Abstract
Local government, following a legitimate remit and governed through political institutions which strike a balance between the dignity of persons and the common good, still needs to be financed. Financing the activities of local government requires sacrifice and it is therefore imperative that contributions to the fostering of the common good are made in a manner which both reflects a person’s responsibility to the community but also respects their dignity. In this chapter I review the various kinds of local government goods and services and associate each with the most appropriate form of revenue. I also spend some time discussing a system of intergovernmental grants founded on the Principle of Subsidiarity as well as explicating on the morality of using debt to finance the provision of local government goods and services. Following this, I devote some time to describing how the political institution of sortition can be employed to enhance the efficacy of fiscal institutions designed to respect the dignity of the current and future generations of local government taxpayers. I conclude with some thoughts regarding how careful design of the revenue structure of local government can dispel fiscal illusion and bring citizens closer to the finance of local government which serves their bona fide interests best.
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Notes
- 1.
I can invite my readers to pay for a trip for me to see the 2021 sumo bashos, as I did in Chap. 4, but (unfortunately) I can’t force you to do so. This is because my readers are invested with dignity and have a binding voice over how their wealth is spent. The dignity that you and I have over our personal wealth stands in stark contrast to the complete absence of voice that the next generation of local government taxpayers have on the matter of local government debt which they will be required to service.
- 2.
Superfluum refers to wealth and income surplus to what is required to keep a household at the standard to which they are accustomed. In times past, it was considered a moral responsibility to redistribute this superfluum amongst those who stood in need (see, for instance, Aquinas in Finnis 1998).
- 3.
Indeed, George remarked that if the single tax was not large enough to fund government then the fault may well lie on the expenditure side of the ledger (Laurent 2005)—an argument to reduce spending on discretionary government goods and services not inconsistent with our Subsidiarity position articulated in Chap.7.
- 4.
For instance, in Australia the family home and personal use items (boats, cars etc.) are exempt, and a 50% discount is applied for persons and trusts on other items. These exemptions water down the moral imperative and reduce the revenue captured by the tax.
- 5.
The Valuer-General in my state—as I suspect is the case in many jurisdictions abroad also—is quite chaotic in the way that they value unimproved land, often trying to value on the basis of dissimilar and rare parcels of land, or starting with CIV and discounting arbitrarily on the basis of perceived value. I appealed the value of my land a few years ago, mainly to see the process employed, and was startled to find my (at the time) 2 acre block compared to sales of 5 acres, completely dissimilar houses, land in other local government areas, and even small town blocks. This chaotic approach to valuing land undermines the morality of an unimproved land tax and must be addressed as a matter of urgency.
- 6.
Thus, even if landholders in the outskirts were asked to pay the same rate of taxation the actual tax dollars paid would be far less because the land would be worth less owing to its distance from town.
- 7.
Although this should not be considered an endorsement of council operated swimming pools, because I do not believe this is part of the legitimate remit of government—nor do I believe they are entirely ‘needs’—we didn’t have government aquatic centres when I was young and the absence of same didn’t affect my ability to achieve my existential ends.
- 8.
Often it makes sense for taxation powers to be located at the highest tier of government to avoid destructive tax competition (a race to the bottom to attract industry and wealthy citizens).
- 9.
Formula based grants should be used whenever possible because they make revenue for local government more predictable, prevent pork-barrelling and address soft-budget constraints.
- 10.
Tax and expenditure limitations, including rate capping that I expounded on earlier, are also used on occasions to try to coerce local governments to act in a more fiscally responsible manner (see, Drew and Dollery 2015 for further information).
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Drew, J. (2020). Ideal Financing for Local Government. In: Reforming Local Government. Springer, Singapore. https://doi.org/10.1007/978-981-15-6503-8_9
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