Natural Common Wealth and Economic Rent in Canada
Ben Earle, Liam Wilkinson, Floyd Marinescu, and Ken Yang | July 2023
At a glance
This paper finds that economic rents generated by natural resources correspond to roughly 1/4 of Canada’s entire economic output. The presence of these rents severely depress the Canadian economy. It proposes collecting the majority of these rents through taxation, lessening the monopoly power present in land and natural resources. Doing so would lower the cost of living and could raise sufficient revenue to replace the personal income taxes paid by the bottom 98% of Canadians.
Key Findings
We estimate the total economic rents from land, minerals, energy (oil & gas), forestry, fisheries, and air at $421 billion/year, of which $241 billion/year could be collected as new revenue.
A national land value tax that captures 3/4 of the rental value of Canada’s land would generate $194 billion/year in new revenue and cause land values to decline 75%.
The potential revenue from a land value tax could raise the federal and provincial basic personal amounts (0% tax bracket) up to $88,100/year. Under this scenario, 91% of Canadians would pay no personal income tax.
The potential revenue from all economic rents collected could eliminate all federal personal income taxes, or raise the federal and provincial basic personal amounts up to $253,000/year. Under the latter scenario, 98% of Canadians would pay no personal income tax.
Alternatively, rents collected from all sources could generate a dividend of $7,622/year for all Canadian adults; or $6,136/year from a land value tax only.
You can read the paper here.
Potential Revenue from Economic Rents in Canada
$241 billion/year
(2023 estimate)
Summary
This paper aims to highlight the value of Canada's shared natural resources, hereafter referred to as the commons, by examining the economic rents associated with them. The focus is on estimating the potential income that could be generated for public purposes from the rental value of these resources. The paper does not delve into the policies required to collect these economic rents but provides estimates to inform future research. Economic rent, in this context, refers to income earned by resource owners beyond a reasonable profit and costs necessary for extraction and productive use. The paper argues that such rents rightfully belong to, and should thus benefit, the entire community.
The paper finds over $420 billion/year of economic rents in Canada’s commons and estimates that with new and adjusted policies, $241 billion could be additionally collected by government annually. The majority of this amount, around $194 billion, is attributed to the potential rent collection from a national land value tax which could precipitate a decline in land values by as much as 75%. The remaining portion comes from adjustments to existing rent and royalty regimes related to minerals, energy (oil and gas), forestry, and air (carbon).
The implications of increased rent capture on Canada's commons for revenue and taxation are substantial. The proposed additional rent collection accounts for 60% of all revenue collected by the federal government and 83% of all personal income taxes paid by Canadians to federal, provincial, and territorial governments. Collecting 75% of identified land rents could have significant financial implications for Canadians, such as the possibility of eliminating federal personal income taxes for all citizens or increasing the basic personal amount (0% tax bracket) to $88,100, resulting in 91.3% of Canadians having no personal income tax obligation. Alternatively, this land value tax could generate a common wealth dividend for all Canadian adults, amounting to $6,136 annually.
In total, the additional rents generated from all sources could eliminate federal personal income taxes for all Canadians and provide a federal common wealth dividend of $1,954 annually to all Canadian adults. Alternatively, it could increase the combined federal and provincial basic personal amount (0% tax bracket) to $253,000, resulting in 97.6% of Canadians having no personal income tax obligation. It could also generate a common wealth dividend of $7,622 annually for all Canadian adults.
The paper concludes that the potential additional rent that could be collected from Canada's commons is significant enough to justify fundamental changes in tax payment and benefit distribution. More broad sharing of land and resource rents across Canadian society would help address various economic and social challenges, including housing affordability, income and wealth inequality, environmental conservation, and economic stability. Recognizing the magnitude of these rents opens the door to exploring new economic reforms that facilitate a more equitable sharing of the commons' value among Canadians.
You can read the paper here.
What is the Commons?
The commons is all of the natural and cultural resources that are accessible to all members of a society and which are held in common, even when they may be owned privately or publicly. This includes natural common wealth: natural resources such as land, air, water, and the extractable resources that they contain.
It also includes our social common wealth: cultural commons such as art, music and literature, as well as digital resources that have been collectively created and built by humans.
What is Economic Rent?
In simple terms, economic rent is income from owning or controlling a limited asset or resource, without any effort or contribution of productivity. The prime example of rent is in land values: a landowner may profit by simply buying low and selling high, without any labour needed.
Rent also arises when income is greater than what’s needed for the owner to sell it in the first place — i.e. the opportunity cost. For example, owners of scarce resources can charge a higher price than needed to keep them in business. This excess profit is rent from simply owning a limited resource.
Why does this matter?
Rent exists because of the efforts and investments of the community and gifts of nature, rather than the efforts of any individual. This is common wealth that accrues to those who own the commons, making life more expensive and pushing up the price of land and our scarcest resources for everyone.
Research shows that public investments increase land rents by as much as the investment itself. New schools, hospitals, public services, and better roads all raise the value of land without any effort by their owners. Likewise, rent in our scarcest resources accrues those who own them, without any corresponding productivity on their part.
Collecting economic rent won’t negatively impact production, making it a better way to fund our government than income and sales taxes. We can re-invest this rent to benefit everyone, so that we can share more broadly in the value of our commons.
Common wealth for the common good.
Common Wealth is a project that promotes policies rooted in the idea that value arising from what nature or society creates, rather than individual effort, should be collected to benefit all citizens directly — through dividends and lower taxes.
Doing so would fix the incentives driving our housing and cost of living crises, while stewarding our resources for the benefit of future generations. The goal of this project is to expand our common wealth in order to create a society where progress benefits everyone.