How Taxing Utilities Can Keep Governments In Check

Under free market, all companies can talk all they want that all the stuff they put there is for my own good. However, if the product is overpriced or if it doesnít serve my interest to get the product, I just donít buy it.

No companies, full with corruption and inefficiency, will last in the market, unless it is governments companies.

The same mechanism doesnít apply to governments program.

Indonesian governments build airplanes. It doesnít make business sense. Then every one is required to buy air plane stocks. Then governments sell the planes to Indonesiansí airways companies.
Bad business gets smaller, smaller, and gone. Bad governments business gets bigger and bigger. There is no check and balance mechanism whatsoever to ensure that when governments spend money the money worth spending.

When governments build public school, people simply says that it benefits the people. Yet, how do we know that the benefits worth the cost? Governmentsí public school can be plagued with corruption and efficiency. What are the intensives that the school boards will care about the kidsí interests when deciding curriculum?

Recently we heard costly debate on whether evolution or creationism that should be taught in school. Face it. Do we care? Most of us would rather learn business or economy so we can make big bucks.

I took graduate level Math classes straight without prerequisites and got As easily. Do I need to pay expensive teachers? Different kids have different needs and capability that properly harvested can really cut down costs of education. How do government’s regulated system adapt to it?

However, the harm of government’s program can be greatly reduced by requiring anyone that uses it to pay for the utility. That way, if governments build a pyramid and no body visits it then we know that its money wasted.

The list can go on and on. Currently poor people use bikes and the rich use car. Yet governments pay to build roads. The usage of roads is proportional to the usage of gas. There will be less cars and more bicycle if governments tax gasoline and use the money to build roads. That way, people that work at home (like me) and save a lot of cash hence getting rich faster. The only time people will buy car is if it worth’s to pay for the car and the road.

The exception to this principle is on business with economic of scale. Some Nobel winner, like John Nash, argues that deviation from competitive equilibrium is inefficient and encourages governments to actively split monopoly, or even create public monopoly. Some like Milton Friedman argues that even though it is true that some economic of scale is un-efficient. However, there’s nothing you can do about it. After all, the only naturally occurring worldwide monopolies nowadays are diamond monopolies, which will be toppled if it goes too much. The market failures fail to exceed typical government’s failure.

Hence, I have no strong opinion.

If our country is full with corruption then cost for government’s failure is huge. So market mechanism is the way. If corruption rate is relatively low, we may be able to play around safely with some government’s intervention. Watch out for what Friedman says.

Government Obstacles On The House Building High Road

Two proposals set out by the government during the last quarter of 2007 are likely to have major impact on the house building industry in 2008 and beyond. The first being the call for 3 million new homes by 2020, and the second and most significant, the proposed introduction of a statutory new planning charge.

The planning charge is designed to help pay for the infrastructure needed for new developments, and encourage regions and local authorities to plan positively for housing and economic growth.

The Government’s decision to scrap the controversial Planning Gains Supplement (PGS) in favor of the planning charge will be a relief to the industry, which feared that PGS would create a vacuum on the number of new sites brought to the market, and make many schemes financially unviable.

While the planning charge is a better way forward, it is not without its concerns. Any tax on land, which this undoubtedly still is, will either mean a rise in the cost of homes or will reduce the land value, which may have a negative effect on the number of sites coming forward for development.

The proposal for the planning charge is that it will based on a costed assessment of the infrastructure requirements specific to the development, taking into account land values. This is crucial as the cost of land in the South is significantly higher than in the North, and if the charging structure fails to take into account this regional difference then this will have severe consequences for the ability for house builders to develop new homes in higher priced regions.

The initial proposals by the British Property Federation, Home Builders Federation, London First and the Major Developers Group to the Government suggested that the charge should vary according to whether a site is greenfield, brownfield or regeneration scheme. Developers should be able to argue for a reduced tariff payment, if a scheme is not viable because of the tariff or other impositions, such as Section 106. This proposal will be key to the success of this idea.

One of the aims of the planning charge is to help make the planning process simpler. While this is to be welcomed this needs to go hand in hand with creating more land opportunities. Britain’s house builders cannot build 3 million new homes by 2020, just on brownfield sites alone, the use of the greenbelt will be essential to achieving this. The Social Marketing Foundation said in August that approximately 2 million of these new homes will need to be built outside of existing town and city boundaries.

Natural England is currently proposing a review of the greenbelt, which will look into the possibility of releasing parts of it for development. The emphasis would be on creating green wedges and corridors to link the natural environment to built areas. I would welcome, as I am sure most of the house building industry would, a review which takes a realistic view of the existing greenbelt alongside the need for new homes. Originally the greenbelt was created to protect and prevent urban sprawl. However, in recent years it has become a political issue, which has resulted in it becoming untouchable.

Building on the greenbelt in sustainable locations where access to infrastructure is already in place, will ensure a much better solution to England’s housing shortage than the development of new towns with little infrastructure or community.

The Government’s decisions on planning and housing need to be carefully considered to take into account the needs of the population and not be based on what is likely to be a vote winner. What often seems to be forgotten is that it is house builders who build homes and not the Government. Therefore the Government needs to take care not to jeopardies development opportunities by implementing policies which might hinder supply or make developments economically unviable.

House builders have the capability and willingness to build more homes but are prevented from doing so through a lack of land, long and drawn out planning legislation and a lack of commercially viable opportunities. It is to be hoped that this new planning charge will aid and not hinder the industry.