In todays column of Business.hr, finance minister Slavko Linić demonstrated his lack of knowledge concerning the “free – enterprise” system.
After a brief spatter regarding the nominal yield on newly issued government bonds (which are by the way higher than in Spain at moment) that went to American investors, the all important tax question reared its ugly head.
This time, it was about taxing real estate and uncultivated agricultural land. The rough google translation is as follows:
"The goal of property tax are not villas, but they are the property of their accumulated wealth," said Linic, adding that the biggest problem is that the mass of them have agricultural land and do not cultivate on them.
"If their assets are not managed in the interests of Croatian citizens, in the interest of job creation, we must take the taxes because you're rich and you give. And you are rich because they do not contribute to the cause (economic growth), "says Linic.
Let’s for a moment set aside the implications on civil liberties and just look on the economic logic behind this argument. If for instance, a rich individual has amassed personal wealth and has a piece of land, he, according to our finance minister has a moral obligation in using this land.
The first question that pops to mind is: Why isn’t this land used? Well, it could be due to a lot of personal and market factors that allow this piece of land to be unused. What if so happens that the piece of land can’t be used for agricultural purposes? If it is located in such a climate zone (Croatia has different regions that differ dramatically regarding the amount of rain fall, sunny days, fertile soil etc.) that doesn't allow agriculture, that land will remain unused.
The second thing that comes to mind is: Is it worth it? What new culture will be grown on that area that would allow the capital investor to make a return? Will there be demand for the new product? Government is already heavily involved in the agricultural domain, granting massive subsidies to individuals that in most cases don’t even have the know-how to create a profitable business. There is no futures market, so there is no risk and reward system in place.
What so if the government decides to tax the land of the “wealthy” that is unused? The probable response would be a selloff of the taxed land. Why would anyone keep a piece of property that has a negative cash flow attached to it? Probably no one. And if those individuals wish to sell, where is the buyer? What would be the associated price for an acre of land if the government decided to purchase the land? To entice the seller to get rid of the land as soon as possible, he would probably demand a premium over what ever the market price is. The government would be explicitly subsidizing the former land owner.
The gig gets even greater if the land is fragmented, unfertile and the cost per acre is greater than the net benefit of the culture grown on it.
The latter part of his assessment is that these people don’t contribute to Croatian citizens.
How on Earth would he know this??
Surely if our Finance Minister new what the people demanded, he wouldn’t have gone into government, he would have become a farmer. The very last sentence doesn’t have to be commented on at all. Where does he think the necessary capital comes from to finance such massive projects as farming;
Or any other commodity venture for that matter.
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