T

here are times when I think

myself the only person left

alive, in the ACT anyway (at

least since Bill Mason died),

who is a fan of the American

economist Henry George. But

whenever I so proclaim myself,

people, including Treasury

economists, shyly come forward to

admit that there is something in him.

This week, for the first time in nearly

40 years, even closet Georgists could

manage a slight grin, the better for

living in the ACT which is still, in

some respects, built on his

principles.

Jon Stanhope offered young home-

buyers an interim and indefinite

saving of perhaps $200 a week on

getting into the Canberra home

market. It is not a subsidy, nor ought

it distort housing markets, and is far

more economically sound than first

home-buyers grants or stamp duty

subsidies, which distort markets in a

way particularly paid for by first

home buyers.

Henry George was a 19th century

American journalist and populist

economist whose books, at one time,

were outsold only by the Bible. He

had a deep influence on early

federation Australian politics and it is

thanks to his disciples that Canberra

has a leasehold system.

George's primary insight came

from recognising that an acre or

hectare in the wilderness 1000km

from anywhere might be worth at

most 50c. But the same hectare, 1km

from a major city centre, might be

worth $50million. What caused the

difference?

The hectare near the CBD was

located beside roads, sewerage

works, power lines, schools and

hospitals and other community

facilities. Demand, and price, was a

function of all of those works (paid

for by the community generally) and

by the eagerness of other citizens to

live in, and invest in, places where

markets, work and facilities were

gathered together.

George thought the development

of such facilities, which so added to

the value of land, should be paid for

by taxing the increase of the value of

land. The community, not the owner,

had created this added value at

least to the raw land (the unimproved

capital value).

There is a slight smattering of Marx

and not a little socialism in some

Georgist ideas, but they appealed

even to economic conservatives. At

federation, after all, income tax

scarcely existed. Sales and excise

duties were deeply uncertain in their

effect. Many other taxes, particularly

transfer taxes, were obviously

counterproductive, and ways of

paying for the operation of a

government were at a premium.

Land taxes (or rents) had the especial

attraction of being efficient to collect,

impossible to avoid (regardless of

ownership structures) and

progressive in nature, so that the rich

paid more.

Australian Georgists at the turn of

last century thought that the best way

of putting such ideas into effect was

with leasehold schemes. A lease, after

all, implied rent, and rent could be

set as a proportion of value say

5per cent. One could, for example,

lease out all land on 99-year leases,

on the basis that landholders paid as

an annual rent 5 per cent of its value

from time to time. Just as the UCV of

Canberra land is revalued every few

years for rates (which amount to

somewhat less than 1 per cent of land

value), such a scheme could

''capture'' rising land prices and

convert at least some of it for the

benefit of the community.

The advocates for, and the first

developers of Canberra, decided the

national capital would be the test bed

for Georgist theories. They believed

the entire cost of developing the

capital (including building public

service offices, parliaments and so

on) could be paid for by using a land

rent scheme, even if it took time for

the city to grow to the point where

rents exceeded outgoings. Even

before that happened, the whole

scheme was a profit-in-being,

because a time would come when the

outgoings were small compared with

the rents coming in.

In its purest form, a person coming

to Canberra would espy a nice vacant

block of land, albeit one with sewage,

electricity and kerbing, and decide it

would be a fabulous place on which

to build a house and live. Because it

was nearer a school and the shops, its

''price'' might be 100 compared

with another one, a kilometre away,

costing only 50.

But one did not pay 100 for this

chosen block. One paid 5 (5 per

cent) and agreed that for each year of

the next 99 one would pay 5 per cent

of its assessed value. One's income

could be focused on borrowing for

building, not the land. One could

start building immediately (indeed,

one had to within six months) but the

banks recognised one's security of

title and had no compunction about

lending. The guy who bought the 50

block was, of course, paying only

2/10/- a year.

If one bought and built, but later

decided to sell and move closer in,

one could ''sell'' the unexpired part

of the lease to another. The ''buyer''

had to continue making lease

payments, but, in the nature of things

(including the fact that 99 years

amortised is hardly anything less

than freehold), the ''value'' of the

land sold came close to an ordinary

freehold value. A newcomer could

buy an established home at prices

comparable to, say, Adelaide, or take

a vacant block (at a massive

immediate discount) and build.

Canberra grew much more slowly

than originally planned, and those

implementing the scheme were

much more mechanical and silly

about its administration than they

should have been. But the scheme

worked, more or less, to 1970. At that

stage, the local Member, Jim Fraser,

who had held the ACT seat forever on

freehold, as it were, died, and the

Liberal government of the day

thought it could be wrested from

Labor. It offered Canberra

landowners a massive bribe: vote for

us and we will waive your duty to

make future leasehold payments.

It was popular with old-timers but

didn't succeed in wresting the seat

from Labor. But the scheme changed.

And, henceforth, ACT landbuyers no

longer paid a 5 per cent annual land

rent, but a sum, usually set at

auction, thought to encompass the

whole 99-year lease price in one hit.

Instead of putting down, say, $2000

on a $40,000 block at Farrer, one had

to pay the $40,000 upfront, and

incorporate that cost in the mortgage

one took to build the house as well.

The Stanhope scheme is a partial

reversion to pre-1970 times. Not a

full one. The 2 per cent rent is, in

effect, an option to purchase, albeit

one that can be deferred for years,

until one can afford to pay.

Ultimately, if needs be when one

finally sells, the full lease price has to

be paid in one hit. But a young family

can defer that debt until they can

afford to pay say for 15 years, by

when family income is higher and the

kids are not such a burden. It could

be extended further, even without

means tests, without amounting to

any sort of public subsidy. It

probably should be.

Jack Waterford is editor-at-large.