By Nicholas Asheshov
I have a suggestion for Mr. Castilla, the young finance minister, which will help him iron out what he calls disruptions in the economic agenda. It happens to us all.
My idea is that he create a new tax which will have the merit of aggravating, but not much, the better-off, and pleasing socialists, making it an out-of-the-gate winner.
My proposal is for a tax on windows. If, like some of my neighbours here in Urubamba, your house has just a few small ones or, high in the Cordillera, no windows at all, you pay nothing. If your house in the jungle is all palm-thatch roof, it’s the same. No tax.
For Peru today, the window tax is “Brilliant!” says Richard Webb, the country’s top economist.
“A window tax would be a thousand times easier to collect than the present property tax. No complex calculations.”
Every householder will simply fill in a form on their iPad stating the number of windows in their houses and apartments and make a bank transfer accordingly.
The tax people will of course make spot checks and anyone whose math is found faulty will pay a suitable fine.
This proposal, which I am sure will be taken up immediately by the literate members of the Congress, came to me from Mansfield Park, one of Jane Austen’s six wonderful novels of country life in England two centuries ago: Jane started to write Mansfield Park in 1812 and it was published in London two years later. They did not even put her name on the cover, just “By the author of Pride & Prejudice and of Sense & Sensibility.”
Jane’s reference to the window tax comes as she is describing the visit of a family to the immense country palazzo of a neighbour where there were so many rooms that their only function, she suggests in her sharp-tongued way, is that they are there to pay the window tax.
All English people, like myself, are familiar not only with Jane’s stories but also with the window tax of the 18th and 19th centuries, partly because its results can still be seen in old towns and old houses out in the country. Some of these still have large window-spaces blocked in with bricks in order to reduce the owner’s tax liability.
My 1911 Encyclopedia Britannica tells us that the tax was widely disliked as an attack on “light and air” but was acknowledged to be progressive, meaning that it hit the rich but not the poor.
If your house had more than eight windows you had to pay double the rate, to whit, four shillings per window instead of just two shillings.
No Pane, No Gain
H.M. Treasury’s website calculation of what two shillings would be in today’s sad sterling is just over GBP11. That’s $17 per small-house window, call it S/.50, or S/.100 per window for a house or apartment with more than eight windows.
Let’s say there are five million urban houses in Peru with six windows apiece, the window tax would bring in $500mn at practically zero cost in collecting.
There would have to be some clear definitions. For instance, my own house here in Urubamba has 14 windows, plus six in the playroom and guest suite on the other side of the garden. But two of them on the verandah are absolutely immense, making up a full 20 yards long looking onto the river, the woodland and the snow peaks of the Cordillera Urubamba. If I had to pay, say S/.300 a year just for those, I’d think, at S/.1 per day not including Sundays, that I was getting a good deal, cheap at the price.
I also have some glass-and-wood French windows, which I would maintain are really doors but I bet the tax people would say “Windows!”
The tax, the encyclopedia says, was also levied in parts of France and Germany. In England it was ended in 1851, maybe because in those days it was not so easy for the Inland Revenue to collect from crusty landowners with bulldogs and shotguns.
“The window tax,” Richard Webb says, “will open the door, ha ha, to the more equitable and more aggressive tax system that Peru urgently needs.”
Minister Castilla can give his new window tax a literary tong by calling it “the Jane tax.”
Richard, Director of the country’s leading think tank, the Instituto de Peru, at the Universidad San Martin de Porras, adds the stunning calculation that the value of urban real estate in Peru has in the past decade increased five-fold. His comments:
Urban property is undoubtedly the biggest, least taxed, yet easiest to tax, and most justifiably taxable form of wealth in Peru. Justifiably because there is zero disincentive on productive activity, and because it is highly progressive and by any standards democratic.
Here’s a back-of-the-envelope calculation. Let’s say there are three categories of urban – district capitals, medium cities, and Lima.
For the districts we have a figure for the last 10 years, using my telephone survey of 200 of the smallest and poorest district capitals. If the average size of those homes is 100 square meters, the square meter has risen in value from US$11 to US$43 between 2001 and 2010.
For medium towns we can guess that the square meter value is about double the distrito value, therefore rising from US$22 to US$86.
For Lima, a house in the grass-roots Huascar area, in San Juan de Lurigancho, today sells for about US$200/m2, up from US$51 10 years ago.
Excluding rural homes, the urban population is roughly 30% Lima, 20% medium cities, 20% distritos.
So, multiplying the values by the homes (average family is 4.5 persons and two-thirds live in owner-occupied homes), we estimate that total home value has risen from US$8 billion to US$38 billion between 2001 and 2010. Back in 1960, it could not have been much more than US$1 billion.
If the window tax is the equivalent of an annual 1.2% tax on house value, I arrive at almost exactly your estimate of US$500 million annual revenue. And all on wealth that no one produced: it is pure rent generated by the fact that it is more practical, productive and socially pleasant to live nearer other people than scattered all over the mountainside.
I also asked Richard, about the values of agricultural land, nothing to do with windows.
“I thought you’d never ask,” he said. “Our survey included a question on “el precio de una hectarea agricola en su distrito.” I’ll check, but off the top of my head the preliminary figures, when the survey had reached 100 districts, changed only slightly when we extended it to 200.
“The figures are: average price per hectare in 2001 – 6,847 soles, in 2006 – 9,425 soles, in 2011 – 15,578 soles. All this in constant 2011 prices. That’s 8.6% growth in value per year over the decade. Over the last five years it is 10.6% growth p.a.”
Published in Spanish in Caretas, week of February 10 2012