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Will India Lead the Way in Urban Land Tax Reform? A Mission Director from the Ministry of Housing provides some Answers

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SB: Could you tell us a little more about these "local bodies?"   Do you foresee any municipalities in which LVT would not be effective?   If so, why not?   George teaches us that LVT is infinitely scalable, so are there other obstacles to implementing LVT and how could these be overcome, if they should be?

PKM: India is a Union of States. The local bodies are constituted under State laws. In 1992, the Union Government took the initiative of amending the Constitution to accord the status of a third tier to local bodies. However, the local bodies remain"products of State laws. They are at different stages of evolution. Most local bodies or municipalities have property tax as their primary source of income.   Property tax comprises of a general tax based on land value and service-related taxes -- for water, drainage, street lighting, roads, garbage disposal etc. Already provision exists for various forms of land taxation but the source has not been exploited adequately due to various reasons, many of which are political. I believe that land needs to be leveraged to generate resources for growing infrastructure needs and spending for capital works. Large cities with sky-rocketing land values can resort to land value taxation in the sense that land is taxed at a rate higher than built-up property. This would also promote development and discourage speculation. The case for LVT has to be taken up with local mayors, state administrators and political decision makers. I believe that gradually a realization about the importance of LVT would come. But we need to undertake education and orientation exercises at all levels. The land owners need to be convinced that they get better off with land value taxation and dedicated expenditure on spending for infrastructure.

SB: Visitors to India, like myself, are sometimes startled to see shantytowns abutting thriving cities, even great municipal structures, like airports.   These, from what I understand, are essentially nearly rentless areas, yet living in such close proximity to city centers confers significant advantages over living in more distant, rural areas, particularly in a country where most people do not have cars and public transportation is often filled to capacity, or more.   Is this a good way to house the poor, or is there an alternative, and would that alternative be along Georgist lines?

PKM: Many shantytowns/slums are on highly valuable land. We are making efforts to develop these on Public-Private-Partnerships with private developers commercializing part of the lands and constructing affordable homes on the other parts. There have been some success stories on PPP. But we need to promote the same in a big way. This would require a conducive legal framework, which is being developed by some states.   Efforts are on by many cities as to how to build affordable homes in slums with the involvement of the land owners and private developers.  

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SB: From what I understand, the majority of rural dwellers do not have the means to pay any kind of tax, Land or otherwise.   Would these then be considered marginal lands, under the Georgist definition, and not taxed at all?   If so, how do you expect to raise necessary revenues for these areas?

PKM: Land value taxation is an evolutionary process. It needs to be developed in a gradual manner in any developing country where land value is evolving. If we do not tax lands where value is exorbitantly high and moot a proposal to promote land value taxation across the board in a big way, the proposal will not be acceptable by any group. The conditions of the rural poor and agricultural workers are much more appalling than of city dwellers. Thus, a proper strategy would be, to start with, use land as a resource, mainly for infrastructure development works in large cities where land values are already high and further values can be created systematically duly linking with infrastructure development, tapped and used to finance city development in a sustained manner.   Cities when developed can generate resources for rural development and poverty alleviation in both rural and urban areas.

SB: Looking back across the world to the U.S. what do you, as someone who has studied here, and has family here, yet who holds an important position in India, see as the biggest political obstacles to economic reform, in particular, Georgist Land reform, in America?

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PKM: The only problem I see is that people are asset rich but income-poor. This problem, common with all asset taxation, is the same everywhere. People will have to pay taxes out of current income. Land value taxation at points where value is realized is more acceptable than on idle property.   Thus, a low rate of taxation on land value in the case of any asset taxation is desirable.   The history of land value taxation in the United Kingdom reveals that there are many vested interests which oppose taxation of land value, increment in land value, development value, planning gain etc. in spite of all the theoretically elegant arguments advanced by Adam Smith, David Ricardo, James Mill, John Stuart Mill, Pigou, etc. Governments have expanded enormously compared to George's time requiring more and more resources from people. The opposition is political; vested interests work. It has nothing to do with economics.

SB: What are the obstacles to spreading the message about Georgist tax reforms in universities?   Do they have anything to do with the fact that most major universities, both here and in India, have been set up with Land grants? Sarvepalli Radhakrishnan recommended setting up rural universities in India on the American land-grant model way back in 1949.   Should universities by taxed on their land to encourage efficiency and change their thinking about Land Value taxation?

PKM: I do not have much idea on the subject.   However, I feel land value taxation should be used for development in cities with core infrastructure so that land value can be created and urban development can be planned and guided.

SB: What about government structures?   Should they allocate part of their budgets to pay a Land Value Tax to discourage sprawling bureaucracies?

PKM: Does not appear to be a feasible solution.

SB: What do you think of leveling Pigovian pollution taxes on India industry as a way to get them clean up their processes, raise revenues, and discourage unhealthy practices?  Would this add substantially to the revenue base, and is measuring pollution practical?

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PKM: The general principles of local public finance are: Users Pay, Beneficiaries Pay and Polluters Pay. Thus, the cornerstones of local public finance ought to be: user charges when benefits can be measured and beneficiaries can be identified; benefit taxes (land taxation if earmarked for infrastructure development can be called a benefit tax) when it is difficult to measure benefits or very costly to identify beneficiaries and Pollution taxes for pollution mitigation, abatement and management. We do have pollution-related charges in India, but a key problem observed is the measurement of pollution and fixing the level of the tax. Pollution taxes are often levied on surrogate tax bases. The point that polluters pay is very valid. Administration of pollution taxes is a key issue to be addressed in addition to identification of tax base and measurement of pollution.

SB: Do you see schools such as the Henry George School as a good way to help the public understand George's Single Tax message?   Do you have similar schools in India, or is Georgism simply taught as part of a standard economics course?   If not, do you think it should be, both here and in India?  

PKM: We do not have schools like (the) Henry George School. I think Local Public Finance and Land Economics should first be taught in India as separate courses of multiple disciplines or parts of Public Finance or Urban Economics. Georgism may be a part of this program. We have to first promote teaching of Local Public Finance including Local Resource taxation matters as general courses. Later special courses in Urban Economics/Land Economics/Local Public Finance can be undertaken under programs/activities like the ones undertaken by Henry George School to suit specialized interests.  

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Scott Baker is a Managing Editor & The Economics Editor at Opednews, and a blogger for Huffington Post, Daily Kos, and Global Economic Intersection.

His anthology of updated Opednews articles "America is Not Broke" was published by Tayen Lane Publishing (March, 2015) and may be found here:

Scott is a former President of Common Ground-NYC (http://commongroundnyc.org/), a Geoist/Georgist activist group. He has written dozens of articles for (more...)

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