By Neville Bennett
The way that NZ 'manages' its land is now in deep crisis.
Land is fundamental to the health of our society, and especially to its continuity, but it hardly figures in debates and there is no action by politicians to ensure that it is used efficiently and equitably.
Moreover, there are increasing bids by foreign corporations to buy choice bits of 'godzone' and I think we need a new policy debate on what is about to an avalanche of alienation.
Notice Gareth Vaughan’s story about Harvard, which already has interests in Kaingaroa and Big Sky Farms, today pitching for Dairy Holdings.
Why is there a land crisis?
1. Some land is not being productively used, and there is no pressure to use land productively if the owner has deep pockets. There must be more land that is un-used or under-used because owners enjoy ownership at minimal holding cost. I have a remedy (more later)
2. Some land has risen incredibly in market value since purchase. The owner has made enormous potential capital gains. There is no CGT in NZ. J.S Mill was on to this when he wrote "Only the landowners grow richer, as it were in their sleep without working, risking and economising". He called for the taxation of land in order to recapture the unearned increment accruing to the land owners.
3. Countries like South Korea, Taiwan are buying land for food security. Food security is the biggest looming issue.
4. This country pays enormous respect to the law relating to land holding. This may conflict with community needs as it appeared to do in this scandal.
The case of the Crafar Farms, or more especially public interest in the possibility that the receivers might sell them to Chinese interest, raises issues.
The push-me-pull-you Crafar episode goes to the heart of our malaise. We know that it is relatively easy for foreign companies to buy large swathes of our land and use it for their own purposes. Public opinion is probably against the Crafar farms going into Chinese control.
The opposition is rarely motivated by fears of China as such, there would be opposition to any foreign buyer because they would use ‘our’ land for their own purpose, and eventually we would end up as peons or serfs in our own country. This may be overstating the admittedly more complex array of sentiment on the issue but it touches on a core thread in the blogs.
The assumption in this case is that land is a scarce resource. NZ has large quantities of prime land that is cheap by international standards but once the land has been alienated, its holding costs are ridiculously low.
Moreover, as the holding cost of land is low, there is a tendency for landholdings to increase in size. This is especially clear in the case of dairying.
Dairying was once the preserve of small family farms, mostly in the Waikato, who developed local cooperatives. But the rewards of scale meant farms grew larger to maximise use of capital invested in fencing, walkways, mechanization, milking sheds etc. But family farming is not dominant in dairying, especially in the new frontiers of Canterbury and Southland; the corporates are now the driving force. I imagine that it is very difficult for the hard-working couple to break into dairy farming.
Dairy farming is remarkable because it pays so little tax. There has been a good debate on this in interest.co.nz. I merely want to stress that our system taxes only the 'profits' to an operation after very generous allowances of 'expenses'. The land owners also get access to untaxed water.
This system is leading to huge land accumulations and I believe huge ranches or whatever are not desirable in the long run as few people get an opportunity to buy land.
I believe that countries with a more inclusive land policy are much better. We have come away from our traditions where the state broke up large estates to give 'little people' a fair go.
We only mutter darkly too when eastern potentates buy up large tranches of South Island high country to build nice little lodges where they can almost domesticate game animals for the rich to shoot. No holding costs of course.
We see nothing wrong too in rich guys buying land for exclusive golf courses. No holding costs, of course but a lot of supporters.
What is to be done?
We need a land tax to broaden revenue (and lower income tax) but particularly to check large accumulations and to increase output. I have argued this before.
A useful quote comes from Thomas Jefferson, one of the drafters of the American constitution
Another means of silently lessening the inequality of [landed] property is to exempt all from taxation below a certain point, and to tax the higher portions or property in geometrical progression as they rise. -- Thomas Jefferson
I think a case could be made for a light tax on rent: the great earlier economists believed so.
Ground rents are a species of revenue which the owner, in many cases, enjoys without any care or attention of his own. Ground rents are, therefore, perhaps a species of revenue which can best bear to have a peculiar tax imposed upon them. -- Adam Smith
With the editors indulgence, I will write further on land in economic theory to stimulate debate on our predicament. I will particularly address the thought of the great John Stuart Mill who said:
"When the sacredness of property is talked of, it should always be remembered that any such sacredness does not belong in the same degree to landed property. No man made the land: it is the inheritance of the whole species."
But I think we need to go further and increase community control of land. My text will be from J.S.Mill:
“The land of Ireland, the land of every country, belongs to the people of that country."
* Neville Bennett was a long-time Senior Lecturer in History at the University of Canterbury, where he taught since 1971. His focus is economic history and markets. He is also a columnist for the NBR.