Governments around the world are wrestling with the problems of enormous
debts, low growth, high unemployment and a gap between the demands of
public expenditure and what can be raised through taxation. This problem
has been acute since the financial crisis, but has been a hallmark of
western economies for decades. Only a few countries have been able to
avoid this pattern, mostly those blest with vast natural resources such
as oil. There are two small islands with no natural resources which have
enjoyed high growth combined with low taxation: Hong Kong and Singapore.
Nor do they have any public debts, in fact, on the contrary, they
generally run a budget surplus, and investment income is a feature of
their government revenue. Andrew Purves, who grew up on the island of
Hong Kong, has gone beyond the conventional analysis of taxation, and
asked what each jurisdiction has in common, to bring about this happy
state of affairs. The result is quite surprising for two countries who
sit at the top of the table for promoting free markets and other
capitalist ideals of small government. All land in Hong Kong is owned by
the government, who makes it available for use by lease in return for a
Government Rent, while Singapore now controls two fifths of its land
area, as well as significant stakes in its strategic industries, which
deliver a steady stream of unconventional income. Although in Hong Kong
this situation has developed almost by accident, Purves suggests that
here lies a model for generating public revenue that could be adopted in
other countries to allow a shift in taxation from production and
consumption to the Economic Rent of land, as advocated by Adam Smith
over two hundred years ago.
