TP23. A Lesson from Alaska

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Sometimes the experiences of other countries, even where conditions are very different from those in Britain, provide some very useful ideas which could be adapted and used. A striking example of this is provided by Alaska.

Alaska became the 49th State of the United States in 1959. Under the Alaskan constitution, all the natural resources of Alaska belong to the State: to be used, developed and conserved for the maximum benefit of all the people. The politicians had done their job well. They had claimed a common heritage for the common good.

Ten years later the first Prudhoe Bay oil drilling leases were sold for $900 million. At that time the annual State budget was a mere $112 million. So, by legislative consensus, it was decided to plough this sum back into the community and it was spent on water and sewer systems, schools, health and other services.

The Alaskan Permanent Fund.

In 1976 it was decided that at least 25% of the resource rental income should be saved for the future, for when the oil runs out. A  fund was set up, of which the principal would be used for income-producing investments. Thus the Alaskan Permanent Fund (APF) was born, with the task of administering and conserving oil and other resource royalties.

The Fund has two parts. The prjncipal is invested permanently, and cannot be spent without a vote of the people, but the income can be spent, and the amount is decided each year by the State. Oil began to flow in 1977, and so did further deposits into the Fund. The Fund thus converted non-renewable oil wealth into a renewable source of wealth for future generations. It was also decided to pay each citizen a dividend. In1982 each man, woman and child received $1000. Eighteen years later that sum had nearly doubled. Thus resource values have been recycled back into the economy by State spending and the citizen dividend, and are not lost abroad. The APF is a major part of the local economy and the dividend means that some families’ incomes are raised by more than 10% per annum. That’s a useful nest-egg for young Alaskans to begin their adult life. It is now a global fund, and the major part of the citizens’ dividend is no longer funded by oil revenue but by investment income. Little wonder that there is now no State income tax or sales tax in Alaska.

Relevance to Britain.

So how does the Alaskan experience help us in Britain? This country probably doesn’t have the same level of natural resource values per capita as Alaska. What it does have, however, is a big socially-created value, in the form of land values.

The value of land (or “natural resources” if we prefer to use that term) is quite different from the value. of what are called “improvements” – that is, the value of things like buildings or crops or machinery which people have brought on to the land. The value of land has little or nothing to do with the activities of the person who happens to own the land; the value of the improvements derives from the activities of the owner or his predecessors. The value of land derives partly from nature – whether, for example, a piece of land is fertile, or whether there are minerals underneath it – like the oil under Alaska, or coal under South Wales. It derives partly from the activities of the community – whether, for example, there are good roads or transport services, or good shops or schools or hospitals nearby, or open spaces in the vicinity.

As the value of land has not been created by the owner, he has no better moral title to that value than anybody else; while he has every moral title to the value of the improvements for which he or his predecessors were responsible. This principle is implicit in what the Alaskans decided to do with their newly-discovered oil reserves, to the great benefit of the people of the State.
Collecting the money.

Nobody knows exactly what the land in Britain is worth, because our governments, unlike the governments of some countries, have refused to make an assessment of that value. Various unofficial estimates have been made in order to work out that value, and the estimate of £100,000 millions may not be far from the mark.

The way to collect this money in Britain must be different from the way in which it was done in Alaska, though the principle is the same. The best way is what is known as Land Value Taxation, or LVT. The value of the land on each piece of property is first assessed – ignoring the value of all the “improvements”. As with other taxes, the valuation will be revised periodically, probably annually. A tax is then levied, based on that valuation. At first the tax will be small, but it will gradually be increased until eventually something close to the total value of the land is collected. At the same time other taxes, like income tax, VAT, corporation tax, import duties and so on will be reduced. Some people even think that the yield of LVT would be so massive that we would be able, like the Alaskans, to meet all our expenditure needs and have a surplus for distribution at the end. Whether that is the case or not, it will certainly be possible to make huge reductions in other kinds of taxes.

But does it matter to the taxpayer whether he is taxed on the basis of land values or on the basis of something else? It matters a great deal. Our existing taxes are mostly expensive to collect and frequently evaded or avoided. LVT is comparatively cheap to collect and impossible to evade or avoid, because nobody can hide land. Even more important, other taxes discourage people from doing useful things and act as brakes on production. LVT, by contrast, positively helps production. People will pay the same LVT whether they put their land to good use or not. They will therefore have every incentive either to use it well themselves, or to transfer it to others who are prepared to do so.

So we can learn a lot from Alaska!

Signed Article 39 is a critique of how the fund has performed up to 2015.

 

 

 

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