had not been completed yet. Instead of flat plains there were hills, and little could be said about the attractiveness of the climate. The large bridges had not yet been built; the whole area looked more like an island than the familiar peninsula. The best beaches were in the south, the timber was in the north, the vineyards around Napa and the fruit in San Hose. The large universities were in other major cities (Berkeley, Sacramento etc.). All types of mining were coming to an end state-wide. To the east rose a wall of mountains and the San Andreas fault lay hidden under the earth. The city was full of drunken sailors, illegal immigrants, mobsters and other criminals, demonstrations, strikes and the usual public scandals.

How was the city able to repair its broken infrastructure with such poor qualities and almost non-existent revenue?

Simply put, through Land Value Taxation. The city levied a tax on the value of the land – not of the buildings, which were mostly ruins, but the plots alone. Not only were they able to collect enormous revenue, but the landowners were forced to put their lands into productive activity instead of leaving them out of use on purpose and speculate on their rising value.

San Francisco became a place of amazing development and prosperity: by 1910 its population rose by 22% and continued in the same rhythm during the following decade 1910-1920. It did not sprawl carelessly with abandoned neighbourhoods but even managed to create wide roads, plazas and parks. It became one of the largest centres of finance, trade, industry and culture on the west coast of the USA.


5. There are talks taking place in Ireland, despite the poor economic climate, to adopt Land Value Taxation. Some politicians seem to have a sense of what is right. Let us not forget that once the economic crisis was noted, the Irish MPs imposed a 15% cut on their own salaries first! No comparison with our own MPs in Greece, who are arrogant, selfish and ignorant.

Greece could also rise from the mire of bankruptcy, having been led there by our witless governors and their advisors. They have yet to realise that the country is heading for the cliff-edge and they seem to be primarily concerned with getting re-elected to their positions of privilege. How can it be that the country still does not have a national land database, even following (supposedly) decades of effort and millions of euros spent to that end? How can it be that the government is not aware of the amount of real estate it commands?!

Mr Papademos as acting Prime Minister did not rise to the occasion, preferring to play it safe in accord with his banking background; he did not push for a tax reform, nor did he appoint young, new technocrats to get things moving in a government with the alacrity of a sloth. While they have managed to preserve the numbers in the swollen civil service for a while, this was at the expense of the private sector.

Sadly, we do not have leaders that are bold or honest enough to put forward what is best for the nation. Our politicians are liars and crooks in the broader sense of the word. The exceptions are few and far between.

But let us return to the topic under discussion. Just as Sun Yat Sen foresaw that Land Value Taxation was right for the new Chinese democracy he envisaged, it is the right, logical and just means to collect government revenue and to fund development.

In contrast to all other taxes, LVT cannot be rolled over to the prices of the products. If someone were to try to roll it over to prices, they would be pricing themselves above the competition and no-one would buy from them. Only if someone were to hold a monopoly would they be able to do so; but there are watchdogs and agencies that forbid such monopolies. Moreover, under LVT there would be unused lands in the marginal areas where a resourceful businessman would be able to found a competitive productive unit.
To top everything off, LVT is simple, transparent, and can be managed easily and at a low cost.




Click here to read other posts on the Political Economy series.


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