This situation, however, cannot persist indefinitely. In the not distant future the present disparity in value between exports and imports must shrink, then disappear, and later be followed by an excess of exports. For an indefinitely long period thereafter the Canadian trade balance will be marked by such an excess of exports. This expected change in the balance of Canada, similar to that which occurred in the United States trade balance about 1873, may ultimately give way, in turn, to a further readjustment of exports and imports. As pointed out in the early part of this paper, the United States may, in time, find that the volume of her "net" interest and dividend receipts will reach and surpass her annual new "net" lendings. This new relation will then be reflected in her merchandise balance. Altho as yet there are substantially no Canadian investments abroad, it is not inconceivable that here too the experience of the United States may in the end be repeated in Canada. But speculation of this sort goes far beyond anything indicated in the present situation.

THEODORE H. BOGGS.

DARTMOUTH COLLEGE.

THE BRITISH TAXES ON LAND VALUES

IN PRACTICE

SUMMARY

I. The valuation, 795. Reasons for delay, 796.- Minus site values, 796. Possibility of taxing builders' profits, 796. — Value of real property in Great Britain, 799.- Accuracy of valuation, 800. — Difficulty of valuing agricultural land, 801.- Other duties of the Valuation Department, 802. - Cost of valuation, 803. II. The fiscal yield: (1) Increment Value Duty, 804. (2) Reversion Duty, 805. (3) Undeveloped Land Duty, 808. — (4) Mineral Rights Duty, 810. Increased yield of Death Duties, 812.- Other revenue from valuation, 814. - Is it a capital expenditure? 814. III. Some conclusions: effect on building, 815. - Theory of incidence, 817. — Is an increment duty shown to be impracticable? 818.

It is now nearly six years since Mr. Lloyd George startled the British people, and the economists of the English-speaking world, by his proposals for a new system of taxes on land and allied forms of wealth, and a valuation of all the real property in the United Kingdom. This valuation was expected to disclose a vast and hitherto untapped reservoir of taxable income — the so-called unearned increment - and also to be of great assistance in the collection of existing taxes, both national and local, besides furnishing useful information to statisticians and others interested in agriculture, housing conditions and similar questions. It is of interest to inquire to what extent these expectations have been converted into facts.

I. THE VALUATION

The valuation, begun in the spring of 1910, will not be complete, even as regards provisional valuations, before June, 1915, and the date when these provisional valuations will have been legally established cannot be even approximately stated. There is great reason to believe that as a result of recent judicial decisions the values of nearly all agricultural properties, and of a great many others, must be calculated over again on a different basis.1

The last report of the Commissioners of Inland Revenue 2 states, with reference to the case of Commissioners of Inland Revenue v. Smyth: "The result of this decision, which reversed, on these two points, the practice upon which the valuations had hitherto been made, was the suspension of all valuations of land in which an element of agricultural value was present.' The two points referred to were: (1) that in calculating gross and total values the value of the tenant's interest in unexhausted manures or tillages must be included; and (2) that in arriving at full site value the land must be deemed to be divested of grass.

Other decisions also may be expected to make a considerable difference in valuations, if the owners affected think it worth while to take advantage of them. The most important is Commissioners v. Clay, in which the Court of Appeals held, May 28, 1914, that in calculating gross value it is necessary to take into account the value which a property has for a particular purchaser over and above what it may be worth to the general

1 Mr. Lloyd George declared, as recently as March 10, 1915, that it was impossible to reopen valuations that had been finally completed. But he has always refused to state how many had reached that stage, and they are probably very few.

For the year ended 31st March, 1914 [Cd. 7572], p. 144.

public. This is a very delicate point, as the law requires that the sale must be made " in the open market by a willing seller," and it is very difficult to decide whether a property owner who is tempted by an unusually good offer is or is not a "willing seller." In the case of Hornby v. Commissioners1 such a seller was held not to be willing in the requisite sense, and the price received was not accepted as evidence of actual value. On the other hand the case of Glass v. Commissioners 2 decided that if there were a probability of land being required for public use, the value of that probability must be added to the normal value of the land.

Judicial decisions were responsible for much of the delay in valuation in the past as well as at present. After the decision of the Valuation Appeal Court in Scotland, April 18, 1912, to the effect that assessable site value could in no case be a minus quantity, valuations were suspended in those parts of the country where feu duties and heavy ground rents are common. This decision was reversed by the House of Lords, May 2, 1913.3

Minus site value is of course merely a legal concept, without any counterpart in economic theory. It results from the method of valuation prescribed by the Finance Act, and occurs only when the net value of a property, after deducting the burden of fixed charges, is less than the value attributable to capital expenditures on the property. In such a case the actual site value may be, in fact must be, at least equal to zero;'

1 LVIth Report of Inland Revenue, for the year ended 31st March, 1913 [Cd. 7000], p. 160.

? LVIIth Report of Inland Revenue [Cd. 7572), p. 162. Herbert's Trustees v. Commissioners ([1913) a.c. 326).

If a building does not show a normal return on its cost of construction because of its poor location, that does not mean that the site value is less than nothing: for if the

yet to the legal owner it is a minus quantity, so long as the surrounding circumstances remain unchanged. But it is obvious that if the value of the site increases, even if it does not become equal to or greater than the fixed charges, the owner benefits by the full amount of the increase, since his property is more valuable, while the fixed charges remain the same. Hence for the purpose of a tax on increment, minus site values are a perfectly legitimate device. For any other form of tax they are impossible.

The system of ascertaining site values by deducting various amounts from the total value does not commend itself to professional valuers, who usually prefer to estimate it directly, on the basis of sales of near-by property, or from a calculation of the profits that might be derived from it if properly developed. As the law is worded there is little difference in the results for the primary valuation, as on 30th April, 1909, save that, in the rare case of a site which would be worth more cleared than as it stands, it must be valued at the lower amount. But when it comes to a later valuation, on an occasion when Increment Duty is payable, according to the law any gain accruing to a dealer in land as a result of his skill at buying and selling is automatically accredited to site value and made subject to the tax. This results from the fact that site value under the act is a residuum; and if the total value is increased, while

site is poorly adapted to the building, so also is the building poorly adapted to the site, and the loss must be attributed to both. After a building is erected its cost has no further influence on its value, which is dependent on the principle of quasi-rent. The only limit to its depreciation is the value of its materials, minus the cost of demolition. Similarly, the minimum value attributable to the site is its value when cleared, minus the cost of clearing in case and to the extent that that cost exceeds the value of the material removed. This minimum can never be less than zero, for if it were the owner would abandon the property. Even if the property were a nuisance to neighboring sites it could not be worth less than zero, for the detriment attaches not to the ownership of the property but to its existence, and affects surrounding site values, but not that of its own site.