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New Zealand - land and property taxation
American Journal of Economics and Sociology, The, Dec, 2000 by Robert D. Keall
ROBERT D. KEALL [*]
NEW ZEALAND IS a "small country at the world's end," [1] its closest significant neighbor being Australia, more than a thousand miles distant. Its population of over 3.5 million mainly occupies two narrow islands with a combined area somewhat larger than Great Britain, lying diagonally in the South Pacific roughly midway between the Tropic of Capricorn and the Antarctic Circle.
For scenic beauty and variety, the nation has few if any rivals. In the north, lush, semi-tropical vegetation and thermal geysers may be found; in the south, alps, glaciers, fjords, lakes, forests, and rolling heathland; while attractive cities grace both islands. Because they are narrow, the sea is never far away.
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Its fertile soil and temperate climate make the land eminently suitable for agricultural and pastoral pursuits, but, although the chief source of export earnings, they employ only about ten percent of the workforce; this may be attributed both to advanced technology (including mechanization) and to the fact that pastoral production, by its very nature, has never been labor-intensive.
Most New Zealanders are descended from settlers from the British Isles who came after 1850, seeking greater opportunity. Between 10 and 12 percent are of Maori extraction. The Maoris are a Polynesian people who arrived a few centuries before the Europeans. Never conquered, in 1840 their chiefs signed the Treaty of Waitangi, acknowledging Queen Victoria as ruler. New Zealand became a self-governing colony of Britain in 1852, and was granted dominion status within the empire in 1907. It is now an independent Commonwealth nation, recognizing the British monarch, represented by a governor general, as chief of state. It has a unicameral parliamentary government, headed by a prime minister.
Historically, New Zealand was long known for its advanced social legislation. It pioneered female suffrage, and was among the first countries to adopt social security, old age pensions, and universal health care. A measure of land-value taxation was introduced even before the publication of Henry George's Progress and Poverty in 1879.
As has been noted, New Zealand's export production provides jobs for only about 10 percent of its workforce, yet full employment has long been an overriding political goal. In seeking to achieve this goal, successive governments up until the mid-1980s subsidized inefficient industries, restricted imports, and maintained a vast corps of public servants. They also progressively increased expenditure on welfare. These policies, together with compulsory union membership and mandatory arbitration of labor-management disputes, helped to insulate the economy from market discipline, and kept wages artificially high. All this was accompanied by a degree of state regulation "unparalleled in most other Western economies." [2] The mix of inefficient subsidized enterprises, non-market-oriented capital investment, union monopoly, cumbersome over-regulation, and a "safety net" so high as to discourage initiative for work and training, helped to produce an ill-prepared, poorly motivated labor force and a low rate of per cap ita economic output. [3]
For some three decades after World War II, this program, initiated by Labour but continued and expanded by the National (Conservative) Muldoon government, seemed to work: New Zealand enjoyed one of the highest living standards on earth. As long as tax revenue from exports fueled government spending, the illusion of prosperity could be sustained. But eventually, with the development of synthetic fibers to compete with wool, the rise of West Germany and Japan as economic superpowers, the erection of European Common Market barriers against New Zealand exports followed by Britain's decision to join the Common Market, the oil shocks of 1973 and 1979, etc., the terms of trade turned against New Zealand. For a while, the government was able to stave off the inevitable by overseas borrowing, but only for a while. "From having been one of the three or four richest countries in the world in the early 1950s, New Zealand moved to about 20th in international rankings by the end of the 1970s." [4] Moreover, by 1981, infla tion had reached 17 percent.
Land-value taxation, in the form of rating at the local government level, counteracted these tendencies to a minor extent, providing a degree of stimulation especially in the building industry. But although successful as far as it went, it did not collect enough of the economic rent or account for a large enough share of the total budget to constitute anything like a decisive factor in the economy. Furthermore, it is doubtful that even full rating of land values, coupled with the complete lifting of rating on improvements, could have in themselves prevailed against such massive forces for stagnation.
"By the time of Labour's victory in the 1984 election, the economy was seen to be on the brink of collapse, with the old-style interventionist policies of the Muldoon era clearly indicted as failures." [5] The new government faced a crisis situation, driven by a severe depletion of foreign exchange reserves. It was Roger Douglas, the incoming Labour minister of finance, who had mapped out a program of radical reform, and was able to push it through. Douglas, grandson of a member of the first Labour administration, had himself been minister for housing in the third Labour government, and spent many years in Parliament. At first, he had embraced the traditional interventionist position of his family and party, but gradually became convinced that instead of helping the less fortunate it actually made their position worse. [6] Through participation in a discussion group made up partly of academic friends, he became familiar with theoretical economics of the neo-classical and public choice schools, and arrived at the strongly free market views expressed in his 1980 book, There's got to be a better way. The sweeping turnaround he engineered set New Zealand on a course of economic expansion, international competitiveness, and negligible inflation which continued under succeeding National Party (solely or in coalition) governments that maintained much the same policy direction until it was repudiated by the electorate in November, 1999.
